19 May 2010

EUR/USD : Going Parabolic, Getting Silly

  • Unilateral German ban on naked short selling (Govt debt, financials, CDSs), announced post European markets closing last night caused much panic which made its way into the most liquid vehicle of expression, EUR/USD [Op 1.2392, Hi 1.2444, Lo 1.2159, Cl 1.2161], and spilled over into other Risk markets [S&P -1.4%].
  • The strong (and to me, not logical) reaction suggests that market thinks the risk of a collapse in the EU is getting higher. 
  • The EUR/USD monthly chart is a good example of "going parabolic" [price runs away sharply from rapidly diverging moving averages]. (Not so Gold. For a really good eg, look at the sugar upmove to 30.4). In such cases, a large percentage of profits comes from hanging on for the last part of the move.
  • Certainly not planning to add on to the short EUR/USD position now. Plan is to lock in profits as we approach the Nov05 low of 1.1638. Then start afresh if we break that.
  • Any additional Risk Off trades should be in Equities, which, based on technicals, should start to take on a life of their own regardless of what happens to the EUR after this.
  • Also planning to add to short USD/CAD hedge towards 1.0500 to reduce overall book volatility.
  • [Ignore current candle on daily chart. Reuters data error. Will replace once it is amended].

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