This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

7 Observations About the Euro

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Marc Chandler

NEW YORK ( BBH FX Strategy) --

1. As the world took a step away from the proverbial abyss with the firming of the U.S. economy and the European Central Bank's massive liquidity injections in the first quarter, the dollar suffered.

The re-establishment of positions that were liquidated in the fourth quarter and the unwinding of part of the large long dollar positions amassed were key drivers.

Those moves appear to have run their course. The dollar will likely trade better in the second quarter than in the first.

The main exception is the dollar-yen, where the yen is likely to recoup some of its outsized losses from the first quarter.

2. As the euro rose in the first quarter, implied volatility collapsed, falling to its lowest levels since Lehman Brothers' demise.

Even if one does not trade options or follow them closely, it is important to appreciate that the compression of volatility is often like a coiled spring, and tends to precede large spot moves.

With volatility falling as the euro rose, it's likely to increase as the euro falls, and this is what has begun happening over the past couple of sessions.

Also judging from the pricing of puts and calls (as in the three-month risk-reversal), the discount for euro calls in late March fell to its lowest level since the first quarter of 2011.

However, this is reversing as participants buy puts (volatility is rising, so premium is being paid), and this also reflects the ascendancy of euro bears.

3. It is not just the case of the shift in views about the prospects for QE3. We have argued the economic conditions in Europe have deteriorated. We are concerned that there is still no closure in Greece despite the PSI. Italian and Spanish bond yields are rising, not falling, as are credit default swap prices.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.54 -1.70%
FB $118.25 0.70%
GOOG $700.38 1.20%
TSLA $225.50 -2.90%
YHOO $37.13 3.10%


Chart of I:DJI
DOW 17,667.98 +16.72 0.09%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs