It took a lot longer yesterday, but the markets ultimately obeyed the direction of EUR-JPY.
Especially gold. (wow.)
And the dollar didn’t even weaken, except relative to the yen (and everything else weakened vs. the yen.)
Dollar sentiment has been so glum for so long that you’d expect a rally to happen, but when you game out the incoming marginal information, there’s very little reason for optimism. It seems that the prevailing attitude is, “I’ll wait for the dollar to rally before I short it.” Which means it will just continue sliding.
Especially now that The Market (i.e. somebody with a Bloomberg reporter’s number) is not happy at all over the Fed’s indications that it’s done cutting rates.
This is a disconcerting replay of what preceded the Fed’s 50-50 cut at the end of August. The Fed tried to signal that it was done cutting. The Market was unhappy. The Fed did some more signaling. More fund managers started wondering aloud to Bloomberg “if Bernanke was prime time.” Bernanke capitulated.
Now the Fed is trying to be hawkish again, probably freaked out by OPEC’s saber-rattling. And US speculators are freaking out. Again. With just a little more hand-wringing on Bloomberg’s front page, a slew of additional Fed cuts should be in the offing.