Feb. 2. (Bloomberg) — Polish Prime Minister Donald Tusk asked ministers to provide “clarifications” on a draft plan for cutting the budget deficit by more than half within two years to adopt the euro as soon as in 2014.
The move to deflate risk premiums across the markets has stalled. For the euro, this means its role as the primary counterpart to the US dollar and the fundamental concerns surrounding the health of Greece and other Euro Zone members have been temporarily put on hold. However, until investor sentiment turns all the markets back on the path to yield demand; the larger bias is still in place. Therefore, I am waiting for the market to establish the next phase of yield demand. Will there be a specific indicator or event to instigate such a move? Probably not. I think that as was the case three weeks ago when the markets started to roll over, the cummulative pressure on sentiment will likely put the market on pace on its own.
In the meantime, I will hold with the euro crosses that have been on my books for some time. My EURUSD short is starting to retrace; but with an entry just below 1.42, I can afford to be patient for a much larger trend to develop. Along similar lines, the EURGBP short position established with last week’s bounce to 0.88 is much closer to breakeven. This isn’t too concerning to me yet as I think the fundamental case for this pair to continue its tumble is far better than the euro’s decline against the US dollar (which is fully dependent on underlying sentiment trends). And, though it is important to maintain risk exposure, I am still interested in the congestion pattern on EURJPY just below the former, eight-month range low at 127. Fundamentally, this is very similar to my EURUSD position (both the dollar and currency-trading.ch/”title=”forex” >forex.com/category/yen/”title=”yen” >yen are funding currencies). Though technically, this cross’ patten looks a lot like a EURGBP setup that saw a more reserved follow through. For a position, I have set out for a short at 126.65 and placed a stop 100 points higher. With such a wide but necessary backstop (not to mention the short euro exposure I already have), I will reduce position size significantly. My first target will be 125.15 and the second will be left open for now.
