- My black swan trade = short EDM4 at 99.56. This is insurance against unexpected reversal in market expectations about no Fed tightening forever.
- Shorting EDM4 has the added ingredient of being long credit spreads (ie P&L benefits from spread widening).
- ED typically trades in very tight daily ranges. The price action of the past 2 days have been puzzling. Ahead of FOMC where the Fed is expected to stay loose (Cyprus as well a contributor) + a general risk off environment due to Cyprus contagion, EDM4 has counter-intuitively traded off some 4 bp. Without the credit fear factor, ED should be trading higher when a surprise like Cyprus hit the news.
- Guess people are asking questions about the liquidity position of European banks again? This is the only explanation I can think of for the weak ED price action of the last 2 days. Hard to get a sense of this trading from home, outside of the interbank environment.
- Addendum 7:50 am : Ah .. here we go. EUR/USD basis swap telling same story.
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