Trading during the holidays has its ups and downs. There is volatility which is good for setup opportunities but you also get some wacky moves. The $EURUSD move from 6-7 PM Eastern on Monday was one of those mind-blowing moves. The cross ramped up some 90 pips in the low-volume, nobody is around (?), pre-Asia time frame. The honest argument is that US yields had dropped after the 1 PM 2-year notes auction (i.e. negative for USD) and that the $EURUSD had broken the downward hourly channel to the upside (at 1 AM on Monday though…). Additionally, traders were expecting another good auction today (5-year notes), and thus lower yields and a lower US dollar. Sounds good to me. The fact that the pair rebounded at the 50% retracement of the 1.3497-1.3053 run and sold-off aggressively on big sell volume is even more telling. Overall, the whole move was probably legit as the pair retraced, found new offers, and is now looking to get sub 1.3000 again. Nevertheless, it’s the holidays, and in this post I wanted to list my top conspiracy theories for the pre-Asia up move. They’re a lot more fun to talk about and let’s the imagination have some fun. Drum roll…. 1) The FX dealers/brokers knew that retail shorts were piling in above the 1.3160s level and decided to use the Holiday week-Monday-6PM Eastern-pre-Asia to kill a bunch of stops. The end-result being a nice bump in their accounts, bigger bonuses for 2010, and a New Year’s eve party with more champagne. 2) The Swiss National Bank (“SNB”) bought mad Euros against the $USD by mistake (instead of against the $CHF) as all the high-level personnel was on vacation and the intern pressed the wrong button. 3) Some quant algorithm came in and jumped-started the $EURUSD move by clearing out all the offers above the 1.3160s. As the other algos and retail traders starting shorting the pair prematurely, the algo sold on the rally and left the fool holding the bag. 3) Some hedge fund, trying to find a better short opportunity, bought a bunch of $EURUSD during the pre-Asia time frame. As all the scalpers came in to provide liquidity, the hedge fund not only covered all its long positions (by selling to the trend-follower bulls) but also went net short. The fund likely covered at 1.3100. 4) The ECB started buying Euros as it was afraid a sub 1.30 $EURUSD would create panic and make people feel uncomfortable with the single currency. 5) A fat finger bought $1 gazillion of Euro futures instead of $1 gigazillion, thus creating the spike. 6) Last but not least, “Goldman Sachs did it” Any other I missed? Happy New Year !!!Top 6 Conspiracy Theories for the Euro-Dollar Surge
Wednesday, 29 December 2010
Posts
