The VIX, the implied volatility of the S&P 500, is up about 10-11% today, near 30%. Usually rising equity volatility translates into risk aversion in the currency market.
EUR/USD is quite evidently in demand today, setting up an opportunity.
The market is clearly much less short than it was in weeks prior. The COT data last week showed that nearly half the market’s short EUR positioned had been covered by early last week. Strong price action late last week and early this week in all likelihood mean the market is much less short than even the most recent data signifies.
My assumption is that there is a one-off deal of some sort holding up the market at present and once that interest is completed, the euro will resume its decline.
Scaling into a short with a stop over 1.2500 looks like the way to go near term, looking for a move back below 1.2000 in the days to come.
Europe remains in turmoil and the US risks a double-dip. The dollar does well in that environment, as recent history (fall 2008/spring 2009) shows.
EUR/USD trades now at 1.2330.
