Forex Flash: EUR fallout over Cyprus – UBS

FXstreet.com (Barcelona) - As the dust continues to settle from the Cyprus fallout, it cannot be denied that the way the country’s bailout was handled has simply reinforced the prejudices of many investors who have a structural bias against the euro. From muddled messages to the lack of coordination, clients looking from afar will ask: if such a small country can cause so much stress, then what will happen if a larger periphery country faced similar challenges?

Nonetheless, so far the market’s overall response has been relatively calm given the potential ramifications of Cyprus entering a disorderly phase. Nonetheless, clients are now exploring opportunities to return to structural euro-shorts. According to Research Analyst Geoffrey Yu at UBS, “This would be consistent with expectations that fixed-income markets would revert to an under-weight position in the Eurozone in anticipation of further stress in the periphery. If investors truly wish to play euro downside through fixed-income weightings rotations, some trades are more attractive than others.”