Forward guided beyond all recognition
The December FOMC minutes last night gave the market little, if anything new and equally so anything of any true value. A conversation I had on Twitter (@KenVeksler if you’re interested) late yesterday afternoon highlighted (in my opinion) what this market is all about these days, consensus views and trying to wade through the garbage of central bank communication to determine what theirs might actually be. In short, the message that Bernanke gave in December was simply further confirmed with the release of the minutes, simply put “we’ll go wherever the wind blows us”. Meaning that (my interpretation) the continued reduction in the QE program will be entirely dependent on how the overall economic picture develops and WILL NOT be a linear $10bn monthly reduction at every subsequent FED meeting. Overall though, market reaction last night was muted as ultimately we weren’t told anything new.
Paid pundits decidedly agreed that the $10bn move in December was a “trial compromise” in the reduction of the QE program and was just enough to keep everyone at the FED happy. Well, there’s your consensus I suppose even if it’s determined by overpaid television mouthpieces to be such.
Moving swiftly on…
Today is all about central bankers (isn’t every day?) with the BoE and ECB due to spew forth their most recent monetary policy decisions. Looking at the grand old lady first, weekend press has predetermined that the BoE forward guidance will be fine tuned (potentially as soon as today) looking at lowering unemployment thresholds from 7% to 6.5%. I contend however, that this is now the standard operating procedure for the new paradigm of forward guidance, leak something to the press, lay the groundwork, get the market prepared and ready and then finally act later once it’s all sunk in. So in short, I don’t think there’s likely to be an accompanying statement from the BoE today as they’ll probably wait for more concrete data before acting, but now we know where they’re likely to go when they finally move.
On the topic of the ECB, well… I think it’s likely going to be far more interesting to guess what colour tie Mario will be wearing than listen to him drone on and on without actually saying anything of substance. The Euro zone paints a rather schizophrenic picture at the moment and those determined to be short of the EURUSD are inviting nothing but pain unto themselves. German data (the European powerhouse) in recent days has sought to confirm and surprise some with excellent trade balance figures suggesting that the level of the currency is almost irrelevant to their economic fate. So what if it’s slightly more expensive to go to the Club Med of southern European sovereign nations, not an issue. Oh and have I mentioned a tightening peripheral basis spread, it’s getting cheaper and cheaper for those beleaguered nations to borrow cash… Net/net I’m not expecting anything new from Mario today. Volatility (as always) may ensue, but… meh.
Levels and directionality on the day…
EURUSD: ACB offers are highlighted into 1.3640 and further into 1.3680 (should we get there) while the downside will likely run into buyers once again around the 1.3550 area. Stops are gathering sub the 1.3530 area and a wash is possible, but so too will be the rebound out from there.
GBPUSD: Small smattering of stops sub the 1.6435 area, but nothing to get too excited about. Willing Asian sellers once again are sighted into 1.6480/90.
AUDUSD: Lower she goes. UBS was out yesterday with a recommendation to short the pair on a close below 0.8915, stop at 0.9010 and targeting 0.8550. Well, they’re in the money for now. Sellers line up once again on the day into 0.8930, no chatter of stops thus far either.
USDJPY: Locked in option land. That’s the basic story here. A plethora of 105.00 expiries until the end of the week should see us pinned down around this level.
Helmets on and good luck out there today.