Is a Short Squeeze Brewing in EUR/USD?
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Speculative shorts against the EUR hit a record recently according to data from the CFTC that point to short term selling. As specs piled on, the price of EUR/USD and the ETF (NYSE: FXE) dropped, with the spot moving from 1.3200 to a low 1.2286, but that trade is slowly unwinding.
In the past five trading sessions, EUR/USD has rallied back to 1.2600. The move comes as prospects for QE in the U.S. increase. At the same time, officials in the EU are finally taking steps to handle the banking crisis in Spain.
Give the strength of the move lower and the weakness of some short positions, a rally in the EUR could be sharp, say traders, with bulls eying resistance near 1.2800.
On the other hand, bears are pointing out long-term structural problems with the currency that are clearly demonstrated in the EU inability to form a policy response. Second, QE is far from of done deal and EUR actually moved lower during Bernanke's most recent testimony before congress. And so, for now, there is little reason to trade in this cash cow.
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In the past five trading sessions, EUR/USD has rallied back to 1.2600. The move comes as prospects for QE in the U.S. increase. At the same time, officials in the EU are finally taking steps to handle the banking crisis in Spain.
Give the strength of the move lower and the weakness of some short positions, a rally in the EUR could be sharp, say traders, with bulls eying resistance near 1.2800.
On the other hand, bears are pointing out long-term structural problems with the currency that are clearly demonstrated in the EU inability to form a policy response. Second, QE is far from of done deal and EUR actually moved lower during Bernanke's most recent testimony before congress. And so, for now, there is little reason to trade in this cash cow.
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Ben S. Bernanke
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