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Archive for the ‘zentralnotenbank’ Category

“oh no, major NFP miss… US periph economies are going to be hit hard!” (buy above 13)

“wait, there’s going to be a helicopter drop soon… tuesday perhaps?” (sell back to 12.95)

… where the reaction should have been something more akin to inverse usdjpy…

 

good thing i stayed out… except a small sell entry EURUSD at 1.27655. Reason? Just putting some on red which is probably going to close out against me.

To the best of good buys

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In addition to British GDP having major event risk on those remarkable GBPUSD and GBPAUD, the FOMC is once again going to announce rates for the 3rd time this year. I can’t seem to find the post for March’s meeting (this was it… I think), but here are the minutes as well. Overall, last month’s showed more on-track recovery, which had the greatest effect on knocking the wind out of yen.

For the last meeting’s pre-announcement look, EURUSD and AUDUSD offered relatively good indications of direction. However with the tight range on both pairs, commodity charts once again give us the best outlook. I would like to pull up yields, but no bloomy…

Also, watch USDJPY as we are bouncing against a very steep tenkan-sen. Very steep, as in 84.000 by the end of the week. However, any chance of a crack and that will turn into 79.500s by about the same time.

Silver, descending channel.

Gold, also descending channel. Gold charts offer a bit more of a worry since prices have stopped at the external fib. 1 day upside seems to be 1660, while downside almost certainly means at least a retest of 1616. Downside slightly outweighs upside.

I can’t trade this, but I’d put in 1 entry right now, 3 at 1660 and then hold at least into mid-May as the bottom of the cloud descends to 1650.

So metals are showing more downside potential than upside. Will the Fed overlook moderately weaker data in the last month and attribute them to a natural breath of air before full-recovery sets in? Whatever the case, the rhetoric for additional easing should be subsiding. The last few European bond auctions have been somewhat optimistic, depending on how you read it.

Unloading some EURUSD exposure and putting it in EURCAD…

To the best of good buys.

 

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We start with the below post here and this picture. Replace the 30 with 10 and it’s still pretty much the same thing..

 

… and a return to the thesis that the Fed (especially with its current board and situation) is a growth-fostering, not a price stability central bank. This, and the fact that recent manufacturing and consumer confidence data have been dampened by the increase in energy prices further the possibility that instead of keeping prices under control, will further try to ease or in our case, talk down rates. This provides us with a perfect opportunity to trade what the fed is seeing (the recent jump in yields ripe for a reversal). We just have to pick the optimal pair.

Also, if history teaches us anything about the (independent-HAHA) central bank, it will try to keep yields low to not bankrupt the treasury. Not a strong point, but nevertheless a thought…

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Because our pair finding ultimately comes down to the performance of each country’s yields and spreads against the expected lower US yields, let’s start with a simple correlation of selected pairs first. Note EURUSD is out of the mix because the European debt market is very interesting… and quite crowded

oooh let’s clean that up a bit…

So with monthly correlations since mid-Jan (the start of the shift from risk to rates), we see that AUDUSD, USDSEK, and the very well-expected USDJPY making the short list.

For the sake of efficiency, simplicity and time, we will focus on these three pairs. Fundamentally, these pairs represent the overall FX market quite well, with AUDUSD a leveraged proxy of Chinese economic growth, USDSEK for European commerce, and USDJPY the raw play on just US yields. Also, none of these have negative intervention risks… yet…

Here’s a better view of the spreads so far and FX.

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So what will be the best pair to carry this order? Because the current err… bias is for US rates to come down this week, the most opportune pair will have best rate growth (for various reasons) expectations. Luckily, there is Credit Suisse’s Central Bank rate hike index/CSSTs based on overnight swaps (OIS). This index is awesome.

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arrrrgh can’t finish this… must sleep…. Here’s what I have of the charts so far, and I’ll finish the rest tomorrow. I wouldn’t buy any higher yielders against yen. That’s all, really, and keep watching dips to buy risk against dollars. TreasYields

To the best of good buys.

 

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This is what they said in January, and this is what they said at this meeting. It seems that the Fed finally realizes the effects of energy and food inflation, especially after rounds of ease that saw gasoline jump 50c within the last month and effectively stopped my rotary zoom-zoom.

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Never minding what the past was, the fed is finally recognizing that the US economy is recovering. Pull out any ISMP/ADIA graph and it clearly shows even at the zero lower bound (questionable where we are) this kind of combined easing and domestically driven demand will start to put pressures on inflation. –>IS/AD is shifting outwards, and thus eventual tighter rates to cope with inflation.

Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

Withholding the possibility of rapid rate increases, the fed is shifting less and less on dovishness in order to foster maximum output, and instead watching inflation rates to keep it in balance with overall growth. Having read what Helicopter (no longer Ctrl-P) Ben has written during his tenure as a professor, I understand that he is still weary of raising rates too fast and crushing out investment and overall credit. Hence with regards with the 2014 promise, I expected the bank to keep it to the day, though give up more and more indications that prices will have to be watched.

So with the expectations of a rate hike in the future, what do we buy the dollar against?

Also, there’s a major HS pattern on EURUSD…. if we break, we target 1.26xx… looking for another entry point.

And errr… the rate driven yen

To the best of good buys.

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Writing¬† a few thoughts down right now and will expand on it tomorrow. Even though there’s no QE IV directly into the economy and tanking the dollar, we might have a slow grind back to the old levels.

What the fed has done today , at least on a trading perspective, is give a license to use the dollar for even more carries. We now have an exceptionally dovish (more than before since that was until 2013). That, according to the research I’m still doing, should help domestic investment, but only moderately. Until we’re actually at 2014, there’s not going to be that one large big push for loans which will effectively seal the “recovery” period and put us back on the normal path.

With the fed’s license for a slow dollar carry usage again, I’m switching positions again to high yielders, especially the Nordics again. Why, you ask? I don’t really know, although in the back of my mind I should have bought Kiwis due to the still positive interest rate expectation/OISs.

On a numismatic side, I’m continuing to sell me dollar-denominated banknotes and switching it over to bullion and rare silver coins, tracking inflation and inverse dollar.

It’s not going to be quick like risk movements. Those will still be dollar beneficial, but I’m repositioning trades to be anti-dollar again… starting with a short USDNOK. Europe needs its brent from somewhere…

Here’s what I’m holding. Yes, the EURSEK is still the focus. I understand that’s bad but at least my margin can still hold it and it’s still within my risk ratios.

Will have a bit more commentary tomorrow… including on a numismatic viewpoint.

To the best of good buys.

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FOMC Rate Projections

In the interest of transparency, the Fed has tried to be the Riksbank by putting out interest rate projections. There is definitely an effect on the economy – a few charts I’m working on – as there is a relative pickup in investment spending before a hike in the rates. There might be a causation error, but when expectations are put out before the effective change, there is definitely a lead between those rates and investment spending.

So here’s the chart everyone’s waiting for, and the pdf from the Fed. fomcprojtabl20120125

No foreseeable change until 2014 while trying to maintain around 2% inflation? Either the bank has to raise rates early or the European debt crisis and the continued unwinding will roll on for quite a bit longer than we expect.

Let’s see what Bernanke says. Remember every time he opened his mouth before for the past 3 (now 3?) times, the dollar has dropped. Must be something about seeing green shoots, but not wanting to step on the recovery and thus still having the low rates.

Good thing Lacker is there trying to protect the savings of the regular American. Don’t know about risk, but I’m redirecting funds from banknotes (tradable) to coins (inflation hedge, plus somewhat more stable.)

To the best of good buys.

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