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1 May 2013
Forex Flash: Welcome to Dodd-Frank Day - Societe Generale
FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale welcomes investors to Dodd-Frank Day.
He notes that the consensus from his small poll is that today will be painful with Canadian banks gaining business at the expense of US one courtesy of the Dodd-Frank day. He writes, “It seems that positions among professional investors were reduced ahead of today given the uncertainty regarding execution and legal risk. It suggests that tomorrow or in the afternoon we will start to see capital be re deployed. This presumes that the benign lights of wall street are smiling on us. Whatever premium was built into gamma will start to fade.”
He adds that he is short eurusd, wrong and sticking with it. He sees that from a spot point of view the squeeze of usd longs and eur gbp shorts continued, helped by more mixed data and a Fed meeting. Elsewhere, the US consumer is still very confident, supported by a rising housing and stock market and dipping into savings. ADP is a lagging indicator and should be fine, PMIs not so. He writes, “We are back to selling the usd and buying BTPs, Slovenia cut to junk or not a theme which has been played many times over. Let us close our eyes to the fact that EM is not performing.”
Galy notes in addition that the disconcerting bit is how confident the market is of an ECB rate cut. It is the logical thing to do in a normal policy setting but is the equivalent of squashing a fly with a hammer. He comments that the Bundesbank considers that the issue is the insufficient clean up of bank balance sheets in peripheral Europe. It would be wonderful to hope they deliver a new targeted program independent of gvts. Pain seems insufficient.
In the UK, he finishes by noting that a better PMI helped to squeeze further GBP shorts. In Asia, weaker manufacturing than expected in China and trade in South Korea all point to a weaker business cycle. China is not reacting as in the old days as it sees the damage from its own subprime while the west is still fully addicted to the idea that pumping more money will work miracles.
He notes that the consensus from his small poll is that today will be painful with Canadian banks gaining business at the expense of US one courtesy of the Dodd-Frank day. He writes, “It seems that positions among professional investors were reduced ahead of today given the uncertainty regarding execution and legal risk. It suggests that tomorrow or in the afternoon we will start to see capital be re deployed. This presumes that the benign lights of wall street are smiling on us. Whatever premium was built into gamma will start to fade.”
He adds that he is short eurusd, wrong and sticking with it. He sees that from a spot point of view the squeeze of usd longs and eur gbp shorts continued, helped by more mixed data and a Fed meeting. Elsewhere, the US consumer is still very confident, supported by a rising housing and stock market and dipping into savings. ADP is a lagging indicator and should be fine, PMIs not so. He writes, “We are back to selling the usd and buying BTPs, Slovenia cut to junk or not a theme which has been played many times over. Let us close our eyes to the fact that EM is not performing.”
Galy notes in addition that the disconcerting bit is how confident the market is of an ECB rate cut. It is the logical thing to do in a normal policy setting but is the equivalent of squashing a fly with a hammer. He comments that the Bundesbank considers that the issue is the insufficient clean up of bank balance sheets in peripheral Europe. It would be wonderful to hope they deliver a new targeted program independent of gvts. Pain seems insufficient.
In the UK, he finishes by noting that a better PMI helped to squeeze further GBP shorts. In Asia, weaker manufacturing than expected in China and trade in South Korea all point to a weaker business cycle. China is not reacting as in the old days as it sees the damage from its own subprime while the west is still fully addicted to the idea that pumping more money will work miracles.