Despite the worsening European debt crisis, forex services firm Faros Trading recommends investors to go long with the battered euro against the surging U.S. dollar.
Faros' recommendation is controversial because the current environment almost begs investors to do the opposite. The global sentiment is risk-off and Europe is one of the main reasons; the logical trade, therefore, is to short the euro versus a safe-haven currency like the U.S. dollar.
Faros points out that market sentiment is "excessive," which would give the trend reversal (i.e. euro rally) ammunition as weak hand euro shorts would be eventually squeezed out of their positions.
According to Faros, last week's options market shows the largest short euro, long dollar position since 2003. Bank analysts, moreover, are forecasting more downside euro moves.
"The market is positioned for European failure at the time when Europe is most likely to act," said Douglas Borthwick of Faros.
Borthwick believes there is enough political resolve -- both within the Eurozone and internationally -- to forge a bailout solution to the crisis, especially given the severity of the global market turmoil in reaction to it.
