7/8/2008
the schatz rallied dramatically today after the ecb was less hawkish than expected. I was short and lost some money. Why was I short? Well, we were at the bottom of the range in yields and the ecb have been consistently hawkish over the course of the year. This was clearly not the correct way to look at it. For starters I should have considered that it was obvious from the price action ( strong ) that the market was short. More importantly the data in europe was consistently weak since the last ecb meeting.
This was the key point. Up until now the ECB got away with being hawkish because the data agreed. In conclusion, the ECB can fight sentiment so long as the data is on its side. It can't fight sentiment and data without losing credibility.