The EUR/USD was driven by flows yesterday. Firstly there was the stop-loss run above 1.2525 in Asia and plenty of contrarian break-buyers bought into the market, expecting to trigger more short covering. They ran into some clever players who used the increased liquidity to off-load some sizeable chunks (EUR 5billion+ I’m told). This left the break players sitting on big long positions as Europe opened and with liquidity reduced by the UK holiday, a sharp sell-off ensued. The comments from the Spanish budget minister came after most of this stop-loss damage was done.
The market has now settled down but what seems clear is that there is still plenty of big interest to sell EUR/USD on rallies, from Sovereign and real money players and from reserve managers as well. The speculative market is still short which will inevitably lead to short-covering spikes but selling big rallies looks like the obvious play still.
The main stop-loss level yesterday in early European trade was at 1.2490, so I’d expect this level to provide solid intraday resistance, and the overnight lows at 1.2410 provide session support. We are currently sitting right in the middle of this range at 1.2450, so once again it’s a coin toss for the intraday players.
