A dramatic Hail Mary appeared in the FX markets earlier this morning
following the circulation of a rumor, since attributed to Goldman sales,
that the FRBNY is preparing to slash its FX swap line with the ECB
rate, which would in turn make it virtually free to borrow Dollars from
the Fed and make the Libor funding market completely irrelevant as the
Fed would give dollars to European banks for virtually no money.
Frankly, we will believe it when we see it, especially when one
considers the source. Why it is none other than the firm's Dominic
Wilson who reminded us today that Goldman clients should "Stay long
EUR/$, opened at 1.4085 on 18 March 2011, with a target of 1.50 and a stop on a close below 1.35, now at 1.3545"...
well make that 1.339 when the supposedly Goldman-initiated rumor hit
and has since pushed the currency to nearly 1.35. The problem is this
rumor is, without confirmation, patent bullshit, as the last thing the
Fed need is for Republican to take it to task, this time completely
justified, for sending dollars abroad on a cost-free basis just to bail
out Europe again. We would fade this rumor all the way, especially with
the EURUSD about 100 pips rich to pre-rumor fair value. Furthermore
should the EURUSD close below 1.35, which it will, look for major stop
loss signals to be activated which purely on technicals will send the
EUR far lower.
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