In particular, the strategists suggest selling the euro against either the Canadian dollar or the Mexican peso. A dovish statement from the Federal Reserve would likely weaken the dollar - and those neighboring currencies do tend to follow the dollar's lead - "but we would expect both the CAD and MXN to perform well versus the EUR given their high-beta properties," the strategists say.
One note: while the BarCap strategists think both trades will perform well over the medium term, they argue that selling the euro against the Canadian dollar will better "reduce the binary risks related to the FOMC meeting." The loonie's moves have been closely correlated with the euro-dollar pair, they say, but buying the Canadian dollar lets investors sidestep direct exposure to the U.S. if the Fed's statement is dovish. They also say there is less potential downside in that pair than in the euro-peso pair if the Fed is unexpectedly hawkish.
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