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April 10, 2015

A bit doo-lally

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

Macro Man isn’t quite sure what to make of things these days.   Since the poor, illiquid payroll data, the USD has surged back, with punters evidently having seen the downdraft as a buying opportunity.

Curiously, the DXY retracement has not been matched by any sort of move in US rates; EDZ5, for example, is still pretty close to its highs of the year (albeit a few ticks off of last Friday’s levels.)

Macro Man frankly didn’t see that much in the Fed minutes to justify the rebound in the dollar, insofar as he has always assumed that the Fed is keeping their options open  as much as possible.   Perhaps others in the market needed a reminder of that fact.   Moreover, it’s worth remembering that FX is always a story of relative rather than absolute relationships, and for better or for worse the $ still looks like the best game in  town- particularly if the economy picks up steam in the current quarter, as your author expects.  He suddenly feels rather underexposed to the theme, such is the vehemence of the dollar recovery this week.

No doubt there will always be some observers who will feel that the Fed’s hands are tied by goings-on elsewhere.  Forget the idea that Europe might enjoy an upside growth surprise (which would surely give back some of what the strong dollar taketh away) or that Asian stocks are going a bit crazy.   Indeed, China appears to be using the equity market as a policy tool to goose domestic demand, and as a few of you have noted, things have gone a bit doo-lally.  

Of course, nothing could ever go wrong with assuming ad infinitum asset market growth, and the Federal Reserve needs to keep uber-easy monetary conditions out of a sense of solidarity with those economies stumbling through weak growth.  Or so, no doubt, some commenter called “搞笑的钱” will no doubt tell us…..

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