The news was bang on consensus. The EFSF, bank capital and the Greek haircut were all in line with what everyone was expecting yet markets have reacted as if hit by a bolt of lightening.
To some extent, I get it. I was evidently one among many who thought European leaders wouldn’t be able to pull it off – the boat was tilted far too heavy to that side and the reckoning is here.
That’s not to say there aren’t risks. Nothing has been finalized and the devil is always in the details.
I’m of the firm belief that economic growth will continue to disappoint. Even today’s GDP report showed the rise in consumer spending tilted towards healthcare and utilities at the expense of the savings rate, suggesting the consumer is tapped out for everything but the essentials.
The Bank of Canada took a dovish approach this week and the ECB and RBA may both cut in the week ahead. There is a tremendous opportunity to short CAD, EUR and AUD today and those would be my three favourite trades. But there is no rush, I have little doubt that selling EUR/USD at the tail end of US trading today would yield an easy 70 pips, but let’s see if we can set-up for something more.
The dollar was the worst performer, followed by the yen. The Swiss franc led, followed by the euro.
Of all the strange things today, the CHF rally is the strangest. How on earth is CHF rallying in all this? The only answer is that the SNB sold some of their euros into the rally.
The first chart to check out is AUD/USD. If anything is overbought, it’s this. The resistance at 1.0764 is a stop that makes for a good short-term sell.
Buying USD/CAD longs is the trade I’m looking for right now but if I had a gun to my head, I would be selling because 0.9800 looks like it’s coming.
Finally, I can’t say that I’m crazy about the euro. The ECB is probably going to cut rates tomorrow but with the momentum the way it is, any short for more than a 70 pip move is too risky.