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22 Apr 2013
Forex Flash: Close the doors and breathe the fumes - Societe Generale
FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale asks, “Why do bubbles accelerate when identified?”
He continues to note that the cost of not participating is too high as performance falls vs peers or benchmark. Further, timing the correction and its intensity is also much harder than participating, and he is sure that a bunch of behavioural biases are at work. He writes, “The mad dash higher in Bitcoins from $100, with multiple warnings of a bubble, to $250 and back down again is the most recent example.
He continues to explain that you know you are in a bubble when the G20 expresses concerns of ultra loose policy for too long. He writes, “A Forbes survey shows money managers to be at their most bullish over the past 20 years. Gold coins are all the rage from India to Germany (why?). CFTC positioning confirms this view of extended risk taking (long commo and usd vs mainly jpy), while equity ETF flows shows that the US has been the clear darling vs the rest of the world and this for a while. In parlance discouraged by the Economist Style Guide, we are on Hopium squared.”
With Italy managing to re-elect its president over the weekend, Galy notes that Italian bonds will find new fans while EUR/USD stays more expensive than it should be. With credit trumping equity flows, he sees that EUR/USD continues to trade around its 80 percent quantile (1.3080). Further, USD/JPY is flirting with 100 and the usual screening of assets with RSI will identify the best trends. He adds, “We are high on Hopium, know it and need a clear miss on upcoming PMI´s for the divergence between extreme hopes and reality to sink in. Some rather mixed earnings were ignored on Friday. Simple cheer prudence would demand figuring out where the cheapest hedges are around.” In Canada, he finishes by noting that Carney made explicit under which conditions the BoC would hike and the clear language may be a guide to his guidance style at the BoE.
He continues to note that the cost of not participating is too high as performance falls vs peers or benchmark. Further, timing the correction and its intensity is also much harder than participating, and he is sure that a bunch of behavioural biases are at work. He writes, “The mad dash higher in Bitcoins from $100, with multiple warnings of a bubble, to $250 and back down again is the most recent example.
He continues to explain that you know you are in a bubble when the G20 expresses concerns of ultra loose policy for too long. He writes, “A Forbes survey shows money managers to be at their most bullish over the past 20 years. Gold coins are all the rage from India to Germany (why?). CFTC positioning confirms this view of extended risk taking (long commo and usd vs mainly jpy), while equity ETF flows shows that the US has been the clear darling vs the rest of the world and this for a while. In parlance discouraged by the Economist Style Guide, we are on Hopium squared.”
With Italy managing to re-elect its president over the weekend, Galy notes that Italian bonds will find new fans while EUR/USD stays more expensive than it should be. With credit trumping equity flows, he sees that EUR/USD continues to trade around its 80 percent quantile (1.3080). Further, USD/JPY is flirting with 100 and the usual screening of assets with RSI will identify the best trends. He adds, “We are high on Hopium, know it and need a clear miss on upcoming PMI´s for the divergence between extreme hopes and reality to sink in. Some rather mixed earnings were ignored on Friday. Simple cheer prudence would demand figuring out where the cheapest hedges are around.” In Canada, he finishes by noting that Carney made explicit under which conditions the BoC would hike and the clear language may be a guide to his guidance style at the BoE.