FX Volatility Spikes As More Countries Enter Currency Wars; Euro Surges On Furious Squeeze After Touching 1.04Submitted by Tyler Durden on 03/12/2015 06:57 -0400
The global currency wars are getting ever more violent, following yesterday's unexpected entry of Thailand and South Korea, whose central banks were #23 and #24 to ease monetary conditions in 2015, confirming the threat of a global USD margin call is clear and present (see "The Global Dollar Funding Shortage Is Back With A Vengeance And "This Time It's Different"). But the one currency everyone continues to watch is the Euro, which the closer it gets to parity with the USD, the more volatile it becomes, and moments after touching a 1.04-handle coupled with the DXY rising above 100 for the first time in 12 years, the EURUSD saw a huge short squeeze which sent it nearly 150 pips higher to 1.0643, before the selling resumed.
While the dollar strength this morning, which has pushed it to a fresh 13 year high and has accelerated the EURUSD plunge to under 1.06 - a drop of over 300 pips since the start of the week - has been a recap of yesterday's trading action, the main difference is that unlike yesterday, the USDJPY has managed to find a strong bid in the overnight session, pushing not only the Nikkei up by 0.4%, but also lifting US equity futures as the entire global marketplace is now merely a sandbox in which the central banks try to crush their currencies as fast as possible.
- Dollar at 12-year peak versus euro, emerging markets spooked (Reuters)
- CIA sought to hack Apple iPhones from earliest days (Reuters)
- Draghi Urged Greece to Allow Troika Back Before It’s Late (BBG)
- Brent crude dips below $58 on strong dollar and supply (Reuters)
- Credit Suisse replaces CEO Dougan with Prudential's Thiam (Reuters)
- More "distressed" energy M&A: Verisk buys Wood Mackenzie for £1.85bn (FT)
- Prepare for a surge in defaults: Investors Are Buying Stocks and Bonds From Energy Producers Amid Oil Price Drop (WSJ)
- Private equity executive ordered to pay £72m to ex-wife (FT)
- Democratic donors unfazed by Hillary Clinton's use of private email (Reuters)
- Expensive Hepatitis C Medications Drive Prescription-Drug Spending (WSJ)
- 'ISIS Hackers' Almost Certainly Not ISIS Hackers (NBC)
As noted earlier, starting early with the overnight session there was already some serious fireworks in Asia, when first the USDJPY soared then tumbled, pushing the Nikkei lower some 0.7% with it, driven entirely by the surge in Dollar which rose to a fresh 12 year high overnight after gaining as much as 0.59%, in an extension of Friday’s post-NFP gains. Additionally, the EUR/USD slipped below 1.0800 to touch its lowest level since Sept’03 while USD/JPY rose above 122.00 for the first time since Jul’07, after breaching long-term resistance at 121.85. However, in recent trade the pair has seen a straight line sell-off which in turn has sent US equity futures sliding, and the ES down about 14 points as of this moment. Meanwhile, the frontrunning of the ECB continues, with German 10 Year yields sliding -3bps to 0.281%, the lowest in series history. Also touching fresh record lows were Austrian, Belgian, Dutch, Finnish, Irish, Italian, Spanish 10 Year rates.
It was not all smiles and jokes as Mario Draghi's European QE officially launched in Europe, with Greece leaving the proverbial turd in the monetary punch bowl.
The question stands: how much longer will the Fed allow the ECB to export its recession to the US on the back of the soaring dollar, and how much longer will the market be deluded that "decoupling" is still possible despite a dramatic bout of weakness in recent US data. Look for the answer in today's BLS report, which - if the Fed is getting secound thoughts about its rate hike strategy in just 3 months - has to print well below 200,000 to send a very important message to the market about just how much weaker the US economy is than generally perceived. For now, however, the ECB is getting its way, and the question of just how much European QE is priced in, remains open, with peripheral bond yields dropping to new all time lows for yet another day, while the EURUSD has plunged to fresh 11 year lows, sliding below 1.094, and making every US corporation with European operations scream in terror. Looking at markets, US equities are just barely in the red, coiled to move either way when the seasonally-adjusted jobs data hits.
It has been a while since we have seen the USDJPY rampathon push US equities higher, so in a day dominated by central banks (first the BOE momentarily), and then the ECB's much anticipated announcement of the actual QE launch at the Draghi press conference at 1:30pm CET (taking place, ironically enough, in the place that was the blueprint for the Eurozone's capital controls, Cyprus), it only makes sense that after weeks of stage fright, the USDJPY algos reminded the world they are alive and well, and proceeded to ramp the key FX pair above 120, even though the currency that everyone will be talking about today is the Euro, hugging 1.10 as of this moment, but the real question is what happens after Draghi gives the asset buying green light: has all of Q€ been priced in already in FX, and will the EURUSD resume its surge higher, or is parity next stop?
So today what is different is not the Wall Street spiel that Nasdaq is anchored by the likes of Apple rather than Webvan. Since the two days of March 9 and 10 in the year 2000 when the Nasdaq closed over the 5,000, the financial markets have been converted into central bank managed gambling halls and the global economy has bloated beyond recognition by 15 years of non-stop financial repression. Back then, a few hundred stocks were wildly over-valued based on monetizing eyeballs; now the entire market is drastically overvalued owing to the false financial market liquidity generated by $14 trillion of central bank asset monetization - mostly public debt - since the turn of the century. As a result, the global financial system and economy are orders of magnitude more fragile and vulnerable to collapse than they were 15 years ago.
Just like yesterday, it has - so far - been mostly about Asia in the overnight session, where as reported previously, we got the latest central bank engaging in an "unexpected" rate cut, after Reserve Bank of India Governor Rajan cut rates in an unscheduled move days after the government agreed for the first time to give the central bank a legal mandate to target inflation. This was India's second rate cut in 2 months, and yet despite the Sensex surging to a all time high over 30,000, it subsequently ended up closing red on the day, down -0.7%, despite the Indian currency sliding 0.4% to 62.1463 to a dollar. Is the half-life of thany incremental rate cut in an unprecedented barage of global central bank easing now less than a day?
With little newsflow out of Europe, and just as little on deck out of the US (just NY ISM and auto sales later today), the main overnight events were out of Asia where first the RBA decided to leave rates unchanged but not before the announcement was leaked up to a minute early. In China, the rate-cut euphoria lasted just one day, and after a feeble 0.8% bounce on Monday, the SHCOMP was down 2.2% this morning over fears the PBOC is doing too little, too late to halt what is now perceived by many as a massive "tightening" capital flight out of China. Finally, Japan made the newsflow, after it JGBs continued to slide following a weak auction, fears that the BOJ is done easing after Abe advisor Etsuro Honda warned against overheating, and after the biggest jump in base pay in over a decade led some to think the BOJ may soon have to halt easing altogether, especially if real wages proceed to rise
Over the past few weeks, a new piece of equipment has been spotted hanging off the NYSE primary microwave tower. Here it is...
With key economic data either behind us (with the downward revised GDP), or ahead of us (the February payrolls on deck), and the Greek situation currently shelved if only for a few days/weeks until the IMF payment comes due and the farce begins anew, stocks are focuing on the widely telegraphed 25 bps Chinese rate cut over the weekend, which however has so far failed to inspire a broad based rally either in Asia (where the SHCOMP closed up 0.8% after first dipping in the red) or across developed markets. In fact, as of this moment futures are hugging the unchanged line as the USDJPY attempted another breakout of 120.000 but with numerous option barrier expiration stop at that level, it has since retracted all the overnight gains and is back to the Sundey lows, even as the EURUSD has seen a powerful breakout from overnight lows and is currently at the highest level since the US GDP print, following the release of the final European February PMI data, as a result of USD weakness since the European open.