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Tag Archives: USD

Deja Vu……….FOMC………BOE….?

As it happened last month with the BOE, market decided to sell off the GBP when BOE announced the rate hike………….the classic rally on rumours and sell on fact.

Of course, in the GBP’s case, the GBP rallied aggressively prior to the rate decision by BOE.

In the case of the US Dollar, it has lost ground to the EUR.  GBP’s weakness is because of the failure of the recent round of Brexit talks between the EU and Theresa May.

The JPY is the reverse with US gaining ground coming up to the FOMC decision. AUD has weakened recently because of the fear of a softening economy.

So how will the US Dollar react on FOMC rate decision day?

Right now, it appears that it can go either way, so it looks like I will be putting on a straddle to capture either direction if and when it happens.

Are we expecting volatility? Yes!

Potentially volatile week…….why……too much noise from FOMC members

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?

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.

 

Update on 2 month EURUSD call option strike 1.2990, BE 1.3175 expiring 21 June 2013

Time for me to do an update on the 2 month EURUSD call option that I  did back on 24 April 2013.  My cost was 185bps and the breakeven was  1.3175, the current spot of 1.2895, appears to be still very far from my  levels.

There is a real possibility that I  may have made a wrong call on this one and then again, I  may not, it’s really hard to say right now.

The tide which was very bullish USD may be turning this week and we might see the return of the bulls for EUR, GBP and AUD.

Mid week is going to be critical, Wednesday is the release of the BOE’s policy minutes, and also Bernanke speak on that day.

Thursday is crucial as fresh numbers on the flash PMIs will be out.

Friday is when Draghi speaks.

My hunch tells me that we will see alot of action and volatility in the latter part of the week, favoring a weaking dollar.