The Musk – Twitter story is going to change the world

Outlook: We get a ton of data today, starting with the preliminary March durable goods, housing data from Case-Shiller (but for Feb), consumer confidence, new home sales and the Richmond Fed manufacturing index. Oh, yes, earnings reports are due from Alphabet and Microsoft, plus a slew of others.

We’d like to be able to select an indicator or two (durables, consumer confidence) but in practice, sentiment is both reflected in the stock market and in FX, partly determined by the stock market. The Musk/Twitter story is going to change the world, and not just the political world. Of course there is plenty of slip to get to Elon’s lips and perhaps regulatory and other issues can intervene to kill the deal, but probably not. We have to expect the usual wavering up and down after a big burst of risk-off.

In particular, look at the monthly chart of the euro. We see a highly probable range forming. We have a double top and a mirror-image double bottom forming,

With a max recovery near 1.2500. Nobody looks at monthly charts to make trading decisions, of course, but enough are going to see this chart and withdraw their horns shorting the euro, land-war and looming recession or not. If the euro does correct to the upside, beware “explanations.” A lot of it will be simple re-positioning. It would take something far more dramatic than we foresee now to drive the euro much lower.

The yen is under the microscope ahead of the BoJ policy meeting on Thursday. The FT reports a division among central bankers on embracing devaluation or fighting it, which means a policy shift away from curve control. “The yen has tumbled more than 11 per cent in less than two months to hit a 20-year low of nearly ¥130 against the dollar, as traders bet on an expanding gulf in monetary policy between the Bank of Japan and other major central banks that are rapidly removing stimulus measures. BoJ officials have shown no sign of deviating from their ultra-loose monetary policy ahead of a meeting on Thursday even as a worldwide surge in energy prices begins to generate some elusive inflation in Japan.” Speculation about intervention persists but most analysts say it’s unlikely, and because the price move is orderly, the BoJ lacks cause. Besides, if devaluation brings about some more lasting inflation, that’s exactly what the BoJ wants, anyway.

It’s up in the air whether the market is going to challenge the resolve not to intervene. Traders love to taunt the BoJ under these conditions. But the BoJ may shrug. FinMin Suzuki denied the reports of him talking about intervention with TreasSec Yellen. Apparently the Japanese press reported he did while the US press was silent on the matter. And to drive the point home, overnight the BoJ bought ¥921.5 billion in 10-year JGB’s, the biggest purchases in years, and will continue buying for the next two days. This is digging in heels. The usual result of a contretemps like this is wide uncertainty and a narrowing price range. A decent estimate might be 126.50 to 129.

When ranginess in the dollar against two majors is the forecast, it’s time to raise the drawbridge—reduce position size, speed up the trading timeframe/holding period, and narrow the stops.

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