Central bank-driven moves are big and they last
A 200 pips move in a currency feels enormous... until it turns into 400 pips a few hours later. I've been sticking to my guns on the long side. (from the first headlines and buying at 1.08)
The euro has continued to extend gains and the market is beginning to turn against the US dollar as the S&P 500 takes a beating (-35 points now).
The whole thing is a house of cards built on cheap money. The ECB didn't even take away a card but there's now one that wasn't as rigid as we thought. Next week the Fed is going to take one out.
In any case, the important point is that central bank moves last longer than anyone expects on Day 1. The ECB didn't sit on its hands but they under-delivered. On top of that, the euro-short trade is wildly overcrowded and there are now a handful of reasons to get out.
My advice is: Do not fight this trend. I don't care how overbought the hourly RSI is. Central bank-driven moves don't end after one day.
Here is USD/JPY after the surprise increase in QE in Oct 2014. The first day it rallied 314 pips and everyone thought they missed the trade. In the next 5 weeks it went up almost 1000 pips more.
I don't think the euro has that kind of juice, but there is still plenty of room to squeeze higher.
