PQT,
The writers of exotics, for example knockouts and no touches, typically have deeper pockets than the buyers. This largely due to the fact that these are desks of major financial institutions. They have inherent interest in forcing, in this case euro lower, since they will stand to collect premium from what they wrote without having to payout. Can this level be defended? Nothing is guaranteed and if it gets close and not through you will get a nasty squeeze higher as they are forced to cover.
In regards to the stops, one of the easiest ways for a bank trader to make money is to run stops. If there are large stops within reach they will begin selling a good deal before to get short. Other prop traders will smell the action and join in the party. Once the stops start going the eur dealers could sell more than they need and force it lower, where they will grab more than they need and get long. The market will most likely snap back and they will have booked a nice profit and will be long from lower levels.
I am not sure how good I explained that....
Nonpiker, Thanks for the explanation. I get a better idea how it works now
So are you saying the bank caused this rally, if so, that means it might be a good idea to be long of US dollar, because this is an artifical action by banks.
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