Great day for a first post!
When I opened my browser 2 hours ago to create this blog, EURUSD was trading above 1.39 and even reached 1.3965 plus a bit later. And then... withing 50 mins it dropped to 1.3805!
We all know the reasons for this, or at least people keeping an eye on the markets do know. Other have can have a good guess just by watching the evening news. Since last July, EU leaders have been the live actors of the poorest crisis management in modern financial history...
Indeed, 3 years after shooting at bankers, traders and their bonuses, making them responsible for anything even vaguely related with the word "credit", European politicians are now proving us that:
-> It's easier to pretend to be united when the wind blows in the right direction, making Euro-skeptics smile and others wonder if we should not have either (1) done nothing or (2) gone the whole way, when we discussed and signed the Maastricht Treaty in 1992;
-> It's tough to add up integers and reach equilibrium when you are a professional politician chasing re-election;
-> When time has come to take tough decisions, none of them is strong enough to stand the pressure of the street.
Looks like it's easier to criticize bankers than to manage a public deficit...
Anyway, that being said and back to trading, the comment of the day if that more than ever, this situation has lead to a lot of headline trading quickly dismissed after news turn into fake rumors.
One of the best examples is probably the EURUSD 50 pips rally during NY hours on Oct. 18 after the Guardian announced that France and Germany had agreed an increase of the EFSF envelope to EUR 2 trillions (see http://www.guardian.co.uk/business/2011/oct/18/france-and-germany-move-towards-2tn-euro-fund). Indeed the "news" got proved unfounded 30 mins or so later, leading to a violent reversal.
And the same thing happened today again: market players are really nervous about the EURUSD and over-react on any rumor, getting the spot to swing all over. But it does not take much to dig a bit behind the headlines by sticking to the fundamentals of the situation and ripping profits on the way.
Because all in all, the public deficit issues of the PIGS (and France soon??!!) combined with the hassle of finding an agreement 17 voices are preaching their own interest will no matter what make this process long and painful. So no magic will happen and sticking to the basics rather than trading on the sneezing of some finance minister should help one's P&L.
Actually, in a parallel world, there would be a solution, but it'd take to have Warren Buffet as President:
"I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election".
Cheers,
Olivier
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