Obviously this week is all about Thursday.
Elections in the UK, Comey testimony, and the ECB. We got a temporary reprieve from the psychological burden of having to wait four days to know our fate when Qatar stole the spotlight on Monday. But then again, that’s only an accurate assessment if you believe geopolitical turmoil counts as a “reprieve” from other geopolitical turmoil.
In any event, the market began to slowly turn its attention away from Doha and towards Thursday’s terrible trio during the overnight session with risk-off sentiment manifesting itself in the usual place: USDJPY, which hit a six-month low:
As we wrote on Sunday evening, “there are some potential land mines out there and it’s pretty clear that in all cases, FX will be the transmission mechanism be it in sterling, the euro, or, in the case of Comey’s testimony, USDJPY.”
Well on Tuesday, former FX trader Richard Breslow is out with his take on what’s coming. Read his full note below…
There seems to be a furious debate raging about just how momentous Thursday’s slate of news on hand is going to be. Correctly anticipating what will move markets and in what direction hasn’t been an exact science but I’m tempted to approach it as sleight of hand. And in order to plan our schedules accordingly, we’re asked to decide which one is the most important event. Aristotle obviously was right about nature abhorring a vacuum.
- The three known knowns on the schedule are the June ECB meeting, former FBI director James Comey’s testimony before the Senate Intelligence Committee and the U.K. election. All capable of moving things around. All capable of passing calmly by and spawning headlines of “all attention now turns to…”. The financial world equivalent of Mad Libs
- The only thing you can be sure of is that any trading being done now solely in preparation for the “big day” is largely a waste of time
- We can make an educated guess on the ECB statement but have to wait and see what emphasis President Draghi puts on the elephant in the room. Will it come as a shock to traders that inflation hasn’t reached its mandated level, that the constituent economies have been getting better, especially if you ignore all the things that scared us last year, and that one day they intend to begin normalizing? Maybe, maybe not. Depends on positions and whatever else is going on. There’s a German election coming, and potentially an Italian one, which need to be catered to. But Italian banks aren’t about to be thrown directly under the bus either
- Traders are long euros and bullish. We’ll see only after the fact whether fear or greed wins out. And for how long
- The U.K. election is a wild card for markets. Brexit is horrible or good for assets. Just ask any two randomly selected people. Sterling will go down on a hard negotiation yet up on a Conservative mandate. Labour will destroy us or is the last chance to save us. If it rains (it’s expected to) the kids, we’re told by the “experts”, won’t turn out. Their future may be at stake, but can anyone be expected to be happy if their hair frizzes up? Be prepared, no matter the outcome, to be told it was inevitable
- The Senate testimony base case is most likely going to be, he felt pressure, it was uncomfortable but only criminal if you’re already in the oust at-all-costs camp. It will be loud and signify little. Traders convinced to sell USD/JPY in the build up will have some serious decisions to make. If there was provable misuse of influence, would he have waited to be fired? The sad reality is no one will change their opinion on the matter, but they will source their analysis of it only from mutually reinforcing places. Investors are crying out, give us justice, but we’d settle for a tax cut and some infrastructure spending if that’s all you can manage. Think about that before you trade
- These can be important events. And then we’ll inevitably move on. Personally, I hope there comes a point when a distant market memory can be jogged of moments that have consequences beyond the next central bank reaction