Surprise to the Upside?
I was talking to a friend who overseas quite a bit of customer money and when the topic of the coming quantitative easing — QE II — came up I said: “the last time they did it, it worked. Asset class markets stabilized and then rallied”
My friend, who is an investor and not a trader, lit up, “That’s right” he nearly jumped from his seat, “but nobody is saying that”.
Nobody can see the future, but from my seat it would seem irrational to think that if the U.S. government is going to carry out similar actions to the economic stimulus act of 2009 that the markets would react differently this time around “This time” is really no different from last time. And just because a few commentators are finally talking about the U.S. being the biggest currency manipulator – albeit with little choice – does not mean that this is going to change. Why should we expect that the markets would react any differently this time around than last time?
In fact given that markets tend toward disequilibrium overall, why shouldn’t we expect that not only would markets move in the same direction as 2009, but at a more accelerated pace? If that is the case might the current consolidation period in AUDUSD be a bull flag?
If there is a wild card this time around it might be U.S. Teasury Bond yields. Can rates in the States rise at the same time the greenback weakens? Look no further than the 2nd quater of 2009 — following QE I– when Treasuries dropped sharply forcing an uptick in long-term rates, while AUDUSD gained nearly 10% over the same period.�
Jay Norris
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though Trading-U.com see: Trading Courses Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be in book stores in 2011
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