Outlook:

Every once in a while in the FX market, comments by important officials have an outsized effect in prices—Rubin’s “a strong dollar is in the US’ best interest,” Trichet’s “brutal.” Hollande’s outburst yesterday that the euro should not be the plaything of market whims, implied that the French would like to engage in the “currency war” and not get left behind. We opined that Draghi would stay mum on the subject, since a strong euro is the best evidence of confidence in the ECB.

Then yesterday, others started to speak out against the Hollande position. Finnish ECB board member Liikanen said the ECB does not target the euro exchange rate, and ahead of the policy meeting tomorrow, “sensitive”comments should be avoided. Also yesterday, Luxembourg FinMin Frieden said the level of the euro is not of concern and its strength reflects the fundamental data of the European economy... I highlight that a year ago we thought that the euro was incredibly weak.”

We say tomorrow’s statement will be bland and Draghi will resist reporters’ efforts to get him to say anything about the euro worth reporting at the press conference. That leaves the political risk. We can easily write a falling-euro scenario, but we need to see 1.3450 first.


SPOTCURRENT POSITIONSIGNAL STRENGHTOPEN DATEOPEN RATEPOSITION GAIN/LOSS
USD/JPY93.67LONG USDSTRONG10 /17/1278.7115.97%
GBP/USD1.5658SHORT GBPSTRONG01/18/13 1.59421.78%
EURO/USD1.3533LONG EUROSTRONG11/26/121.29704.34%
EURO/JPY126.79LONG EUROSTRONG11 /21/12105.3820.32%
EURO/GBP0.8644LONG EUROSTRONG11/26/120.80956.78%
GBP/JPY146.66LONG GBPSTRONG11/21/12131.0211.94%
USD/CHF0.9122SHORT USDWEAK01/30/13 0.91630.45%
USD/CAD0.9970LONG USDSTRONG01/24/130.9993-0.23%
AUD/USD1.0300SHORT AUDSTRONG01/28/131.03920.89%
AUD/JPY96.49LONG AUDSTRONG10/17/1281.1918.84%
USD/MXN12.6475SHORT USDWEAK11/26/1212.97802.61%