Jawboning is one tool central bankers and Treasury officials use to influence the markets. Their utility ranges from the very short term to lasting reassurances. Think Treasury Secretary Rubin in the late 1990's with his Strong Dollar Policy to Jean-Claude Trichet this morning.
The difference between the two is how much political capital the respective bureaucrat has accumulated in his tenure. Unfortunately for Trichet his coffers are barren in that respect. This contrast shows the ultimate tragedy and imperfect nature of the financial system and its many handlers. I could easily argue Trichet was a much more capable steward than Rubin ever was. He just came along at a particularly bad time and was born on the wrong side of the Atlantic.
The Euro continues to remind me of the S&P 500 going into the fall of 2008. At that particular moment on the influence continuum - Bernanke and Paulson would repeatedly jawbone the market. It would work for a few hours to days, but would ultimately just slow what was a disorderly decline.
As a trader you would simply short the rips and wait for the market to come back to you.
(Positions in UUP & ZSL)
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