On this one I have split in 3 the normal position size on the pair, compounding an averaged position at 1.2982 as explained here.
Now what?
The Ifo and Pmiâs were really ugly. The main core economy, Germany, is hit and now paying its inertia and austerity stance taken during the crisis. Now Germany have no choice but to support âwhat ever it takesâ to help her customers (EZ members) and her skin. The elections are due in 10 months and Merkel is not going to accept any further deterioration in the economy until then. Therefore we will probably see a more flexible Germany on the debt front, although this needs some political talent, since the German people are not keen to pay for the others. This means to me that we must in the future differentiate between the political rhetoric and the real decisions.
About this trade, as I said, I was looking for a position on the â¬uro âWhat ever it takesâ, Iâve got it averaged below 1.30 but near 1.29 wouldâve been better indeed. In intraday I donât see the pair going farther south, because the Draghi speech and the Fomc meeting is capping the downside, while better Chinese numbers stopped the sell off on risk that was triggered by the quarter disappointing earnings.
To summarize the incentives are still the same:
1: Rumors and news likely to grow about an imminent Spanish request seeing the Ifo/Pmi very bad signal and the Spanish yield now returning back to the unbearable 6%.
2: Market expectations pricing in north the Spanish bailout request; cautiously. Price popping up at the announcement, since it wouldnât have been priced fully because of the âcautiouslyâ.
3: Draghi /FOMC likely going to UP easing rhetoric and size this will likely bring it back above 1.30.
One must keep in mind that this a grid of reading; the way I see the likely market behavior in the coming days. The downside risk is huge because of the nervousness of the market, and one of the main initial incentive which is real money re-balancing its portfolios is probably going to be delayed seeing the German Econ developments.
An important question remains though, what if it continues to fall?
Well, Iâll take my losses, but remember it just one normal size compounded to get a better price. After that I will retry near other liquidity clusters, unless my views are changing. In terms of conviction I am not â¬uro bullish, itâs just a tactical trade explained several times in several posts. Actually I think the real value of the ⬠is near parity with a slight bonus to the â¬uro because of the ECB traditional higher rate policy, like 1.15 or 1.20. Furthermore a weaker â¬uro is mandatory to lessen the crisis damages, mainly on the current account front.
