It’s been a very interesting week but one in which it has been difficult to establish a sustainable theme.
The week began with the recognition that China is stockpiling commodities rather than consuming them as a result of its “miraculous” stimulus program. That recognition was long overdue. Unwinding of the reflation trade was the early theme of the week.
A massive buy order in EUR/USD on Tuesday shook the confidence of traders who had positioned themselves for a deep pullback in the reflation trade.
Wednesday saw a confluence of dollar-supportive events, but the greenback was only pushed up in its established range. The EUR 450 bln refi operation by the ECB pushed its balance sheet past $3 trln, 50% larger than the Fed, (who the world has pilloried from printing money). Swiss National Bank intervention in USD/CHF and EUR/CHF was a big boost for the dollar while the Fed cheered the market by refraining from layering any more extraordinary programs at the FOMC meeting.
Today we’ve seen some USD- supportive jawboning from Japanese finance minister Yosano and a bit of risk aversion as weekly jobless claims remain stubbornly north of 600,000.
The net result is a mildly dollar-positive backdrop but nothing to get too jazzed about. Don’t chace the greenback higher but take advantage of pullbacks and keep stops tight. I still like selling EUR/USD on rallies toward 1.3980 with a stop above 1.4010 for a return to the 1.3825 area.