Spread between EUR/USD spot and EUR/USD 2-year swap

Discussion in 'Forex' started by xxvolny, Apr 1, 2011.

  1. xxvolny


    I'm just wondering if there is any chance for a trader with retail IB account to put up this trade? If not, can this be somehow synthetically replicated?

    ... I don't think so.
  2. xxvolny


    ... and screenshot.
  3. If your chart is referring to the spread between the EUR and USD swap rates, you can, in fact, replicate it. The closest you can get is by doing the weighted amount in the LIFFE euribor futures strip vs the CME Eurodollar strip. You can also do the weighted Eurex Schatz vs 2yr notes.

    But beware, this trade isn't as simple as that.
  4. rosy2


    what does one need to be aware of?
  5. Well, apart from the more technical issues, such as basis (EUR swaps are vs 6m Euribor, whereas USD are vs 3m LIBOR), there's the issue with the fundamental argument. Essentially, the argument is that EURUSD is too cheap given 2y carry. However, carry isn't everything, especially in the case of a "vinaigrette" ccy like EUR.