Like last week, this week is shaping up to be broad range trading with the highs and lows likely set until Wednesday when we get the FOMC decision. The chart below shows EUR/USD overlaid on CFTC commitment of traders report. As you can see, the two are correlated with the CFTC data lagging the EUR/USD. However, the broader point is that the currency market is extremely short EUR/USD and hasn’t made a new EUR low since June 1st. This almost perfectly matches the moves in the US S&P 500 and should be no surprise given the Risk on/Risk off nature of the markets. Despite the negative geo-political news flow and negative economic headlines, Risk is holding up well.
Today is a great example. The news out overnight was decidedly negative by about a 4:1 ratio. The only major positive story was that the Spanish auction was fully subscribed and their 10year bond yields fell below 7.0% due to this event. As a former, reformed currency trader, I tried to be cognizant of when you had price action that was in opposition to trend when the news supported the trend. Clearly, this is occurring now. We are about to enter the summer trading when volumes slow and holidays begin to take hold. This environment supports additional rallies in equities and Risk-On currency trading.
