What triggered the big move in EUR/USD pair?

Trading Discussion
#1

I had noticed a 2 big downtrend in the EUR/USD pair. On the first downtrend that i had noticed there is more or less a 150 pips down in the pair. I had noticed that from the 1.3820 asked price it moved to 1.36540 before reaching the resistance level. Meanwhile, after the opening of the New York exchange i had noticed a second downtrend even before then the first downtrend had reached a 38.2% fibonacci retracement level. From 1.36918 asked price it looses more or less 50 points up to 1.36423. My question is, what cause the 150 points downtrend of this week? And what cause the 50 points downtrend of the first hour of the New York trading? Does it have something to do with the expectation of the change in US interest rates?

Skype: khalihgs
YM: white_tux2005

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#2

It all has to do with the liquidity problems that are on-going. There’s a massive demand for USD on an overnight basis and it’s waving through the forex market along with the money markets. At the same time, this is having a big playout in the carry trade. Take a look at what EUR/JPY did yesterday.

#3

What is the root of the overnight demand for dollar? Are their any company buy outs? Or are there any news that triggered that major buying of the greenback? If there is. What are those? In regard to the EUR/JPY who has also a downtrend of more or less 500 pips. What has caused this major appreciation in the JPY? When I had compared the charts of USD/JPY with EUR/USD, I had found out that they both pairs have big downtrends. If I am not mistaken the equation for this trends is JPY>USD>EUR. Is it a sign that the Japanese Economy had ended their period of recession? One of my collegues in the trading had told me that economist are expecting a 0.2% growth in the GDP of the Japanese economy which the data will be released sooner or later this week. This data is so crucial that it may affect the first hour are the trading of the respective regions: London, New York and Tokyo. Is this big appreciation in the JPY is a omen that the expected growth in the Japanese economy may be meet? Or this is only a preparation for any possible retracements in the future?

Skype: Khalihgs
Ym: white_tux2005

#4

None of this actually really has anything to do with fundamentals at all. It’s a very structural situation related to to global short-term liquidity. The word yesterday was that someone in Europe, potentially related to losses in subprime, needed to fund a large position in overnight money, meaning they needed to borrow overnight. There were insufficient funds being made available for overnight lending by those with the money (those folks are very leary about lending to anyone right now). It was a pure supply and demand situation. Too much demand and not enough supply drove overnight LIBOR rates sharply higher as those with borrowing needs desperately sought funds, USD specifically. Anytime you have a demand for USD it is naturally going to rally.

The carry trade was pulled in because all of this stuff is inter-related. The same is true of gold, which fell like $13/oz yesterday. There were probably quite a few folks liquidating gold position to raise funds, just others may have been doing the same in stocks, and carry trades were certainly involved in the whole mix as well. Moreover, the carry trade unwind seems to have begun, which could become self-perpetuating and add to the global liquidity issues going on right now.