About all that can be taken away from today’s trade is the notion that bad news is paying diminishing returns. We’ve had TARP-fatigue, bailout fatigue, and now there seems to be bad news fatigue. Stocks ended up 175 points and EUR/JPY ended at New York highs of 118.75. EUR/USD is back above 1.2700, eying resistance at 1.2740.
Poor ISM data, a dour Fed Beige Book and expectations of big European rate cuts tomorrow have already been priced into the markets. The one wild card tomorrow is the size of the ECB cut. The consensus is for a 50 bp cut but I still feel they have room for a deeper cut given the amazing deceleration in inflation. I still hold out hope for a more aggressive 100 bp cut.
How would the market react to a deep cut. Quite well on the equity front, I assume, which ultimately would lessen risk aversion and underpin EUR/JPY. I would not hit bids in EUR/USD on a bigger than expected cut. Any dip will be short-lived, I expect.
See everyone bright and early tomorrow morning.
