EUR/USD is setting up for a painful short squeeze, which could hurt investors who came late to the recent downtrend. The path toward U.S. tax reform is getting more complicated, which is a dollar negative, as is the sour mood in equity markets.
The pair now sits almost unchanged from the intraday low on Oct. 26 when the ECB's taper revelations more than wiped out two weeks of gains.
One-month risk reversals are back to a neutral area, which leaves cleaner positioning for the options market to join in on any euro bounce.
The short-term pain trade looks like being a rise toward at least the 1.1725 area which was the recent breakdown point.
Source: Bloomberg Pro Terminal
Trader Nikolay Georgiev
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