Join        Login             Stock Quote

G7 Cold War. No Clear Sign.

 February 15, 2013 10:42 AM

  First some house keeping. EUR/GBP closed favorably but we weren't nimble enough when it dipped in eur/jpy and had to take a hit. And once again we will hit ourselves over the head with the wooden plaque on our desks engraved with the words "JPY will remain difficult  DO NOT TOUCH". Serves us right. 

If the markets are a marathon race and each asset class is a runner then it looks as though FX has made a break and taken the lead. with other asset classes now following behind. We see equity indices back to trading via currency values rather than in lock step, FTSE and GBP/USD, Nikkei/ jpy ( obviously), SPX/USD and so on. Old fashioned stuff. Of course having FX back at the fore is great for FX traders, but only up to a point. We are worried that FX has spent so long following other markets it may have forgotten how to do its own navigation and is likely to get lost or at least confused as to which way to go. 

[Related -Automating Ourselves To Unemployment]

The market response to the G7 statement yesterday was, to us,  a clear example of a market desperate for direction, looking for a sign and yet struggling to make its mind up as to what the sign said. TMM believe that expecting any clear statement from the G7 on any policy is foolish. TMM have lived through many G7 statement events and each time we have seen a market try and pick the bones out of a statement that, by its very nature, has to couch compromise and noncommittal flexibility within a wrapper of perceptual agreement.

"We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate."

[Related -Fed: Waiting For June… Or Godot?]

Which as far as a sign of direction to the FX markets is as good as this 

But the point we note is that "remain oriented towards meeting our respective domestic objectives using domestic instruments" does not preclude manipulation of FX as, apart from direct intervention, the tools currently being employed to manipulate FX are those very "domestic instruments". So in a way they are saying they will not directly intervene (will let the markets set the level), but they will all individually be pulling the relevant domestic levers to make the market move the way they want. In other words the FX wars are going to be fought like the Cold War. No nukes, lots of public smiles but a lot dirt, manipulation and the odd assassination behind the scenes. 

This morning's statement from Mervyn King backs this up as it is clear he is going "George Smiley" on us.

Where does that leave us? Well we wonder how long the equity market will let the fickle and dithery FX market lead the way and, having got bored of waiting for something clear cut, will continue on their own path. Having had a couple of weeks of range without the correction that we were worried about we are now to get back on the train we got off. But with a US holiday ahead we will probably wait and give ourselves a couple more days.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

article imageThe Single Best Place To Invest Your Money For Retirement

It was never supposed to be this daunting. At least that's what we were read on...

article imageNegative Blowback From Negative Interest Rates

The Federal Reserve is widely expected to leave interest rates unchanged today. But perhaps standing pat read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.