EURUSD Rich To DXY, Pair Trade Opportunity Per Merrill

Tyler Durden's picture

Merrill's Mary Ann Bartels looks at a slew of technicals today, and focuses on the most relevant one for the day: the EURUSD, although she focuses on the dollar basket DXY. According to her Fibonacci analysis, the EURUSD has a 50% retracement target of 81.49, which "would correlate to a move in the euro to 1.3124." As the EURUSD is trading inside of 1.31 now, this means that purely based on the EUR contribution to the DXY, there is a short-term arb opportunity of going long the DXY which is at 80.90 and selling the EURUSD. Then again, with a firesale in everything EUR related a short leg may not even be required, especially with complete lack of liquidity in the market, and a total lack of appreciation that the US will have to print far more before all this is over.

From ML:

US Dollar Index: Breakout targets 81.439

The US Dollar has been strong as the Euro has been under pressure due to Sovereign debt concerns on the European periphery. Using Fibonacci levels for the recent high and low, the DXY can maintain its strength and move to 81.439. This would correlate to a move in the euro to 1.3124