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April 20, 2015

3 quick bullets

Filed under: Forex Strategies — Tags: , — admin @ 4:43 pm

* The PBOC dropped the hammer with a 100 bp RRR cut, predictably sending the AUD into raptures (well, relatively speaking) as of the time of writing.   Chinese reserve requirements have historically been a lousy explanatory variable for AUD and other FX on any but the most micro of time frames, and this case should be no different.   It’s important to recognize the sea change that’s occurred in China’s FX reserve holdings- they’re not going up any more.   To be sure, some of the decline has represented a fall in the value of non-USD currencies in the basket (cough, euro, cough), but the sheer scale of the recent falls is highly suggestive of actual sales due to speculative capital flight.  That, in turn, sucks RMB out of the system, and a nice RRR cut is an easy way of putting some liquidity back into the money market by loosening up dead cash on bank balance sheets.  The chart below from Reuters illustrates the volte-face in China’s FX reserves quite nicely.

* So glamour boy Yanis Varoufakis has warned of possible contagion if Greece exist the euro.   Well, duh…one would hope that the Troika (or whatever they’re called now) has at least some idea of what the impact would be and how they might react.   Indeed, given 5 year BTPs last traded hands at a princely yield of 71 bps, once could easily argue that the ECB QE has proacted against a Grexit, mitigating the need for a reaction.  File this one under “man who desperately needs lots of money warns that bad things will happen to people who currently have lots of money if he doesn’t get some.”

* Is it just Macro Man, or has the SPX turned into the equity index version of pre-January 15 EUR/CHF: flat-lining and utterly uninteresting with all the action elsewhere?  It’s a big week for earnings coming up, but it’s hard to say if they will even matter; Friday’s SPX close was more or less identical to the opening price on the last trading day of last year.   Zzzzzz.   While there is of course a saying that you should “never short a quiet market”, there’s an even more interesting one suggesting to sell in May, a month which is just around the corner.   Lazy longs in EUR/CHF got their comeuppance….will the same happen to the Spooz?

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