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3 Jun 2014
Sell the rumour and buy the fact dynamic - FXStreet
FXStreet (London) - Goncalo Moreira CMT, FXStreet Technical Analyst comments that on the FXStreet weekly Forecast Poll, participants holding bearish forecasts remain majority at 62.50% (down from 74%).
Key Quotes
“Most participants are forecasting the euro to trade in the 1.35 figure this week. The mode, at 1.3400, is at lowest level since February, well below last week's close at 1.3634, while other central tendency measures remain flat around 1.3600.”
“We can infer that most speculative trading is EUR short at the moment. From our positions table, the situation is evident: most positions have been decided on the back of ECB easing expectations. In other words, the market is already pricing the ECB to act on Thursday.”
“The outcome in terms of trading will now depend on the actions taken and how the market is positioned ahead of the announcement.”
“We already had a lower German HICP for May indicating low inflation, which should have pressured the EUR/USD to the downside.”
“The ECB knows that the speculative players are positioned short and that by doing nothing they would ignite another euro-rally which in turn would add more deflationary forces to the economic picture (higher export prices etc).”
“Sentiment data is but showing that market participants are expecting the ECB to act. Otherwise they would not have moved their forecasts lower on a weekly change of +0.03%. The question is how far the ECB decides to go. Should the ECB just change the lending rates, speculators will feel disappointed to some extend and take profit.”
“We could still see some sort of "sell the rumour and buy the fact" dynamic" as a first reaction, in which case the downside could be limited as many would take profit into the drop, into an action result. It would be only after the weak shorts are taken out that we would see a lower evolution of the exchange rate.”
“Exposure is now of great importance when sentiment is more extreme. Since most market participants have had the time to price-in the future ECB action scenarios by selling the EUR/USD earlier on, not many are now left to sell. From a liquidity distribution perspective, there is more room to the upside then to the downside which could be limited. The closer we get to the announcement less liquidity will be offered, specially in the form of buy orders. These would start eventually emerging after the announcement.” and well below the market price. This vacuum of bids can either create a huge gap, or the first orders to be consumed are those weak sell orders from latecomers."
Key Quotes
“Most participants are forecasting the euro to trade in the 1.35 figure this week. The mode, at 1.3400, is at lowest level since February, well below last week's close at 1.3634, while other central tendency measures remain flat around 1.3600.”
“We can infer that most speculative trading is EUR short at the moment. From our positions table, the situation is evident: most positions have been decided on the back of ECB easing expectations. In other words, the market is already pricing the ECB to act on Thursday.”
“The outcome in terms of trading will now depend on the actions taken and how the market is positioned ahead of the announcement.”
“We already had a lower German HICP for May indicating low inflation, which should have pressured the EUR/USD to the downside.”
“The ECB knows that the speculative players are positioned short and that by doing nothing they would ignite another euro-rally which in turn would add more deflationary forces to the economic picture (higher export prices etc).”
“Sentiment data is but showing that market participants are expecting the ECB to act. Otherwise they would not have moved their forecasts lower on a weekly change of +0.03%. The question is how far the ECB decides to go. Should the ECB just change the lending rates, speculators will feel disappointed to some extend and take profit.”
“We could still see some sort of "sell the rumour and buy the fact" dynamic" as a first reaction, in which case the downside could be limited as many would take profit into the drop, into an action result. It would be only after the weak shorts are taken out that we would see a lower evolution of the exchange rate.”
“Exposure is now of great importance when sentiment is more extreme. Since most market participants have had the time to price-in the future ECB action scenarios by selling the EUR/USD earlier on, not many are now left to sell. From a liquidity distribution perspective, there is more room to the upside then to the downside which could be limited. The closer we get to the announcement less liquidity will be offered, specially in the form of buy orders. These would start eventually emerging after the announcement.” and well below the market price. This vacuum of bids can either create a huge gap, or the first orders to be consumed are those weak sell orders from latecomers."