It Is Time For The Recoupling Arb

Tyler Durden's picture

The risk-EUR decoupling has hit the same spread to the outside as it did early this week to the inside - i.e. ES was "cheap" compared to EURJPY. The recoupling convergence trade here is once again a nobrainer. Which means that computers will gradually process the correlation and close the spread. We were concerned this could be a trap by someone far smarter few days ago. Turned out that "someone" was not only dumber, but also slower. Selling ES and going long EURJPY is now pretty much risk free. Ridiculous amonts of leverage on top of the trade are sincerely encouraged as a spectaular explosion will immediately render your trade TBTF and will guarantee Discount Window access for life.

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Cursive's picture

And with this late day equity thrust, the spread is widening.  Hmmm.

Leo Kolivakis's picture

Recoupling? you mean there's hope...

Conrad Murray's picture

Get that disgusting display of indecency off my screen! AHHHHH!!!

Unscarred's picture

Seems like those numbers are sagging a little bit...

Double down's picture

Yeah, where is Leo with something tasteful?

What_Me_Worry's picture

I think a lot of people have high hopes for tomorrow.

The EUR/USD seems to pop off of 1.2159/1.2162 every time right now.

jbc77's picture

Personally, I want to see the Euro smashed into bits. Looks like 1.2159 has broken into the close, see if it slides farther.

Perhaps the central bank laughing stock gang has realized that the more they crank currencies they less effect it has, enventually the crank will be viewed negatively en masse and it will drop accordingly.

plocequ1's picture

Updated score:
Bernanke 2

Cursive's picture

Give it 24 hours.


ETA:  In fact, if the CB's don't close the gap before tomorrow's open, we could have a big gap down on tomorrow's open.  The jobs report would be a great excuse.  BTW, I didn't junk you.

plocequ1's picture

Dosent matter. The Pump software is new and improved and will stand up to Euro declines, Oil spills, Wars, Dennis Hoppers death, Etc. Guaranteed or your money stolen.

hambone's picture

Anybody thinking now is the time take up some shorts?  Euro sinking to lows...S&P sitting on # coming in morning likely a sell the news event?.  How brave do we dare?

Al Huxley's picture

I've been adding to short positions today, although I feel like I should have some out-of-the money SPY calls just to hedge against those low-volume meltups that seem to happen so frequently.

Greater Fool's picture

OTM SPY calls don't really help much with that risk. A low-volume meltup means vol through the floor, so between that and theta over a period of several days of small gains you lose money on the short and stay about flat on the calls.

ZeroPower's picture


Increases typically lead to decrease in vol. Agree on theta, but you could purchase longer dated calls.

You could always go with a call spread.

wagefreedom's picture

as I just caught myself thinking I'd cover if we close again above the 200 day, I can all but quarantee that now is the time to short... goddamn look at that $ strength tho....

aldousd's picture

John Meriwether, is that you?

Unscarred's picture

I lost track.  Is he on his third or his forth hedge fund?

Gubbmint Cheese's picture

in a 'normal' market where fundamentals mattered, yes.. absolutely short the crap out of this thing. But in THIS market? No - best to sit on the sidelines imho..


Joe Shmoe's picture

I agree.  But then, isn't it a lagging indicator anyway?

Chartist's picture

Hambone, individual stocks like WHR are setting up to be interesting shorts...JPM too...

jkruffin's picture

I just about guarantee they will intervene overnight and push EUR/USD back to 1.23 minimum before the jobs report is released.  No way they let it fall under 1.2150  I would be very very shocked if they did.  GS was calling to go short, that is the first contrarion indicator to me, as it always has been.

ZeroPower's picture

1.2152 hit not going any low so far...

What_Me_Worry's picture

PPT earns their pay, yet again.  That was some nice work to raise the markets into a falling euro during that last hour.

carbonmutant's picture

"...a spectaular explosion will immediately render your trade TBTF and will guarantee Discount Window access for life."

...which will be shorter than the term of many current legislators...

papaswamp's picture

i thought it was interesting the EUR tracked with the market (or vis versa) until late in the day..then decoupled. What happened? Investors decide now Europe is ok....or is everyone so pumped about tomorrows numbers? God forbid they come in lower than expected.

n2dark's picture

One way or the other tomorrow will be a bloodbath.

Joe Shmoe's picture

My dog just farted (yes, I have her in the office with me).

John Law's picture

The EUR/USD is in a decending triangle on the 4 hr charts. It had a break out last night during the Asia session to the upside but that fell once the European session started so the euro may be in for a huge fall shortly. And the usd/jpy has sort of (it's not the strongest patteren I've ever seen) put in a head and shoulders which would put it around 84 handle if it falls thru the neck line.

Things a very intresting indeed.

hambone's picture

Euro is teetering on the edge...whose turn is it to stoke the fire?

Buckle up everybody...we're 'bout to shoot higher or lower but either way gonna be a good sized move.

Jace0228's picture

I dont have access to the forex, can anyone point me to an ETF or other equity I can trade on Ameritrade that will give access to this?

ZeroPower's picture

FXE and FXY. Watch for liquidity on the latter one though

BeerGoggles's picture

I dont have access to the forex, can anyone point me to an ETF or other equity I can trade on Ameritrade that will give access to this?

 I would recommend you get access to the forex.

Jace0228's picture

The genius of simplicity :)

BeerGoggles's picture

This trade is going nowhere. Arbed 50pips in the hole so far and it has recoupled. Great.


Edit: closed for profit. Nice.

Out of interest, how do you calibrate the correlation? I have an overlay but due to axis autofitting, it makes it look like they are recorrelated when they are not.