Summarizing The Drivers Behind Overnight's Drastic FX Moves

Tyler Durden's picture

Confused why the dollar is getting destroyed, the EURUSD is at 1.44 and nothing makes sense in FX anymore? Here is Citi's Stephan Englander attempting to explain it all.

What the market was buying overnight

1) Relief rally after the Nikkei started rising about 9:45PM last night -- there had been investor concern that the 2nd earthquake would intensify production and environmental consequences of the March 11 earthquake/Tsunami.

2) China NDFs moved sharply to the left around 930PM last night, along with spot, perhaps signaling that investors expect China to become more aggressive in using the currency in its inflation battle. In addition the announcement that China would allow the yuan to be traded onshore against a wide variety of assets could be viewed as a step towards internationalizing the yuan. Such CNY moves are very correlated with AUD.

3) Brazil press conference in which the Finance Minister said that BRL strengthening was 'unavoidable' may have been taken as a signal in other currency crosses that appreciation pressures would be hard to fight.

4) The US budget debate is raising increasing concerns about foreign investors that there is no process that is likely to generate needed US fiscal reforms down the road (but note that this could explain USD weakness, but wouldn't be the first explanation for a global risk rally).

5) Investors seem to be re-evaluating the ECB press conference in a hawkish direction. German two year yields are now 1.89%, a cycle high, but we would not think this is the major driver of overnight moves since the EUR is in the pack with respect to gains against the USD.

All of these are legitimate as explanations of the overnight move, but we are concerned that long risk trades in currencies are getting crowded  Yesterday we trimmed the long risk position in our overlay portfolio and our inclination is to continue doing so on further gains. The question investors have to ask is what they know that the market as a whole doesn't and investors seem increasingly positioned for good news only.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
101 years and counting's picture

i have a better reason:


CitizenPete's picture

I dig the Fukushima neutron shades, bitch.

CitizenPete's picture

Did you hear that under the dome of silence? Do you own a shoe phone? 


I wonder if Ag pullback to 40.07 was the last "correction" for the day?  when the next "Ring of fire" CA epicenter earthquake sloshes the spent fuel pools at San Onofre or Diablo would that be a buy signal for PMs? 

Note to self's picture

Pb will be fairly precious at that point too.

RichardENixon's picture

Actually it was the cone of silence. And for those on the go, the portable cone of silence.

assumptionblindness's picture

Things don't have to happen for a reason.  Humans (particularly those bestowed with the title 'expert') are just very good at attributing reasons to things that have happened..  Cognitive comfort in our ability to make sense of things is of paramount importance...accuracy need not matter.  Presented without additional comment:

lettuce's picture

and what if the earthquake did not happen yesterday? ironic that the risk trades might actually be down today.

SheepDog-One's picture

Well it was nice knowin ya dollar, but alas we hardly knew ye at all.

Larry Darrell's picture

And what we did know of you made us nauseous.


Edit:  Man, it's really puking up blood.  75.04 for the Turd's POSX as of this typing.


The Axe's picture

The real reason is that the trade has worked for 2 years, until the Fed tightens it will continue to work....simple..

SheepDog-One's picture

Kinda like 2 winos in an alley tradin things, empty bottles, paper bags, an old sock... Sad.

bingaling's picture

I get the feeling this is just the start . The dollar is one uglymotherfucker ....every day it buys less of something  else . I get the feeling the smart money knows something we pee ons don't this is all happening kinda fast . Any rumors Tyler? -

SilverBaron's picture

But it hasn't lost one bit of value at the 99 cent only store. Someone is seeing some squeezed margins.

snowball777's picture

This says less about what Trichet is doing and more about what The Bernank isn't.

Malaespina's picture

The EUR is up because SPAIN is doing so well!: 20% unemployement, 50% youngsters unemployed, real estate collapsed, banks cheating on accounting, elections coming, riots starting in some cities, gas at $9 per gallon. All great news means strong EUR.

RichardENixon's picture

Well, they do have the best soccer teams in the world.

AG BCN's picture

This is still up for debate in my opinion.

RichardENixon's picture

They won the World Cup, so that's settled. Barcelona looks like the favorite in the Champions Leage to me, and Real Madrid could also win that.

falak pema's picture

yes the two tier society in Euro land is also there. But there is an advantage. The is Germany there. Not so in USA...which is one big Spain, thirty times over in terms of debt and eight times over in terms of population...Reserve currency cushion now looking thread bare as govt. goes into gridlock. That means USA has no fiscal lever, which Spain USA is now more economically insane than Spain. If the Euro banks were vulture HF, like those of USA, mad hungry, full of liquidity, desperately leveraged, they would be ripping away at US state sector to make Cal/Mich/NJ default. But they can't as USD reserve currency protects it...for how long?

ak_khanna's picture

The stock, commodity and currency exchanges have been reduced to gambling dens whereby the more powerful traders with deep pockets move the markets to maximize their own profits at the expense of the remaining not so powerful players. The big boys have enormous money power to move the markets in the direction which results in maximum profits for themselves. They effectively use the media to lure the other players in the market to a position where they would incur maximum loss.

The markets will fall only when the banksters have eliminated all the short positions and only they themselves have positioned themselves to profit when the market falls


When an unexpected world event catches the banksters with their pants down and the softwares they use to rig the markets go berserk beyond their control.

RobotTrader's picture

Here's a Stockcharts setup on all the currency ETF's


Everybodys All American's picture

I gotta think the US tax payer through the Fed is bailing out Portugal. Hence dollar weakness.

Portugal's picture

The US only contributes with 16% of the FMI Funds while EU contributes with 36,5%....

LawsofPhysics's picture

16%+36.5%=51.5%  Who contributes the rest? (48.5%).  Yeah, something is amiss here.  Europe and America tied their carts together a long time ago.  Russia and China are attaching theirs.  Preparations for WWIII?  The southern hemisphere warming up their popcorn for the show?

cocoablini's picture

Everyone is short the dollar and on the same side of the boat. That means someone( goldman) is prepping for some dollar long action and will frontrun the FED. The Fed is getting pressure to slow price inflation. The DXY is like 74-75 and was in and upwards direction before the Japanese Yen carry got blown to bits. When and if that unwinds, the intermediate dollar up trend may start up amd watch out as everybody runs to starboard.
Even if the dollar is long trending lower, its not in a straight line and being short the dollar as it has been basing for the last 2 months is fraught with peril. Oil is skyrocketing and really out of sync with the dollar basing around 75. And oil reserves are up. Thers no big draindown on reserves, so the speculators( read banksters) and creating their usual bubble blowing mania and if oil gets over 4.5 a gallon watch the kneejerkoff political machine gear up again. Peak oil isn't going to occur in a global recession.
So, me thinks I'd like to not be short on dollars much longer. I've been taking money off the table in gold mi ers as they have totally stalled in some cases due to higher costs and lower margins and increasing taxes.
I like the metal itself though.

Slim's picture

Agree.  Betting against the USD seems to have excellent technical support right now, and long term it will be right (although I wouldn't take it against the Yen or Euro) but fundamental supply/demand in oil and commodities looks iffy.  Everyone is on this side of the trade along with funding carry from USD.  When this snaps back (and it's very much a when, not an if), it will be ugly.  Short dollar trades against currencies or commodities (maybe PM but that can go to hell too in this scenario) scare me a bit.  Plus look at events like QE2, Middle East, Japan, Federal Budget...lots of known unknowns being ignored as well as true unknowns.

Dr. Engali's picture

I agree. I think over the longer period the dollar is doomed. But in the short run we are set up for a dollar rally. When it does I will be buying silver and Gold hand over fist.

That Peak Oil Guy's picture

"Peak oil isn't going to occur in a global recession."

Of course it will.  Ultimately, rising costs in oil production are what is causing the global recession.

"And oil reserves are up..."

I assume you refer to US reserves.  The US is currently experiencing demand destruction.  In the emerging economies demand is growing faster than demand is shrinking in the developed economies.  This results in higher prices even in places where demand has fallen.

True that speculation and geopolitical instability have also caused prices to increase, but these exist because of the underlying cause; a global supply/demand imbalance with demand greater than supply.


Urban Redneck's picture

Peak oil, the paper problem not the physical one, stop the presses.

SilverBaron's picture

Since most of the wealth is concentrated at the top 5 percent, who are mostly in collusion, there has been some semblance of stability.  When they start to turn on each other is when all hell will break loose.  I think at some point the top .1 percent will turn on the other 4.9, and then it's on.  A rush to dump paper.

scratch_and_sniff's picture

"The question investors have to ask is what they know that the market as a whole doesn't " ... the market doesnt know as a whole what an arse it is.

Note to self's picture

Just as classical economics doesn't "get" the idea of a super-resource like oil, and its eventual un-repalceable scarcity, economists also have no real idea what to think about a US default, which is probably likely in some form or another.  

The future's uncertain and the end is always near . . . 

franzpick's picture

I expect the voice of Mr. Market to soon straighten out the politico-financial doubletalk that has for so long confused the markets, announcing soon the upcoming and nearby 2 and 3 year highs in 10 and 30 year yields (have a robo-moment looking at TYX and TNX), then a 16 year breakout in the yield downtrend of the 30 year bond, then the widening, quake-induced supply shortage and withering Japanese trade surplus and suspension of US treasury purchases, and then the emerging issue of how and where to hide "money" as authorities lose control of the unpayable world debt structure.


KeepDancin's picture

Eventually the music will stop and there are oh so few chairs.

CPL's picture

Chairs?  What chairs?

omi's picture

Or none of the above. Just that we need to test 1.45 on EU, and then maybe 1.51. Nothing to do with funnymentals, just purely need to see how the market feels about those areas.

Ferg .'s picture

It's hard to be a sane man trading FX right now . The USD short boat is awfully crowded at the moment and a violent capsizing may be on the horizon . Fairly satisfied that the big moves in Asia are the end ( in the short term at least ) of the current ' risk on  ' phase and I'll be looking to establish some shorts on Sunday /Monday morning as there's a very reliable statistical tendency for highs/lows for the week to be made on either of those days . Look at some of these ridiculous moves in the Commdolls and the Yen crosses . Irrational exuburence if I ever saw it .

FunkyOldGeezer's picture

Doh! If you're trying to 'guess' the market direction using fundamentals and the market isn't obliging with the correct answers, surely it's time to stop guessing?

It's possible to trade on what the screen tells you, isn't it? So, you may not get quite as much profit and your ego may be deflated 'cos you can't second guess and get in early on trades... so what?

Urban Redneck's picture

They never actually define the long risk currency.  It can be inferred, but is not actually stated.  I would guess that wording makes it harder to sue them for screwing their customers, and I take offense to their notion that their favorite POS fiat in somehow better than someone else's POS fiat.   

"All of these are legitimate as explanations of the overnight move, but we are concerned that long risk trades in currencies are getting crowded  Yesterday we trimmed the long risk position in our overlay portfolio and our inclination is to continue doing so on further gains."

Jack Sheet's picture

."... China NDFs moved sharply to the left around 930PM last night"

Could someone please explain what NDF stands for and why they are left-handed? Is it "Nanocolloidal Detox Factors" ?


tomster0126's picture

poor, poor dollar.  i'm for sure gonna exchange for luans though ASAP.