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A Look At The EURUSD Runaway Covering Train

Submitted by Tyler Durden on 05/05/2011 12:05 -0400

There are those who are surprised by today's action in the EURUSD. We wonder why that is the case: had these people looked at our post from Saturday indicating the near record divergence between long EUR and short USD position, in which we speculated that the unwind would be fierce, today's Goldman call which we posted earlier, would be very much welcome. And yes, there was no margin hike in either EUR or USD spec contracts either last week or recently. We wonder why. So while we await the start of QE3 rumor reemergence, which will once again kill the dollar, and send the PM complex to the moon, here is what we said then...

EUR Non-Commercial Spec Positions Surge To Multi-Year High As USD And JPY Prepare To Take Out Lows (from Saturday)

Commodity speculators may or may not be the vile criminals the
president and his new working group are making them out to be, but they
sure have made their view clear on where they think the USD and the EUR
(the JPY not so much) are going. Below is the latest update from the
CFTC Commitment of traders report on the three key currencies. While
there has been some modest short covering in both the USD and JPY, both
continue to trade like the carry funding currencies they are. And with
bullish spec positions in the EUR at a multi year highs, the only
question is whether the yen or the dollar will be the carry currency of
choice in the next beatdown. Of course, how the EUR is expected to
retain its lofty perch with all of the PIIGS soon to go under is beyond
us, but hopefully it makes sense to Trichet, who is stuck between an
inflationary rock and a insolvent peripheral hard place.

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Thu, 05/05/2011 - 12:09 | 1243636 Thorlyx

To the moon, bitchez....

Thu, 05/05/2011 - 12:06 | 1243639 camaro68ss

BTFD Netflix and Ipads for everyone!

Thu, 05/05/2011 - 12:11 | 1243653 Muir

"What's a couple of hundred million to you. You can afford it."

Thu, 05/05/2011 - 12:11 | 1243663 LawsofPhysics

Why are the EURO and the dollar starting to track together. Are we going to see a temporary rally in the dollar? What is the (carry) trade here?

Thu, 05/05/2011 - 13:05 | 1243940 Gold 36000

The carry trade now is to lease some gold and silver then sell it into the market and buy dollars and bonds you fool. Gold for president.

Thu, 05/05/2011 - 13:34 | 1244056 LawsofPhysics

Already did that. Waiting for a raise in bond yields to buy more. Will it ever come?

Thu, 05/05/2011 - 12:15 | 1243669 SheepDog-One

Every day now theres a new massive extreme move and decoupling in something, today its world currencies simply based upon announcement of no .25 rate increase? Total meltdown coming sooner than anyone imagines, this is just sick.

Thu, 05/05/2011 - 12:15 | 1243672 trav7777

EU needs to cheapen. JPY needs to cheapen...who DOESN'T need to cheapen?

The yen is approaching intervention levels again. The euro deflated WRT USD but now they have printing cover...but gold/oil complex didn't budge much against EUR even during the rise

Thu, 05/05/2011 - 12:29 | 1243748 LawsofPhysics

I saw that. Oil basically being priced in EUROs for a while. So I guess this answers my question, all carry trades are dead or very dangerous at this time.

Thu, 05/05/2011 - 12:15 | 1243684 Id fight Gandhi

And the market goes green on cheer for qe3 rumors.

They really want to fuck over anyone bearish on their fixed casino games. Bears stopped shorting and went to metals so fuck them there.

Thu, 05/05/2011 - 12:26 | 1243722 gjp

oh, they're still fuckin em good and hard on the shorting side too. Look at any of Robo's favourite examples.

Thu, 05/05/2011 - 12:18 | 1243694 Tracerfan

The U.S is becoming $5 billion bankrupt today. But go ahead and buy Dollars fools

Thu, 05/05/2011 - 12:18 | 1243695 Tracerfan

The U.S is becoming another $5 billion bankrupt today. But go ahead and buy Dollars fools

Thu, 05/05/2011 - 13:03 | 1243928 topcallingtroll

Thanks. Dont mind if i do.

I will catch you at the next inflection point and you can have those dollars back.

Thu, 05/05/2011 - 12:16 | 1243700 Muir

Have QEs replaced the stigmatized tariffs of the 1930s?

Thu, 05/05/2011 - 12:31 | 1243763 disabledvet

when i hit the reply the boobs stop. anywho--this is an interesting observation: our massive public programs vs there's with currencies as the weapons, commodities and markets as the weapons. "A war without guns." I'm not sure that kickin' back with the popcorn is the answer in the age of "Gimme Shelter."

Thu, 05/05/2011 - 13:06 | 1243942 Use of Weapons

http://theatreface.ning.com/profiles/blogs/everything-is-a-weapon-usitt

Commodity choice of the day:

http://www.mycommunitycreative.com/projects/illuminum/collection.html?pi...

Light reading for the long nights to come:

http://eu.wiley.com/WileyCDA/WileyTitle/productCd-1405195819,descCd-desc...

I've not noticed any coverage on Zero Hedge of the Missouri Mississippi levees yet*; economic cost of 130k of arable land, when commodities are getting squeezed? Or is that costed in already?

Forecast: start counting (the cost of) calories.

Thu, 05/05/2011 - 12:36 | 1243773 magpie

The CBs build a wall of paper to save TBTFs.

Thu, 05/05/2011 - 12:26 | 1243726 TruthInSunshine

The Eurozone is a very sick patient, and it is incredible that Trichet was out having to defend his prior rate hikes this morning.

It all demonstrates how much worse the global economy is than what's been reported by the Main/Lame Stream Media Unicorn & Skittles Networks.

Thu, 05/05/2011 - 12:54 | 1243862 jtaskinen

The best part of his speech taday was "no restructuring in Greece". The issue is absolutely on on table....not on table. Next question.

The credibility of authorities being what it is, how should we understand this statement?

The will be no devaluation. No, never, not in my life time. I will resign if otherwise.

Hih

Thu, 05/05/2011 - 13:25 | 1244022 riley martini

That was in responce to the plunge in German factory orders. The EUR rate decision ,I would assume.

Thu, 05/05/2011 - 13:43 | 1244073 TruthInSunshine

Yes, German factory orders, with Germany being the nearly exclusive (former?) bright spot in all of Europe.

Thu, 05/05/2011 - 12:27 | 1243736 molecool

To everyone who junked me on 5/2:

http://evilspeculator.com/?p=20985

As Chris Carolan puts it: Pay attention or pay the offer :-)

Thu, 05/05/2011 - 12:41 | 1243791 firefighter302

You knew ahead of time, about the 5 margin hikes in 8 days?

About Bolivia not Nationalizing it's mines?

Treasury playing games to postpone the debt ceiling timing?

Or did you guess because of price movement?

Just curious.

Firefighter302

Thu, 05/05/2011 - 12:47 | 1243840 Muir

@firefighter

"Or did you guess because of price movement?"

Can't answer for him, but that's exactly how I make my money.

full disclosure: I own an evil spec t-shirt (and 2 of zh)

Thu, 05/05/2011 - 13:00 | 1243913 topcallingtroll

Price movement and watching the tape.

One last parting gift before the final leg of my vacation journey...................bernanke will be waiting until they are screaming deflationary armageddon before qe3 comes about.

Those of you waiting for qe3 will be waiting.a long time.

Thu, 05/05/2011 - 14:22 | 1244228 Sophist Economicus

I don't think so TCT. The shareholders of the FED are in deep yogurt. Any additional significant downward spiral in their 'marked to fantasy' asset prices will have them screaming. THey are insolvent, the FED has yet to monitize ALL of the crap on their balance sheet. QEx will come and come and come till it is all gone. By then the dollar will be worth poo poo.

If the FED doesn't do this, then the TBTF will fail. And the short term repurcussions on the populace, and thererfore the politicos will be something to watch indeed! And guess what, they'll print after that short-term mess too -- the people will demand it

Thu, 05/05/2011 - 12:28 | 1243743 eurusdog

Today is not a big deal. In the last three years the EURUSD has seen 60 days of 278 points in ATR. There is nothing to see here. Was it an exciting drop, sure, but nothing out of the ordinary and nothing unexpected when a currency pair gets in one direction for en extended period. 5 of those days came near the bottom in 2010. THis is just suggesting that traders have overplayed the EURUSD long side.

Thu, 05/05/2011 - 14:04 | 1244167 Urban Redneck

Or overplayed the short reverse- the currency move doesn't appear to be flowing into bonds by a porportionate amounts, and it certainly isn't flowing into commodities or equities. (However, I don't have my usual market visibility on this laptop)

Thu, 05/05/2011 - 12:42 | 1243804 scratch_and_sniff

lol talk about blowing your own trumpets! My jaw is still on the floor regarding the moves in oil today, thats a BIG move in WTI - 2008/groundhog day. Sympathy goes out to silver longs, but you lot cant say you werent warned, unless you are really in for the long haul, these are difficult days.

Thu, 05/05/2011 - 12:56 | 1243892 Gold 36000

Gold 36000 for president, because I will burn down everything and hang all the bankers after an appropriate sham trial.

Thu, 05/05/2011 - 13:10 | 1243949 Ferg .

I mentioned on Saturday in the post regarding the latest COT figures that I thought the bearish USD spec positionings were far too extreme . A correction was inevitable but , as I wrote in that post , I don't think that this is the turn . Probably just a fourth of a fifth wave ( DXY ) before we finish the entire 5 wave pattern from the January high . What the fifth wave will be like I don't know but wouldn't surprise me if it turns out to be a truncation . It's my opinion that with the USD at/near record lows against a plethora of currencies , and with so much bearish dollar sentiment , a basket of USD longs against the likes of the AUD, NZD , EUR and GBP could be the most profitable move of the summer and beyond .

Thu, 05/05/2011 - 13:50 | 1244104 Cole Younger