...at the mercy of the USD/EURO cross
Friday, May 13, 2011 at 04:30AM What’s a little more China tightening prompting more unwind of the commodity/USD/Euro at this point?. Interestingly in 2010 we said these hikes will be front loaded in '11 and now we’ve had 5 so far by early May. Look..RRR .25 hikes never mattered to the market last 4 times, but as the unwind trade takes precedent over everything else, the equity market reacts to downside and a ES low 1329 prints by breakfast time off the hike. Silly…therefore, it’s not surprising the market was able to slip this under the rug and bounce nicely after a ECB hawkish comment around noon lifted the tape or should we say toyed with the cross. (Oh yeah, can you imagine a market with CSCO and GS bombing ~ 5% in one day in the past and market holding up like it did?.) That’s market resiliency or just complacency with no fear of their action spreading to peer groups/stocks. In all, we have to be aware of both possibilities as the market holds 20ma benchmark by the close once again.
Unfortunately, USD/Euro cross dictates market direction and that’s all that matters, "…Broad market eyes will likely be glued on the USD. The market is likely to be back to the days where USD moves dictate the equity price action…May 2” . This reliance on currency probably means unless a big move in either direction occurs, the market will wait for FOMC minutes as speculated here post-Trichet bomb/CNBC report for direction or else the market will remain range bound.
All in, despite a ~20 handle intraday rebound, individual stocks were hardly down early and didn’t move much to upside comparatively as the trade was mostly ES/ETF driven. It’s difficult to gauge anything meaningful from this type of action and the hope is for some USD weakness Friday to attempt some follow through for a repeat of last week's action.