Illustration 1: EUR/USD schizophrenic 2 big figure range on 4th April 2013 .. initial plunge followed by spike
The FX market is always taken to be the most efficient in discounting news ahead of all other asset classes. However, Asianmacro having cut his teeth on the FX and rates market years ago only understand too well that it is also a fallacy since the FX market tends to over simplify things based on ”sound bites” and it often over-reacts. FX markets are always about daily to intra-day short term momentum and ”’hunting of stops to trigger” in each hour and never about medium term (and God forbids any association with long term valuation discovery!). As such, from Illustration 1, the schizophrenic plunge and then spike in EUR/USD around the ECB press conference yesterday is just another day in the park.
Asianmacro does not believe that ECB will not at some point find ways to drive EUR weaker as the Central Banks of the world are engage in competitive devaluation ”currency wars” whether openly like BOJ or stealthily like the U.S. Federal Reserve in the past. Europe cannot afford a strong EUR and short of allowing a breakup and letting the Lira, Peseta and Franc back to the realm, the EUR needs to be weak again to give the mix bag of countries in EU any chance of staying together.
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