Intraday Market Thoughts

Archived IMT (2011.02.09)

by Ashraf Laidi
Feb 9, 2011 18:57

BERNANKE TELLS CONGRESS rising bond yields are a result of improved growth expectations and not inflationary preoccupations. This is the CONVERSE OF THE GREENSPAN ERA when the former Fed Chairman used to explain the 2004-5 decline in bond yields (despite prevailing Fed rate hikes) via Asian buying (his explanation of the Greenspan Conundrum). It was also around the time when the YIELD CURVE began to FLATTEN, which led me and many other fixed income strategists to put the finger on an yield curve inversion, which would signal eventual rate cuts and a possible recession. Those signals eventually proved correct (as explained in Chapter 6 of my book

We also remember when Bernanke and the rest of the FOMC reiterated that inflation was the greater danger as late as Spring 2007. But they cut rates in August of that year. Each time the Feds repeated pronouncements grow at odds with the bond market, something got to give. In the England, the BoE is WIDELY expected to hold rates unchanged at 0.50% tomorrow despite the addition of one more hawkish dissenter at the January policy meeting (Weale joining Sentence to call for 0.25% hike). GBPUSD rallied to $1.61 on Bernankes dovish talk and falling US yields resulting from strong indirect participation. Anyone considering a short in cable into and after the BoE decision must be protected at $1.633- trendline from the 2007 highs. EURUSD STRUGGLING around the right shoulder near $1.3720s, part of the H&S formation whose LEFT shoulder stands around $1.3750s. Daily stochastics turning negative for a potential $1.3660s and $1.3580.


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