Happy Friday, Friends. As always, there are plenty of inputs for foreign exchange traders. My personal favorite from this morning concerns chatter regarding supposedly huge option-related stops below 1.2150 in EUR/USD. Given the overall EUR weakness, it wasn’t much of a stretch to assume that the level would be tested.
A former investment bank had a large customer order to sell EUR/USD from 1.22, which helped to get momentum going, but when 1.2150 was tested, and broken, there proved not to be much underneath, generating a rapid bounce. There might be another attempt to push lower, but since the reported stops weren’t present in any size, it seems more likely that we’ll find some shorts looking to take profits rather than spend time worrying about weekend headlines.
The shortest-term currency chart I use is the hourly. The morning’s push lower has put the stochastics into single-digit territory, but given the positioning of the upper Keltner Band relative to the moving averages, it appears that a bounce should run out of steam around 1.2250/55 at the latest. The daily chart indicates that 1.2375/1.2400 might be achievable given some time; we were last in that neighborhood on July 6. There shouldn’t be a shortage of sellers into strength, although they may wait until Sunday night to put their feet back in the water.
On an almost-random note, I continue to be puzzled that while Spanish yields are moving to Euro-era highs, the VIX is subdued, and currency volatility is at very low levels. When the adjustment comes, it could be quite exciting. Best of luck!