After bouncing off the 0.886 fib of the rise up, shy of 1.3250, the EUR/USD has struggled to find direction. Despite making progress to the upside, price action has been mildly corrective to consolidative. I suspect the slightly bullish nature of the EURO was down to speculation that Big Bad Ben would re-assert that QE would be ongoing for the foreseeable future.
Whatever he said is irrelevant, what IS relevant is what market players must do to reduce/front run risk exposure; presumably, sell dollar denominated assets based on this weeks price action across several assets. The result thus far suggests a few things:
i) Players have been trimming bond holdings, to avoid a Bill Gross moment.
ii) Players have reduced equity exposure (NOT SHORT) as a precaution to the QE fuelled rally.
iii) Players have been unwinding short dollar currency positions, most notably as can be seen in the AUDUSD clobbering.
iv) Players have been reducing commodity positions.
Speculators cannot afford to be heavily long commodities/bonds/equities on QE(dollar weakness) to be caught wrong footed because they could not be bothered to reduce their risk; that is how speculative institutions go bankrupt, banks take serious hits, etc.
It should be noted; however, that the euro is positioned perfectly for a breakout; both to the upside, and to the downside. Should the coming week start with stellar (relatively speaking) USD data, and abysmal EUR data, then I would expect downside pressure in advance of the NFP. The sustained move should materialise once the NFP is released; and assuming a healthy deviation from what is expected, follow through should be no problem.
A neutral to slightly bearish stance should be observed; especially with the dollar looking like the preferred currency for future strength. ACTUAL tapering of QE would be enough to strengthen the dollar for the future, and an increase in interest rates; assuming continued growth, would amplify the move.
At the end of the day it comes down to.... would you rather have the bulk of your reserves in a potentially -(ve) interest yielding currency, or another heavy hitting reserve currency looking to strengthen, that potentially offers a +(ve) interest yield in the future?
Whatever he said is irrelevant, what IS relevant is what market players must do to reduce/front run risk exposure; presumably, sell dollar denominated assets based on this weeks price action across several assets. The result thus far suggests a few things:
i) Players have been trimming bond holdings, to avoid a Bill Gross moment.
ii) Players have reduced equity exposure (NOT SHORT) as a precaution to the QE fuelled rally.
iii) Players have been unwinding short dollar currency positions, most notably as can be seen in the AUDUSD clobbering.
iv) Players have been reducing commodity positions.
Speculators cannot afford to be heavily long commodities/bonds/equities on QE(dollar weakness) to be caught wrong footed because they could not be bothered to reduce their risk; that is how speculative institutions go bankrupt, banks take serious hits, etc.
It should be noted; however, that the euro is positioned perfectly for a breakout; both to the upside, and to the downside. Should the coming week start with stellar (relatively speaking) USD data, and abysmal EUR data, then I would expect downside pressure in advance of the NFP. The sustained move should materialise once the NFP is released; and assuming a healthy deviation from what is expected, follow through should be no problem.
A neutral to slightly bearish stance should be observed; especially with the dollar looking like the preferred currency for future strength. ACTUAL tapering of QE would be enough to strengthen the dollar for the future, and an increase in interest rates; assuming continued growth, would amplify the move.
At the end of the day it comes down to.... would you rather have the bulk of your reserves in a potentially -(ve) interest yielding currency, or another heavy hitting reserve currency looking to strengthen, that potentially offers a +(ve) interest yield in the future?