Parker currency index is falling sharply , showing the pain… positioning index shift
Yesterday’s furious sell-off in German bunds continued today, causing widespread panic in the FX market as EUR rallied to within 15 pips of 1.13 amid short covering. After yesterday’s rally in EUR and bund yields, the market viewed Draghi today as a quasi savior that could potentially rescue the EUR short and reignite the short EUR, long Bund trade. Instead, today’s meeting was one of the most boring of the year with no major economic forecast changes. Draghi reiterated the ECB’s stance towards QE, affirming that risks are for more rather than less QE. The most interesting comment from Draghi was his lack of responsiveness to rates volatility, as he commented that the market should learn to accept market volatility. In essence, he flatly distanced himself from Coeure’s comments earlier in May. EUR began the press conference at 1.1120 and declined towards 1.1080 before the market volatility comment. From there, Bunds began to drop precipitously with yields eventually reaching 89.5 at one point. EUR got a clear cue as it raced through the prior 1.1190 high to eventually reach 1.12855. Stops were tripped through 1.12 and again through 1.1260, which was a prior breakdown point. EUR crosses pushed higher throughout the day with EUR/JPY reaching 140 and EUR/CHF hitting a 2 month high.
The afternoon provided respite for USD longs as we sold a few hundred EUR for a variety of names. The two way was apparent though near the 1.1250 level. USD/JPY rallied nicely towards 124.50 as equities maintained a steady bid (where does one put its money with fixed income selling off?). Gold had a very nasty drop through 1180, thus proving that markets are extremely cruel.
EUR has now staged an impressive rally from 1.0860 to 1.12855 in just 3 days. The move in currency has been a mirror byproduct of Bund movement. This mirroring should continue through tomorrow before NFP Friday. The market has not quite flushed USD longs sans EUR, but a weak NFP Friday would likely lead to further USD selling against other buckets, like AXJ, EM and JPY NZD. It should be noted that tensions appear to be escalating yet again in the Ukraine. Reports emerged that rebel forces had moved forward with an offensive on the border. EU officials also stated that sanctions against Russia would be extended through January. USD/RUB has been one-way the entire day, currently trading at 54.30. CEE3 has sold off aggressively within this sector, with our desk seeing buying of EUR/PLN by real money the entire day. (DB)