The big overnight data was the ECB's early loan repayment, which as I said last night, could initially be Euro-positive depending on how the repayments came in.
Take a look at the 3C chart for the Euro last night and this morning....
What was the ECB's LTRO data, it came in stronger than expected, but this was very much a Goldilocks scenario, not too strong, not too weak with the market looking for $84 to $100 bn Eur.
Instead the market got $137 billion, but the ramp had started long before the ECB made it's announcement and certainly the signs of it were present last night at 8 pm EDT.
Citi warned: if too much LTRO is repaid, the risk goes straight to peripheral bond yields, which have a feedback loop to the currency rate, and thus to overall market risk.
Even though the LTRO announcement was made only hours ago, Moody's has already come out with a warning that European banks need more cash.
Lets look at the real problem and some data from overnight. People think the Euro-zone exists for a variety of reasons, but who seems to and actually does run and make all the important decisions in the EZ? Germany. Why? The Euro-zone and the German efforts (above all other countries) has a reason, Germany is the biggest manufacturer and exported in Europe and with the Euro-zone, it created a free trade zone that benefitted none other than Germany and almost exclusively Germany.
Why do you think Germany wanted to save the PIIGS? There are two reasons, 1) they are the buyers of German goods and they owe substantial amounts to German Banks and 2) To prevent contagion of the core, the core being Germany and France in that order. We know France is already infected and we just recently found out that Germany has the first of 2 consecutive negative GDP prints needed to be in a recession. Make no mistake, Germany DOES NOT want a stronger Euro that hurts exports at a sensitive time like this for their economy.
It seemed overnight that the market rallied behind the IFO confidence indications from Germany, but as you saw, the market was already set in motion well before Europeans were even awake!
UK GDP data also came in weak overnight so the problems there are re-emerging as we said they would at the start of the year.
As I put it last night, "My Gut feeling has been the market would reverse fast, likely intraday and on a lot of volatility". I don't know if today is the day, but we are at the type of area that would work, early strength that manifested out of nothing more than manipulation, the EUR/USD triangle, the headwinds the Euro creates for growth, the banks having less capital so they can book some short term gains in collateral.
It almost feels like the perfect storm brewing.
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