From GS' Thomas Stolper on what endless BS to expect out of Europe, together with a few facts here and there:
To understand market reaction, it could be as easy as looking at the last IMM report, which indicated only a small reduction in USD longs. As we have been highlighting in the past, risk premia have been very large across asset classes and certainly in cyclical FX crosses as well. Without additional bad news from either the political or macro front, some short covering in risky assets and unwinding of long Dollar positions was a not unexpected move. Over the course of the week, the trade-weighted USD lost another percent and has not corrected about one-third of the recent rally. In the week ahead, Eurozone politics will likely remain a key focus, and further gradual progress could lead to further unwinding of USD long positions.