From the WSJ,
The stock market is the big-man-on-campus of the capital markets. Stocks get all the attention. Stocks get all the hype. Even if the futures market is bigger, even if the forex market is bigger, the adulation always goes to stocks. Nobody makes movies about forex traders; at least, none that anybody remembers. The forex market, though – where more than $5 trillion moves on a daily basis, compared to about $191 billion in the equities market – is where the real capital-market muscle lies, and Wednesday’s manic session illustrated that perfectly.
On Wednesday, global markets from London to New York to Tokyo were roiled by a sharp rupture in the forex market. It started with trading in the U.K. pound and New Zealand dollar. Key data in the U.K. lifted the pound, and an upbeat take on the local economy from New Zealand’s central bank boosted the kiwi against the greenback. Normally, that might not be such a big deal, but trading in those pairs dinged the heavily oversubscribed “long dollar” trade.
With central banks telegraphing monetary policy, traders the world over have piled into bets that the U.S. dollar will continue to strengthen. European Central Bank President Mario Draghi has been talking about never giving up, the Bank of Japan ‘s 8301.TO 0.00% Haruhiko Kuroda has been going into negative territory, and the Fed has been talking about hiking. It’s been an easy bet for traders, until something, anything, goes amiss, which is what happened yesterday.
The rapid unwind happened “in a manner unseen since the violence of the few days following the tsunami that hit Japan’s coast several years ago and previously seen in the late summer of ’97 when the Soviet Union was collapsing and political chaos was the order of the day,” Dennis Gartman wrote in his daily Gartman Letter.
Read the rest here.