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16 Aug 2013
Flash: Large squeeze-related moves - BMO
FXstreet.com (Barcelona) - Stephen Gallo European head of FX Strategy at BMO aims to make sense of the squeezes we have seen in yesterday’s session.
Key Quotes:
“Within the FX space what didn’t move today is probably a lot more than what did. The USD was basically stagnant in terms of price action during the London morning, and whilst we cannot even begin to rationalise the large squeeze-related moves in various asset classes yesterday from about midday in New York in one simple explanation, there was most definitely a large “tide” which receded yesterday in FX. When the tide went out and forced the USD lower on Thursday, the tight layering of stops in EUR/USD and GBP/USD and the aggressiveness of the squeeze may have revealed at least two things”.
“First, market participants bought the USD back from its August 8th lows (in the DXY) in a very nervous fashion and with little conviction, perhaps due to a distrust of summer markets but also an inherent distrust of the Fed’s actual intentions on QE tapering”.
“Relative to last week’s more “hawkish” Fed speak, James Bullard appears more like a “loose cannon”, but combining a “loose cannon” with summer illiquidity can lead to volatile conditions”.
“Second, by and large, FX market participants seem to be caught in between one squeeze and the next: smaller ones, such as those witnessed over the last 24 hours, and the more substantive “big” one pertaining to the broad, cyclical trend in the USD for the year as a whole. Market participants were squeezed out of their USD longs throughout July, and we’re all caught wondering when next big squeeze on the short-side will commence”.
Key Quotes:
“Within the FX space what didn’t move today is probably a lot more than what did. The USD was basically stagnant in terms of price action during the London morning, and whilst we cannot even begin to rationalise the large squeeze-related moves in various asset classes yesterday from about midday in New York in one simple explanation, there was most definitely a large “tide” which receded yesterday in FX. When the tide went out and forced the USD lower on Thursday, the tight layering of stops in EUR/USD and GBP/USD and the aggressiveness of the squeeze may have revealed at least two things”.
“First, market participants bought the USD back from its August 8th lows (in the DXY) in a very nervous fashion and with little conviction, perhaps due to a distrust of summer markets but also an inherent distrust of the Fed’s actual intentions on QE tapering”.
“Relative to last week’s more “hawkish” Fed speak, James Bullard appears more like a “loose cannon”, but combining a “loose cannon” with summer illiquidity can lead to volatile conditions”.
“Second, by and large, FX market participants seem to be caught in between one squeeze and the next: smaller ones, such as those witnessed over the last 24 hours, and the more substantive “big” one pertaining to the broad, cyclical trend in the USD for the year as a whole. Market participants were squeezed out of their USD longs throughout July, and we’re all caught wondering when next big squeeze on the short-side will commence”.