Euro: is this the Giro? Speculative Sentiment And Greece may decide

The euro had its biggest drop in two days from the height of the financial crisis, highlighting a potential extreme confidence as leveraged positions touched multi-year highs. A disappointing European Central Bank interest rate decision and speculation that Greece could leave the euro led to dramatic settlement through trade week late.

The sudden fall emphasized that currency markets are very easily frightened, and expectations of higher volatility since January warn of major movements in the coming weeks.

foreseeable event risk is relatively limited in the coming days, but traders should be alert to surprises in the Monthly Report and the figures for German GDP growth on Thursday and Friday, respectively.

The European Central Bank disappointed euro bulls in the expression of a relatively neutral trend and prudent monetary policy, but all ruled out a rise in interest rates in June. Overnight Index Swaps now point to an increase in interest rates in July at the earliest, and expectations of interest rate 12 months also showed a significant reduction in yield forecasts in the medium term.

The ECB's Monthly Report and German GDP growth figures, then, could help clarify uncertain expectations and spark significant volatility euros. However, the EUR / USD moves could come from larger development in sovereign debt markets and uncertainty about the Greek economy.

Rumors that Greece tried to leave the European Economic and Monetary Union (EMU) caused a sharp sell-euros, and any corroboration could easily force further declines.

Markets have speculated that the Greek government may have significant difficulties returning to international debt markets and some sort of debt restructuring seemed increasingly likely. The abandonment of the euro in favor of a new national currency effectively ensure a defect, a Greek coin is likely to fall sharply against the euro at the beginning and make it much more expensive to pay the debt denominated in euros.

We then see the risk of Greece leave the EMU as relatively remote, but that does not stop market speculation and rising prices of default risk of debt. Caution is warranted in the middle market conditions particularly uncertain.

The euro and the dollar currency pair remains strongly correlated with the S & P 500, U.S. and other markets with high degree of leverage and options markets point to major changes in most classes of financial assets in the coming days.

Commitment of Traders data Friday showed euro net futures positioning noncommercial network of longest since early 2007 and represented a sharp jump of only seven days. The sudden deleveraging in financial markets unsurprisingly forced a short-covering rally for the downtrodden U.S. dollar, and the key question is whether we see similar disturbances in financial markets through trade next.

Our own speculation? Opinion Index showed that trading crowds remained net short EURUSD from January 12 through May 5 th-rally good for a 1800 pip. A more acute for public could buy a sign that this is the beginning of a major change in euros.

Euro: Is this the turn? Speculative Sentiment