Ok, so the euro had one of its worst days of the year versus the resurgent dollar on Friday.
On the heels of a double whammy (the upbeat jobs report and jawboning from Cohn about tax reform) the broad dollar surged, and after a furious ascent, the euro finally rolled over:
And indeed, it looks like this was long overdue as the dollar was the most oversold since 2007 on at least one measure:
But don’t forget what’s coming up. We’re staring down Draghi at Jackson Hole and believe it or not, the news on the Mueller investigation actually got worse last night as The New York Times reported that the Special Counsel has now formally asked the White House to hand over documents for the first time.
So if you’re looking at EURUSD, you kind of have to ask yourself this: is it realistic to believe that the possible announcement of Fed balance sheet normalization is going to be enough to offset i) Draghi telegraphing/ announcing an ECB taper over the next several months, and then ii) an almost inevitable deterioration of the situation in Washington?
If you ask three-month risk reversals, the answer to that question is “no.”
That’s still the most bullish sentiment since 2009.