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Euro Surges On Expectations Of ECB Rate Hike

Tyler Durden's picture


Here is how one offsets the aftereffects of concerns there may be a liquidity crisis in Europe: just make a few completely impossible statements about hiking interest rates and presto: your currency is back to unchanged. The EURUSD has surged by 60 pips in seconds following reports that the ECB's Bini Smaghi was quoted as saying that ECB may raise rates as price pressures mount. While it is great that more central planners are finally acknowledging inflation does exist (cotton is now firmly planted over $2), the probability of this happening is zero to negative, as it would put pressure on the short end, flatten the curve and otherwise pull the rug out from the ponzi "recovery" that has taken foothold in Europe, forcing even more involvement from the Fed to keep the European domino from going down. Elsewhere, Bund futures tumbled as the inflation genie is one step closer to being released from the bottle...


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Fri, 02/18/2011 - 09:02 | 973586 ZeroPower
ZeroPower's picture

50pips. Still waiting on the intraday 200bp swings

Fri, 02/18/2011 - 09:25 | 973638 Cursive
Cursive's picture


....which would have been unthinkable for the FX markets 4 long years ago....

Fri, 02/18/2011 - 09:05 | 973589 TooBearish
TooBearish's picture

Inflationary expectations are contained - B-52 Bernank

Fri, 02/18/2011 - 09:42 | 973688 bigelkhorn
bigelkhorn's picture

just like Q2, and Q3 and Q4 ....I am sure they are coming. and why not? this collapse of the US economy is going to plan perfectly. 

I mean if the sheeple wake up, then they will know what is coming. But by then it will probably be too late. 

There are so many people saying the market will crash this week. and you know whta that means....she blows in the opposite direction. If more stop covered get triggered today and next week, there is a strong chance we will see higher prices on the S&P 500. Technically it looks bullish.

Fri, 02/18/2011 - 09:52 | 973732 sabra1
sabra1's picture

what about the people saying the market will go higher? the opposite will happen! it goes both ways, doesn't it? huh?

Fri, 02/18/2011 - 10:07 | 973778 slackrabbit
slackrabbit's picture

acutally it does...and it doesn't.


Sorry ...I had an Obama moment;-)

Fri, 02/18/2011 - 09:05 | 973590 plocequ1
plocequ1's picture

Problem solved. Now wait for the POMO, Buy some Amzn or Apple and leave me alone

Fri, 02/18/2011 - 09:05 | 973591 bingaling
bingaling's picture

Doesn't anybody else besides zerohedge realize that rates cannot go up? Seriously ,who in their right mind believes this shit anymore?

Fri, 02/18/2011 - 09:05 | 973593 Ivanovich
Ivanovich's picture

bots dont reason.  they just react based on syntax.

Fri, 02/18/2011 - 09:08 | 973599 plocequ1
plocequ1's picture

Reality check. Rates will not go up. No charts or links needed and thats that,

Fri, 02/18/2011 - 09:06 | 973595 EscapeKey
EscapeKey's picture

Not a single issue has been resolved, but yet the markets move time and time again on empty rhetoric.

Fri, 02/18/2011 - 09:12 | 973609 Cdad
Cdad's picture

L. Blankfein and company at work....getting to their Euro/USD way or another.


Fri, 02/18/2011 - 09:37 | 973678 taraxias
taraxias's picture

Bingo, that's all it is about. Markets don't move, THEY in complete coordination move markets to create the illusion of reality.

We're way beyond FUBAR at this point.

Fri, 02/18/2011 - 09:41 | 973700 Caviar Emptor
Caviar Emptor's picture

Like that moment of enlightenment scene in The Matrix:

Spoon boy: Do not try and analyze the market. That's impossible. Instead... only try to realize the truth. 
Neo: What truth? 
Spoon boy: There is no market. 
Neo: There is no market? 
Spoon boy: Then you'll see, that it is not the market that moves, it is only The Bernank

Fri, 02/18/2011 - 10:00 | 973754 tmosley
tmosley's picture

That is excellent.  Well done.

Fri, 02/18/2011 - 10:00 | 973756 SpeakerFTD
SpeakerFTD's picture

That was excellent.

Fri, 02/18/2011 - 10:41 | 973889 Terminus C
Terminus C's picture

This made me laugh and cry at the same time.  Humorous and deeply sad.

Fri, 02/18/2011 - 11:25 | 974080 Alienated Serf
Alienated Serf's picture


Fri, 02/18/2011 - 09:27 | 973646 blackbox
blackbox's picture

I thought the banksters has 'resolved' to pay themselves part of their bonuses in equities? For that to work they have to pump pump pump the equities.

Fri, 02/18/2011 - 09:09 | 973601 jobs1234
jobs1234's picture

And right on cue Bernanke is out defending QE and ZIRP against all the critics.

Its like the more people complain, the more stubborn he becomes.

Fri, 02/18/2011 - 09:11 | 973607 Oh regional Indian
Oh regional Indian's picture

Boy, those Euro death times from last year seem so last year.

So when is the Fedgang going to raise rates?

Even a quarter %? Right now, even a quarter percent looks like a mountain the Dollar will not be able to survive.

Fri, 02/18/2011 - 09:13 | 973611 qussl3
qussl3's picture

So the one banker that cares about inflation leaves the ECB, then they start jawboning about hikes?


Fucking BS.

Fri, 02/18/2011 - 09:16 | 973616 TooBearish
TooBearish's picture

Yea ben raise up kill what little is left in the housing market - its all good




Fri, 02/18/2011 - 09:17 | 973619 lbrecken
lbrecken's picture

bubble is abou tto go pop as this will seal deal on QE3

Fri, 02/18/2011 - 09:31 | 973658 HoofHearted
HoofHearted's picture

"excellent...just as we had planned" -B.S. Bernanke

Fri, 02/18/2011 - 09:22 | 973630 jobs1234
jobs1234's picture

I cant believe Bernanke's defense of QE2 at G-20. Why dont one of these ministers get up and punch him? 

Its so tiring to hear about his speil on emerging market demand and "normal" capital flows. Cotton up 50% in less than 2 months is normal. Did every Chinese person decide to buy Hanes this month?

Fri, 02/18/2011 - 09:56 | 973743 sabra1
sabra1's picture

so fantastic, no elastic, 25 cents a pair!

Fri, 02/18/2011 - 10:03 | 973766 snowball777
snowball777's picture

" the mills have scrambled to buy futures contracts to fix the prices of physical supplies before Friday..."

"are in large part because soaring demand from China, poor cotton crops in Pakistan and export restrictions in India that have led to acute supply shortages."

Supply shock.

Fri, 02/18/2011 - 10:11 | 973794 EscapeKey
EscapeKey's picture

I don't think anyone denies certain commodities are in tight supply compared to last year, but so were some commodities last year relative to the year before.

But the general trend through ALL commodities is up, up, up. That's not all down to tightness, or "political instability", or whatever this weeks favourite excuse is.

For the record - The Russian wheat harvest is down 12% y-o-y. Russia accounts for about 8% of global supply, which means we've seen a 1% global reduction (assuming static supply for the remaining world). If the world REALLY is in a such tight spot, that a 1% reduction in supply leads to a near doubling in price, then I would frankly expect to see wild price swings almost every year.

Fri, 02/18/2011 - 10:29 | 973856 snowball777
snowball777's picture

It's a combo...the panic buying is, no doubt, enabled by the liquidity firehose.

It's telling that these ramps have occurred before the harvests elsewhere are even complete.


Fri, 02/18/2011 - 09:24 | 973636 Robslob
Robslob's picture

The sooner the housing market is destroyed the sooner we can recover...unfortunately the market will NEVER AGAIN be allowed to define true price of an asset...or until Banks have enough capital to buy ALL the assets at deflationary prices.

The new sign of wealth...I own my car?



Fri, 02/18/2011 - 09:24 | 973637 benbushiii
benbushiii's picture

This is the most absurd remark and reaction from a Central Banker to the inflation that is incipient across all asset classes.  If the world wants to get a handle on inflation they should be sterlizing and mopping up excess dollars, not playing along with the Bernank and allowing the dollar to get weaker.  How does Europe expect to compete on a global basis?

Fri, 02/18/2011 - 09:27 | 973647 qussl3
qussl3's picture

You'd think the CBs have a clue.

Waittt, or is this just one of those "strategies" they intend to use to "punish" speculators?

Fri, 02/18/2011 - 09:35 | 973663 EscapeKey
EscapeKey's picture

Don't confuse feigned with real incompetence. I refuse to believe the CBs don't know what's really going on.

In my profession, if I'm systemically wrong, I will be fired. But CBs always trout out the same defense; "no-one could have seen it coming", and they get away with it, scot free.

Fri, 02/18/2011 - 09:38 | 973684 qussl3
qussl3's picture

Exactly, if anything this piece of BS is meant to whipsaw the FX markets, if they meant to contract money supply they'd stop the BS backstops, rates have little to no effect on the move to inflation hedges.

Fri, 02/18/2011 - 09:43 | 973705 SpeakerFTD
SpeakerFTD's picture

Agreed.  Their only concern is the preservation of their member banks' balance sheets.  If hyperinflation is required to bring asset value back above par, then so be it.

All the rest is just hype for public consumption.  They are about as accountable to your concerns as you are to the ant you crush, unnoticed, as you go about your daily business.

Fri, 02/18/2011 - 09:46 | 973712 Caviar Emptor
Caviar Emptor's picture

Don't confuse feigned with real incompetence

Yup. It's the international brotherhood of bankers at work. They have to pretend they're not the autocracy that they've evolved in to. Or else that would spook the public and risk waking up the spirit of revolt

Fri, 02/18/2011 - 09:25 | 973640 jus_lite_reading
jus_lite_reading's picture

Another day, same old shit.

The ECB is forced to buy Portuguese bonds today as the rates have once again headed towards reality (8% for the 10yr). The EU is so insolvent it is beyond comprehension.

Germany has quietly benefitted from the PIIGS crisis and THAT is their real reason for "supporting" the PIIGS. They know, eventually, the PIIGS will have to be killed off but for now as long as this house of cards holds together, they are building up their workforce- only 7% unemployment and despite rising social tensions, their economy is improving while the PIIGS deteriorate.

Fri, 02/18/2011 - 09:25 | 973642 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

Similarly the debate about whether the Bank of England should raise rates is just as meaningless.Mervyn King is beginning to sound more deranged than out of touch by repeatedly saying the rise in inflation is "temporary" when anyone with an IQ bigger than their shoe size can see that inflation is here to stay and the price increases are accelerating.

Just like the Bank of Englands response at the time to the housing bubble the "oooh will they-won't they?" debate is being repeated again and is as pathetic as it is meaningless since the current Bank of England rate is just 0.5% and they are arguing about maybe putting it up 0.25% in June and then another 0.25% at the end of the year. So where does that leave rates then? Wow at 1%.

So when by the governments own fiddled figures inflation is over 5% that would still make interest rates negative 4%!!! If you look at the real world, inflation in the UK is probably around 10-15% so interest rates are nowhere near they need to be.Of course all ZH'ers know that if central banks were to put up rates where they should be,the whole western banking system would collapse.The UK is particularly vulnerable due to its massively overborrowed housing market, hence Kings reluctance to even put up rates by half a percent.

Fri, 02/18/2011 - 09:27 | 973644 99er
99er's picture


Daily...for context.

Fri, 02/18/2011 - 09:30 | 973653 bania
bania's picture

I love the concept of "zero to negative" probability of raising rates.  It's like ECB would raise rates but in a parallel, bizarro universe.

Fri, 02/18/2011 - 09:31 | 973656 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Modern financial warfare in all of its glory. The only problem is thinking of it in terms of nation states which is apparently no longer applicable.

Fri, 02/18/2011 - 09:39 | 973687 Cdad
Cdad's picture

This one is truly rich, Euro up causing the inverse reaction in gold/silver futures down.  Right.  You are telling me that this market will now try to reward that macro pair European ponzonomics are peaking?  My guess is this latest manipulation will have the lifespan of a Mayfly.

The criminal syndicate known as Wall Street fighting for its options expirations.  Central Bank Planners simply out of ideas...revert to entirely laughable rumors and finger pointing. I'm sure unemployed Americans all across the land suddenly have confidence.

Good grief [and by that I mean that the whole thing is so transparent now that market credibility is clearly face down on The Street].


Fri, 02/18/2011 - 09:50 | 973725 SpeakerFTD
SpeakerFTD's picture

I'm sure unemployed Americans all across the land suddenly have confidence.

I would like to see one Congressman or media talking head ask Bernanke to explain this.  According to his models, this should be impossible.

Fri, 02/18/2011 - 10:20 | 973823 SheepDog-One
SheepDog-One's picture

Reduced to rumors and finger pointing! The World Financial Systems are now on the level of grade school playground during recess.

Fri, 02/18/2011 - 09:41 | 973696 USD Long
USD Long's picture

Is this the equivalent of "gunning stops" on a global level by Central Baksters...

Fri, 02/18/2011 - 09:42 | 973701 Sueco
Sueco's picture

Classic ECB... proposing raising rates the same day they announce buying Portuguese debt... 

Fri, 02/18/2011 - 09:51 | 973730 Caviar Emptor
Caviar Emptor's picture

Look, someone "in the front office' had to make a gesture to acknowledge that there's inflation. Yesterday made that necessary (CPI, Philly Fed in addition to Bahrain). 

Bernank couldn't make the statement or the whole apple cart would have been turned over in front of a 3 day weekend. So they decided to let ECB do some jawboning. 

That's in the re-flation playbook and why there's asset correlation to the EUR

Fri, 02/18/2011 - 09:51 | 973731 Ferg .
Ferg .'s picture

This is farcical and a perfect example of how bi-polar markets can be . Statements such as these are bandied about by officials almost everyday . Sometimes the market reacts , sometimes it doesn't move an inch .

So regarding the euro , we had a poor Spanish debt auction , renewed talk of an imminent Portuguese bailout combined with a rise in yields and the comical revelation that Irish banks are now engaging in micro quantitative easing and yet , not only is the Euro relatively stable across the board , it's actually rising against many currencies . That's " efficient markets " for you .

The inflation rate in the EMU  isn't any way as pronounced as that of the UK , which has been above the BOE target for months and months and months . And yet no matter how many letters Mervyn King writes to Parliament explaining why rates remain unchanged and inflation well above 2% , speculators persist in keeping the GBP buoyant , attempting to frontrun BOE meetings which never produce a damn thing .  

Fri, 02/18/2011 - 09:53 | 973734 Orly
Orly's picture

Okay.  That's it.  I'm out.

See you boys and girls in the summer when we can play on a more level playing field.

Until then, bountiful trading to you...

and watch your ass.


Fri, 02/18/2011 - 10:06 | 973774 Ferg .
Ferg .'s picture

I'm on the verge of joining you on the sidelines .

However , it's often when you throw in the towel that things start to happen . Markets are nasty that way . They push you to the edge and hope you throw yourself over .

Hanging on by the nail of my little finger at this stage ...

Fri, 02/18/2011 - 10:17 | 973813 SheepDog-One
SheepDog-One's picture

Its all just a show to me now, out of anything paper and into PM's...other than that I dont care they can do whatever they feel like with indexes in this Mexican standoff with no possible way out but total melt down and armageddon. Pass the popcorn!

Fri, 02/18/2011 - 10:22 | 973830 Ferg .
Ferg .'s picture

Totally agree with you on indexes . Given up trading them . I'm just sticking with a few select FX plays and watching the equities farce with a bemused smile and a beer . Entertaining stuff .

Fri, 02/18/2011 - 10:21 | 973826 Orly
Orly's picture

The markets will still be there when I get back, only without all this gotcha bullshit that the CBs are throwing around now.  Just unbelievable.

I preserve my capital and my sanity, take what I have learned here and go after it when da Boyz stop playing (so many...) blatantly anti-free market games.  Markets are already "unfair" enough without coordinated cheating from the biggest money in the world.

I will live to trade another day.  :D

So I wait.  I'll be here listening, so let me know how's it going, Ferg.

Best of luck to you, my friend!

Fri, 02/18/2011 - 10:51 | 973922 Ferg .
Ferg .'s picture

I'm pretty sure my sanity has deserted me but my risk capital is hanging in there ( barely ) . If the euro shorts I'm in don't develop then I'm pretty much out . No way am I risking my sacred core account capital in this type of environment . The manipulation ( doomed to failure in my view ) , by CB's , PD's and large financial institutions is simply staggering .

Will indeed keep you informed of my success or , more likely ,  imminent withdrawl from the markets .

Best of luck to you too amigo !

Fri, 02/18/2011 - 11:21 | 974053 Orly
Orly's picture

You'll be fine!  Death by a thousand cuts is not my style.  I have always said that when I go out, I want to get rolled over by a Dixie Beer truck.

Right now, I'm getting out of the road.

Fri, 02/18/2011 - 13:03 | 974657 Ferg .
Ferg .'s picture

Mind if I join you on the roadside ? Stopped out on the move above 1.3650 . No more open positions .

 Frustrated , might just throw myself in front of that Dixie Beer truck if I see it coming !

Fri, 02/18/2011 - 13:33 | 974774 Orly
Orly's picture

I'm just gonna set a robot on EURJPY and leave it alone.  It can't do any worse than I have been telling it to do!  Let it go either way, long or short.  But...

I am also convinced that this thing is getting real, real heavy and they are having a hard time even keeping the staus quo ("Europe will raise rates!"  Whaaaa?...), as evidenced by the fact that they will say anything and use that (co-ordinated?) opportunity to ramp the price.

They are quickly running out of things to say, other than, "Martians love the Euro!  We have a new contract for extra-terrestrial Daimlers!"  The price from here definitely drops but not without Whipsaws Galore.

I am going in small or not at all.

P.S.  I saw this on MarketWatch about the fate of the AUDUSD.  Makes sense.


Fri, 02/18/2011 - 14:12 | 974967 Ferg .
Ferg .'s picture

Think I might revert back to my automated trading strategy as well . Funadmentals analysis means nothing at the moment . 

I'm with you there , mentioned this in a few other posts a week or two back . It's getting harder and harder to maintain stability . Kitchen sink is being ripped up and thrown into the mix :

. China announcing it will buy Greek and Portuguese debt  .

. Japan, probably solicited by EU officials ( maybe they begged , I don't know ) , very publicly , stating it will purchase EFSF bonds  .

. ECB buying periphery date in an attempt to compress yields .

. Endless , exaggerated and increasingly desperate  cheerleading from EU  officials . 

. " Inflation concerns " ( cough ) of certain ECB members .

Something big is brewing here , and it's quite likely that , whatever it is , it'll erupt just in time for the inevitable equities correction . Who knows , maybe it'll even be the cause of that correction .

Ah the Aussie ! The only thing propping that sucker up is the S&P 500 . Still a strong economy but noticeably weakening over the past few months . AUD/USD will be dictated by risk appetite and the state of the Chinese economy . Big correlations . I was actually short this pair for quite a while but the interest I was paying was slowly bleeding me dry so had to cut the positions . Anyone who has been long this pair from the 09 low must be minted at this stage !

Fri, 02/18/2011 - 14:41 | 975083 Orly
Orly's picture

Maybe once again, too, Ferg.

In fact, I think I am going to spy this one, wait for everything to clear and sell the AUDUSD short.  Put the GBP-bot Advanced on it, only short, allow unknown pairs, using strategy C, risk 44, total trades 2.

Wait for the top, sit back, watch American Idol...and wait.  Then, as you say, be minted!  The downside potential is 0.65!?!?!  Maybe that's too much but even halfway there is still minted.

I'll see you then!  :D

Sun, 02/20/2011 - 21:52 | 980590 Ferg .
Ferg .'s picture

Sounds like a plan to me ! 

I'm taking one more shot at EUR/USD . In quick , out quick . Wash , rinse and repeat until the thinly papered cracks in the EMU start to open up again . Looking at the DXY as it approaches that solid ascending trendline support . A few analysts have been broaching the topic of a shockingly strong surge in the dollar at some point , and I think that time is drawing near . March perhaps ? Some nasty stuff brewing .

See you on the flip side Orly , hopefully down around AUD/USD O.65 , a couple of thousand pips richer :)

Fri, 02/18/2011 - 10:04 | 973767 Herman Strandsc...
Herman Strandschnecke's picture

 It doesn't make any sense to me at all. I'm just an average guy, ex business burned once but eager to start up again using past experience as necessary. In the UK, the Government want to reduce benefit and social security expediture. Fair enough, pushing on a string and forcing folk into work. The Government have saved expenditure-not money. Prospective employers need to borrow money to meet the wages of said new expanded workforce who need to make the same income whether it be via social security or salary-right? So the disposable income in society remains the same for arguments sake.

Where is the new market for this 'disposable income'? It seems to me that employers will be borrowing money to employ people to sell them the same amount of goods and services, at interest and with stupid new employment rules and regulations making employment and running a business more difficult, whilst fuel, food and housing continue to remain high or to go higher with inflation.

I'd apprecite any thoughts because I'd like to go back into business and employ people, its a great feeling and morally rewarding but it just seems a non starter financially and practically on top of which I read of the uncertainty and fraud abound in articles here on ZH and elsewhere. Ta.

Herman Strand-Schnecke

Fri, 02/18/2011 - 10:04 | 973769 overmedicatedun...
overmedicatedundersexed's picture

I am trying to propagandize to convince the common good people of America that our leaders and wall st elite are not really human at all.. as in 'They Live':

once enough are convinced we can then get about elimination without remorse. They do indeed LIVE.

Fri, 02/18/2011 - 10:06 | 973773 themosmitsos
themosmitsos's picture

Tyler, respectfully disagree. I think the ECB raises

Fri, 02/18/2011 - 10:22 | 973806 SheepDog-One
SheepDog-One's picture

Rumors and childish accusations of 'No its HIS fault!' is now what runs world economies....fantastic! Wow we're SO advanced and all as a species...those 'best and brightest' are really no more advanced than 5 year old brats.

Fri, 02/18/2011 - 10:36 | 973873 Orly
Orly's picture

And Sarkozy is still playing with his "invisible magic wand" in public!

Fri, 02/18/2011 - 10:19 | 973818 Dick Darlington
Dick Darlington's picture

Seems that the headline abt what Bini Smaghi said was a bit too sensational. Here's what he actually said:

"As the economy gradually recovers and global inflationary pressures arise, the degree of accommodation of monetary policy has to be monitored and, if needed,corrected."

Fri, 02/18/2011 - 10:33 | 973869 iota
iota's picture

Thank you ECB. Easy pips.

Fri, 02/18/2011 - 10:52 | 973926 Lone Mad Minute...
Lone Mad Minute Medic's picture

Never give up the fish. Stay at the edge of the woods and move in every now and then with your net. Complete surrender to the market will slowly eat away your base. Your here and the next day your there. Don't become a laviathon.

Fri, 02/18/2011 - 11:22 | 974060 Orly
Orly's picture

Greetings, Mad.

Prithee, what does this mean?

Fri, 02/18/2011 - 14:39 | 975085 topcallingtroll
topcallingtroll's picture

this will be interesting to watch.  There are some commentors who believe that making private bank debt equivalent to sovereign debt in terms of acceptance by the ECB somehow solves the problem.  It is still a dilution and a subsidy of the PIIGS.  It is still monetization that may postpone the european day of reckoning but won't stop it from happening.  Allowing banks to create their own debt and sell it to the ECB is basically the same thing as having sovereigns create more debt.  The total debt problem is the issue, not how it is spliced and diced.

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