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On The Verge Of The FOMC Presser, Dollar Hits 3 Year Low

Tyler Durden's picture




 

It appears the market is in a festive mood today, just 8 hours ahead of the first largely irrelevant FOMC press conference (yes, Bernanke has fielded irrelevant Q&A before, and yes, whenever he met a question he did not like, he disagreed with it and moved on). As a result the long-suffering US Dollar, which continues to be down YTD as much as the market is up, confirming that in real term there has been absolutely no gains in the stock asset class, has just hit a 3 year low and just a little more to go until the all time low is breached. And this is in addition to the just announced S&P outlook cut on Japan, which has seen some incremental shorting of the Yen which unfortunately now is a secondary carry funding currency, and you can see that while the dollar should be getting at least a modest push higher the EURUSD is now toying with 1.47. The biggest winner in FX land continues to be the USD-backed CHF, which is outperforming every other pair. And elsewhere, after doing its all too usual OpEx shenanigans, gold is also back in fine form, over $1,506 and going higher now that the shakeout of the latest batch of weak holders has taken place. All in all, a perfect day for nobody to ask whether it is US policy to destroy its own currency.

DXY:

Dollar performance relative to varioous FX pairs. The lower, the weaker. CHF winner by a mile:

And Gold. No more OpEx monkey business. At least for a few weeks.

 

 

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Wed, 04/27/2011 - 04:46 | 1210419 slaughterer
slaughterer's picture

dollar death party, bitchez

Wed, 04/27/2011 - 05:31 | 1210536 Twindrives
Twindrives's picture

Bernank set to self immolate any time now. 

Wed, 04/27/2011 - 05:52 | 1210553 Popo
Popo's picture

Bernanke is determined to exterminate retirees.  

What's 1% of your $500k nest egg per year, grandma?    You can live on $5k annually, can't you grandma?    Just turn off the heat and electricity.  You'll be fine.  And if you need medicine, just stop taking it.  

Thanks, Ben.  At least you saved the banks ... before you threw the elderly under the bus.

 

 

 

 

 

Wed, 04/27/2011 - 07:30 | 1210596 cowdiddly
cowdiddly's picture

Ben, the Knife has been sterilized and sharpened. Please Harikari, If not for yourself, for your countryman. Everyone makes mistakes and being that you were brainwashed by Ivy League schools where the textbooks have been scrubbed of all competing economic theories other than your beloved Keynesian bullshit by your paid off PHD department chairs, Please, at least pay tribute to Mauthus and off yourself.

 Oh yes,and by the way, since you have made my highest denomination 100 dollar bills the equivelent of 2 dollars since my life began and my Grandfather had 1000 and 10,000 dollar bills he could legally tender before you guys decided that was way to much money for us smucks to have in our possession, you have made a nation that can now only carry nickels. Before you go and before the printers overload could you please add a few zeros to the money so I will quit tearing out my wallet from carrying such a wad around to have enough to actually fill my tank and buy a weeks groceries. Thanks, Feel free to put your ugly ass mug on it, and be sure and smile for the camera just so I will always remember you. I Know you have at least considered this, as I have noticed the nice fruity colors you have been adding to the currency lately to kinda get us warmed up to the idea of money that looks and acts like the Korean Won.

  But hey those Buffalos you make are still cool, every one tells me I better sell em, but what do I know Im just a stupid Indian. I just like to keep them around to remember when you guys thought the best way to exterminate us was to kill all our food so we would starve. Now its my turn to watch you. 

Wed, 04/27/2011 - 10:51 | 1211546 dizzyfingers
dizzyfingers's picture

Let's hope so!

Wed, 04/27/2011 - 04:50 | 1210423 Silver Bug
Silver Bug's picture

Any one who sold their Gold or Silver in the last days shake out, better get back in quick. This bus isn't going to wait around. Pretty sad that the S&P places Japan credit outlook to negative and the Dollar hits a fresh low. If the Dollar can't rally of that, well, what can it rally off?

 

http://silverliberationarmy.blogspot.com/

Wed, 04/27/2011 - 05:02 | 1210430 Moe Howard
Moe Howard's picture

I heard APMEX may have some silver. At least, they were trolling for the silver they just sold you.

Wed, 04/27/2011 - 04:50 | 1210424 Id fight Gandhi
Id fight Gandhi's picture

Are the fucktards expecting some wording that will mean more qe today? Is that why markets are loving this?

Wed, 04/27/2011 - 04:52 | 1210425 slaughterer
slaughterer's picture

Seriously, we thought the support at 74.20 would hold till the FOMC announcement.  This should really indicate how the large FX trading desks view the future of US policy.  As ZH already pointed out, the move to the CHF is not a move to a safe haven, given their half trillion exposure to USD.  No place to hide, except gold really.

Wed, 04/27/2011 - 04:53 | 1210426 TheGreatPonzi
TheGreatPonzi's picture

But but, deflationists like Ackerman or Prechter promised me Federal Reserve notes were the only thing to buy, I don't understand, how could people that smart be wrong? 

Wed, 04/27/2011 - 05:01 | 1210429 fredquimby
fredquimby's picture

Ackerman needs to read this: it is a personally aimed answer to his deflationist theories...

http://www.fofoa.blogspot.com/2011/04/big-gap-in-understanding-weakens.h...

Wed, 04/27/2011 - 05:04 | 1210435 Hephasteus
Hephasteus's picture

The dollar. It's where smart money goes to catch encephalitis.

Wed, 04/27/2011 - 05:35 | 1210532 zhandax
zhandax's picture

Looks more like late stage syphilis to me....ya know, dementia, apathy, seizure et al....

Wed, 04/27/2011 - 05:06 | 1210437 Jack Sheet
Jack Sheet's picture

You could well add Mish Shedlock to that list

Wed, 04/27/2011 - 05:33 | 1210535 Snidley Whipsnae
Snidley Whipsnae's picture

Yes add Mish...when he isn't bashing unions

'We believe in a strong dollar policy'... a quote from every president that I can recall... and that is a bunch of them.

Wed, 04/27/2011 - 05:56 | 1210560 Jack Sheet
Jack Sheet's picture

...right, it's a strong dollar for those who get the freshly printed ones first.

http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-st...

Wed, 04/27/2011 - 10:22 | 1211409 LowProfile
LowProfile's picture

He doesn't bash unions.

He points out government unions are extortionists.

How's that fedgov pension looking now for you, douch?

Wed, 04/27/2011 - 04:59 | 1210427 fredquimby
fredquimby's picture

@slo

"Any one who sold their Gold or Silver in the last days shake out, better get back in quick."

Is it ok if I buy some more GnS, even if I didn't sell any of mine this last week??

Wed, 04/27/2011 - 04:58 | 1210428 Kina
Kina's picture

AUD 1.083 sheesh

 

time for another gold leg up

Wed, 04/27/2011 - 05:13 | 1210443 Yen Cross
Yen Cross's picture

Black swan. Real money is already cashing out. Run long stops and smalls. 1.10 should cap it. Don't get greedy!

Wed, 04/27/2011 - 05:09 | 1210438 Yen Cross
Yen Cross's picture

I have an unweighted (non- ICE)For newbees. Low of 73.68 DXY. 4-26-11 2@ 18:30 W.C.T +7

Wed, 04/27/2011 - 05:09 | 1210439 slaughterer
slaughterer's picture

Given this move, DXY should hit the 60s this summer. 

Wed, 04/27/2011 - 05:22 | 1210466 slewie the pi-rat
slewie the pi-rat's picture

yes, things could be better.  but the american people should not worry.  your trust in your financial and political leadership is truly well placed, at this point in time.  we are in charge. 

we shall not fail you! 

trust us!

AAARRRGGRRggrrrhhggarhhhhaaah!!!

Wed, 04/27/2011 - 05:36 | 1210539 Yen Cross
Yen Cross's picture

Show me a chart Rat Boy!? Talk is cheap!

Wed, 04/27/2011 - 06:32 | 1210583 slewie the pi-rat
slewie the pi-rat's picture

tyler is in charge of charts, Y/C.

he seems very bullish on them. 

i'm a bit wary of them, right now, and am hedging.

with farts.

Wed, 04/27/2011 - 06:36 | 1210589 Yen Cross
Yen Cross's picture

Smart!

Wed, 04/27/2011 - 05:35 | 1210537 Sudden Debt
Sudden Debt's picture

DOLLAR TO 68 IN 4 WEEKS!!

 

 

Wed, 04/27/2011 - 05:44 | 1210541 Yen Cross
Yen Cross's picture

You Europeans make me laugh! Portugal,Spain,Ireland,Italy, Greece, and all of the Club Med team. Not to mention the OLD West Russian PERIPHERIES!

Wed, 04/27/2011 - 05:45 | 1210548 TheGreatPonzi
TheGreatPonzi's picture

Why do you assume the US dollar, and the US economy on a larger scale, have anything to do with America and its values? 

Wed, 04/27/2011 - 05:47 | 1210551 Yen Cross
Yen Cross's picture

I'm sure I will regret this! What is your question or point? Is it the revaluation of Asian currencies? Is it Brazil? Is it just laziness? Is it just being a mental midget? Do you even have a question?

Wed, 04/27/2011 - 06:25 | 1210581 Broomer
Broomer's picture

Every nation has the currency it deserves.

Wed, 04/27/2011 - 06:39 | 1210592 Yen Cross
Yen Cross's picture

I sure hope it stays that way.

Wed, 04/27/2011 - 07:08 | 1210625 Twindrives
Twindrives's picture

The Federal Reserve Note......... is The Rothschild Note.   Die bitch, die.  And take your faithful stooge Bernanke to hell with you.

Get ready to go to arms America.

    

Wed, 04/27/2011 - 10:44 | 1211513 dizzyfingers
dizzyfingers's picture

Amen to the last part.

Wed, 04/27/2011 - 05:33 | 1210538 johny2
johny2's picture

How is CHF backed by USD? You did not confuse USD for Gold, did you?

Wed, 04/27/2011 - 05:41 | 1210544 Yen Cross
Yen Cross's picture

It isn't. Smart Question! It's a PROXY!

Wed, 04/27/2011 - 05:59 | 1210561 johny2
johny2's picture

CHF are backed partially with Gold as far as I know...but I am always learning something new.

Wed, 04/27/2011 - 06:35 | 1210587 Urban Redneck
Urban Redneck's picture

CHF is NOT backed by gold.  SNB simply has huge gold reserves relative to the size of the currency float.

Wed, 04/27/2011 - 06:41 | 1210595 Yen Cross
Yen Cross's picture

Now you're talkin!

Wed, 04/27/2011 - 06:45 | 1210603 slewie the pi-rat
slewie the pi-rat's picture

Silver Undergoes 10% Correction As Dollar Poundage Resumes; Dollar-Backed Swiss Franc Now Flight To Safety

tyler points out they have $220 Bn. green stamp IOU's  on their bankster balance sheet. 

 

Wed, 04/27/2011 - 07:12 | 1210628 johny2
johny2's picture

Basically the CHF is just another fiat currency. Maybe not as bad as Dollar or Euro, but no substitute for the Real assets.

And it can be put the way Tyler did, CHF is backed by all assets Swiss hold, including the IOU'S. 

Wed, 04/27/2011 - 07:48 | 1210629 Urban Redneck
Urban Redneck's picture

plus double the USD amount in EUR + 1000 tons Au, the issue is the comparative lack of "stuff" on the liability side of the balance sheet

Wed, 04/27/2011 - 07:20 | 1210644 Snidley Whipsnae
Snidley Whipsnae's picture

Lest we not forget how the Swiss came to have lots of those dollars... Defending their currency with dollar purchases to maintain their export businesses.

iows... It's not like the Swiss thought the dollar was a good place to be...

Wed, 04/27/2011 - 05:41 | 1210546 bingaling
bingaling's picture

Silver and gold aren't going up neither is the market it is a parabolic fall of the dollar that makes it appear that way . 

Wed, 04/27/2011 - 06:29 | 1210584 Broomer
Broomer's picture

You can actually say that gold is static and silver is going up, because the ratio is falling.

Wed, 04/27/2011 - 05:52 | 1210556 Snidley Whipsnae
Snidley Whipsnae's picture

Hat tip to Jesse for posting this one... Definitely worth a read...

"The Bankers' Silver Scam Is Unwinding" "The massive losses that short sellers have been taken has naturally led to some new urban myths. Some now claim that "evil" long side billionaires are out to "ruin" the market. Yet, even the Financial Times article points out the ridiculously paranoid nature of this theory. The author notes that silver prices were rising even as speculative positions at COMEX were reduced by 8.4%. This illustrates that the COMEX is now just a sideshow. A lot of people are simply buying physical silver.

The silver buyers do include some billionaires, undoubtedly, but most of them are simply folks who watched Jeffrey Christian's testimony at the well publicized CFTC position limits hearing back on March 25, 2010, and came away with the distinct impression that a small group of London banks have been creating alchemic silver. The banks were ostensibly "selling" and then "storing" so-called "unallocated silver bars" for silver investors. In reality, they seem to have been maintaining a fractional banking system in which only one physical ounce is really purchased for every 100 ounces they supposedly sell." Remainder of post here:http://jessescrossroadscafe.blogspot.com/2011/04/bankers-silver-scam-is-...

 

 

Wed, 04/27/2011 - 06:01 | 1210565 Hephasteus
Hephasteus's picture

There's no billionaires buying silver. It's just little people with a simple message to ctfc. You're not so tough without your car are you bitch?

Wed, 04/27/2011 - 06:09 | 1210569 Snidley Whipsnae
Snidley Whipsnae's picture

"there are no billionaires buying silver"

lol... A bit Amerocentric, are we?

There are billionaires the world over that are buying silver...along with the millions of non billionaires. It all adds up but the big boys are the heavy lifters in paper markets...and the Chinese are doing more than their fair share.

Wed, 04/27/2011 - 06:33 | 1210585 Broomer
Broomer's picture

Little people don't buy COMEX contracts.

Wed, 04/27/2011 - 06:56 | 1210600 Hephasteus
Hephasteus's picture

And people with meager 50 to 250 million net worths and 5 to 10 million bucks can wreck that place. I'm not being amerocentric. I'm telling you none of the "super stars" are doing this.

And just where do you think thousands of people buying a few coins here and there get it from? Does it wash down from the river to their coin shop? Does it grow on a tree in the back of the coin shop? Little people can get allllll over comex.

Wed, 04/27/2011 - 07:25 | 1210650 Snidley Whipsnae
Snidley Whipsnae's picture

" I'm telling you none of the "super stars" are doing this."

And your proof is where? Show me...

People, you among them, tend to believe that they know a lot more than they really know... this is especially true in the world of economics/finance, where there is no hard science involved.

I suggest you read 'The Black Swan' by Taleb, before you put your foot in your mouth again.

 

Wed, 04/27/2011 - 08:17 | 1210766 Atlas Shrieked
Atlas Shrieked's picture

The richest man in the world, Carlos Slim, owned mining companies.  Eric Sprott is a billionaire who is loaded up on silver.  Hugo Salinas Price is advocating a silver standard for Mexico.  Jim Rogers is long all the commodities, including gold and silver.  All are billionaires.  It's conceivable that Tudor Jones, Paulson, and even Soros may own silver, since they are all long gold.

Wed, 04/27/2011 - 11:44 | 1211843 Hephasteus
Hephasteus's picture

I think erics gold etf ipo'd at about 650 million is probably well well over a billion. But that's not his. He can try to take it but his clients will probably outgun him. I'm not sure how big his silver etf is. I don't know how much he lost on the solar panel grade silicon fiasco.

Carlos Slim owned mining companies and that's nothing more than a working for the government job.

Hugo Salinas Price has probably been involved and seems like a really great guy.

And the other guys you mentioned do own silver but it's usually presented as inventory on one of the companies they own or are invested in.

Defense industry could have snatched up a bunch.

But really this is what a few million people buying up a few ounces here and there and a few of them buying up several 10 ouncers and a few buying up a couple 100 oz bars can do. If you look at the price of silver since the goon squad borrowed a bunch from china they kept it close to 5 bucks an ounce for about 4 years. So the burn rate on the stuff was really really high compared to mining.

Wed, 04/27/2011 - 07:41 | 1210684 Urban Redneck
Urban Redneck's picture

Just because there isn't a conspiracy doesn't mean there shouldn't be one now.  Avalanche management teams don't create avalanches out of thin air, they actually do "God's work" and speed the natural progression of events.

The original Apr. 21 article in FT was pretty lazy, cherry picked comparative commodity performance, and only looked the technical analysts' perspectives in the paper market, before coming to the accepting the rumor as the logical conclusion.  

http://www.zerohedge.com/article/things-make-you-go-hmmm-silver-conspiracy-theories-part-2#comment-1206937

http://www.zerohedge.com/article/apmex-starts-reverse-inquiry-seeks-buy-any-quantity-silver-clients-3-over-spot#comment-1206862

Wed, 04/27/2011 - 05:54 | 1210557 equity_momo
equity_momo's picture

This is really quite something.   QE has killed the dollar, not created any jobs (i concede it may have saved some further lay-offs) it hasnt kick-started the economy as seen by lacklustre GDP , it hasnt prevented housing going through the plug hole and it isnt creating a wealth effect for stock investors as they are FLAT FOR THE YEAR IN REAL TERMS.    Bernanke , you're basically 1 for 5 - i'll give you a half for stemming UE before it hit 30% and a half for preventing the S+P going to 400.   Shame both of those are inevitable , you'll be 0 for 5 then and hopefully long gone.

Fuck , i havent even mentioned food and fuel prices. You stupid bearded little cunt.

Wed, 04/27/2011 - 05:57 | 1210559 Racer
Racer's picture

And the magical overnight futures fairy has again worked magic whilst the US sleeps to make everyone forget that naughty Amazon achy tooth and taken it away and all is well in the world and futures can shine their sparkling new highs

Wed, 04/27/2011 - 05:58 | 1210563 Snidley Whipsnae
Snidley Whipsnae's picture

More from Jesse...

"Had the worldwide silver scam remained a secret, suppression of precious metals prices might have gone on forever. But the genie is now out of the bottle and mortal men, not even those who run casino-banks, cannot hope to put him back in. Once it became clear that the bullion banks were leveraged 100 to 1 in a silver based fractional banking scheme, it was only a matter of time before the market clobbered them. That is what is happening.

People have only begun to scratch the surface of the precious metals markets, and few fully understand how undervalued all of them are. Silver has always been worth far more than it had been selling for in the last 30 years. People are starting to see not only this, but also how that corrupt pricing situation came to pass. The whole world now understands that the silver trade has been carried out in a deceitful manner for many years. So, naturally, many people are starting to buy physical silver again, just as they did for 10,000 years before COMEX began trading it. Those people happen to include, in all likelihood, a few billionaires, a few sovereign wealth funds, and a few Asian bankers. Many are politely refusing offers of "unallocated" bullion bank "storage".

The silver market is not rising because of a conspiracy. If so, it would be the most disorganized conspiracy that has ever existed. On the contrary. What we are seeing is the massive unwinding of a silver price control conspiracy that many of us predicted, in public or private for many years. The biggest scam in world history is ending. Sellers are now desperately trying to find metal. A lot of banks that were supposed to be storing silver are really storing air. Converting large amounts of air to large amounts of silver is difficult and bound to be costly. The process, once completed, will permanently increase the price of silver.

Intense upward pressure on silver prices is evident because physical silver is being purchased as never before. It is not stemming from trading on COMEX. In fact, deliveries at COMEX have been relatively small for several months. The process that is now ongoing is one that no performance bond committee can stop. COMEX could declare liquidation-only, as they did in 1980. The only end result would be to catapult the demand for and price of silver even higher. COMEX is now irrelevant except as a way for banks to bankrupt themselves if they continue to try to reduce the price of physical silver by manipulating futures prices there and taking on more short positions to do it. They can crash the paper futures price as much as they wish. It won't stop buyers from demanding physical silver in the real market outside COMEX."

http://jessescrossroadscafe.blogspot.com/2011/04/bankers-silver-scam-is-unwinding.html

Wed, 04/27/2011 - 06:44 | 1210601 Yen Cross
Yen Cross's picture

Snidley Fiat. I'm already running smalls short on PM's. You can have the gravy on the top. Xag drops almost 4 usd yesterday. It's consolidating. What can't go up must go down. P.S. Sovereign Debt. not (FIAT)

Wed, 04/27/2011 - 07:32 | 1210662 Snidley Whipsnae
Snidley Whipsnae's picture

Stand by to cover your shorts. Do you really believe that Ben is going to jack rates and destroy his beloved equities mkts? No. Then printing to continue and PMs will continue to rise...dollar to skid more. 

BTW... I could care less about the paper PMs mkts.

Wed, 04/27/2011 - 06:10 | 1210571 TwoShortPlanks
TwoShortPlanks's picture

I hope somebody thanks that Fed Freak for the 3.3% Inflation figures which were release today in Australia.

Thanks Benny, you go ahead and keep that uplift pressure on my Silver buddy!!!

Wed, 04/27/2011 - 06:14 | 1210574 Racer
Racer's picture

And 4% 'official' figures in the UK

I am sick of going to buy food and petrol and every week both go up.

 

Wed, 04/27/2011 - 06:53 | 1210594 TwoShortPlanks
TwoShortPlanks's picture

Inflation: http://player.sbs.com.au/naca#/naca/wna/Latest/playlist/Inflation-on-the...

Joe Hockey nails the real 'Headline Inflation' numbers...

Pharmaceuticals 13%, WTF????

Energy 5%

Fuel 9%

Education 7%

 

CPI, FMOC and QE: http://player.sbs.com.au/naca#/naca/wna/Latest/playlist/Analysis:-CPI-ri...

Swan on Inflation: http://player.sbs.com.au/naca#/naca/wna/Latest/playlist/Inflation-rise-c...

Wed, 04/27/2011 - 06:21 | 1210576 THE DORK OF CORK
THE DORK OF CORK's picture

Is the dollar really the US currency ? - does not Bernanke head the BIS ?

You don't own it - it owns you.

Wed, 04/27/2011 - 06:24 | 1210579 Racer
Racer's picture

Like the Zim dollar, soon it will be banned from use as toilet paper, no-one will want it for even that because it will block the toilet up!

Wed, 04/27/2011 - 06:36 | 1210591 Broomer
Broomer's picture

Eventually dollars will be printed on toilet paper.

Wed, 04/27/2011 - 07:04 | 1210623 StychoKiller
Wed, 04/27/2011 - 06:34 | 1210586 TwoShortPlanks
TwoShortPlanks's picture

The Global Economy is like the Internet, Central Banks are like ISPs...but the BIS is the backbone. Scary!

Wed, 04/27/2011 - 06:57 | 1210588 Negro Primero
Negro Primero's picture

From UBS:

The dollar is at crossroads ahead of tomorrow's FOMC decision. Investors are looking for clarity from the Fed on how
policy will proceed in the coming months. The key issue is whether QE2 will end on schedule in June, and how
subsequent normalisation would proceed. Our economists do not expect any significant change in the statement. We
look at four potential scenarios for the Fed's statement tomorrow and how the dollar could respond.

Fed Chairman Bernanke will also host a groundbreaking post-decision press conference tomorrow, and many
investors may also choose to delay their reaction until after this event. As this the first session Bernanke will probably
wish to err on the side of caution. Besides, our economists note that this week's press conference is probably a mere
dress rehearsal for more important decisions later this year. Nevertheless, as we have seen with the FX market's
reaction to the ECB, significant deviations from the post-decision statement are possible and investors will need to

monitor these discrepancies accordingly.

__________________________________________________________

Scenario 1: Very Dovish Fed – Failing to confirm the end of QE2; negative assessment of the US economy and
hints of further stimulus

Probability: 5%

USD Reaction: Knee-jerk fall and likely further declines across the board.

Comment: A very dovish Fed would fit nicely with NY FRB President Bill Dudley's recent assessment of the US
economy, namely the Fed is still "very far away" from its employment and inflation mandates, and called for FOMC
members to avoid giving an "overoptimistic" assessment of the US economy. The chart below shows that there are
still plenty of reasons to remain cautious. Even though one of QE1 and QE2's objectives is encouraging money
reaction, the St. Louis Fed's own money multiplier figure has arrested the steady gains seen through last year and
stagnated under 1. Though the transmission from monetary policy to the real economy is not direct and often lagged,
employment creation cannot be "self sustainable" if the banking and corporate sectors assume a defensive/de-
leveraging stance. Dovish Fed members would even argue that further accommodation would be needed, including
either extension of QE2, or even QE3 after a pause in asset purchases. This would be the worst-case scenario for the
dollar and strong declines across the board in the greenback can be expected in the unlikely case that the Fed
chooses this stance.

Scenario 2: Neutral/Somewhat Dovish Fed – Failing to confirm the end of QE2, but very bullish assessment of the
US economy and effectively leave final decision until the June meeting

Probability: 60%

USD Reaction: Knee-jerk fall then bounce back.

Comment: This is our core scenario. The Fed still has the June meeting to fall back on to confirm the end of QE2,
and data in the run-up to this meeting (especially on the employment side) should be able to give sufficient backing to
the Fed's case for an end to policy accommodation. At this meeting, the Fed should at the very least lay the ground
work for a change in posture but not commit yet. Crucially though, the Fed should acknowledge that the US economy
has improved materially this year and earlier fears about deflation or further deterioration in the labour market can be
dismissed (see chart). However, data of late has been weaker, hence the need to wait another meeting before ending
policy stimulus. Dollar longs will be disappointed to begin with and may take off some positions, as the Fed was not
hawkish enough for their liking. However, the trajectory of policy will be clear, and there are no new reasons to sell
the greenback. This is clarity of direction, rather than clarity with direction. After some initial volatility, investors may
choose to focus on other currencies and their idiosyncratic drivers - which may prove not to be all that positive,
especially in the EUR's case.

Scenario 3: Somewhat Hawkish Fed – Confirmation of end of QE2, but indication of a slow unwind of the balance
sheet. So no outright asset sales just expired assets rolling off the balance sheet.

Probability: 30%

USD Reaction: Knee-jerk rise then fall back.

Comment: With a formal announcement of the ending of the Fed’s asset repurchase program, the initial knee-jerk
USD reaction would be a spike, as no formal indication has been given by Bernanke to date. However, the market
largely expects QE2 to finish in June in any case and the subsequent price action, on the more medium-term basis,
would be further selling of the dollar. With a commitment to keep rates low (relative to peers), the USD has traded soft
in recent months. This scenario would lead to the same trend as investors put their cash elsewhere. Risk appetite is
unlikely to favour USD buying either and a continuation of improved sentiment will keep the USD soft. This situation is
(relatively) hawkish but is not enough to transform the USD into a growth currency. Given positioning in risk via short-
dollar positions is already rather heavy, we doubt investors will be willing to add to these positions either and it'll be a
question of "as you were". Similar to scenario 2, investors may shift to idiosyncratic drivers of other currencies and
trade accordingly.

Scenario 4: Very Hawkish Fed – Outline specific tools to be used for policy normalization, potentially by year-end
(asset sales, reverse repos, rate hikes, etc.), in addition to confirming the end of QE2.

Probability: 5%

USD Reaction: Sustained dollar rally.

Comment: This scenario would catch all market participants off guard since they have been underpricing Fed policy
normalization, as evidenced by the recent trend of broad-based dollar weakness. However, while the chance of this
scenario materialising is quite low, we must still acknowledge there is a chance given the hawkish minority on the
FOMC, spearheaded by Philadelphia Fed President Plosser. Plosser said tightening could come sooner than many
expect as he said a rate increase this year is “certainly a possibility.” He also speculated on the possibility of rate
hikes occuring concurrently with outright asset sales. Dallas Fed President Fisher and to a certain extent Minneapolis
Fed President Kocherlakota have also discussed potential tightening in detail. The FOMC’s outlook on inflation will be
key for this scenario coming to fruition but if it does, market participants will be scrambling to reverse their short dollar
positions; as the chart below detailing IMM positioning shows, dollar shorts remain stretched by historical standards
and scope for a sharp unwinding is significant.

 

Wed, 04/27/2011 - 07:07 | 1210624 StychoKiller
StychoKiller's picture

Scenario 5:  The Bernank falls to his knees and begs for his life and political asylum!

Wed, 04/27/2011 - 06:58 | 1210617 slewie the pi-rat
slewie the pi-rat's picture

now, less than 12 hours to the stupor bowl of banksterblitZ, i would like to place the entire vatican library into the record, here, as well as :  The Joy Of Cooking!

Wed, 04/27/2011 - 07:16 | 1210633 Twindrives
Twindrives's picture

And don't forget it was Warren Buffet's lying P.O.S. friend Obama who re-instated Bernanke for his second term as ChairSatan.

Wed, 04/27/2011 - 07:19 | 1210642 DUNTHAT
DUNTHAT's picture

One Simple Question!!

How will the Fed fund the Govt. Fiscal Deficit, assuming of course, the limit is raised??

That deficit is runnning at about 120 Billion per month, and whatever is not bought by domestic and international outside sources must be made up by the Fed??

All occurring in an environment of a devaluing dollar.

Can someone explain??

Wed, 04/27/2011 - 08:35 | 1210823 mayhem_korner
mayhem_korner's picture

The dollar is devaluing because the FED is financing the deficit.

Everyone knows that the QE must continue, the only question is whether there will be a break and, if so, for how long.

The only thing that can save the dollar is a debt default - either by the FED or by the masses servicing things like mortgages.

There is no easy out in this mess.  The U.S. has borrowed way beyond its means, and the force of gravity is overwhelming the complex.  Our elitists history has been to continue kicking the can down the road and hope that they're out of office before it blows up.  I don't expect that to change.  So more money printing and continued devaluation of the dollar until the masses flee from it en masse.  In the meantime, maybe some sharp blows to the Dow, commodities, and/or housing, but those are temporal...

Wed, 04/27/2011 - 10:48 | 1211527 DUNTHAT
DUNTHAT's picture

I guess my question is how can they take a QE break? Yhey can take a POMO break, but not a QE break. In other words, the Deficit is continual, every month 120 Billion has to be net created to fund the shortfall.

Wed, 04/27/2011 - 10:17 | 1211392 dizzyfingers
dizzyfingers's picture

Nice summing up, and good question!

I'm listening for a real answer, but the silence is deafening, don't you think?

Wed, 04/27/2011 - 10:41 | 1211494 DUNTHAT
DUNTHAT's picture

Yes!!

I mean the only thing I can come up with is direct monetization--or printing-- without the circle jerk of involving TTBF banks.

So its not POMO per se, just direct expansion of the Monetary Base.

Maybe someone has a better description on how this is done.  To me, you would be by passing the TBTF banks and directly injecting the money into the economy through Govt. spending.

Wed, 04/27/2011 - 07:37 | 1210672 Sutton
Sutton's picture

As of yesterday, Rick Ackerman is a "hyperinflationist". 

Wed, 04/27/2011 - 07:53 | 1210710 Snidley Whipsnae
Snidley Whipsnae's picture

Ackerman was treated to this great post at FOFOA...Which says about all there is to say...

"Deflation or Hyperinflation"

http://fofoa.blogspot.com/search?updated-min=2011-01-01T00%3A00%3A00-08%3A00&updated-max=2012-01-01T00%3A00%3A00-08%3A00&max-results=23

 

Wed, 04/27/2011 - 08:14 | 1210758 Ferg .
Ferg .'s picture

While over the longer term the USD continues to maintain its surly bear trend I think a short-medium term ( weeks-months ) correction is very close at hand . Looks to me as though we're at serious sentiment extremes , similar to what we saw regarding the EUR back in June/July of last year , when analysts were toying with the idea of EUR/USD heading for parity and it appeared that the EMU experiment might be coming to an end .

Looking at my charts I see AUD at record highs , CHF at record highs , CAD and NZD near record highs and the EUR blasting through resistance after resistance . The anti-dollar boat is very crowded at the moment . Sure the status quo of frantic USD dumping may continue , but I don't quite think we're at the point of complete capitulation just yet .

And for those of you who subscribe to Elliot I'd say take a look at the DXY . I think we are either in wave 9 of an extended 5th or in wave 5 of 5 of a simple textbook 5 wave decline .

Wed, 04/27/2011 - 08:18 | 1210771 Cursive
Cursive's picture

It's like speculators are taunting Bernanke that they know his woman (the USD) is a nasty whore with STD's, who's also been known to lie down with animals, and daring him to state publicly that he loves her.

Wed, 04/27/2011 - 10:16 | 1211366 dizzyfingers
dizzyfingers's picture

My coffee spurted out my nose upon reading your comment.

Wed, 04/27/2011 - 08:28 | 1210804 HedgeFundLIVE
HedgeFundLIVE's picture

At some point, the decline in USD has to end. I believe Bernanke’s speech tomorrow will be read as bullish for the USD. 

http://www.hedgefundlive.com/blog/eurusd-analysis-bernanke-effect-on-equities

Wed, 04/27/2011 - 08:29 | 1210805 sudzee
sudzee's picture

If the Bernank screws up this dog and pony show today it will be dollar dive day for sure.

Wed, 04/27/2011 - 09:37 | 1211168 Crack-up Boom
Crack-up Boom's picture

+1  FOFOA's post was great!

Wed, 04/27/2011 - 10:12 | 1211360 dizzyfingers
dizzyfingers's picture

...so, is the end of the dollar also the end of the shit sandwich, or is there something worse coming?

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