EUR/USD enjoyed an explosive rally overnight and it carries through in early US trade this morning. Dealers have had trouble pinning a particular catalyst to the move though some note Goldman’s recommendation to buy EUR versus emerging markets currencies helped give the single currency a lift. There does seem to be some general nervousness about the US embarking on a course of quantitative ease, though down the road it looks as though all the major economies will employ that strategy.
The market has been structurally short options for months owing to historically high volatility levels. That is a great strategy when markets are whipping around in ranges but can be expensive when markets become directional. Option desks need to sell low and buy high when they are short and today they are buying high. Look for more heavy buying from that sector if 1.3300 is overcome.
