Excellent inside baseball on the the Hildy resignation, some there calling it a right wing coup. That faction, of course, had called the 1.20 peg/floor a back-door joining of the euro. "Our goals are not nearly so modest," says the billionaire behind that party when asked if he was satisfied with Hildy's resignation. http://www.bbc.co.uk/news/business-16492421
Sickening. After I got out of short EUR/SEK the pair turned around completely from risk on to risk off. EUR underperformed tons of currencies. Just goes to show why I hate stops. I find that a lot of the time my thesis was correct and just hanging in there would be the right play. My mistake was not leaving the position at a smaller size
I see a lot of talk about record speculative shorts on the EUR being some sort of contrarian signal. Maybe so, but isn't this measured from CME futures contracts? Exchange-traded futures aren't even a pimple on a pimple of the asshole of the world of fx trading. What's happening at the CME shows little more than what the dentists of the world are doing. Maybe there's some value there, but not a lot.
It's just a measure of sentiment, like put/call ratio or the investors intelligence polls. No doubt that bearish sentiment on the Euro is extreme, which doesn't necessarily mean the bears are 'wrong,' but certainly increases the odds of some kind of short squeeze rocket-rally in the near term. Is there any reason to think traders of spot and futures have significantly different opinions on the market?
Yes. These sentiment surveys are pretty worthless, except in retrospect. Yes, in any trending market, sentiment will be tilted the way of the trend at the extreme, but that extreme can go for awhile. It only looks smart to fade it in when looking back. Yes, go long the euro. That worked for a few hours last week, then you gave it back. Try again yesterday - worked for a couple of hours, then you gave it back. Try again today, oops, back at multi-year lows after a bit of a rally. Try again, tomorrow - fail. Try the day after that ... success, you made back 50% of what you lost the previous 10 attempts. Now you can tell everyone how smart it is to fade extreme sentiment on the CME. No position in EUR (other than some OOM puts), which in my mind I marked at 0 the second I bought them!
Something smells totally different about this recent EUR decline. The fact that it was so broad(dropping against so many countries) and quick makes me think this time its going to be persistent. It feels like whoever was propping up the EUR in 2011 has stepped out I'm considering increasing my size there by a good amount
I did learn an important lesson from my mistake. I have never read anywhere about this type of trade but in late 2011 I wrote here about shorting the EURSEK and shorting the EURUSD with the same size(for a period I had this position on) When risk on was going ES would rally 1%, EURSEK would fall about 0.6% EURUSD would rally 0.6%. The p&l of the fx transaction was $0 but you were long the 'EUR meltdown' trade through a breakdown of the correlation I briefly though about taking a very large position there because I saw little risk(I felt it was WAY more likely the correlation would turn around in my favor rather than against me) Turns out that trade would have been a massive winner. So, yes, I missed but now I will keep on eye out for this because its the type of edge doesn't come around that often(Like Fed futures)
The way that short was structured I was effectively short the EUR with a downside hedge, EUR could go to 1.45 and I wouldn't lose a penny but could make a bundle if the EUR started to go down against everything(Which I expected in the case of a meltdown) I would only lose if the EUR started a bull market against everything I see that I didn't took the trade because I had a net $ loss in 2011 shorting the EUR, so because I felt I was trading the currency poorly I didn't feel entitled to make big bets there. This is a dilemma because I should have
I agree completely that arbitrarily going long over and over because of COT, as with any sentiment indicator, is a foolish thing to do. It's nevertheless the case that overloaded one-sided bets reflecting excessive fear (or optimism as the case may be) can on occasion, and when combined with a short-term timing method, provide tradeable opportunities. Whether the Euro is one of those, I can't say.