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Greed is not good! Now that the market has run up and the Fed meeting is over, it is time to book profits. Though I am bullish on the markets, it can have speed bumps and you don't want to be caught with no profits at all. So it's time to book some profits and sit on some cash to take advantage of the speed bumps. I am clarifying that I am in no way bearish, but instead want investors to be ready with cash for upcoming buying opportunities.
Summary
Forex intraday volatility is back with a vengeance. Now that the Fed is trying to wean investors off the dependency of the central bank is making trading currencies are a lot more interesting.
The one-way directional dollar move is not being telegraphed as easily as before. Investors have to work a tad harder for their returns. Last week’s FOMC has managed to inject a lot of uncertainty into FX thinking. Naturally those doubts will be hardest felt in the most populated of forex bets and EUR shorts/dollar longs have been the biggest of the one-directional bets for many months. A likely consolidation is expected to favor further EUR/USD (€1.1865) short covering.
Fed Rhetoric Hurts Dollar
So far on this early Monday morning, the 19-member single currency has seen some fairly whippy trade in the European session (€1.0768-€1.0874). The EUR buying was most likely short covering. St. Louis Fed President Bullard’s assumption that the dollar is nearing “fair value” dragged the EUR off its intraday lows. The move to the high end of the range followed by Cleveland Fed President Mester’s comment that there is room to ease more if the U.S economy warrants it. From here on in, most investors will be eying Greek Prime Minister Tsipras’ visit to Berlin later today for directional play, as talks on the future of Greece’s bailout continue. Over the weekend, he warned that Greece might not be able to meet impending debt payments without financing help from the EU.
The EUR, which has been under pressure since QE was implemented, sparking a massive cash outflow from the eurozone, particularly into US assets, has staged a strong recovery from last week’s EUR/USD lows (€1.1464) when the Fed flatfooted the market by indicating that they may not raise interest rates as soon as investors had been pricing. For a considerable period of time the market has been so tightly wound, long US dollars, some sort of correction was certainly overdue. The Street got last week’s Fed ‘patient’ omission call correct, but was completely surprised that policymakers were not more impressed by the improvements in the US labor market.
Running out of time
The possibility of Grexit is the EUR”s immediate concerns. Since Ms. Yellen has muddied the rate differential argument for the time being, investors have been gravitating back to the amateur theatrics of the Greek government. The antics of Greek politicians have led mini-summits and Eurogroup meetings to fail and now it's up to the leaders and not the finance ministers to reach an agreement. However, time is running out as Greece is in danger of running out of funds. The ECB is unwilling to lift the limit on the T-bill issuance, leaving Greece to raid funds from other domestic sources – welfare system and public funds. It’s reported that Athens may have enough liquidity for roughly two more weeks (April 8), and that Greek finances would be deemed “critical” if it fails to submit viable reform plans. However, this will not be easy especially with Greece having walked away from the last meeting with a different interpretation to Merkel on what was agreed.
Merkel and Tsipras need to set record straight
This is obviously a priority between the two – nothing should be lost in translation. Germany will most likely insist that Greece is to stick to what was agreed to at the end of February. But, it’s the “humming and hawing” of Greece that is infuriating euro leaders. What is most evident is that Greek government is severely testing European patience, especially since everyone is still talking about the extension of the “original” bailout. If the market were talking about the possibility of a third package, capital markets would be trading Grexit risks with a lot more volatility. So far, that is not evident in peripheral spreads despite them off to a soft start this morning largely just to unwind Friday’s bounce, and also to take some profit ahead of today’s meeting (bunds/BTP +2.8pts and bonos +2.5pts).
Summary
- Dollar longs again squeezed.
- Greece running out of funds.
- Berlin meet needs clarity.
- Peripheral spreads trade orderly.
Forex intraday volatility is back with a vengeance. Now that the Fed is trying to wean investors off the dependency of the central bank is making trading currencies are a lot more interesting.
The one-way directional dollar move is not being telegraphed as easily as before. Investors have to work a tad harder for their returns. Last week’s FOMC has managed to inject a lot of uncertainty into FX thinking. Naturally those doubts will be hardest felt in the most populated of forex bets and EUR shorts/dollar longs have been the biggest of the one-directional bets for many months. A likely consolidation is expected to favor further EUR/USD (€1.1865) short covering.
Fed Rhetoric Hurts Dollar
So far on this early Monday morning, the 19-member single currency has seen some fairly whippy trade in the European session (€1.0768-€1.0874). The EUR buying was most likely short covering. St. Louis Fed President Bullard’s assumption that the dollar is nearing “fair value” dragged the EUR off its intraday lows. The move to the high end of the range followed by Cleveland Fed President Mester’s comment that there is room to ease more if the U.S economy warrants it. From here on in, most investors will be eying Greek Prime Minister Tsipras’ visit to Berlin later today for directional play, as talks on the future of Greece’s bailout continue. Over the weekend, he warned that Greece might not be able to meet impending debt payments without financing help from the EU.
The EUR, which has been under pressure since QE was implemented, sparking a massive cash outflow from the eurozone, particularly into US assets, has staged a strong recovery from last week’s EUR/USD lows (€1.1464) when the Fed flatfooted the market by indicating that they may not raise interest rates as soon as investors had been pricing. For a considerable period of time the market has been so tightly wound, long US dollars, some sort of correction was certainly overdue. The Street got last week’s Fed ‘patient’ omission call correct, but was completely surprised that policymakers were not more impressed by the improvements in the US labor market.
Running out of time
The possibility of Grexit is the EUR”s immediate concerns. Since Ms. Yellen has muddied the rate differential argument for the time being, investors have been gravitating back to the amateur theatrics of the Greek government. The antics of Greek politicians have led mini-summits and Eurogroup meetings to fail and now it's up to the leaders and not the finance ministers to reach an agreement. However, time is running out as Greece is in danger of running out of funds. The ECB is unwilling to lift the limit on the T-bill issuance, leaving Greece to raid funds from other domestic sources – welfare system and public funds. It’s reported that Athens may have enough liquidity for roughly two more weeks (April 8), and that Greek finances would be deemed “critical” if it fails to submit viable reform plans. However, this will not be easy especially with Greece having walked away from the last meeting with a different interpretation to Merkel on what was agreed.
Merkel and Tsipras need to set record straight
This is obviously a priority between the two – nothing should be lost in translation. Germany will most likely insist that Greece is to stick to what was agreed to at the end of February. But, it’s the “humming and hawing” of Greece that is infuriating euro leaders. What is most evident is that Greek government is severely testing European patience, especially since everyone is still talking about the extension of the “original” bailout. If the market were talking about the possibility of a third package, capital markets would be trading Grexit risks with a lot more volatility. So far, that is not evident in peripheral spreads despite them off to a soft start this morning largely just to unwind Friday’s bounce, and also to take some profit ahead of today’s meeting (bunds/BTP +2.8pts and bonos +2.5pts).