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EURUSD: Risk grows for a short squeeze - TDS

FXStreet (Bali) - Shaun Osborne, Chief FX Strategist at TD Securities, notes that the risk of a short-term correction higher in EURUSD may be greater than previously assumed.

Key Quotes

"The longest, sustained one-way move we could find was an eleven week string of USD losses in late 2004. The longest sustained rise was nine weeks (on two occasions – late March to May 1979 and December 1996 through February 1997). On average, these trending and extended runs one way or the other in the USD last eight weeks and the bull runs in particular. From the perspective of these extremely rare events, the current run up in the USD looks prone to a pause, if not a correction."

"We are now in the ninth week of the USD rise and USD gains have slowed somewhat relative to last week, at least. The DXY is nearing the 84.75 area – last year's peak – and it is notable from the charts that this zone has proven to be something of a hurdle for the USD in the past couple of years. The issue here is that after a sustained rally, the USD may not quite have the legs to push higher for now."

"An extended trend decline in the USD that is just about to run into the buffers of long-term historic limits and shorter-term seasonal constraints, overbought signals emerging as the USD approaches important resistance on the DXY chart, a big, bearish shift in market sentiment and the potential for the spike in volatility all suggest that owning some protection against a short, sharp rally in EURUSD makes sense. We have covered our long EUR put position today with a decent profit. We look to roll some of that into buying a 2m EUR call/USD put 1.31 strike for 0.65% (spot ref. 1.2929)."

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