Enough of this EUR

EUR

The euro rally that I was hoping for does not appear to be happening and it’s time for me to move on. I am going to sell the EURUSD call that I bought last week for a small loss. The USD has turned in a meaningful way, rate differentials gave EURUSD an excuse to go to 1.1300, and French spreads came in enough that the single currency really has no good excuse at this point. It should have gone up by now.

Meanwhile, French spreads are widening again, and this option I own contains an FOMC premium. I don’t think this FOMC will be particularly market-moving as the market is bored of the Fed’s slow pace and monthly flip-flopping from hawkish to dovish. Since their words have very little meaning, and nothing is priced in for the meeting, it’s very likely to be a word salad and low-vol event.

Like I said, French spreads are widening again:

You can see the large reversal in rate differentials helped stabilize the euro but didn’t allow it to lift off. The collapse in EURGBP, EURCAD, and EUR/Everything has created unrelenting sell pressure and so I am moving right along. I also hope to exit the USDCAD soon as my take profit is near, the BoC is overpriced for the October meeting, and 1.4000/20 is a big support zone. I still expect USDCAD will head to 1.3800 at some point, but we are getting to the point where the risk of a big bounce (120 or 150 pips) is bigger than the likelihood of another impulsive downdraft like the one we just rode from 1.42 to here.

Yesterday’s piece

The feedback on yesterday’s piece was fun. Thank you for reading it.

“I found your writeup very convincing but in the end, somewhere in my soul I still believe the effect is real. Something about left brain vs. right brain.”

• “AI supercharges datamining and puts dangerous tools in the hands of amateurs.”
• “Fun piece. I’m still short.”

Meta

We get META earnings tonight and we may or may not get a capex estimate for 2027. The street is somewhere in the $193B to $205B range for that figure, and the broader market and neocloud traders are more interested in that figure, plus Zuckerberg’s commentary on future spending (internal vs. external) than the earnings release itself. Given the nervy state of markets last week and the hold of the 100-day MA, this week’s price action is probably pivotal. Price action in NBIS and CRWV will be just as important as movements in META after 4:00 p.m. NY today.

Final thoughts

Two charts from Simon Flint. TWD is cheap and the PBoC may have changed its behavior.