There’s a simple playbook for how to trade the Eurozone. Before we get to that, let’s contextualize why using the most recent news out of Europe.
If you’re surprised to see Greek bailouts in the news again, don’t be. It’s been nearly eight years since worries first emerged about Greece. The problem isn’t fixed.
In meetings this past Monday, Eurozone finance ministers came to a new "common understanding" between Greece and its European creditors. This could unlock the next stage of IMF bailout dollars. Over the next few days, IMF officials will return to Greece to discuss labor market issues, along with pension and tax reforms.
Euro-area equity markets popped on the news Tuesday. That’s why European equities (specifically the German DAX) are overbought today, says Hedgeye CEO Keith McCullough in video above from The Macro Show earlier today.
So if you own some, sell some.
The rationale why is pretty simple. The euro is oversold. There’s a simple relationship that dictates what comes next…
Euro ↑ = European Equities ↓
What’s next? The U.S. economy is growing once again. Meanwhile, the Euro-area economies are anemic and still drudging through Greek bailouts and nationalist election cycle risks. As such, we think the long-term trend is U.S. dollar strength and Euro weakness.
Oddly enough, that’s ultimately bullish for European equities. A weaker Euro equals European stocks up, as the central planning bailout machine backstops the economy and prints money.