Playing on forex correlation

The eurozone crisis sent market participants scrambling to put on macro hedges. A popular trade was to short the euro, but with the cost of this strategy escalating, some turned to correlation products. By Christopher Whittall

Fears of a sovereign default in the eurozone have eased recently, but rewind to May and things were looking pretty dicey. The Greek debt crisis was spiralling and there were signs of contagion in other peripheral European states. Wild scenarios started doing the rounds: a Greek debt restructuring, the forcible expulsion of Greece from the eurozone, a voluntary withdrawal of Germany from the euro. In a world terrified of black swans, risk managers began to look for macro hedges from the end of