There’s a growing obsession with central bank “exit strategies,” and RBS is getting traders prepared for the eventual unwinding of cheap money and stimulus:
It is natural, I think, to fear the exit strategies [of many brokers] just because they could be on us a lot sooner than we currently expect. How to trade this? In the risk world, start setting shorts near to the 1120 level in S&P. In government bond markets, continue being short gilts against Treasuries and especially bunds. We’ve done quite a bit in the past two days, but this is a high conviction medium-term call and can go an awful lot further yet.
The Euro and U.S. Dollar are busy having a fun game of cat-and-mouse and RBS doesn’t expect it to end anytime soon:
I am confident we will launch another test on 1.50 before the week is out. My preferred EUR/USD strategy remains to wait for a break up to the mid-1.50s, then sell; my biggest fear is not that we will push on higher than this, but that we won’t get there. Nevertheless, in such a USD bearish environment I think you have to wait until risk / reward is hugely in your favour before pulling the trigger.