There is plenty to talk about this morning and yet nothing overtly new in the scheme of things. What was supposed to be a non-event last night turned out to be the lighting of a very short fuse and ensuing USD sales. Ben Bernanke and his merry band of men made it perfectly clear that not only do they stand at the ready, but that they’re also practically itching to pull the trigger on further accommodative monetary policy in the US, stopping just short of explaining what form this will take and when exactly it will occur. The Federal Open Market Commmittee minutes from the August meeting gave every QE3 hopeful out there further cause to live and get reenergised.
The headlines are by now well known as to how they see the world, and how we see it, is a march to the exit doors for any USD longs and more fresh USD shorts being initiated. The EURUSD was the main beneficiary of the move as more shorts continued to get squeezed, while the Cable was not putting in a performance to be ashamed of either. The AUDUSD limped along in sympathy but has so far failed to live up to the hype of the other USD crosses.
Also out overnight was Chinese Manufacturing PMI (as monitored by HSBC) which was the biggest drop in the last three months of the series (this perhaps gave the AUDUSD the additional headwinds it encountered). But even so, this data failed to put a dampener on the general euphoria being felt out there presently.
On a side note, I personally hold Alan Greenspan entirely responsible for the circus we now have to deal with. Now before you jump to conclusions, I don’t have him in my crosshairs for the obvious reasons many of you would think, bottomless expansionary, zero rates policy etc. No, instead, he is to blame for setting a ridiculous benchmark of telegraphing upcoming policy decisions to the rest of the market, so that we all may be better prepared to deal with the news when he finally broke it. Well in that vein, Ben, Super Mario, Trichet (in his time) and countless others have attempted to follow and what this has done has actually increased market volatility and uncertainty, rather than preventing it. Since when is any central banker obliged to hint/foretell etc of intended policy decisions? Shouldn’t it be up to us to judge an economy and its country on an objective macroeconomic basis, make up our own minds (rightly or wrongly) with regard to the monetary and/or fiscal policy stance to be taken and act accordingly? All this communication to the market does is two things: confuses the objectivity/clarity of the picture and furthermore reduces the efficiency (if there is even any more left) of the transmission mechanism of policy. If Alan did it, it doesn’t mean the rest of you have to follow his lead…
Moving onto markets for today, and the main theme is going to be intraday punters attempting to second guess where we’re headed before the end of the week, while model funds out there look to their machines to try and figure out which signal is emanating from their black box. Do they want to now turn net long of EUR and thus by association, sell USD everywhere else and buy against, or are they simply in squaring up mode waiting for the next technical level to be breached etc.?
The Summer “risk on” grind I have been banging on about for the last few weeks certainly got a rather hefty kick up the backside last night, the question though is how long that will hold this market…
I am not initiating anything new right now, while admittedly I did buy a 1.2450 Friday One Touch Binary option last night, on the expectation that there would be a reversal/consolidation before the week’s close. The only other thing I will point out, is that it’s worth looking at what doesn’t move (or moves counter intuitively, less quickly etc) amongst the usual suspects. There is an obvious over reaction at present in FX. It’s just now a matter of how quickly and what direction the follow through comes in… Yes, I am pulling splinters out of my proverbial this morning from doing a little fence sitting…
Helmets firmly strapped on and good luck.
Ken Veksler,
SAXO BANK