What Operation Twist did to EUR/USD

Discussion in 'Forex' started by acturater, Sep 22, 2011.

  1. acturater


    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?
  2. french, italian and spanish banks are a toast. nobody wants to borrow europe money.

    but still, many traders like to buy shitty doomed euro.
    when it will fall from 1.35 to 1.33, 1.31, 1.25.....1.2.....1.15

    a LOT of "investors' and central banks still would buy it!
    make your own conclusions.
  3. Tsing Tao

    Tsing Tao

    No idea what the previous poster is smoking, but quite simply, there were two essential reasons.

    1. No QE3 like the market was looking for.
    2. The Fed's Twist sells short term for long term securities. This pushes yields up on short term paper, and thereby pushes up the USD as this short term paper becomes more attractive in relation to the yield on other similar paper across the world.

    Check out what happened to the dollar the last time we did "the Twist", Chubby.
  4. +1.

    1. Market held up only with cheap money.
    2. No QE3 = no more cheap money

    1.+2. -> market tanks.

    Look at oil.

    No special relation to europe.
  5. Haley12


    Hey why you said " look at oil"?
  6. Oil seems to know only one direction ... down.

    Means: Not so much demand for it = production tanking = markets in general tanking.
    (Also no direct relation to EUR/USD, just to markets in general).
  7. Haley12


    Thanks so much for explaining me the answer.