Article / 27 April 2015 at 12:45 GMT

FX Noon: Lipstick on a pig

Director / Accumen Management
United Kingdom
  • USD weakness could reverse on FOMC meeting
  • Greek headlines failing to significantly move markets
  • Chinese quasi-QE could be a go

By Ken Veksler

It feels somewhat odd walking back into the office this morning after some three weeks of travelling, but here I am nonetheless.
 
I am here, in fact, trying to wrap my head around Friday's price action which led to a mass selloff in the greenback while I was midair during a rather arduous 24-hour flight back from Australia. In short though, outside of a positional squeeze I can’t see much to explain the overall USD weakness.

I see nothing, in fact, to alter my view that most if not all of this move shall be reversed come Wednesday night... and rather quickly.

It won’t take much to cause the move. Ultimately, in the absence of a dot plot and press conference, the Federal Open Market Committee's statement will only need the very slightest of hawkish linguistic tinges to get the ball rolling for further USD buying. 

I’ve made note before (on several occasions) that the broader DXY is in the midst of a larger consolidation phase and that real money, as well as sovereign names, are already long sufficient amounts of USD presently. 

Any movement within recent ranges in major USD pairs has been nothing more than dollar cost averaging, all the while improving the profit/loss on underlying core positions. 

As I’ve said: “stupid money chasing smart money”. While I remain reticent to change my own "no move by the Fed this year" view, I don’t think the rest of the market has quite caught on just yet. It remains, in fact, only too happy to own USD and use dips (significant in nature) to add to that positioning. So, in short, look for an "all change" scenario to ensue in the coming days.

Adding further potential weight to a structural move/change in the USD picture is Wednesday's advance US GDP print. This (despite the usual weather impediments, etc.) has the potential to move things rather rapidly in favour of USD buying...

Elsewhere, Greek noise in Europe seems to be gathering steam, if only to fit the confirmation bias among various opposing narratives. 

It looks increasingly as though Greek finance minister Yanis Varoufakis will be the proverbial scapegoat used by Syriza to legitimise its own incompetence. This, however, does very little to change the underlying rot seen in the country (or for that matter, to diminish my own, personally priced Grexit 2015 delta). 

For now though, outside of spurious headlines (which are failing to truly move markets) we’re not seeing a great deal coming from any of this noise.

Interestingly, the weekend noise out of China might be of more substance as it has all pointed to the near term potential for quasi-quantitative easing. This story is what has set the cat amongst the pigeons and reignited the bull story for local equities, particularly banking stocks. 

It likely doesn’t matter what shade of lipstick you apply to this particular pig, it will remain just that – a pig. Not sure what I mean? I mean, yes, they’ll embark on something akin to QE, irrespective of how they present it to the rest of the world...

Pig
Cosmetics only go so far. Photo: iStock

Stateside, today still sees us waiting on the release of the US flash services PMI as well as the Dallas Fed manufacturing survey. To my mind, neither is likely to do a great deal to this market as we await the more pressing events and releases later this week.

As I continue to wrap my head around this market, I suggest grabbing those helmets...

...and wish you luck out there today.

— Edited by Michael McKenna

Ken Veksler is director of Accumen Management

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