The move in the EUR has just hit ridiculous levels, with the nearly 300 pip intraday move comparable only to the EURCHF surge seen yesterday after quadruple SNB intervention. And frazzled US quants, having no clue what to do, decide to once again turn on the EUR signals pushing the market higher, with a 10% chance of a green close. Make no mistake - this is reciprocal liquidation, where morning margin calls in all other pairs were met by EURUSD covering of shorts, exacerbated massively by what is now almost certain ECB (not SNB) intervention. The negative here is that Germany will look at the Eur response and pitch its naked short ban to all other European countries, which will now gladly accept the proposal, myopically hoping for another 1-2 bp move in the EURUSD. We believe there may well be an announcement of a Europe-wide naked short covering ban this weekend, coupled with the imposition of a transaction tax.
Amusingly, Goldman which earlier decided to once again so short the EURUSD has once again lost its clients money even as Goldman adds another day to its Q2 perfect quarter. And while we dont have confirmation on that yet, Goldman's FX desk just closed a trade initiated on May 10 with a stop loss for a 3% loss.
Trade Update: Stopped Out of Long MYR, IDR and PHP vs JPY with a Potential Loss of -3.5% May 20, 2010
We were stopped out of our tactical recommendation to be long MYR, IDR and PHP vs the JPY at the London close, with a potential loss of around -3.5%. We entered the trade on May 10th at a level of 100, shortly after the package from the European heads of state was announced. Our recommendation was based on the assumption that the package would assuage the risk jitters in the market stemming from liquidity and solvency fears over Euroland, and that the market would start to trade the macro data once again. In the event, markets have remained more jittery than we had anticipated.