Profit From the EU Debt Crisis--Short EUR/CAD

With Spain having crossed the thin red line into bankruptcy, with its 5 YR CDS surging above 400 bps and Italian 10 year yields rising over 6%, the next chapter in the EU debt crisis is rapidly playing out. I have been thinking of ways investors can profit from this almost certain EU calamity. While on the face of it, shorting EUR/USD looks like a no-brainer, but anyone who has put on this trade has been royally screwed over the last few months. The problem is that the US government along with the Fed is feverishly devaluing the dollar, which has led to a flat EUR/USD trading range between 1.40-1.45. Competitive devaluation at its finest.

I think the better trade is to short EUR/CAD at around 1.3630. The Canadian government is not actively devaluing its currency by printing money, which makes the Canadian loonie stand tall in a world of debased fiat currencies.

If you look at the chart below of EUR/CAD you can see the trend is definitely down (e.g Canadian strength). In addition to strong technicals, you have a favorable macro back drop as more and more market participants realize that the EU is doomed to collapse. I am looking for a EUR/CAD downside target of around 1.32-1.3250.

click chart for larger image

Black Swan Insights 



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