The only loony chart was the...err....loonie

Hurray, the Greek vote passed, the bailout is on!  OK, now how long til the next debt restructuring/writedown/foregiveness/default?  Even the IMF acknowledges that Greece remains completely, utterly stuffed- bailout or no bailout.  Perhaps that's why the euro, at the time of writing, hasn't budged on the news.

Let's see what Signor Draghi has to say about Greece and the ELA this morning.

A number of commenters and twitterers on yesterday's post observed that the very act of observing the three month pattern of crazy days was likely to negate it.   Such seems to have been the case;  while one need not be Mystic Meg to have deduced that such a random pattern would not continue, Macro Man has frankly been a little surprised that the market did not move more violently in the run-up to and aftermath of the Greek vote.

Of course if one wishes to cherry-pick, he could argue that yesterday's action in Canada qualified as a little crazy.  The Bank of Canada delivered a somewhat surprising rate cut, and in his comments Poloz hinted that QE could potentially be in the offing.  Sigh.  There remains essentially zero empirical evidence that QE boosts economic output or inflation; the latter in particular is subject to global secular forces of oversupply in manufacturing and labour markets.   The best its adherents can do is offer lame counterfactuals about how bad things would have been without QE; these counterfactuals, of course, are outputs from the same macroeconomic models that have signally failed to deliver anything remotely resembling accurate forecasts in the post-crisis period.   Garbage in, garbage out, as the saying goes.

In any event, the CAD got trolleyed yesterday, and is looking very interesting indeed from a technical perspective.  USD/CAD has broken out on the daily chart and looks set to test the March 2009 high of 1.3250:

Beyond that level, there's a lot of fresh air.

The chart of GBP/CAD is even sexier, with a very strong breakout after quite an extended period of consolidation and then sharp swings.  Loathe as Macro Man is to hitch is wagon to Sideshow Bob  Mark Carney and his magic flip-flops, this one does look like ti could go quite a bit higher.

As for Janet Yellen, your author saw relatively little change in message from what she gave us last week.  For more than a year now, his base case has been a hike in September of this year, and at this point it still looks like even odds that he'll be correct (though Fed funds futures are pricing more like a 1/3 probability.)
 
What's interesting is that she sounds, if not desirous, at the very least resigned to the notion that ZIRP world really ought to end sooner rather than later.  The irony, of course, is that the global economy might have been better suited to such a move a while ago; as someone once said, he who hesitates is lost.

Nevertheless, it's an interesting question as to what will happen to the US short end in the event of a September hike.   Although Yellen has already more or less promised that this tightening cycle will be sponsored by Foghat ("slow ride....take it easy"), the market continues to price relatively little even with that proviso.  Of course, some of that may be a function of the uncertainty surrounding how rate hikes will look.  Will the Fed target a single level for FF, or a range?   If the latter, how wide will it be (i.e., how wide will the corridor be between IOER and the RRP rate?)

Do two hikes put FF at 0.75%, and assuming a basis of 15 bps, LIBOR at 0.90%?   Or do two hikes put FF in a target range of 0.50% -0.75%, with the practicalities of the market flooring it at 0.50%, and thus putting LIBOR only a bit above 0.60%?

Inquiring minds want to know.   In any event, it looks like risk is being deployed to price only one hike; a lot of "pin the tail on the donkey" tight call flies have traded looking to target 99.50...more or less where we are now.  That's consistent with pricing one hike this year, with FF at 0.35% or so and 15 bps of basis.  Could that happen?  Of course...but a lot of these structures have been financed by selling puts, which could end up biting someone in the arse should Janet get the bit between her teeth.

Either way, markets are going to be very interesting indeed in a couple of months' time- and won't even need a calendar pattern to "prove" it!