Sitting down this morning after a few days away from the market, I was more than a little surprised to see EUR/USD on the 1.48-handle. China has essentially given Obama the finger on his maiden voyage to Middle Kingdom, with an official over the weekend chiding the US for its low interest rate policies.
I was amazed to see CNBC’s John Harwood coming up the US/Chinese relationship as rock-solid except for a few issues minor like Iran/North Korea and economics…. As long as we agree to play home-and-away ping-pong matches, I guess things are okay, as far as Harwood is concerned.
A second-day read of Bernanke’s speech in New York yesterday is very downbeat indeed. The banks remain in terrible shape, he implies, while he also allowed that he has the dollar on his radar, though he’s not ready to fire. Lower for longer looks like the state of play, a mixed bag for the dollar, when taken with the banking situation, which may cause risk aversion.
Trichet highlighted out of control finances in Europe, with Greece increasingly a thorn in his side. He says some EU governments are already at risk of losing credibility on the fiscal front.
So here we are, in the lower regions of the 1.48/1.51 double-no-touch induced range. With the structure rolling off on Friday, those short the options will be very motivated to knock-out the downside barriers if the opportunity presents itself. Those long will fight like hell to protect them. Game on.
My takeaway from all this is that EUR/USD should have rallied more strongly than it did on Monday and is very, very crowded with longs. Not much of a revelation there, but price action is instructional.
