Down in Fredrick, MD, visiting with the KBRA FIG team this week. Last week we published a research note, "Will Negative Interest Rates Save Europe’s Banking System?" You can read the full report with footnotes at the link below (registration is free).
https://www.krollbondratings.com/show_report/4042
Markets have stopped focusing on what central banks are doing and are "positioning for what they believe central banks may or may not do," according to BofA's Athanasios Vamvakidis as he tells FX traders to "prepare to fight the central banks," as the market reaction to central bank policies this year reflects transition to a new regime, in which investors start speculating which central bank will have to give up easing policies first.
The market has started testing the central banks
It may be option expiration day (always leading to abnormal market activity) but it remains all about the weak dollar, which after crashing in the two days after the Fed's surprisingly dovish statement has put both the ECB and the BOJ in the very awkward position that shortly after both banks have drastically eased, the Euro and the Yen are now trading stronger relative to the dollar versus prior.
Well, the people wanted a "bazooka-sized" surprise from Draghi, and they got it.