- Recent data confirms recovery (NFP, Retail Sales) and driven both US rate expectations and USD/fx higher. This has carried ED spreads wider.
- Accompanying chart is EDU0/EDH1 and EUR/USD over same time scale. Different chart structure. I want to be short of both charts technically. Overlapping fundamentals driving one chart higher (spread) and other chart lower (fx)
- Better economic news from here should push ED spread wider. Will use this as good opportunity to leg into a relative value trade ie Core -EUR/+USD (already in) vs Hedge -EDU0/+EDH1.
- EDU0/EDH1 spread has triple top around +80. If I can get set short in the mid +70s, that would offer very decent risk/reward. Stop out on a weekly close above +80.5.
- EUR/USD technicals here.
- Should outlook go horribly wrong (eg weak NFP next month), the ED spread should narrow and protect the long USD/fx position somewhat.
- ED spread = +ve carry albeit small. Partial offset to -ve carry on short EUR/USD.
- Constantly on the lookout for such setups (same fundamentals+different technicals+positive carry). Very hard to find. When one arises, seize it.
- Rush into the FX core trade; be very patient in setting up the hedge.
- [Addendum 16Dec09 12:44 am : On 2nd thoughts, better to stick to EDM0/EDZ0 instead of going out 3 months for a miniscule 3 bp extra. Both charts technically cool!]
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