Exodus from USD Subsides

Filed in commodities, dividend, euro, Gold, lead, Quantitative Easing, Red Back, sov, sovere by on September 23, 2010 0 Comments

In FX, it’s all about the QE2. Tuesday’s FOMC meeting has clearly trigger a mass exodus from the USD. Yesterday’s Portuguese auctions were a situation of a cup half full, at best, with a healthy bid to cover ratio, yet at a high price and overall spreads between peripherals and bonds remain wide. In addition EU industrial new orders fell off a cliff, printing at -2.4% m/m vs. -1.4% exp. So far this EU sovereign risk / weakness has been completely overlooked as traders scramble over each other to exit the USD. Its also important that this is not just a normal rally in risk correlated trades as commodities (barring gold) have been relatively sideways and US stock markets closed lower yesterday. We suspect that the recent EURUSD move should be now considered overdone since we really have not gotten any new information from the FOMC (policy shifts or economic forecasts) that had not been anticipated. We have been slightly surprised by the markets violent reaction to the Feds language, suggesting preparedness to ease again. Of course they stand ready; Bernanke has never implied that he would take QE off the table, in fact significantly he has said the opposite. Let us not forget that there are still considerable problems in the EU, which have been …

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Exodus from USD Subsides

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