Draghi Disappoints

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Will there ever come a day when Draghi isn’t massively front-run?

Two days ago, we risked ridicule and asked Is the Dollar Really Breaking Out?  With the ECB about to increase its QE and the FOMC about to raise rates, a higher dollar was a foregone conclusion and, in fact, the most crowded trade out there.  Based on this morning’s actions, the answer is “maybe not.”

2015-12-03 DX 60 0606DX had pushed what appeared to be strong overhead resistance.  Similarly, EURUSD was forcing its was beyond strong support.  Our Nov 23 bottom call [see: Update on EURUSD] was stinking up the joint (with EURUSD almost 3% higher since that call, it’s smelling just fine, thank you.)

2015-12-03 EURUSD 60 0625While EURUSD and DX matter, the key drivers of the “market” are USDJPY and CL.  And, it’s their reaction which will make the most difference in today’s action.

For a while, EURUSD’s continuing slump disguised the fact that USDJPY wasn’t going anywhere. DX was happy to push higher, no matter which pair was driving it — which made the yen carry trade seem healthy.  But, with the euro now strengthening and DX slumping, the yen might actually have to do something in order to support stocks.

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