What Currency Benefits With The Impending Doom Of The Euro?

Includes: FXE, FXF, FXY, NORW
by: Chris Capre

Being almost a foregone conclusion, Greece is going to default, while at the same time hammering the euro, spurring a further mass exodus of money flowing out of the region. Besides the gold trade, what other currencies will be the most likely to benefit as a result of this?

The CHF trade is temporarily on hold thanks to the SNB’s desperate (and likely fruitless) attempt to hold its value relative to the EUR, so traders (and likely Europeans) have to be asking what currencies would be an option to have their money in other than the doomed euro.

Or better asked, what would be a great currency to sell the euro against as we get closer to the Greek default?

In reality, many things would function for this trade. We may even suggest selling it against the THB (Thai Baht) which has appreciated 12% against it over the last five years.

However, in looking for the better opportunities, we have a list of contenders, but our favorite play is against the NOK (Norweigan Krone). Why?

For starters, they have the least bank exposure to any of the PIIGS, or Europe for that matter. Courtesy of Reuters’ interactive graphic about the European Bank Exposure, click on any country there and you won’t see Norway come up. Of course you’ll see the usual suspects such as France, Germany, U.K. and the PIIGS, but not Norway.

Norway seems to have managed its internal economy well while exposing themselves very little to the European crisis. They have a strong trade surplus with the August trade in goods over 50% larger than last year. Mainland exports rose by almost 10% (not including oil and natural gas) which they have an abundance of.

Speaking of oil, crude exports were at 25.8B NOK in August which was an increase of 30% from last year. Besides oil and natural gas, fish is one of their top exports and with global fish supplies declining massively, combine these upward prices with stable or higher prices for oil and the doorway opens to Norway.

Furthermore, they have reduced their foreign debt by 68B NOK in the last quarter, led by a reduction in bank debt (astonishing in this environment).

Lastly, they have one of the more solid interest rates in the region (2.25%) compared to the eurozone (1.5%), GBP (.5%) and CHF (ahem, 0.0%). Thus, anyone looking for yield in the region might find their neighbors to the north quite amenable and since their bank does not seem to have a happy trigger finger for printing money, seems like they actually have some clue how to manage their economy.

In reality, we feel there are several contenders to sell the euro against which we have listed below. But our favorite regional play is NOK vs. EUR as money (and everything else) will be avoiding the region.

Charts Below

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Other contenders;
Selling EUR vs. SGD

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Buying Gold vs. EUR
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Selling EUR vs. JPY

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Selling EUR vs. SEK

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Chris Capre is the founder of 2ndSkiesForex.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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