23 Jul 2013
Markets to maintain USD sell bias in summer?
FXstreet.com (Barcelona) - In the last two weeks of trading, as the U.S. Dollar got shaken out by a shift in perception towards the timing of QE taper, best exemplified by the 84.60 to 82.10 decline in the DXY, investors are starting to ask themselves whether the 'summer drums' in the western hemisphere will provide any sort of momentum change to the U.S. Dollar outlook.
Historical facts
John Authers from the Financial Times makes some interesting remarks about market's behaviour along summer, saying: "Historically, markets tend to maintain the momentum they had entering the summer, at a slow pace. Excitement, if any, comes as people return to their desks in September, and reaches a climax in October – the month of famous crashes in 1929, 1987 and 2008. In each of those years, stocks had risen in the summer...complacency and low liquidity leave summer markets open to extreme falls in the event of a surprise. This summer, there are few obvious risks of such a surprise".
Authers adds that complacency and thin markets cause summer markets to be the most vulnerable to extreme falls in the event of a surprise, and this year being no exception to the exposure to such risks, among them Authers mentions Jackson's Hole meeting at the end of August, China hard landing, European debt crisis.
However, in his article, Authers calls the greatest risk a “summer squeeze”, which may come "if stocks push up on decent news from the earnings season now under way, thin summer volumes would hasten their rise, which would put pressure on those managers resting in cash to get back in the game before they start to lag their benchmarks too embarrassingly" Authers adds.
Little data for the Fed to define course
Amid the absence of Fed interventions until July 31, and the U.S. calendar with little data in between, one cannot help to assume that the Fed's view on policies will not be drastically altered until end of August/early September, which leads to think the U.S.Dollar will not enjoy much external stimulus to set in motion any meaningful moves, barring any 'shocker'.
According to Adam Button, Editor at Forexlive, "I suspect tapering is largely priced in at this point, with the market expecting some modest drawdown in monthly stimulus to be announced at the Sept 18 meeting", but that said, Button thinks "market is scared to buy the dollar, at least until the headlines hit and USD kneejerks lower, so it could be a classic sell the rumor (sell USD on the tapering rumor) and buy the fact."
Historical facts
John Authers from the Financial Times makes some interesting remarks about market's behaviour along summer, saying: "Historically, markets tend to maintain the momentum they had entering the summer, at a slow pace. Excitement, if any, comes as people return to their desks in September, and reaches a climax in October – the month of famous crashes in 1929, 1987 and 2008. In each of those years, stocks had risen in the summer...complacency and low liquidity leave summer markets open to extreme falls in the event of a surprise. This summer, there are few obvious risks of such a surprise".
Authers adds that complacency and thin markets cause summer markets to be the most vulnerable to extreme falls in the event of a surprise, and this year being no exception to the exposure to such risks, among them Authers mentions Jackson's Hole meeting at the end of August, China hard landing, European debt crisis.
However, in his article, Authers calls the greatest risk a “summer squeeze”, which may come "if stocks push up on decent news from the earnings season now under way, thin summer volumes would hasten their rise, which would put pressure on those managers resting in cash to get back in the game before they start to lag their benchmarks too embarrassingly" Authers adds.
Little data for the Fed to define course
Amid the absence of Fed interventions until July 31, and the U.S. calendar with little data in between, one cannot help to assume that the Fed's view on policies will not be drastically altered until end of August/early September, which leads to think the U.S.Dollar will not enjoy much external stimulus to set in motion any meaningful moves, barring any 'shocker'.
According to Adam Button, Editor at Forexlive, "I suspect tapering is largely priced in at this point, with the market expecting some modest drawdown in monthly stimulus to be announced at the Sept 18 meeting", but that said, Button thinks "market is scared to buy the dollar, at least until the headlines hit and USD kneejerks lower, so it could be a classic sell the rumor (sell USD on the tapering rumor) and buy the fact."