On the back of Yesterday’s dovish FOMC meeting, markets have seen aggressive short-covering of the long USD positions that had been heavily built up in the run up to yesterday’s event.
We saw a huge spike in EURUSD where many shorter term traders had positions liquidated, and indeed some stops on longer term positions were run also. Although Dollar bulls were somewhat disappointed with the tone of the meeting, the bottom line going forward is that negative rates in Europe will continue to drive portfolio reallocation away from the EuroZone and into the US and asset managers and reserve managers alike will be looking to shed their EUR positions and instead buy US fixed income.
Short EURUSD is still a great trade moving into Q2 as although the pace of rate-hikes might be slower and market anticipation is moving toward September over June, the point is that rates are still going to rise and as the timing is data dependant, we could still see a sooner than September lift-off.
Given the lack of liquidity at the moment, combined with flows well over average, price action is likely to remain choppy at these levels and short term players will need to be nimble, but as the dust settles on this latest chapter in the “Fed Lift-Off Saga”, decent short EURUSD opportunities will materialise.
Currently EURUSD is still sitting on a trendline from 2000 lows, which once broken then opens the door down to the 61.8% retracement from 1996 lows and indeed the ascending trendline from those lows.
Short opportunities on a break of this current trendline present clear targets at the aforementioned levels.