In US trade, a sharp spike higher in the euro that dictated the price action of many assets classes had most analysts scratching their heads.
Despite a continuing rise in Spanish bond yields which has seen the euro under downwards pressure in recent weeks, the euro bounced sharply off its low of 1.2994 to hit a high of 1.3148. This move was a source of confusion for many traders, but it didn't take long for conspiracy theories to start surfacing. Here are a few: One: some very large hedge funds that have been extremely short EUR/USD for a long time started covering when the euro dipped below the 1.30, a level they couldn’t see being sustained. Two: one large fund was heavily buying euro on the belief that another round of Fed QE is most definitely on the table, especially if China becomes a less active buyer of US Treasuries. Three: there were heavy European bank repatriation flows with the potential flaring up of the European sovereign debt crisis seeing a 'dash for cash' by European banks.
None of these reasons are definitive, but collectively they offer a plausible explanation for the euro’s bounce. Having ended yesterday’s Australian session around the 1.3030 level, the euro surged higher to close US trade at 1.3142. Upon reopening for the Asian session, the euro has lost some steam to be currently trading in the mid -1.3120s. For a technical analysis of the euro, please refer to today's 'One to Watch'.