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Tag Archives: janet yellen

FOMC

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.

 

D Day – Decision Day for FOMC?!

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.

Where is the fx market now pre-FOMC?

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?!

Thoughts after FOMC no hike decision

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.

 

Post FOMC @ 18 September 2015

When I finally woke up in the morning on Friday after staying up at the office till about 3:30am, it was interesting to see how the fx rates have developed during Asian time on Friday.

If I had kept all the trades open, what would have happened?

AUDUSD would have been stopped out at 8:17am.

GBPUSD would have been stopped out at 8:28am

EURUSD would have been ok

However, the big winner would have been the USDJPY.  You will recall, I squared the position half an hour into the press conference with no win no loss, that is, all square.  If I had kept the position opened till late Friday morning, I would have made one big figure on the JPY, that is, 1.15 yen.  Wow!

Then again, it is not our business to hold spot positions opened for so long and more so, unsupervised.  Whenever, we have an open spot position, we will monitor it on screen till we square off the position and that usually happens within an hour or at the most two hours.

Black Monday……Grey week of August 24th????

Thanks to China, my AUDUSD call option expiry this Friday, August 28th will be worth nothing and I have basically lost my premium of US$3Million.

No wait a second, I didn’t.  Apologies for the silence the last two days as you can well appreciate the financial markets, that is, the equity markets and the fx markets were crazy.

Given, all the bad news coming out from China; devaluing the renminbi, slowest growth in the past 5 years, PBOC cut interest rates twice and then again today, no short selling on 500 stocks in Shanghai and Shenzhen markets, lowering bank reserve ratios, buying less raw materials such as metals and ores, lowest exports in the past 4 years……………..all these pointed to China going down South!

This means SELL SELL SELL SELL AUDUSD!

So, silly me decided to be brave and stupid and chase the market, but of course with stop losses as well.

The deterioration in the AUD since last Friday from 0.7353 and downwards…………

The drop off the cliff on Monday at about 9pm Asia time, gapped from 0.7232 down to 0.7032, then, stabilising at 0.7142 and went back up to a high of 0.7232, right back where it started.

Last night, at about 8:50pm, my Ichimoku told me to sell the AUD, after cutting up and down two times within the last 24 hours, so I short the AUD at 0.7207.  By 2am in the morning, the AUD has fallen to 0.7157.  I decided to take profit and go to sleep for a trading profit of $1.25Million or 50bps on a nominal size of $25oMM.

So, I have now improved my call option losses from $3MM to a lower $1.75MM.  You really can’t win all the time………life!

The real issue now is where do we go from here?  Do we look at shorting the GBP and the EUR?  Well, let me share my thoughts with you in my next article on ‘Thoughts’.

I also have a thought provoking view that a conspiracy was started by China to encourage if not compel Janet Yellen from raising interest rates next month.  Again, I will share my thoughts with you soon, so stay tune.

FOMC Tonight! Any surprise from Janet Yellen?!

Alot of buzz in the media about Janet Yellen and FOMC tonight or rather 2am Singapore time.

Is she going to surprise with a rate hike?!

Market talk is July…………….September……………November………….take a dart and throw it on the board!

Personally, I don’t think she will surprise the market by hiking rates, although, I do believe she will shed some light on how she is going to access the US economic and interpret its projections going forward.  This should provide some clues as to when?!

Recently, she has been spending time talking about the world economy and how it’s not doing too well. While non farm payrolls has been trending above 200K, the last two months has been showing a slight downward movement despite the stronger number last month of 280K versus forecasts of 222K.

Housing is still a mixed bag of information.  Retail sales as well.

However, whatever Janet is going to say will provide CLARITY and that in itself will be USD positive.

Just checked to do a put option till Friday GBP and EUR averages about 80bps.  Am I prepared to gamble 80bps?

Let me think about it in the next few hours and update all of you.

My perspective of Janet Yellen’s speech and responses at the Senate/Congress

It’s interesting the whole world was focusing on Janet Yellen’s speech and responses at the Senate Banking Committee on Tuesday and Wednesday.

All the major banks have concluded together with the media that the word, ‘patience’, will be dropped in March and any rate hike if any will happen in June.  Two dates momentarily cast in stone for now.

In my view, jobs creation, employment and unemployment are more important data compared to inflation for Janet Yellen.  Though, recent CPI data suggests low inflation and that the revised 1.7% target rate may not even be hit is a lesser concern, then non farm payrolls and unemployment.

If I study the history of the past Fed chairmans including Greenspan and Bernanke, they usually get ahead of the curve and market expectations.  They don’t like to be dictated by the media.

In the same tone, I believe Yellen will not subject herself to the pressures of the media, which is why her responses to Congress was non committal.

I believe she will pre-empt the markets and raise interest rates earlier than June.

I believe she will surprise the markets by raising rates in May.  As long as non farm payrolls stay above the average of 200,000 and higher, it will give her the confidence to make the decision.

A strong US dollar is not necessarily a bad thing for the United States.  Let’s not forget that the U.S., is a domestic economy and it only exports barely 6% of its GDP.

Therefore, ensuring that employment stays strong and wages bouyant will give Yellen the confidence to raise rates.  High employment and good wages means American can better support consumption which is a main driver of the economy.

I believe inflation is on the rise in the U.S., although it doesnt seem to be manifesting in the data.  Real estate prices are at all time highs and so is the financial markets thanks to cheap liquidity.  However, can it be said that the fundamentals are supporting the real estate market  and financial market?

Let’s see.