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Euro Bounces to 1.3550 on Short Squeeze

Last updated 11/22/2011 4:13 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Euro caught a bid in early European trade today, as better risk appetite in equities and demand from Middle East caused a flurry of short covering sending the pair through the 1.3550 level. Investors were heartened by news that Greece is likely to receive its next trance of 8 billion euros of aid on November 29, despite some resistance to reforms by the opposition party leadership.

Markets are also becoming concerned about the failure of the super committee in US to reach an agreement on the budget  which would lead to automatic sequestration of funds, most notably the elimination of the payroll tax holiday  and further unemployment benefits. Such a scenario could lope off as much as 1% off US GDP growth in 2012. Although the actual  sequestration will not occur until eight months forward, the negative prospect of such an action could weigh on the dollar taking some pressure off the euro.

Meanwhile in EZ the economic  calendar is barren today with prime event risk centered on the Spanish auction. Spain will offer up to 3 billion euros of 3- and 6-month Treasury bills. Borrowing costs are expected to surge by around two percentage points, with markets providing little relief despite the strong win of the centre-right Popular Party's on Sunday. Still, with credit spreads in the region stabilizing the EUR/USD may see a push higher towards the 1.3600 level if risk flow remain supportive and late shorts continue to be squeezed.   

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.