Why The Big Overnight Move In EURUSD? Citigroup Explains

Tyler Durden's picture

Just after 3:00 am Eastern, the EURUSD experienced a sharp large move lower, sliding by nearly 100 pips in under an hour, without what appeared to be a news catalyst (hardly that surprising in the New Illiquid Normal when one VWAP order can move risk by +/- 1%). For those curious what may have caused the sudden drop, here is one explanation from Citigroup.

Mid morning a hit to the Euro legged the whole equity market lower. Remember last night was the Eurozone finance minister meeting and the comment from Juncker afterwards on Greece was “I’m impressed by the performance of the Greek government, by the willingness of the coalition parties in Greece to undertake whatever will have to be undertaken in order to respond to our wishes,” so more positive. This meeting continues today. So why did the Euro fall? The best answer seems to be that the 10yr Spanish benchmark has changed from 5.85% Jan 2022 to the 4.8% Jan 24. As a result some systems been showing the wrong Bund/Bono spread and players spooked when the "old" spread moved out by more than 30bps. The spread is near unchanged at the moment. Yields themselves are actually unchanged also. Remember Merkel trip to Greece today.

 

This means that actually we should not have legged lower as we did, and maybe why we seem to bounce back currently. Into Alcoa tonight and the kick off of US earnings focus on q3 heightens.

That. Or someone just had a few yards to sell and just tested how deep the market bid truly is. Remember: it's a centrally planed market - we are all just tagging along.