Thursday, July 26, 2012

Draghi sends crowded shorts running for cover

As discussed last weekend, the short euro position has been a crowded trade for some time now. Short Spanish and Italian debt and long treasuries and Bunds was getting there as well. To provide relief to Spain, Draghi threatened the markets. "Believe me, [my actions] will be enough [to hurt the shorts]".

In response, the euro went vertical with all the short covering.

EUR (dollars per one euro) intraday

There are not many "bullets in Draghi's gun", and threatening to do something major was one of them. He just used it. If there is no follow-through, his credibility is shot. Here is some commentary on the topic.
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