Long Weekend, Short Euro?

EURUSD Daily 230514


Good Morning, Friends,

Implied volatility of 6% doesn’t seem like much, but that’s a higher level than EUR/USD has seen for a while. Elections to the European Parliament are taking place over the weekend, and there is speculation that a strong showing by Euroskeptic parties of the right and left will lead to a softer Euro. In addition, the European Central Bank’s governing council meets in early June, and is widely expected to lower headine rates, and possibly even slap negative interest rates on large deposits. Anticipation of the latter move may help to keep U.S. interest rates lower than they otherwise would be; if European rates are declining along with the currency, higher yielding Treasuries denominated in a rising Dollar may look appealing to cross-border investors.


TNX Daily 230514


EUR/USD isn’t at an ideal selling point; on the daily, 1.3760 would offer a nice ratio of prospective reward to risk, but it isn’t likely to reach those heights today. Friends in London speculate that while a Euro-negative result in the parliamentary elections is baked in as far as Eurozone traders are concerned, it may be more of a shock to Asian and North American players, who will then presumably want to get short, or shorter. I’m agnostic on that, but if I was playing it from my old seat on a bank desk, I would probably take some Dollar calls/Euro puts home for the weekend, just to have some exposure. The hourly chart shows Fibonacci confluence around 1.3640, and that might be a place to look to sell some Euros for what would be expected to be a fairly short term trade. It should be tough for people to buy Euros for purposes other than short covering and profit taking ahead of the ECB meeting on June 5.  Elections bring uncertainty with them, of course; that’s why they play the game. It’s entirely possible that Europe’s voters will refuse to do what we want them to do. It’s also conceivable that the market will respond in ways other than I expect, and so it’s important to keep a stop in place.


ESM4 Daily 230514


A long weekend approaches in the U.S. Wall Street etiquette dictates that most senior managers will take today off, as well as Monday. “Reports of absence” are e-mailed late on Thursday afternoon, giving the troops the good news. “I can be reached via e-mail in case of need” is always attached, but the unwritten sub-text is “And you’d better not need to”. That will reduce risk taking, and probably make for a dull afternoon unless there’s some sort of market-moving catalyst. If the latter does occur, things could get exciting, but late afternoon boredom is the expected outcome. On the daily chart, the E-minis made a new high, retraced in textbook style to a buyable level, and proceeded to move higher. The contract is now within striking distance of the 1898.50 high. We’ll see how it trades from here, but I find that I’m not spending too much time short these days.

Best of luck today, and have a great weekend.