Lost in FX Space

To be completely honest TMM are dashing around playing catch up after time-out over the UK bank holidayfest.  Wasn’t the Wedding lovely?  The UK’s weather has been absolutely stunning over the last 2 weeks and we have to say that, if it were to be predictably that glorious, there would be little need to holiday abroad.  What a shame we all had to return to work!  Of course, our Big Country cousins in the US have been working diligently throughout (TMM have wondered if there is any real correlation between number of holidays and real productivity), but that diligence seems to have done little for the state of the US dollar.

We have come in to find that the world has changed little.  Chopping the head off the Hydra of Al-Qaeda is not a global market mover, though it has been a field day for the Armchair Special Forces experts and those who play video games with names like “Call of Duty – Abbottabad”.  However, TMM assume that Bin Laden isn’t really dead until Donald Trump has seen the death certificate.  Is “Donald Trump for President” part of the “Gordon Brown for Head of IMF” joke?

But we are interested in what has started to happen to some of the normal USD indicators.  We had a flash crash in gold 2 days ago and silver puts have gone “Pippa Middleton” (no one had bothered with the little sister of Gold Puts until after last Friday, when they went monster bid).  Silver’s collapse may be blamed on it “Bunker Hunt”ing itself again with an increase in margin requirements bursting the specs’ bubble, but its demise should still be a worry to the dollar bears

For the past 2 days we have seen the interesting spectacle of Asia time zone buying USD, but Europe and the US reversing it.  The same with equities.  So why is Asia selling risk and carry, while the West is buying it? Shouldn’t we be listening more to Asian sentiment as they are the ones who are driving the flows these days? Through all this the Euro is riding rampant, up against even the mighty AUD.

So what of Europe?  The “vinaigrette” currency is riding a wave of ECB policy and the resultant impact on the curve (EUR 10yr yields are now higher than USD) and, of course, the world’s favorite creditor is still stuffing the periphery scaremongers.  Has the premium for pork in China led them to buy European PIGS? But what they give with one hand in buying the debt they take away with the other by forcing the currency against the weaker economies.  TMM wonders if the European economies can recover enough before the ECB rate rise program takes them back to the stone age.  Germany’s figures today may be the first sign.

The UK data is looking crap and TMM are most concerned that yesterday’s UK figures looked leaked again.  If the SFA were doing their job properly you would see their squad cars screaming around the city and snatch squads smashing in doors at addresses in Cardiff and London.  Instead they are just doing the equivalent of handing out speeding tickets.  Together with EUR’s rampage EURGBP is now flirting with 0.9000.  Another reason, apart from the weather, to stay at home this summer.

So put that lot togther and we would like to say that the USD’s run down is showing signs of abating in some assets, but we are torn.  Whilst, as is pretty clear from the above ramble, we are pretty lost in FX space, we think we should try and grab ahold of something –  so we are going to don the kevlar gloves and buy some USDJPY and sell some EURGBP.

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