EURUSD Dropping Despite Unremarkable Trichet Press Conference
The sudden plunge in the EURUSD can only be attributed to Waddell and Reed rushing to sell a few nickels worth of the FX pair, as the JCT ECB press conference has ended, and contrary to what some are saying, had nothing notable in it. In fact it was the usual liefest, in which the Europe Fed big man had the gall of saying the US wants a strong dollar: who appoints these pathological liars? Here is Goldman's Erik Nielsen with a rounddown of the bulletin of bullshit.
The ECB’s press conference has just ended; it lacked any important news. The prepared statement was shorter than usual, but Trichet clarified a number of points otherwise left out (or open to interpretation due to the shorter text), including:
- On the Euro, Trichet sounded surprisingly relaxed, and he repeated the usual stuff, name that (1) FX should reflect fundamentals; (2) US wanting a strong dollar (!!!) and (3) that nobody likes excessive volatility. But he confirmed that the FX issues will be discussed in Washington.
- Trichet confirmed that their gradual exit strategy continues, and he hinted quite clearly that they intend a return to competitive bidding, and hence an end to full allotment, probably some time next year. Interesting, if not surprising, he was clear that this is not unanimous, but he sounded very confident that this is in store.
- Asked about the reports on future differentiated haircuts on sovereign debt, Trichet responded that they are always considering their policies for possible changes. Given my role in proposing this, I am obviously biased, but I thought he missed a good opportunity to shoot this one down, if he had wanted to. So I continue to think this will happen, although it may take a year or two before we get there.