Several brokers are out this morning reporting that 80-90% of their client base – retailers – are short EURUSD.
Several of them also say that shorts are at record levels. Add those shorts to the speculative market CI focus on - for which hedge funds and more substantial positions are involved - and you get the impression that there are lots shorts here that could find their positions to be in trouble should we get close to 1.4000.
I draw the following conclusions from this:
1. Should the FOMC tomorrow continue with 65 bln of monthly asset purchases and also make a comment where no acceleration of tapering is argued from greater uncertainty about the strength of those data the FOMC is focused about – then I think we are in for a rather substantial spike – even from a level which might be as high as the high seen lately. I would think +150-250 pips could come into play - mostly from shorts being stopped out but possibly also for latecomers going long in recognition that this could go much higher.
2. Should the FOMC tomorrow accelerate tapering by say reducing monthly asset purchases to 55 bln, then there might be a dip but I would be surprised if there is more than 100 into such a dip as the market looks too long not to start covering shorts at an early stage.
I will focus on going long under both scenarios:
Under 1) on the first possibly offered price subject to that such prices give an attractive distance to the first objective which I am thinking about being in around 1.4100 and the keep a part for a longer run towards 1.4250-1.4500. I see the risk to the downside to be limited under 1) as I think the existing shorts are too substantial.
Under 2) to hold my horses for a dip of say 75 pips and then look to go long in intervals starting at this level and further below. I see no natural stop level for such longs while the objective would be the same as for 1) – just taking a bit longer.
The invalidation level for each of those setups are the time when the ECB will come out lowering rates or set classic easing measures into motion. It is a stop signal as you don’t fight a central bank who by doing so has the intention of stopping the move upwards.
Several of them also say that shorts are at record levels. Add those shorts to the speculative market CI focus on - for which hedge funds and more substantial positions are involved - and you get the impression that there are lots shorts here that could find their positions to be in trouble should we get close to 1.4000.
I draw the following conclusions from this:
1. Should the FOMC tomorrow continue with 65 bln of monthly asset purchases and also make a comment where no acceleration of tapering is argued from greater uncertainty about the strength of those data the FOMC is focused about – then I think we are in for a rather substantial spike – even from a level which might be as high as the high seen lately. I would think +150-250 pips could come into play - mostly from shorts being stopped out but possibly also for latecomers going long in recognition that this could go much higher.
2. Should the FOMC tomorrow accelerate tapering by say reducing monthly asset purchases to 55 bln, then there might be a dip but I would be surprised if there is more than 100 into such a dip as the market looks too long not to start covering shorts at an early stage.
I will focus on going long under both scenarios:
Under 1) on the first possibly offered price subject to that such prices give an attractive distance to the first objective which I am thinking about being in around 1.4100 and the keep a part for a longer run towards 1.4250-1.4500. I see the risk to the downside to be limited under 1) as I think the existing shorts are too substantial.
Under 2) to hold my horses for a dip of say 75 pips and then look to go long in intervals starting at this level and further below. I see no natural stop level for such longs while the objective would be the same as for 1) – just taking a bit longer.
The invalidation level for each of those setups are the time when the ECB will come out lowering rates or set classic easing measures into motion. It is a stop signal as you don’t fight a central bank who by doing so has the intention of stopping the move upwards.
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