Todays Risk/Reward trade
Today we see the decision of the German Constitutional Court on the legality of the ESM.
Markets are on the starting blocks to buy Euro assets of every type and see the 1.30 level against the USD as ready to be broken in an instant.
Being contrarian for a moment and looking at the possibilities that the court either finds the ESM illegal (unlikely) or attaches some quite major conditions (possible) where will the Euro trade then.
Technically the Euro looks overbought and there is a distinct possibility even in the case that the court finds unconditionally in favour of the ESM how far can the Euro go?
We still have Greece, Spanish banks, unpopular austerity in a number of countries, today’s Dutch elections and many other hurdles to pass. Overnight, Moodys stated that the newly announced bond purchase scheme buys more time but is not the cure for what ails peripheral countries.
So, is not the risk reward trade to be short Euros today? Albeit with a very tight stop loss!
An upside of 1.3000 vs. a downside of at least 1.2480 seems to favour just such a trade.
It remains to be seem what the market actually aspires to but when something seems too good to be true it usually is and there are no one way streets in these markets