The quality of buying in EUR/USD has improved in the last day or two, anecdotal reports suggest. Much of the buying late last week and early this week was from model and momentum funds. This is not to suggest that they are not “quality” names, but it is to suggest that they are just as likely to turn around and sell at any moment once their balck box shifts gears.
The buyers seen in the last 24 hours have been dragged to the market kicking and screaming: US corporates and asset managers. The corporates are likely lifting the hedges put on under durress during the fall when the dollar unexpectedly rallied as the world flooded into US T-bills. Real money accounts did the same, both hedging and outright liquidating overseas positions as US investors pulled money out of foreign markets and stuffed them under the mattress. If some of the buying in EUR/USD by US investors is fresh cash being put to work, that is good news for the capital markets as it may be seen as a sign that investor fear is receding. If it is merely hedging of existing positions, it is less consequential, but still impactful in the short-term.
These folks have no monopoly on wisdom, it should be noted, so they are as likey to buy the high as you and me. Their pockets are just deeper and they are less likely to turn their positions in the near-term than mere mortals like us.
EUR/USD trades at 1.4450 after recovering froma dip below 1.4400.
