The Dollar, Up and Away

Traders, including some very large ones, were not well prepared for yesterday’s combination of Operation Twist from the Fed, and a soft Chinese flash PMI for September, which came in at 49.4 after an August reading of 49.9. When China sneezes, the Australian Dollar catches pneumonia, but only the safe havens of USD and JPY offered a refuge.

The action is pretty evident from the charts; I just wanted to mention that while people are talking about “support” and “resistance” this morning, those terms are pretty irrelevant in panic situations. The present moment would be an example. If people are watching their P&L for the year disappear, they will do what they need to do to staunch the bleeding without much reference to chart points.

It will take a good deal of intestinal fortitude to fade this move, and although there’s still some time left in the year, I would expect people who are bonus-dependent to take some time to assess risk versus reward now. We could get a violent snap back, but order boards have been cleared out, and it seems more likely to me that traders will instead be looking to buy USD on dips. There could still be some reaction to headlines, but I can’t think of anything other than a positive shock from Greece (10% probability?) that seems likely to alter the mood, and trend,  in the near future.

Best of luck today.