FX Blueprint - Hic Sunt Dracones
(Total 34 Pages)
2012 will be the Year of the Dragon in the Chinese
calendar. Regional perspectives on the dragon may well
characterise the challenges for 2012. In medieval Europe,
unknown territory on early world maps was marked Hic
Sunt Dracones (“Here be Dragons”). For the West,
dragons represent uncertainty and danger, while for the
East it represents power and auspiciousness. Whether
both perspectives are realized for each region is perhaps
the question for 2012. Our base case is that the Euro-area
will enter uncharted territory in terms of policy responses,
but the Euro-area will hold together. Meanwhile, we
expect China (and the US) to avoid a hard landing. So we
do tend to believe the biases inherent in each region’s
perspective of the dragon, but we don’t subscribe to the
more extreme outcomes being touted.

. Theme #1: - Crunch Time for Euro – Sell EUR/USD and EUR/JPY
. Theme #2: - Pound Poised for Podium – Buy GBP TWI
. Theme #3: - Swiss to Sing – Sell CHF/SGD
. Theme #4: - CAD Can – Sell EUR/CAD and AUDNZD
. Theme #5: - NOK Now, SEK Later – Buy NOK/SEK
. Theme #6: Panning for Gold in Murky Asian Waters – Sell USD/CNY and
USD/PHP, buy MYR vs. KRW and THB
. Theme #7: - EMEA Lukewarm – Buy RUB vs. Basket, EUR/PLN put
. Theme #8: - LatAm Value to Shine Through – Sell USD/MXN and EUR/CLP,
enter USD/BRL put spread
. Theme #9: - Beta Neutral Crosses – Sell AUD/ZAR, buy MXN/KRW
. Theme #10: - Analyst Forecasts and the Options Market – Sell EUR/USD
straddle, buy low delta put