FX Charts That Matter: The Screaming EURUSD Spot-2 Year Fwd Swap Spread Convergence Trade

Tyler Durden's picture

Goldman's John Noyce once again confirms that he is the signal to Thomas Stolper's endless noise (pun intended). After Goldman did its traditional flip flop yesterday on the EURUSD, Noyce has been steadfast in his position on where he sees the euro. Indeed while Stolper was chasing the bouncing ball, and recommending every nano-uptick, and bailing the second there was a more than 10 pip pullback, Noyce actually has had some actionable long-term advice. That said, with Noyce's report coming out on Thursday ahead of Friday's EURUSD rout, he did provide some critical resistance pivots that appear to have been sustained, and it seems the interim top in the EURUSD is now fully in place even based on technicals (as for fundamentals, should the North Africa crisis jump across the Suez and hit Jordan, Syria or Saudi, watch as the scramble to cover dollar carry shorts goes into overdrive).

Technically speaking, the 61.8% retrace resistance from November of 1.3740 has held and it appears there is much downside from here, with firm support in the low 1.30s, and possibly as low as a the January 1.28 lows. On the other hand the spread between spot and the 2 Year EURUSD forward continues to be very wide. Without taking a directional bet, a convergence between the two legs would certainly seem like an attractive trade for those who can put it on.

Yet one trade which appears like a slam dunk here is a compression between the EURJPY and its 2 year swap spreads. The divergence is several 6 sigma intervals wide, and is a screaming compression trade here.

Full presentation from John Noyce

Charts That Matter 1.28