I wasn’t around for Thursday’s ECB fix (I had better things to do – see Mustard’s 50th), so thanks to those who were at their desks and briefed me after the event. It looks as though, for the second year running, it was an order that one would have preferred not to win (FX news: Single farm payments – A €/£ harvest at the end of September).
It was good news for the farmers as the euro caught a spate of quarter-end buying; it was bad news for anyone who had bought the one-week 0.8400 puts a week earlier. It is hard to see how that was anything other than a waste of premium, given the price action.
There was some EUR/GBP selling during late Asia and early London time, but for the majority of the morning leading up to the fix, the cross was pretty stable around 0.8580. Then about five minutes before the fix some selling was seen, which was taken as a cue for nervous shorts to cover and the official fix was logged at 0.85995.
But it looks like the short-sellers far outweighed the order itself as the spot exploded to 0.8620 and beyond. It’s hard to see how the bank with the order didn’t get hurt. It is possible that “if they had spuds the size of medicine balls”, as one market player said, they could have released a remnant of the order in the post-fix rally, but the price action made it look like it wasn’t happening. And it would have to be a sizeable remnant to compensate for losses on anything sold immediately pre-fix.
I am told the spot fixing isn’t all there is to the order; apparently there are forward components and, possibly, some optionality involved in the setting of the forward points. The deal is starting to look like a bit of a hospital order. There’s little chance that the competition to win it will be quite so heated next year.
