Have All The Euro Bulls Been Flushed Out?
Any FX trader that is not presently sunning themselves
in the Hamptons or perhaps in the South of France for our European
counterparts, knows that the pace of activity has picked up measurably in the
last week. The catalyst was Greenspan’s speech followed by Tuesday’s better
than expected Consumer confidence number. However, history tells us that this
pick up in activity should come as no surprise. August has been a notoriously
volatile month for securities (FX) markets in recent years. Whether it be the
Asian currency crisis, the Mexican debt crisis, Russian devaluation as well as a
few others, we can only wonder if this year will toss traders another favorable
dose of volatility.
By looking
simply at volatility measures on the EUR/USD, it is clear that since Greenspan’s
speech, historical volatility has gone from 9.82% to 11.9%, similar rises are
seen in the ATM implieds as well. Granted, with many a medium term trader on
the wrong side of the recent EUR/USD move, the rise is easily understood as
traders seek downside protection against their cash positions. With GDP today
and the big payrolls number next week, option vol is set to increase as will
volatility in spot prices too.
The EUR/USD
is the big story at present, with key trend-line support giving way on Tuesday
(see chart) the question is, have all the Euro bulls been flushed out? With
bullish sentiment having increased last week, it is tough to know if the move
lower represents a full capitulation. Regardless, the charts indicate a
short-term target of 1.1870
Longer-term the chart of the EUR/CAD is quite compelling. Coupled with that you
have a nice macro backdrop taking shape that should favor CAD over EUR.Â
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With
yesterday’s hike by the Bank of New Zealand, both the macro and technical
backdrop for a short in AUD/NZD has been set. We are short from 1.1065.
FX
Levels for Thursday:
EUR:Â
1.2100, 1.2047, 1.2012
AUD:Â
.6946, .6985,
JPY:Â
111.61, 112.10, 112.55