Options market-makers were clearly unprepared for this directional move in EUR/USD and have been scrambling to hedge their portfolios as the market rises. The way the market was set up, the further EUR rose, the shorter the options books became, necessitating hedging (buying) in the spot market.
Spot traders have been fading the trend all along as well, adding fuel to the fire.
Central banks have not been immune to the “fade the rallies” mentality either, with a mid-east central bank seen buying back shorts near the highs this morning.
Have we reached the capitulation zone yet? Beats me, but I wouldn’t bet on it…Everyone who has bet on it so far has lost…
EUR/USD is consolidating now at 1.2995.