what causes it? i’ve noted down some very important points:
1.Oil went down from a new all time high of $100 a barrel to under $90 within the last nine trading sessions.
2.Gold fell from a new all time high of $916 an ounce down as low as $877 with two days.
3.European Central Bank’s Mersch came out and stated that “downside risks” were a concern. Formerly all they talked about was “fighting inflation” and now they drop this “bomb” on the market. They are now concerned about an economic downturn in the growth of their economy.
In his interview he implied that the bank has to rethink its monetary policy and maybe start easing rates due to the disappointing economic data and also the fact that the recent financial crisis in the markets has put enough pressure. Also he stated that ECB will revise to the downside the economic growth and that made investors panic with the sell off in the pair being abrupt and fast.
the third one was the important one though..
Wednesday’s inflation data from US showed that CPI didn’t fall as much as expected and the core number was unchanged. That of course gave more fuel to dollar strength as many traders were disappointed, as they already were pricing in a 50 or even 75 pbs cut next week. The TICS data also came higher and generally the dollar sentiment was more positive which helped dollar bulls no end.
The selling in EUR/USD also caused a “spillover” effect onto EUR/JPY. The euro selling pressure unwound this carry trade even further (like it was needing help unwinding in the first place).
Now that the ECB’s “cat is out of the bag” the U.S. Fed can lower interest rates and it may not sink the dollar as much now as it would have formerly before this information was known.
Right now the futures market is pricing in a 100% chance that the Fed will cut by 50 basis points this time. So we’ll see (on the 30th) if the market gets it right
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