I'm still trying to figure out why EUR/USD dropped so hard yesterday (9/21) after the Fed's announcement of operation twist. I've heard the argument that more banks, central or otherwise, piled into the USD as a haven while also cutting back on holding more EUR reserves since August. While this makes sense as a longer trend, IMHO it does not explain the sharp move that happened immediately following the announcement of twist yesterday. My guess would've been a stable pair due to the anticipation of the news, if not a higher lower USD from lower yields in longer term bonds. Any insights?
I suspect part of the equation had to do with S&P Rating's downgrade of Italy's credit rating. Most players were looking at Moody's to do the job, so the S&P move was a surprise.