11 Jul 2013
Bernanke’s cat
FXstreet.com (Edinburgh) -The euro, and the vast majority of risk-associated assets, re-discovered the ‘fountain of youth’ in Chairman Bernanke’s words on Wednesday, dampening the recent over-talked likeliness of the Fed slowing down its monthly bond buying programme in the September meeting.
Bottom line: nothing new
At the end of the day, traders should already know by now that ‘tapering’ is not ‘tightening’, and regardless the timing, the Federal Reserve will keep the pump lubricated for the foreseeable future, but just at a slower pace. At the same time, and in line with Bernanke’s and other Fed’s officials warnings, a premature full exit will definitely have undesirable consequences for the US economy, and nobody would like to be blamed for hampering the incipient recovery. Surely the ‘tapering’ fact will now give way to a return of the ‘data-watching’ mode. The status quo remains: inflation levels posing no risks and the domestic labour market is on the right track. Nobody in the US cares about Euroland and its messy backyard, that is a job for Merkel and Co. and a lot needs yet to be done.
The ‘dead cat’ is back?
The massive jump in the EUR/USD left market participants scratching their heads looking for answers, as the abrupt correction has definitely exceeded even the most bullish expectations. Recall that 24 hours before the up-move, the pair was flirting with 2013 lows around 1.2750, and the prospect was not looking well at all with every analyst and trader in the FX space pointing to a test of ytd lows and further down. So, again Bernanke and again the USD. Charts-wise, we still need confirmation of the recent move, in order to stand on more solid ground and utter that the main bearish trend has in fact reverted. The upcoming sessions would be key to determine the future scenario for the shared currency, and for starters the US docket will bring the weekly report on Initial Claims today, with its relevance magnified since yesterday.
The main (and big) threat for any euro-optimist is the new ‘forward guidance’ style adopted by the ECB in its last meeting, leaving behind the ‘we do not pre-commit’ concept, used many times by President Draghi to elude tricky questions. Of course, the bloc fragility still remains intact, as investors should not be fooled by the recent improvements in some fundamentals. It is worth recalling the late poor data from Germany, in clear contrast to those from the periphery. Italian and Spanish bond yields have ticked higher since May, although the alarms did not ring yet. All in all, the famous market adage seems to be once again amongst us, pointing to this up-move as the classic opportunity to sell the rally.
Bottom line: nothing new
At the end of the day, traders should already know by now that ‘tapering’ is not ‘tightening’, and regardless the timing, the Federal Reserve will keep the pump lubricated for the foreseeable future, but just at a slower pace. At the same time, and in line with Bernanke’s and other Fed’s officials warnings, a premature full exit will definitely have undesirable consequences for the US economy, and nobody would like to be blamed for hampering the incipient recovery. Surely the ‘tapering’ fact will now give way to a return of the ‘data-watching’ mode. The status quo remains: inflation levels posing no risks and the domestic labour market is on the right track. Nobody in the US cares about Euroland and its messy backyard, that is a job for Merkel and Co. and a lot needs yet to be done.
The ‘dead cat’ is back?
The massive jump in the EUR/USD left market participants scratching their heads looking for answers, as the abrupt correction has definitely exceeded even the most bullish expectations. Recall that 24 hours before the up-move, the pair was flirting with 2013 lows around 1.2750, and the prospect was not looking well at all with every analyst and trader in the FX space pointing to a test of ytd lows and further down. So, again Bernanke and again the USD. Charts-wise, we still need confirmation of the recent move, in order to stand on more solid ground and utter that the main bearish trend has in fact reverted. The upcoming sessions would be key to determine the future scenario for the shared currency, and for starters the US docket will bring the weekly report on Initial Claims today, with its relevance magnified since yesterday.
The main (and big) threat for any euro-optimist is the new ‘forward guidance’ style adopted by the ECB in its last meeting, leaving behind the ‘we do not pre-commit’ concept, used many times by President Draghi to elude tricky questions. Of course, the bloc fragility still remains intact, as investors should not be fooled by the recent improvements in some fundamentals. It is worth recalling the late poor data from Germany, in clear contrast to those from the periphery. Italian and Spanish bond yields have ticked higher since May, although the alarms did not ring yet. All in all, the famous market adage seems to be once again amongst us, pointing to this up-move as the classic opportunity to sell the rally.