by Dean Popplewell
It’s difficult to get excited by helicopter Ben two days in a row, however, here we are and its seems we have to try. Yesterday, he followed through with only his history lecture, urging us to keep the lessons from the Great Depression to evaluate recent Fed actions and no QE. Today, in a market that screams of “we have been here before,” we hope for our own market sanity that that he will say something to break this trading monotony. The hottest thing in the market yesterday was the new iPad, so either Ben “goes for it” or we could be in for another long day.
The EUR is leading the G10 rally against the dollar despite Asian equities being mixed in the overnight session. The single currency has managed to strengthen on the back of the Greek Prime Minister winning parliamentary approval for their second and most likely not their last international bailout. The currency is here, knocking on its monthly outright highs, because it's cheap according to many. In January, it traded at its seven-year lows on a trade weighted basis. As expected and rightly, many of us took the opportunity of the ECB’s LTRO operation to use the currency to buy the antipodean ‘carry’ trade. However, Chinese growth concerns have many questioning this risk-correlated trading strategy. This EUR short squeeze is trying to gather momentum as these risk currencies with strong trading ties to China come under pressure.
The outlier ahead of the North American open is GBP. It’s trading under pressure outright after the BoE minutes release showed that members had voted 7-2 against QE, it’s the two that has Sterling choking early. There was little surprise with the white wash, 9-0, on the no rate hike.
Crude has stopped the bleeding and rallied after yesterday’s -2.3% decline, its largest loss in three-months, and giving some of the commodity currencies a reason to do something. The loonie is again straddling its weekly high with little danger of any significant run ahead of retail sales and CPI later in the week. The currency is again running into some technical resistance at these levels. The dollar bids will remain on these pullbacks until the CAD can break this tedious contained range. Following yesterday’s strong US housing starts for last month, a firm existing home sales reading later this morning should provide some support for the ‘mighty buck,’ limiting the loonie progress and tempering the EUR advance or at least until the market can digest Ben!