defibrillating the Euro

Watching the markets last Thursday was like watching a critically wounded patient on an operating table. He got an adrenaline injection in the form of a rumour of Papandreou’s resignation. This was followed by a defibrillator hit of the ECB interest rate decision. The EUR/USD spiked down initially, then up and dropped back down while the indices rallied and stayed up high.

I could not figure this one out as they usually go in unison. I felt the interest rate decision was initially going to be perceived as bad for EUR because lower interest rates mean an outflow of capital searching for better returns.

I saw the indices run out of steam higher as the market (bots) figured out what to do. I took a short on the indices as it was pre US market and my feeling was that the trillion dollar Euro-Dollar market was probably closer to what should be happening and they would follow the currency.

The EUR promptly dropped 120 pips and the indices followed down. Around a half hour after the US opening bell it was realised that this was in fact a good thing as it would allow struggling PIIGS to pay off their huge debts quicker – who knows.

I read this in the FT on the train to Brughes yesterday. It helped me realise a bit more about the craziness I look at every day. If the person I saw on TV was accurate last week then the Euro has only lost 2 cents on two days in its history and I think both of them have been in the last month. (update It’s only the fourth time this year the shared currency has fallen 2% or more – marketwatch.com)

Indeed, some investors say markets are close to being untradeable as equities, currencies and bonds become a switchback ride. “It’s horrible,” says one executive at a hedge fund. “You’ve had a record widening and then tightening of [corporate credit] spreads. You just can’t trade that.”

This kind of resembles the charts I look at every day:

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