Foreign exchange analysts have been puzzling over the last few months about seemingly unnatural strength and sudden drops in the euro, seemingly not exactly in line with the pace of headlines coming out of Europe.
Looking at "time zone trading patterns," BofA Merrill Lynch currency strategists John Hopkinson, Naeem Wahid, and Ankur Singh note that it appears as if London traders are leading the sell-off in the U.S. dollar.
This chart shows what they're talking about. Check out how the euro has spiked in UK trading recently while remaining relatively flat in the U.S. and Asia:
The chart above shows euro returns against the U.S. dollar over three different timeframes. The red line, representing the U.K., shows how the euro appreciates during London trading hours – between 8am GMT and 1pm GMT. The blue line – the U.S. session – shows euro appreciation against the dollar between 1pm GMT and 12am GMT, with Asia (the green line) representing the remaining hours every day.
BofA explains why this is so important. From their note to clients:
