Did Russia just buy Euro? And what about Meta?

Clifford Bennett, Chief Economist | World’s most accurate currency forecaster at ACY

04.02.2022 12:30 pm

#stocks

Metaverse Bubble begins to collapse.

There are a lot of tech stocks already down 30%, but Facebook/Meta just joined them in one day.

Everyone and their dog was buying the Meta story with a keen 'buy the dip' approach. This created a tremendous stop loss snow-balling affair all the way down.

This is classic market behaviour.

Meta/Facebook game over, but Amazon had a big up day after hours. So a lot of people will buy index stocks on the idea this crisis is confined to Facebook.

After they buy futures at first in Asia, I would be a seller.

Is this the bigTech bubble burst?

I though we were already into that process.

Good morning,

The ECB left policy relatively unchanged. With just a hint of reducing bond buying at some point in the future. The Euro had a big up day which was a little odd. The extent of this move could represent a single very large player working through a large portfolio shift on the day.

Usually, when someone like China for instance, wants to shift a significant multi-Billion dollar position, they will designate an amount, perhaps 50 to 500 million to be bought on the hour for each of 4-12 hour marks, and to continue doing so for however many days that takes. This averages the process and reduces immediate impact. So you are not paying more because of your own activity.

Such an order is usually left with just one global bank and only the Head of Treasury, the point of contact at the bank and the actual dealer doing the buying know what's going on. Even the immediate interbank dealers sitting either side of the transaction dealer do not know what is going on. When this happens the dealer involved has to sign a significant legal document that he will not share the knowledge even with work colleagues. This is how the military operates, on a need to know basis.

It is also a huge selling point to a large client like the government of China that others will not learn what they are up to in markets. Needless to say, it is an immediately sackable offence for a dealer to break this silence. Of course talk around dealing rooms happens when corporate clients are operating, but when it is a large transaction of this kind, the other dealers will rarely know.

I used China merely as an example for I had a personal experience in a large bank of exactly that happening. In this instance, to surmise perhaps Russia would rather have currency exposure to Europe than to the USA, is not too big a stretch. Indeed, any large Russian entity or business may well be having similar thoughts. For this transaction was done in a rush. Hence the big obvious impact.

Many will say it was for this or that reason, but they always do, that is the show business we are in, but the real reasons are often hidden from view. The nature of this move on the day seems somewhat indicative of the will of a big parcel. Then, the catching up day traders and the market hitting normal stop loss triggers as well.

Where does that leave us. If it was as described, then there will be simple follow through momentum trading for several hours, and if the large transaction is complete, then within 24 hours we should begin to see a resumption of downward pressure. This would be driven by some day traders taking profit, companies that need to transact and this is a very good level for them, and also stop loss selling from day traders who came late to the large order party.

No wonder the pure fundamental commentaries sometimes struggle just a bit.

Also, that other currencies moved about may have to do with further smaller portfolio adjustments or be merely the ripple effects of sentiment shifting based on the severity of the Euro price shift.

What I am personally going to be doing on the day, is looking to fade/sell this Euro rally.

Clifford Bennett

EUR/USD Daily.