It was a pretty violent night in euroland, with the battered currency trading in the $1.27s before trading back above $1.28.
The $1.30 “support” level that everyone was obsessed with a couple days ago is a fond memory.
So what’s next?
Mike O’Rourke of BTIG explains what you should be looking out for:
The (chart) below highlights the key 1.25 support level which coincides with the October-November 2008 and February-March 2009 bottoms the currency made versus the Dollar. Remember (how could anyone forget) those were key levels/bottoms in the U.S. equity market during the crisis. The irony is that the flight to quality bid was largely the result of problems emanating from the U.S. Obviously, today the problems are originating from Europe. That distinction is a key one because when that previous flight to quality occurred, global risk assets were sold and the currency was converted into Dollars and Treasuries were viewed as the only safe place to be. Fourteen months later, investors also have the alternative of a U.S. equity market trading less than 14.5x this year’s still rising earnings, estimates. Amidst the global uncertainty, it is not overwhelmingly compelling yet but should another notable down leg materialise, the situation will get very interesting. The Euro also has a major support level at the 1.20 level where it hovered for the second half of 2005.
As for “the play”
Ideally, as this situation unfolds over the next few sessions, an opportunity will arise if the Euro hits the 1.25 level in conjunction with a market event, i.e. German vote, U.S. Jobs report or something of a similar nature. The combination of events could/should trigger a reversal of the recent trends.