An ECB rate cut won’t mend the mechanism – Mario where’s my LTRO?

A surprise cut by the ECB yesterday. Well a surprise for the 99% in the market, not of course the plethora of Harry Hindsight monkeys that have reared their heads this morning yelling a massive “told ya so”. Yeah? Well about your p/l, Harry, how’s that looking? Anyway, perhaps of more concern for me and anyone paying any attention yesterday at 12.45 London was the fact that for a solid 45 seconds before the announcement and news wired got the nod, someone else did and in a massive way. The EURUSD fell out of bed to the tune of nearly a big figure before the announcement. Forget conspiracy theories, don’t call the tin hat brigade etc, this was blatant and utterly ridiculous and couldn’t possibly be any more obvious. Someone was told and dealt, in size, on the information. The rest is history.

I got it wrong folks, happy to put my hand up to it too. Unlike those mentioned above, I’m only as good as my last trade and I for one, wasn’t looking for a cut this month, but we got it anyway. The reaction during the press conference and certainly afterwards, is perhaps more telling than is the move after the actual cut. Bottom line, you can cut all you like but the money is getting where it needs to, deflation is a real thing and the transmission mechanism is broken and not likely to be fixed any time soon. The fact that we reversed such a broad bulk of the move not only in the EURUSD but all other USD crosses tells me personally two things.

One, a rate cut from the ECB without another LTRO is a complete and utter waste of time. The market wants free cash and loads of it as per the US. If Draghi won’t give it to them, they won’t do what the ECB wants, which is a weaker currency and a reflated economy.

Secondly, nobody on the street wants to own USD. Period. A trend was spotted after the lack of taper in September and as I’ve written here a few times now, this is the last grab chance of real money to generate any alpha to save what’s been a horrible year.

Today is going to be a dead day until the NFP circus this afternoon. A lottery at best usually and now in light of the multitude of excuses they can make as to the reliability etc of the number post government shutdown, well…

As far as crosses, I still stick to the overriding sell USD theme and in light of that, well here goes;

EURUSD: Through stops at 1.3450 and runs into traffic and heavy sellers into 1.3480. Between there and 1.3530 is a lot of traffic which unless we print something like 50k on NFP it won’t get through.

GBPUSD: Betty is in a world of its own and only a little deterred by the cross (EURGBP). Overall I think it has room higher, more on the USD story rather underlying at the moment. I think 1.6130 caps topside unless of course that old chestnut the NFP is horrible. On the downside, dip buyers will be out in force looking for anything sub 1.6010 into 1.5980 to pay the offer.

USDJPY: Doesn’t belong above 99.00 and yesterday was proof in the pudding. Fade rallies if you can and look for 97.30 as your base case. Above 99.80 and you short and caught and plain wrong.

Long week folks, wild rides and ultimately (mark my words) we’ll finish at 21.00GMT tonight roughly where we started on Monday.
Helmets on for the ride as always.

Disclaimer