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Tag Archives: ECB

TODAY 6PM @ Central Bank Communications Conference

An event organized by the ECB, bringing together the mightiest central bankers of the major currencies of the world together to TALK SHOP?!

Will we expect any surprises during this meeting or will all the central bankers keep a neutral tone on their respective monetary policies?

Let’s see where the different central bankers positions are at the moment: –

Yellen: the rate hike in December is a done deal and Wall Street has fully priced in the hike. Everyone is now speculating about the ‘path’; both speed and magnitude, this will move the financial markets.

Draghi: he keeps on maintaining a neutral position, saying that monetary policy could go either way depending on the needs of the Eurozone.  However, he did mention that the easy monetary policy is coming as the policy has produced positive economic results in the eurozone area supposedly far better than the USA.

Carney: he is also hinting about a rate hike but didn’t pull the trigger in the last BOE meeting.  Is the BOE deliberately keeping the GBP bidded?  We know that the UK economy is a services economy, a financial markets economy and an education economy. The education sector is rather inelastic, so even is the GBP is stronger, people who need to fund their children’s education in the UK will just keep on paying the higher exchange rate.  The services economy and financial markets economy is beginning to feel the exodus of firms moving out of the UK.  Volumes of trades in the financial markets for the time being is still stable.

Kuroda: no sign of monetary tightening from him. He keeps on reiterating that Japan will have no problem hitting its inflation target of 2%, but the fact is it’s still far away.  Abe’s 4 arrows economic policy had limited impact on the economy and thankfully, he has been re-elected, so any new arrows to look forward to?

The world seems to be in a state of flux both from the economic perspective and also from the monetary policy perspective.  Financial markets like the USA has gone crazy, with P/Es never seen before in the past 10 years.  Is liquidity channeling itself into the financial markets instead of the real economy?  It may appear to be so.

December 2017 will be rememberd in history as one of the pivotal months of the past 10 years.  I am not so sure traders will be closing their books just yet and miss out on what could be one of the best trading periods for the entire year.

ECB Rate Decision……..TONIGHT!

I believe Draghi is going to starting reining in QE as he kind of hinted in his last press conference.

However, because of the Brexit, French elections, Greece and Italy, I can’t help thinking that he might end up also being alittle dovish.

So in truth, I believe he can go either way, but the volatility on the upside seem to be higher than the down side.

I decided to execute a double down call and put option spread with the following details: –

Spot; 1.0905

Call option; BE; 1.0948 with 43bps premium

Put Option; BE; 1.0879 with 26 bps premium

Total premiums; 69bps.

Let’s see what happens. I believe whatever happens tonight will translate into market action over the next few days.

It doesn’t help that it’s a long weekend upcoming up.

 

ECB Rate Decision, Draghi front and centre!

Alot of noise was buzzing in the media, some FIs were expecting big moves and other lesser moves.

Mostly all in consensus that Draghi will give out something better this time around, then, again, some felt that it will be a non event like the last time.  Volatility also spiked up and shorts we scaled back compared to December 2015.

I decided to put in a wider straddle with the following details at 8:40pm: –

EURUSD  –  Stop if Offered; 1.0930 SL 1.0950, Spot; 1.0966, Stop if Bid; 1.1000, SL 1.0980

As it turned out, the refinancing rate was cut to 0% from 0.05% and the widely expected cut in deposit rates of 0.10% to negative 0.40% from -0.30% was offered and asset purchases we expanded from EUR60Bn to EUR80Bn.

EURUSD went south immediately to 1.0870 and held there for a while and then a few minutes ago, went slightly further down to 1.0835, I decided to square the position at 1.0860.  Spot is now 1.0867.  Locked in trading profits of 70bps!

Thank you Mario Draghi!

Will I be participating in the market later during the press conference?  Don’t know, maybe and maybe not, but certainly I will be in front of the screen and listening into the press conference.

ECB Rate Decision and Draghi Press Conference

Media buzz coming up to the ECB rate decision was somewhat subdued, most of the buzz agreed that Draghi won’t do anything today, after what he did in December 2015.

I wasn’t comfortable with today’s event so I decided not to put on my straddle and instead followed the market.

After the announcement that there was no change in interest rates and repurchase, the EURUSD stayed steady at 1.08990.

Seems that the market was looking forward to the press conference to ascertain how dovish or bullish Draghi was going to come across.

During the first few minutes of the press conference when Draghi was reading from the statement, the EURUSD shot up to 1.0925 when he said that the monetary policy taken in December was correct, more importantly, that it was in response to the economic situation.  He kept talking about comparing the monetary analysis and the economic analysis in deriving the appropriate monetary policy.

Then, when he started to say that the ECB has unlimited policy actions available to act if necessary, the EURUSD began to slide dropping back to 1.0880.

When it started to move down to 1.0850, I decided to chase the market and short the EURUSD at 1.0850.  Draghi further commented in the Q&A, that the ECB will review to reconsider to further easing if necessary and that it has unlimited tools it can use to achieve it’s goal.  The EURUSD continued its slide down to 1.0788.  At about 1.0791, I decided to square off the position and made a tidy trading profit of 59bps.  All this happened within the first 20mins of the press conference.

Ok, now I can peacefully spend Friday with my wife, to shop for the coming Chinese New Year, more importantly, we are indulging in a spa session tomorrow………..bonding time.

If I don’t get to wish everyone, here’s wishing all a great weekend.

22 October @ ECB Rate Decision!

Looking at the CFTC report last friday, it appears that the entire market was just slight net SHORT the EUR.

Since, the start of this week, the the EUR has been staying within a channel of 1.1300 and 1.1380, I suppose while the market doesn’t see any surprises coming from Draghi, one can never know.

The noise in the media was picking up this afternoon and London open, but not in a big way.

I decided to put my straddle trade on just before the press conference with the following details: –

EURUSD  –  1.1295   –   1.1315   –   1.1335

Spot was at 1.1315.

When the press conference started and the first few sentences by Draghi leaned towards a still accommodating monetary policy together with strong jobless claims numbers, it sent the EUR south, triggering my Stop if Offered at 1.1295.  The first 15 minutes it has been hovering around the 1.1225 and 1.1230 level.  Now all of a sudden it dropped further to 1.1180, I believe it’s either stop loss triggers or option triggers.  I decided to square my position at 1.1188 for a trading profit of 107bps.  THANK YOU DRAGHI!

I think this means I deserve to play golf tomorrow morning.  I am also done for this week.

I am still pondering whether or not to close my books for the year.  It just seems to tempting to keep the books open for a few more trades before the year is out.

ECB Rate Decision!!!

As expected ECB kept the minimum bid rate the same, maintained the negative deposit rate and repurchases.

As I followed the media and news, coming up to the press conference it appeared that the market was expecting Draghi to be more accommodating and supportive, more importantly, to be more aggressive to easing if necessary.

So I decided just before the press conference when EURUSD was holding at 1.1226 to put in a straddle trade with the following details: –

Stop if Bid: 1.1250 with SL at 1.1220

Spot: 1.1226

Stop if Offered: 1.1190 with SL at 1.1220

When the press conference started, the EUR started coming off. As Draghi reiterated his position to keep an easy monetary policy, the EUR went further south.

Then, Draghi started talking about potential deflation and weak growth, and expressed concerns about emerging countries.  He is clearly concern about China and let’s hope that G20 can uncover some of the mysteries that is unfolding in China.

At about 8:55pm, the EURUSD had already fallen all the way down to 1.1120, so I decided to take profit on half the position.  Five minutes later, it went down to 1.1110, and I decided to sell the remaining position for an average of 1.1115 or 75bps trading profit with a trading size of $5Bn.  IL Borro, Tuscany for Christmas.

This trade was long in coming and certainly helps to make up for the dull past 3 months, thanks to Greece!

Will we have another fun time come September 17th???!!!

What is BOE going to do next week?

Two more opportunities for this month.

Greece a HOT TOPIC and clearly a disruptive element in the financial markets

I have been asked to give my 2 cents worth about the whole situation of Greece and the EU.

After Euro323Bn worth of financial support to Greece, EU and its member countries, together with ECB and IMF have proven their commitment to the Eurozone, however, this ‘bottomless pit’ cannot continue, as it will cause a financial drain to Euroland.

More importantly, the monies can be better allocated to other EU member countries for economic growth.

We know the debt is not sustainable and it needs to be restructured to include a ‘haircut’ and deferment, otherwise, anything else simply doesn’t work as Greece has no engine of growth.

What are the engines of growth for Greece; shipping, commodities and tourism.  Can these pillars of the economy generate sufficient income for Greece?  Structurally, the problem in Greece is the fact that civil service and pensions ballooned in the past 8 years, sucking the lifeline of the country.  Less and less people are working in the private sector as prospects are so poor, so all flock to become civil servants for the ‘iron rice bowl’.  The wealthy has always escaped taxes and probably will continue to do so.

What is interesting is that post EU in the early years after the millennium, capital and investments poured into Greece and it actually enjoyed prosperity in the early and mid 2000s.  What happened to all that good work?  Where did all the monies go?

Going forward, they are talking about ‘Marshall Plan for Greece’ where E35Billion will be used to rebuild the economy through investments.  The real issue is who is going to drive this?  Will the monies really go into the working wheels of the economy or just into the fat pockets of politicians and bureaucrats?  This is  dangerous proposition, and may well be another delay tactic to postpone the inevitable.

I feel that Tsipras should have a heart to heart discussion with ECB, EU and IMF about how to rebuild the Greek economy; identify engines of growth or potential engines of growth, invest in these potentials, as it will be the income generators for the economy.  Forget about collecting taxes and reducing outrageous pensions, these is only a stop gap measure.

There must truly be sincerity from both parties, not just more politicking.

USD this week……………..

We are sitting on Thursday night Singapore time and the morning of the US session.  Since just before London went for lunch, the market was seeing USD sellers bidding up the majors; EUR, GBP, JPY and AUD up all across the board.  And it is still grinding upwards, though it appears that it may be losing some momentum.

This week has been a challenging week for the US.  All data were either softer or lower.

Retail sales turned in another negative month for two negative consecutive months.

Industrial production also negative, which could also partly explain why Q1 corporate earnings has been showing misses on a number of consumable stocks; Walgreen, Walmat, Target, Home Depot.

Unemployment claims edged slightly higher to 294K but below the 300K level.

So it looks like the Fed Reserve and Yellen needs to see more convincing numbers before initiating the first interest rate hike.

Last week, RBA surprised the market by not cutting interest rates which was highly expected by the market.  For the first time, in the RBA minutes, they are now expressing some concerns about the real estate market.  It is definitely bubbling and against an economy that is not growing plus requiring structural changes……………..hmmmm…………not looking good.

ECB this week and Draghi maintained a neutral stance to monetary policy and an accommodating tone to QE.

The previous week, BOE, Carney also mentioned about keeping the status quo, though, he too, is concern about the bubbling real estate market in London.

So, on balance, the whole world is still in limbo!

And, let’s not forget there is the irritation call Greece!

Is the USD oversold??????????????

The carnage on the USD started last Thursday and the three currencies that battered the USD the most was the GBP, EUR and the AUD.

The question is whether it was warranted or not, or was it simply a case of fund flows?  Or did the market move against the USD because the BOE, ECB and RBA moved from an accommodating stance to a neutral stance?  Is that enough to move the market so significantly?  I do not believe so.

Personally, I expected the other central banks to move to a neutral stance, given that the Federal Reserve has already begun cutting back QE by two tranches of $10Bn each from $85Bn to now $65Bn.

Is there an opportunity for the USD to take back some ground from the majors?  Yes, I believe so, and it has started today with the GBP giving back about 60bps so far.  I should have captured this opportunity since I felt so strongly about it.

Unfortunately, I was taken away to focus on my private equity business in a company I invested that is involved in the tocotrienol business.

Action of Confidence by IMF to the Eurozone

It is great news that the IMF has advanced $1Billion on top of the earlier $10Bn by the ECB to Cyprus.

This is a vote of confidence that the IMF, ECB and EU are working together to try and solve the multiple problems in the Eurozone.

However, the real issue is not to keep on printing monies, buying up junk securities and bonds to provide the necessary funds and liquidity.

At the end of the day, the EU, ECB and IMF should try and help these troubled countries in the Eurozone to restructure the monetary policies and fiscal policies so that eventually, job will be created, income will be created, consumption will happen, growth will happen, GDP  will come back.

Unless and until this happens, the Eurozone crisis will continue unabated.