The title explains it all; everything was falling like so many bricks in a pool while USDJPY drifted higher. Yep, it was a resumption of USD strength as we had suspected, with analysts pointing to risk aversion; though we like to think of it as a return to sanity. If it was true risk aversion Gold would have been bid and USDJPY would have sunk too. USDJPY moved out of it's downward channel, so a case may be made for further strength, though we would not buy here.
One thing to remember: GBPUSD's spectacular reaction to the BOE's inflation report; how the pair gained over 150 pips on the day only to close slightly negative. Whatever the reason, it pays to ignore the inflation report.
Time for a summary: ECB officials continue to flood the wires with hawkish comments, BOE is uncommitted, the US is rather happy with its idea of a strong dollar, AUD's fate is tied to that of the precious metals for now, and Japanese exporters are fretting over the strong JPY. Markets are nervous as hell, having created a nice little bubble, but we think Wednesday's move has cleared out most of the weak hands and we'll more likely see a correction now than a continuation, especially since everyone is looking in the latter direction.
'And they will dance if they wanna dance
Please brother take a chance
You know they're gonna go
Which way they wanna go
All we know is that we don't know'
- Oasis, 'The Masterplan'
Peace.
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