EUR Dictated by Option Demands

The EUR bears certainly got the short end of the stick after the weaker global PMI releases. In a market where you would expect the single currency to underperform more so, has seen the rumored bottom feeders from Russia support and buy in size. Their presence, or who ever, has put off any technical attempts for the market to trigger stop losses below 1.3150 with conviction yesterday. This morning, the EUR continues to extend it gains, tackling 1.33 as more stops on the top side get taken out in the European trade. China using the CNY fix and rumors of an imminent RRR cut in the overnight session had many changing their trading tact midstream.

Vanilla currency options are strangling some of the G7 currency ranges. Sovereign and semiofficial supply will look to slow the EUR’s upside. Elevation does not suite the single currency as it remains vulnerable in lofty territory. Bearish action over the past two sessions has seen the technical charts work off an overbought bias. Aggressive buyers are ever present on dips and will be armed with their tight stops. Fast money interest in EUR/JPY’s topside has being one of the biggest supports in this mornings European action. Protection of the 1.33 barrier has capped the outright sessions topside for now, allowing the currency to skulk amid its initial failure. A break above the highs will generate a fresher bullish follow through for the chartist in us.

Increasing chatter is putting further emphasis on month-end requirements and what we are supposed to expect. The meeting of quarter and month-end action tends to muddy the FX market and destroy many traders playbook and this one is no different. The recent US asset classes performance is expected to see US pension funds have a significant rebalancing need in month and quarter-end, especially given the size of the equity market rally and fixed income sell off this quarter. Logic and history would also mean significant month-end forex flow. Support for treasury’s and selling of equities would only further “muddy the waters in determining whether we have moved into a new FX paradigm whereby risk sentiment is on the up.”

For now, we have the protection of options dominating intraday movements just like EUR’s feeble 1.33 attempt this morning. We still have time, North America could reload and give it a go ahead of its new home sales data release. Thus far, February housing numbers have generally been moderately weaker than expected, with the notable exception of building permits.

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