By now everybody knows Europe is in pain, the economy is imploding, Brexit is a mess, Italy is ion chaos, nationalism on the rise, Merkel soon gone and much more. We know of nobody that is bullish on Europe. It is therefore very interesting to look what happened during the massive squeeze in Europe yesterday.

Sure, we had the better sentiment around the trade talks, ECB hinting about reviving stimulus (yes, the economy is bad), but price action suggests to us somebody BIG either massively short/underweight Europe, or somebody taking a huge bet that Europe will outperform going forward.

DAX futures started the trajectory higher rather early European hours. The intra day chart is a classical VWAP buy order over the day. From lows DAX gained almost 3%, all in a stable steady fashion.

Eurostoxx 50 followed, but the performance was less extreme compared to the DAX.

We heard sales guys telling us this was due to the fact the Euro was selling off, but this is not what happened. The Euro did sell off, but reversed and closed pretty much unchanged on the day.

Beaten Euro is down to massive support levels. Note the hammer candle on lows.

Whoever went bullish on Europe (or closed a massive short) also affected risk premium. V2X was sold over the day. The main “VIX” of Europe is once again back to interesting levels for long options strategies. Long gamma makes a lot of sense here, using options for further upside exposure, replacing longs, or hedging downside is not expensive here. Vol is pricing approx. 0.85% daily moves of the Eurostoxx 50 index.

Below chart shows the extreme outperformance of the DAX versus NASDAQ yesterday. Do note that the JPY did not buy any of the bullishness.

On a longer time chart the DAX (white) still remains the dog compared to SPX (orange). The chart is not adjusted for FX, put paints a clear picture still. Maybe the huge DAX buy order was a rational bet.


Source; Bloomberg