Sell EZU: Buy HEDJ
We have added a currency hedge to our European exposure.
Dollar funding costs are rising. Eurodollars for December 2016 fell 25 basis points in one day after the March Fed meeting.
Europe relies on Russia for energy. Economic sanctions against Russia would hurt Europe. The price of North Sea oil rose 2% last week.
The Euro has risen over 10% against the greenback since middle of 2012. With the Fed slowly exiting their asset purchase program and the Euro at the top of it’s range, we believe the longer term trend of a lower Euro should re-emerge.
Reduce DXJ
Asia is a bit of a mess. Rumblings from a highly leveraged China, Abenomics, foreign sales of Japanese equities and recent events in Crimea.
After a great run, our position in Japan has done nothing since January. The trend looks to have changed and a bearish technical signal lurks on the horizon. We like the position long term, but the trade is crowded and we are paring the position by 45%.
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