Today's 4-sigma short-squeeze ramp in EURUSD (up over 220pips from pre-Summit-statement) is very reminiscent of the 10/26/11 reaction to the Greek debt deal [3]. EURUSD rallied magnificently, squeezing a dominating short-crowd over 400 pips higher that time. But it is the impulse reaction that we note - within two days, the entire rally had faded and indeed went on to sell off for a few more months as reality struck. One month after that previous last 4-sigma jump in EURUSD (late November 2011 [4]) we saw the global co-ordinated central bank liftathon that started the five-month epic idiocy of the equity exuberance that was the decoupling self-sustaining short-squeezing 'cleanest dirty shirt' first quarter of 2012. Trade accordingly.
EURUSD testing up to its 50DMA here as the 4-sigma move brings back hopeful memories from last October and November (and fearful squeeze nightmares)...
[5]
and here is how the EUR reacted to the Greek debt deal (a 400 pip rally) and then the hangover fade as all those shorts were burnt and the fundamental reality kicked back in...
[6]
and today's exuberance as shorts scramble...
[7]
Charts: Bloomberg