1 Minute Market Rundown – 9th September 2022

HM Queen Elizabeth II Passes
EUR/USD Reverses Losses
Bitcoin Up 7%

It was a sombre day in the UK yesterday as we marked the passing of HM Queen Elizabeth II. The news dominated the late afternoon, but it had been a packed day up until that point already. The ECB had earlier hiked inline with market expectations, but an unusually hawkish Lagarde did raise further questions in her press conference. On the other side, Powell reiterated the Feds stance to continue raising interest rates until ‘the job was done’. EUR was choppy before processing the move up and stocks have followed in its path.

Lagarde and the ECB are resolutely focused on inflation – the message is (finally) clear. The ECB sees the labour market as still being strong and the plan is to front load rate hikes, despite admitting that inflation was largely energy driven. The 75bp increase was reaffirmed by Lagarde, going as far as to admitting that rates are not yet restrictive and they could push them there. Rates markets increased expectations by 8-10bps relative to the close yesterday, but in the face of the pro-EUR news, the first move was down. Markets reacted heavily to the news the Eurozone economy was slowing and it’s obvious that energy still remains the major risk. It looked largely like positioning to me – a drift up in EUR/USD into the news was followed by a reinitiation of shorts. It seems FX caught up with the sometimes more prudent rates markets though and we have seen an ugly squeeze, all the way up to 1.0105. Euro stoxx has also rallied on the news. The EUR/USD move has been exacerbated by dollar weakness across the board – despite Powell coming out pretty much as Hawkish as one can be, inflation expectations have slid.

Do I believe in EUR again? Absolutely not. Interest rate differential may have converged briefly but systemic issues still plague the Eurozone – energy being the primary risk. Why would Putin take his foot off the gas (excuse the pun) at this point and allow a full Eurozone recovery? It is a matter out of the control of monetary policy. Despite the hike being unanimous, Lagarge also admitted voting members were torn on their view on how to proceed from here. Any sign of a breakdown in ECB policy cohesion will be hammered, as will further indications of growth faltering. Positioning is tricky with EUR/USD looking bid, so stops will be tight – the overall trend is still down and this brief rally is the one to sell for me. 1.0100 is the first level to start building, with a view to hold down until the low at 0.9920. A bounce in EUR/CHF towards 0.9720 will present another opportunity to sell.

Bitcoin and other risk assets were more focussed on Powells brief speech. The prospect of further tightening was largely shrugged off amid hopes of sliding inflation. Coupled with the ECB removing a degree of uncertainty, Bitcoin jumped 7% to hold above the key $20,000 level. Ether was slightly more subdued in light of the upcoming merge. I feel investors are more nervy here, and understandably so. Talk of a Fed pivot will have to gain far more momentum to see Bitcoin break up and out of its narrow current range – the lowest levels of realised volatility in its history.

As always, good luck out there.

James Laidlaw – OTC Trader

1 Minute Market Rundown – 9th September 2022

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