The markets are extremely crazy today.
Currencies seem nearly restless today, jumping on any volatility on the horizon and riding the momentum whichever way the fiddle thoughts of the collective conscious pull them. The euro did a 70-minute 80-85 pip move, and then retraced it perfectly 61.8%, after having turned around following a break of the 38.2%, and the EUR-periphery currencies are playing along to the same tunes with one hour saying constant minute-to-minute out-performance, the next being reversed and letting the euro take the value spot. After the push towards the 61.8%, there has been a pretty strong attempt at rallying back (probably to keep the EUR/JPY somewhat fixed after the Fenix-like rise of the yen, more later) with straight, minute-to-minute 2c moves.
X/JPY got clobbered as well as the G7 statement got reinterpreted, although it is still uncertain how. Lets get the list of things clear about Japan here:
- They have not done anything but talk. Mostly about reinvigorating their economy. Let me conclude that Japanese politicians are forever forbidden from talking about the yen? I hope not.
- This would then contrast how exactly with Switzerland? Or, to be more blunt, the US – given the levels of balance sheet expansion that the Federal Reserve is engaged with in (for all intents and purposes) perpetuity?
- As a related question, are they required now to not stimulate their economy since their trading partners/competitors can only accept “up” in terms of the yen value? This was explicitly stated in the communique as something that they should be commended for doing!
- Does this mark the end of yen-funded risk? What politicians would want an ever so easy mechanism for juicing their stock markets as a 10% monthly decaying loan for all their traders?
- This was most likely mostly an overreaction by the market, and might present a dip-buying opportunity come next week when markets open properly across Asia and yen investors can pile out, and have had some time to get a yen-rally following G20 musings.
Stocks seem stuck in syrup. There is simply no other way to say it when the stock indices (except the Nikkei 225 futures) barely budge on any of the currency moves. Could this be because of the expected State of the Union (which everyone knows is laughable, interpret as you see fit) address? I very much doubt it, and I think it looks much more like a volatility suppression mechanism, and simply waaay too many options going on issue to keep the week clean. It could also be the disruption of futures markets given the Chinese holiday being in effect tomorrow as well (but returning on Thursday in Hong Kong at least).
What I fear is that there might be “spring-loading” of the stock markets to repeat exactly what the currency markets are doing at the moment. If I’m right, I guess today is the day to prepare and prepare wisely for exactly what options or options strategies to enter…