OlsenBlog

The sovereign debt crisis that started with Iceland last year has now spread to Greece, Spain and Portugal. Other countries with large deficits are on the firing line as well, the US is one of them with a deficit of 12 percent of GDP, the same as Greece. Treasury Secretary Timothy F. Geithner tried to shore up confidence in an ABC News interview by claiming that the US would never lose its Aaa rating. A number of commentators have picked up on this news and have ridiculed Geithner saying no way; the US will lose its Aaa rating.

It is no trifle matter, if a country has a government budget deficit of 12 percent; this is even more perilous when interest rates are at an absolute low as they are today and there is the danger that interest rates snap up dramatically increasing the cost of servicing debt and the size of the public deficit. There are also the private house holds, which make up for 70% of GDP with their consumption, who are heavily indebted. (more…)

USD_JPY collapsed from 90.60 to a low of 88.65 in 30 minutes taking down AUD_USD from 88.00 to 86.15. The Scale of Market Quakes for AUD_JPY recorded a strong quake of 4.4. Three trades triggered the move: margin calls on long AUD positions, liquidations of short JPY and short USD positions. The market was building up to such a move because there was a bifurcation in the market, where one group of traders believing in the long-term collapse of the USD turned a blind eye to their increasing losses due to the gradual rise of the USD, while on the other hand there were the traders with the growing confidence in the continued strengthening of the USD. Similar to children that rock a rowing boat the combination of margin calls and aggressive trend following trades triggered the sell off. (more…)