Collapsing PMIs are bringing forward the next round of market concern about foolhardy austerity and shifting the focus to solvency from liquidity, we recommend buying USD vs. 2 European currencies exposed to the next stage of the crisis: SEK & HUF. While SEK’s vulnerability is to the downturn in EA demand (given Sweden’s export dependency), HUF is vulnerable both to that and a sharper focus on sovereign worthiness. This all assumes that the next round of US QE is likely to be “cash neutral” like Operation Twist and that anything more USD-negative requires better inflation and much worse jobs data. Buy USD vs. a basket of HUF and SEK.
4.1% returned between 22 March 2012 and 13 June 2012.