A post went up on Zero Hedge yesterday showing the chart below as proof that the Fed will be doing a $700bln QE3 operation. It shows the ratio of the Fed to ECB balance sheets (white line) relative to EUR/USD (orange line). The argument goes that in order to bring the relationship back in line, the Fed will have to do QE.
Here’s the thing, though. Notice the two other circled times when the two lines deviated. What happened to bring them back together? Ummm…EUR/USD sold off – and fairly sharply. Why does the blog author expect something different this time? Given the Commitment of Traders figures that have shown the short bias among euro traders, it certainly looks like the major players are leaning in that direction.
This strikes me as someone looking for proof of their thesis rather than developing a thesis from the evidence, which is a major pitfall we all face in the markets.