Dealers were rushing to put together multi-currency basket plays last week to take advantage of the weakening euro following rejection of the E.U. constitution by French and Dutch voters last week. Kay Mirza, managing director and fx options trader at JPMorgan in New York, said his firm structured a number of the deals for investors looking to buy euro puts against a basket of currency calls that typically includes the Canadian dollar, sterling, Brazilian real and Mexican peso.
Ken Landon, an fx strategist at JPMorgan in New York, added the no-votes caused a broad-based selloff of euros and led investors to take long positions in emerging market currencies and in the currencies of economies where interest rate hikes are expected, such as U.S. and Canadian dollars.
Amarjit Sahota, head of global research with HIFX in San Francisco, added corporates had picked up cheap euros in the first half of May when its value against the dollar had sunk into the USD1.26-1.27 range, a significant drop from USD1.36, which is where the euro stood against the greenback at the year's start. Sahota said after last week's euro/dollar breakdown, corporates have lost interest in buying more euros. "They are now realizing there could be a major trend break and reversal and the dollar bull could be returning," he said.
As DW went to press on Thursday the euro was at USD1.23 against the greenback, down from USD1.25 the week before, while one-month implied volatility had jumped to 9.41% from 8.25%.
