Yesterday
was indeed a topsy-turvy day for the Single Currency (Euro against the U.S.
dollar), or the EURUSD currency pair.
This
instrument has suffered significant falls in the past few weeks on the back of
strong (and growing) divergence between the monetary policies of the Eurozone
and the U. S. The number of Forex bets that it will continue to go lower is large,
and this has created a situation where market participants are on edge, on the
fear of a sudden reversal, for whatever reason. Yesterday was also the day
before the latest ECB monetary policy statement and press conference (statement
will be at 13:30 GMT today, with press conference to follow), when nerves are
also likely to be somewhat frayed.
The fun and
games yesterday started with the flash Harmonised Index of Consumer Prices (HICP)
for the Eurozone as a whole, which showed that inflation was, once again, lower
than had been expected. This is a negative for the Euro and the market reacted
accordingly (see chart).
Then we had
the U.S. ADP jobs report, which came in better than hoped for, giving rise to
some short-term multi-directional volatility, with a following bias towards a further
strengthening dollar.
Janet Yellen’s
speech at the Economics Club in Washington simply reinforced the view that
interest rate rises are coming this month, and the dollar continued to firm on
that.
In the
middle of the afternoon, New York time, however, a Bloomberg headline which said
“ECB said to present largely unchanged macroeconomic forecasts” got the market
to thinking that Mario Draghi may not, after all, announce further QE and / or
deposit rate decreases at the meeting today. This led to a total reversal of
the tendency for the previous part of the day, and a somewhat dramatic turnaround
in the fortunes of the EURUSD pair.
Mandelbrot stays safe
The
OmiCronFX Mandelbrot algorithmic routine is designed, on the back of exhaustive
research which it also facilitates, to dodge as much as possible the effects of
the abnormal volatility described above. This worked very well yesterday.
Discretion,
it is often said, is the better part of valour.
Knowing when
to be discreet is the important thing.
No comments:
Post a Comment