Daily Observations: January 04, 2013

Current Positions:

- Short EURAUD from 1.2720, Stop at 1.2585 (lock-in +135-pips), Target 3 at 1.2400

- Long EURCHF from 1.2018, Stop at 1.1990, Target 1 at 1.2500, Target 2 at 1.2750

Time Frame: 1-day to 1-week

I remain Short the EURAUD as the commodity currencies continue to outpace the European currencies, with equity markets around the globe holding onto their strong gains the first week of 2013. Generally speaking, risk is "on": volatility indexes are at multi-month lows; liquidity markets are well-lubricated thanks to the Federal Reserve, the European Central Bank, and the Bank of Japan; investors are moving away from historically safe government bonds, while pushing down Italian and Spanish yields further; and the near-term hurdle of the U.S. fiscal cliff/slope has been cleared (although the debt ceiling fight remains). The initial Short EURAUD trade parameters were discussed here.

With respect to the Euro, the market is no longer net-short; in fact, net-longs as measured by the CFTC's COT report now out position net-shorts 5126 to 2549. In other words, the short covering rally behind the Euro is over; there is significantly more room for downside now. This is a key theme headed into an ECB policy decision week.

Any other trade ideas and general macroeconomic musings can be found in the Real Time Newsfeed, or by following me on twitter @CVecchioFX.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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