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Short Italy and EUR-USD at Levels

Positions in Europe: Short EUR-USD (FXE); Short Italy (EWI); Long Germany (EWG); Sold Sweden (EWD) today

Yesterday we shorted Italy via the etf EWI in the Hedgeye Virtual Portfolio and wrote a note titled “Shorting Italy: Uncertainty Portends More Downside” in which we presented the fundamental and fiscal headwinds facing the southern European economy over the near to intermediate term.  

Below are our levels on Italy’s equity index, the FTSE MIB. The market has move down -17% since the beginning of May and we think there’s more room to run, especially in the coming weeks as Italy’s debt maturity schedule ramps up (see second chart below).

Short Italy and EUR-USD at Levels - 1. ME

Short Italy and EUR-USD at Levels - 2. ME

Today we shorted the EUR-USD via the etf FXE with the pair moving towards our intermediate term TREND line of resistance at $1.43 (see chart below). 

Short Italy and EUR-USD at Levels - 3. ME

We sold our position in Sweden (EWD) today on concerns that its banks may see downside into and out of the release of the second round of European Stress Tests this Friday. Already today we saw a strong negative divergence from Swedbank, Skandinaviska Enskilda Banken, and Svenska Handelsbanken of -3 to -5% day-over-day that dragged down the broader Swedish OMX 30 index.

Matthew Hedrick

Analyst