TD Research discusses EUR/USD strategy and adopts a sidelined bias in cash and prefers to engage via options around current levels.
"The major market theme has quickly rotated from the spike in the US 10y to political uncertainties in the EZ. We estimate about a 3% risk premium in the EUR but prefer to play it via options rather than cash given the market's propensity to shoot first and ask questions later.
We believe the prospects of a EZ breakup are faint. Still, it is a negative European trade again (rates, equities, and EUR) rather than a USD one, which reinforces our bullish JPY bias in the G10," TD argues.