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Tag Archives: FOMC

There is no way to gauge whether the Fed is going to be hawkish or dovish in this meeting, financial markets, Wall Street is quite divided in its views, which sets up a potential volatile event.

I decided to place my straddles with the following details: –

GBPUSD:  Stop if Offered at 1.3560, Spot at 1.3592, Stop if Bid at 1.3620

USDJPY: Stop if Offered at 111.00, Spot at 111.34, Stop if Bid at 111.60

AUDUSD: Stop if Offered at 0.8050, Spot at 0.8083, Stop if bid at 0.8110

As it turned out, the Fed is HAWKISH!

All my trades was triggered!

I squared all three trades as follows: –

AUDUSD: Squared at 0.8002 for a trading profit of 47bps

USDJPY: Squared at 112.23 for a trading profit of 0.65yen

GBPUSD: Squared at 1.3473 for a trading profit of 87bps

Not a bad FOMC outcome!!!

This is what I usually try to avoid; a FOMC meeting where only a statement is published and no press conference.

Then, the whole world begins dissecting the statements and using different words to support their views, this usually causes big whipsaws as we just saw a few minutes ago.

Just before the release of the statement, EURUSD was holding at 1.1332, when the statement was published, it fell to 1.1275 as the reference to global risks was taken out which implied that the Fed will just focus on the US and not use the rest of the world as an excuse for not raising rates.

Then, the market zeroed in on the word, ‘stance’ of the monetary policy to mean an accommodating stance, EURUSD reversed and shot back up to 1.1333.

Anyway, I put in a small OTM order betting the downside with the following details: –

EURUSD   –   Stop if Offered at 1.1300, Spot 1.1332, SL 1.1330

As it turned out the first move was down and it triggered my trade, I quickly decided to square off the trade at 1.1275 when I was speed reading through the statement and felt that the statement was quite balanced.

Gripping and stressful trade, and only rewarded with trading profits of 25bps.

Looks like June will be the D-Day!

Goodnight everyone.

I also put in a trade for the GBPUSD with the following details: –

GBPUSD   –   Stop if Offered at 1.4080 with SL at 1.4110, Spot at 1.4121, Stop if Bid at 1.4150 with SL at 1.4130

When the GBPUSD launched to the sky, it triggered my 1.4150 trade.

I squared it at 1.4236 for a trading profit of 115bps.  Including the 44bps from the EURUSD, FOMC allowed me to make a total trading profit of 159bps.

Thank you.

Time to try and sleep now.

Today’s FOMC was anticipated to be fairly volatile, with the market largely managing expectations.

Nonetheless, I expected an opportunity to carve out a trade.

At 1.55am, I put in my straddle with the following details: –

EURUSD   –   Stop if Offered at 1.1050 with SL 1.1070, Spot at 1.1086, Stop if Bid at 1.1130 with SL at 1.1110

As it turned out, rates was kept steady at 0.50%, and statement indicated a possible further two hikes for 2016.

Fed acknowledges global slowdown and uncertainty, more importantly, it recognizes global risks may impact the U.S.

The EURUSD burst upwards triggering my Stop if Bid trade at 1.1130, I waited till about 2:08am and squared the trade at 1.1074 for a trading profit of 44bps.

I am done, not going to wait for the press conference.  As usual, don’t like to chase a trade during the press conference, it’s too volatile.

 

The buzz in the media has started.  Some are saying that the FOMC event is fully priced in the marketplace and others are saying that high volatility is expected in this impending event.

Bernanke was interviewed last night and he was quoted saying that the Federal Reserve needs to entertain ‘negative interest rates’.

90% of all economists interviewed by Bloomberg and 95% of Wall Street all believe that Janet Yellen will pull the trigger at 3am Singapore time and 3pm NY time.

Will Janet pull out a surprise from her hat and not raise interest rates?!  She has every reason to raise interest rates and also every reason not to raise interest rates.

Wall Street is debating whether she is a traditional economist that needs empirical data to line up like the stars before she tightens monetary policy of will she act more from her ‘gut feel’ of where the economy is going.

The world today is different, inflation in many developed countries is almost non existent, way way below the 1% or low 1%.  We will not see 2% for a long time, simply because there is a real threat that the developed countries may go into a deflationary phase.  Oil below $40/- per barrel with fears that it will go to $20/- is unfounded.  The world was buzzing with strong economic growth in the late 90s and oil was at $20/- per barrel.  Demand will always be there no matter how much OPEC pumps out of the ground or Big Texas Oil.  The world has a fascination for the internal combustion engine for fast cars ,luxury cars and basic transportation.  Be it recession or not, people will fill up their petrol or diesel tanks and drive their vehicles proudly.

So why does a falling oil price be of such a concern?  Well, why did oil go up to $140/- per barrel in the first place?  I believe it was speculation, I believe it was more and more producers getting into the game and with high capex, they needed to sell it at the elevated prices, I believe it was oil sands or shale oil.  The cost of extracting oil went from $12/- per barrel to an average of $68/- per barrel.  Should Big Oil profiteer from the general public?

Real estate prices has been escalating in all developed countries from the UK to the US to Australia and Europe.  Every developed country is excluding food and real estate from the CPI basket, however, if you were to include real estate into the basket, then, we will not be looking at the current 1% inflation rate but something in the region of 10%.

So are we playing around with numbers?  Isn’t real estate or more appropriately, dwelling homes an important component to be included in the CPI basket as it affects the wallet of all consumers as in the ability to pay their mortgage payments and the fact that it is a long term financial commitment.

If we look at the EURUSD and the GBPUSD hourly charts with Fibonacci overlayed, it appears that the EUR is trading at its near high and GBP at its near bottom.

gbpusd_hourly

eurusd_hourly_fibo

If volatility is going to happen at the FOMC, will the two european currencies swing in opposite direction?

There so many permutations: –

Raise rates + dovish press conference

Raise rates + strong press conference

Rates stay put + dovish press conference

Rates stay put + strong press conference

In all 4 permutations, it can be argued for both a case of strong USD and a case for weak USD, why?  It is because the US is in a precarious economic position.  The truth is that the economy is not growing strong enough, moderate growth with some fragility, yes!

As time draws nearer, I am sure we will see more noise in the media.

The amount of noise coming into the last hour before FOMC gave me cause to put in a trade.

At about 1:55am, I put in the following straddles: –

GBPUSD   –   1.5300   –   1.5321   –   1.5340  Spot was at 1.5321 and SL at spot level

EURUSD   –   1.1050   –   1.1073   –   1.1095  Spot was at 1.1073 and SL at spot level

At 2am, it was announced; Fed kept rates on hold but media is picking up the fact that the statement dropped the phrase, “global developments may restrain growth”.

We squared the trade at 2:11am at the following levels: –

GBPUSD, squared at 1.5260 for a trading profit of 40bps

EURUSD, squared at 1.10935 for a trading profit of 115bps

Thank you NEWS MEDIA; CNN, CNBC, WALL STREET, BLOOMBERG………..all of you were great!

It’s a wrap, time for drinks!

What the Superforecasters Say About When the Fed Will Lift Rates

Tom Redmond https//twitter.com/tomredmondjapan

You’ve asked everyone else about when the Federal Reserve will move on interest rates. Now try someone with a shot at getting it right.

They’re the prognosticators dubbed “superforecasters” by Philip Tetlock, the Toronto-born researcher who gained renown in 2005 by showing that almost everyone making predictions fails. The key word is “almost.” Tetlock’s new book finds that a few people actually have some skill when it comes to predicting the future.

So what do they say about the Fed? According to this group, which Tetlock describes as focusing on historically anchored “base cases” before delving into minutia, the first U.S. interest rate increase since 2006 probably isn’t going to happen this year.

“They say liftoff is more likely after January,” said Warren Hatch, the chief investment strategist at Catalpa Capital Advisors and one of the group. “My own personal view is that the markets are underpricing a liftoff at the December meeting. However, I’ve learned to trust the wisdom of my fellow superforecasters.”

After the first year of a “prediction tournament” organized by Tetlock, 59 people out of 2,800 emerged with a record of accuracy intact. The group outperformed the rest by more than 60 percent by the fourth year, and 70 percent of them kept their edge from one year to the next. Tetlock says they’re not geniuses and their skills can be learned.

Superforecasting the Fed

“There’s a Goldilocks zone, a moderate temporal distance, in which it’s possible to cultivate probabilistic foresight,” Tetlock, co-author of “Superforecasting: The Art & Science of Prediction” (Crown, 352 pages; $28), said in an interview. The book is about “correcting bias and improving judgment.”

So what’s the secret? Start with an “outside view,” says Hatch, who provided written responses to questions from Bloomberg on how he would tackle a Fed rate-rise projection. Expert analysts get bogged down in details, he said, like what the futures market is predicting, what the latest employment data are showing, and what Fed officials are saying.

Superforecasters “want to know the bigger picture,” Hatch said. “Under what circumstances has the Fed started raising rates in past cycles? How about other central banks around the world? That helps set an initial base rate on which to base their forecasts.”

Fine Tuning

Then they turn to details, adjusting from the base estimate to make predictions, but without overreacting to spot economic data, said Hatch. The conclusion of his fellow superforecasters — that the Fed will hold off until after January — aligns with what futures traders are predicting. The March meeting is the first with more than a 50 percent chance of an increase, the contracts show. The chance of an increase on Wednesday is 4 percent.

Superforecasters’ estimates are more precise, and they’re less prone to anchoring themselves to a misplaced gut reaction, according to Tetlock. He says weaker analysts often make one of three responses to a question: something is a certainty, it’s never going to happen, or that there’s a 50/50 chance. A superforecaster would be just as likely to cite a 49 percent probability, or any other number.

To get more accurate results, the best follow a strategy laid out by physicist Enrico Fermi, and break seemingly impossible questions into smaller parts, says Tetlock. For example, Fermi’s puzzle of how many piano tuners are there in Chicago can be approached by guessing how many pianos there are and the number one person can tune.

New Information

Others’ forecasts “rely on the nearest tools to hand, they tend to get updated infrequently, and — here’s a critical key to it all — they typically lack a clear way of consistently and systematically comparing those predictions to what actually happens,” Hatch said.

Superforecasters make better initial guesses and then press their advantage by updating predictions regularly, according to the book. While they have above-average intelligence and numeracy, much of superforecasting seems to be a state of mind. Its disciples are cautious and humble, and believe their craft can be improved.

The study is already being put to use. Good Judgment Inc., which grew out of the project, is offering consulting services based on its findings. Tetlock is looking ahead to his next project in a career that has highlighted the need to keep score. The superforecasting book appeared in the New York Times bestseller list for non-fiction this month.

“The thing that unites superforecasters, across ability levels and ideological points of view, is a shared view that probability estimation is a skill that can be cultivated,” Tetlock said.

Looks like the GBP and the EUR have both retraced quite dramatically back to the 23.6% Fibonacci based on the 4H chart.

EUR retracing back from 1.1480 to current 1.1048, GBP retracing from 1.5635 to current 1.5300, BIG moves within the past two weeks.

If Yellen even whispers anything dovish or speaks in generality and vagueness, the market is going to sell the USD, I am sure of it.

In other words, the GBP and EUR are at good levels to do a strong rebound if given the right motivation from Yellen.

This year has been just too much talking by central bankers all over the world, creating uncertain volatility in the fx market.  Rationale volatility is good for trading, however, irrational volatility is bad for trading.  Even Vice Chairman, Fischer is saying that central bankers should begin to talk less!

So will Janet continue to talk to the markets and now suggest a rate rise only in 2016 or is she just going to go into action?!

The truth is why are all on Capitol HIll and Wall Street so afraid that the US economy might run away and that the Fed may be behind the curve?  The United States of America is a developed and maturing country, it’s a dinosaur, even the strongest of growth, we will be lucky to see 5% GDP growth, more like 3% range.

So what’s wrong with letting the economy show more certainty and consistency in the numbers; labor, inflation, home prices, savings, new home sales, new building permits, and retail sales before Yellen raises interest rates.

Even if the Fed ends up being behind the curve and then, Yellen raises interest rates, how will that hurt the US economy?  It can only help since the economy is saying that it is doing well and can absorb an interest rate increase.

My hunch is that USD will take a beating today, let’s see?!

This week is going to be an interesting week, not just because it’s ADP and non farm payroll numbers come Wednesday and Friday, more importantly, it’s a ‘hazing’ week by the many FOMC members who will be talking in the media from Yellen, Fischer, Williams, Dudley, Evans, Bullard and Kocherlakota.

Since, we all know to be American is to be able to stay what you feel and think, there will ultimately be a confusion of views and opinions.  We already know that there are some FOMC members who are pushing for raising interest rates and there are those who want to push-off a rate hike till later.

Former Secretary of the Treasury, Larry Summers is advocating a rate hike only in 2016.

Earnings in corporate America is flat, equity prices fueled by high P/Es, thanks to cheap monies.  Same situation in China but only worse, why, because the government is fanning the bubble in the equity markets.

People are saying that Janet Yellen is being ‘wishy washy’ in her decision whether to raise interest rates or not.  Her recent remarks in the past FOMC rate decision showed that she is acknowledging the various economic problems faced by the many different countries all over the world.  More importantly, because the USD is the main economic trading currency, any hike in interest rates will make the corresponding currencies in South America, emerging Asian countries look like ‘banana’ monies.  As it is, Indonesian rupiah and Malaysian ringgit is trading at all time lows.  The Brazilian real has collapsed and is poised to fall further.

Trade flows and money flows around the world among countries are so intertwined that it is near impossible for the United States of America to ignore the implications of its monetary policy on global currency markets and trade countries.

Since post FOMC, the USD has been strengthening against all majors and is killing emerging currencies.  I attached the Fibonacci charts for GBP, EUR and AUD.

auusd_fibo

eurusd_fibo

gbpusd_fibo

Looks like the majors are all trading at their low ranges, below or about at the 23.6% level.  This could mean a possible bounce back up against the USD if there is any negative noise about the USD.  And with so many FOMC members talking this week, volatility could potentially rise.

Let’s see.

Let’s all stay on our toes, shall we?

Up to the last hour before 2am last Friday, noise was abundant in the media; CNN interviewed FIs and 76% said ‘no rate hike’, Bloomberg interviewed FIs and 78% said ‘rate hike’.  What perfect opposing views!

As we all know how, Janet Yellen decided not to hike rates.  So what does this mean for the USA?  What does it mean for the rest of the world?  What does it mean for the financial markets?

Granted Janet has been talking about a rate hike since May this year and respectfully, she has managed the financial markets very well through the past 4 months.  Of course, we had the great Greek distraction in the middle of the year, thanks to Tripras and the ECB and the EU and Merkel and Draghi.

In life I suppose there is always something to be said when a leader is a woman and when a leader is a man.  I am not trying to be a racist here, however, it is generally known that women are more prudent, then again, if you observe how Angela Merkel works and now Janet Yellen, it is clear that Prudence is a trademark of the fairer sex.  In the uncertain economic times we live in now and the divergent interest rate cycles of different economies around the world, Janet Yellen has the unenviable task of holding the stone and wondering whether she should through it into the pond and create ripples or tsunamis.

The world uses the US Dollar as a trading currency base or a settlement currency or a partial reserve currency, any rate hike in the US, will certainly have a large negative impact to Europe and other OECD countries.  More importantly, it may destroy smaller Asian emerging countries, and BRICs.

Globality means that the world has grown smaller, trade borders have evaporated, which means that financial impacts will become like tsunamis and not small ripples.  We saw it recently with the partial crash in the Shanghai and Shenzhen equity markets and how it affected the rest of the worlds’ financial markets.  We saw how the world didn’t take kindly to China’s central government interference with the equity markets, with the banking system and with the currency.

Frankly, if I was Janet Yellen and I was faced with two options; 1) do a rate hike and run the risk of choking the economy or 2) let the economy continue to gain more momentum in growth and jobs and inflation, then, hike rates then, as a strategy of reining in the economy before excesses begin.  Prudence would dictate that we should select option 2.

Let’s not forget we are talking about the United States of America, a very mature economy, highly domestic with little to export, a ballooning social welfare crisis, a runaway immigration problem and a widening wealth gap.  So, even on the best quarter, economic growth as spectacular as it cld be, can be, will never be higher than 3% p.a.  Since after the millennium or for that fact the past 10 years, the average growth rates has been below 2%, in the 70s and 80s, the average was about 3%.

So truly speaking, where is the concern that growth may run away and that we need to get ahead of the curve???

Noise has begun again with the media saying that Janet Yellen will raise interest rates in December.  Why?  Doesn’t the Chairman of the Federal Reserve know that, that is the worse time of the year do effect any interest rate decisions as liquidity is very low and volatility is very high.  Remember how George Soros broke the Bank of England in 1992……….Black Wednesday?!

Prudence will dictate that Janet Yellen will only make an interest rate liftoff in March 2016, that is, towards the end of winter.  Traditionally, in the U.S., jobs takes a significant dip during the winter and employment only starts picking up in spring.

What do I know?  This is just me sharing my thoughts with the world and to whomever is interested to read my trading blog.