Good morning,
Alright someone has to say it….
Barak Obama has gone stark raving mad!
Allow me to elaborate before the secret service swoop down into Copenhagen and lead me away in shackles….
Clearly anyone with a TV or access to a newspaper with even a passing interest in the market or world politics should by now be aware of the Presidents little tirade last night regarding the separation of retail/normal banking services and any and all risk taking or proprietary activity amongst American financial institutions. If only it was limited to a tirade perhaps I could take this in my stride, but no folks, this wasn’t just a diatribe for the cameras and world press this was the president introducing and trying to pass new laws to the effect. I’ll get to the obvious market reaction momentarily but in the interim allow me to speculate as to the genuine motivation behind this move.
This in my mind is nothing more than political game play from the incumbent administration in direct retaliation for the recent loss of a key democratic senate seat and the more than likely blockage of the Obama health reform bill. How? You ask… Simply put Obama (despite assurances to the contrary) has basically seen the playing field altered significantly and in a political game of tit for tat decided that if the Republicans are going to block his administrations flagship reform policy then he will not only handicap them by ensuring a drought of further political funding that has traditionally come from Wall street but also (apparently) keep his voters onside by striking a blow to the capitalist pigs that have brought his country to the brink of financial failure. He figures if I can’t get what’s important for my country (the health bill) then I will avenge all of middle America in one foul swoop by ensuring that those responsible for the demise of the economy will suffer accordingly and thus avoid a repeat of 2008/9 in future years.
The proposal is simple really, it means that he is pushing for a complete separation of any risk seeking behavior and the deposit taking modus operandi of American financial institutions. No longer (if passed) will a bank be allowed to take in customer funds with one hand and take practically limitless risk with the other. The ultimate Chinese wall along the lines of the fabled separation of church and state written into the American constitution. Now we all know how well that has worked in the past, just ask George W. Bush how he was able to be reelected, how the NRA thrives and survives etc etc. So no more hedge funds, prop desks, CDS’s etc sitting within the structure of banks, separate or die is the new mantra! Will it be passed? I’d like to think not but as it stands it’s almost a 50/50 call at this stage….
And now the market reaction…. The yardstick of market risk willingness, the VIX index has seen a 30% uptick trading at 17 before Obama and now (at print) shows 22.27. From this one thing we can clearly see the fact that no one really wants to be in this market and more importantly is prepared to wear any real portion of risk. Subsequently we saw all major equity indices lose up to 3% overnight on the move while all the major crosses saw exaggerated volatility all stemming from a market that simply didn’t know how to position itself. The DXY is now approaching resistance at 79 and while still looking strong to the upside, one can’t help but think that there is surely a retracement waiting in the wings.
On the majors;
USDJPY: Looks heavy and will likely now despite chatter of further QE out of Japan be testing immediate support and stops sitting under 89.80, once the clean out finishes (it might take a while) look to buy dips for a return to 91.50.
EURUSD: Greenback driven, I see this thing try once more to the upside and fail at 1.4200/30, from there sell it, sell your grandmother, sell whatever you’ve got and look to take it back below 1.4000.
GBPUSD: Still looks bid (sort of), but is having difficulty sustaining any gains above 1.6250/80 and to me signals further weakness to come looking for 1.6080 at first glance.
AUDUSD: This thing looks tired and is now going to see how the downside develops perhaps forming a base around 0.8950 in the run up to the next RBA meeting. I sell rallies and have now taken profit on my strategic short from 0.9290.
USDCAD: I was a buyer on dips in and around 1.0250 and now I stay the course looking for first resistance around 1.0550 to hold initially but get taken out in the near term.
GBPCHF: My strategic short from 1.7020 is still in play and I keep selling it if and when I see it around the 1.7100 level looking to average in. Thus far though we have already seen intermediate support taken out at 1.6880 (trading as low as 1.6845) confirming my view.
Good luck out there folks, it’s messy and will likely stay that way so don’t ruin your weekend with a cheap punt.
Best regards,
Ken Veksler.
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