EURUSD, 5/5/2013 - Short Term Volatility

Recap

Last week saw the pair run up to 1.3242 pre central bankathon to subsequently gyrate wildly between there and 1.3032, closing about 20 pips below the midpoint at 1.3115.  I'm not a charting guru, but it looks like a pretty bearish formation on the weekly bar.  The key events in sequence were as follows:

• new FOMC statement language explicitly stating QE could be ratcheted up (although this was mentioned by Ben previously in presser). Statement though generally unchanged, keeping market expectation of QE halting at end of 2013.  EUR slowly slides to close around 1.3180.
• ECB announces HIGHLY anticipated rate cuts. EUR has a quick spike down to 1.3119, then up sharply in a matter of minutes to 1.3218
• Draghi reveals openness to negative deposit rates in Q&A session.  EUR collapses to 1.3037.
• London open.  Miraculous EUR recovery to 1.3128 in anticipation of US NFP.
• NFP beats bigtime. EUR crashes again to just past previous day's low at 1.3032.
• US Manufacturing data release suggests slight slowing in US industrial expansion.  EUR recovers entire NFP loss and then some to trade up to 1.3160 before settling back and closing the week at 1.3115.

These moves were the biggest we've seen in a month since the onset of the Cyprus crisis.  Another notable development last week was the continued compression of Italian and Spanish yields to pre-crisis levels.

Outlook

Clearly more is going on here than meets the eye, but it's anything but clear what that is.  Is it possible that real money flows are now finding their way back into sovereign debt in the global search for anything with yield?  The EUR.JPY action + plummeting sovereign yields last week would certainly suggest this.  The EZ data this week should be pretty useless in guiding the pair unless it gets even more miserable, although this is pretty hard to imagine.  There is also not much exciting data out of the USD either.  The approach for this week will be to continue to fade rallies, taking some profit close to the bottom of the range. Ultimately, wait patiently for the inevitable break to the downside below 1.30.

Mon

Draghi speech at 9am EST.  If anything, I'd expect him to talk the currency down.