The market still sees OMTs as a game changer, but for how long? Commerzbank asks, having seen EUR/USD retrace about 50% of the post-Draghi plan euphoria. The relatively steep EUR/USD volatility curve--the calendar spread between 1-year and 1-month volatility--shows the market deep down is still banking on a positive outcome, the German bank says. However, the wrangling over Spain also shows nothing has changed about bailout conditionality or about the chances of success of the overall bailout mechanism. "Should the FX market come to the conclusion that the OMTs are not a game changer after all and that the 'good old days' have not come back, the reaction is likely to be considerable," it adds. "EUR bulls inspired by the OMT announcement have not squared their positions yet. So a lot of EUR optimism can still be priced out," Commerzbank adds. EUR/USD is at 1.2872.
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