Citi’s currency guru Steven Englander has a great note out taking the 10,000-feet view of what the heck has been happening in world currency markets lately.
Currency markets have seen a lot of volatility, as we’re seeing big notable moves in the Japanese yen (strengthening again), emerging markets (getting clobbered), and the dollar (on a strong uptrend, but very weak yesterday).
So what’s going on? Englander isolates 4 big themes:
1) abundant liquidity and low yields,
2) disappointing growth in Emerging Markets and G10-exUS
3) the beginning of the US pullback from QE
This is a nice, sweet, short list, and it pretty much tells the story.
The last one, positioning, refers to the way investors are making near-uniform bets, such as everyone being short the Japanese Yen, or long the US dollar, thus creating a market environment prone to big swings and squeezes.
And the focus on the eventual us QE pullback is one reason why today’s jobs report is such a big deal.
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