The past 24 hours or so have been very active in global markets as a short squeeze took control of currencies that had the USD involved in their name. For months we have been singing the praises of King Dollar and the infallibility of its rise against any and all challengers. The unfortunate side-effect of that kind of thinking is that a majority of investors begin to agree and join in on the fun which then creates an environment that is ripe for a short squeeze. Once the squeeze begins, it is difficult to determine when it will end as it could last hours, days, or even weeks if it has been beaten down for long enough. This is the predicament we find ourselves in now as the USD appears as if it is trying to fight back.
A couple of currencies that participated in yesterday’s squeeze were the EUR which has been everyone’s favorite currency to sell of late, and the AUD, which rallied back from an interest rate cut. Due to the EUR being demoralized so much over the last few months; it even squeezed higher against the AUD, despite the face-ripping rally the AUD experienced against others. The EUR/AUD even continued following an established trend line that started in late January amongst all the activity.
In addition to the established trend line, the EUR/AUD also more recently retraced 61.8% of the squeeze which brought it right back to the trend line and sets it up to potentially complete an ABCD pattern that could extend it up to 1.50. This pattern could potentially get blown away by Australian Retail Sales scheduled for release this evening, but then again, it could help it as well. Consensus is calling for a 0.3% increase which would better last month’s disappointing 0.1% rise, but considering the actions of the Reserve Bank of Australia earlier this week, another disappointment may be in the cards.