Regardless of how markets arrived at their current juncture, what’s important to consider is what the road ahead might be, as exuberance over a calming in Europe seems to be getting back towards those eye-rolling levels (when leaders start declaring that the crisis is over, it tends to rear its ugly head as the EU’s Jean-Claude Juncker did on Friday by saying “we see light at the end of the tunnel,” hopefully that light isn’t an incoming train), and the US fiscal cliff situation is coming down to the wire.
For today, however, this looks less like a short covering rally but rather additional risk taking into yearend and with the Federal Reserve easing and the Bank of Japan creeping towards a major stimulus package, central banks deserve a great deal of credit. Price action in the FX market is very evidently being driven by the European currencies, with the British Pound and the Euro continuing their recent bull run against the safe havens and the commodity currencies, despite several significant roadblocks appearing on the near-term horizon.
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