SPR the New Global QE?

By: Ashraf Laidi | Fri, Jun 24, 2011
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In order to understand the SPR release of 60 million barrels, we must go back to the November G20 meeting when Asia/Latam Emerging Markets protested against the Fed's November launch of QE2, dubbing it as beggar-they-neighbour USD depreciation.

It was no surprise that Bernanke did not dare utter the words QE3 on Wednesday's press conference. Yet, there was no need to refer to further easing when the FOMC already downgraded its growth outlook for the 3rd successive meeting.

We consider the IEA decision to have been partially prompted by the notion that a continuously falling USD would risk lifting US crude oil back above the $97 and onto the $100 territory as the Fed may be forced to renew its asset purchases. Note how that right after Bernankes conference, WTI rose by more than $2.00 to 95.70s as the market deemed further stimulus to be inevitable.

US Crude Weekly - SP500 Daily
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As negative as they appear, both the US crude oil and S&P500 chart remain well supported, with the foundation resting on key technical levels; 200 week moving average for US Crude and 200 day moving average for the S&P500.

The USD will need more than just bad news in the Eurozone to accumulate any real rally beyond +5% bounce. What was mainly seen as fiscal imbalance weighing on the USD structural fundamentals is now compounded by widespread macro weakness, which will keep monetary easing weighing on USD.

EURUSD will continue hovering between $1.40 and 1.45.

Do not underestimate China's role in propping Europes debt in return for Europe's support for Beijing's aspirations to have its currency (yuan) part of the news reserve currency order. Hence, notice how European nations are no longer dictating Beijing over its currency policy, leaving only the US and Canada in doing so.

 

Volatility Chart of EURUSD
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Click here for my CNBC-TV appearance on this topic earlier this morning.

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Ashraf Laidi

Author: Ashraf Laidi

Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi

AshrafLaidi.com is the research arm of Intermarket Strategy Ltd.

Ashraf Laidi is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" Wiley Trading.

This publication is intended to be used for information purposes only and does not constitute investment advice.

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