Stan Chart Point To Position Trimming As Key Driver On Tuesday

In the wake of Tuesday’s price action Standard Chartered note that “some market participants likely were caught flatfooted by Powell’s Senate appearance. We and many others saw his prepared comments released 29 November as in line with expectations. The emergence of Omicron risk had led some to believe that renewed downside economic risk had fattened the monetary policy tail on the dovish side. The combination of Omicron and Fed surprises may lead to widespread cutting of FX positions and paradoxical strength in currencies that are rarely strong in risk-off episodes. The rally of high-beta currencies on a day of sharply falling equity and commodity prices feels more like position unwinding than the establishment of new positions, particularly as the strongest currencies had been the weakest in the prior two months.”