Eurozone Fiscal Problems
27/03/10 23:23
In
Chris Lori's Forex Pro Traders Club and other
commentary we discuss interest rate differentials as
a primary FX driver. This concept is covered in
detail in a video series called
"Inside
the Banks." Yield
differentials are a core part of our long term
strategy trading model.
We look at how yield differentials have moved for EURUSD and USDJPY as part of a broader look at the recent rally in Treasury yields.
In the current environment, we would advise some caution in determining that yield spreads will become a material driver of the FX markets. First, it is unlikely that volatility will remain subdued in light of the Greece crisis and normalisation risks. Bond vigilantes may be ready to come out in droves, but central banks will call their bluff in the current growth environment, leading to significant instability in yields. As such we would position for a general rise in FX volatility. As for yields, we will maintain focus on AUD, NZD and the coordinated positioning of BoC and the FED. The FED first needs to bring the bank rate higher before tightening the OCR.
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We look at how yield differentials have moved for EURUSD and USDJPY as part of a broader look at the recent rally in Treasury yields.
In the current environment, we would advise some caution in determining that yield spreads will become a material driver of the FX markets. First, it is unlikely that volatility will remain subdued in light of the Greece crisis and normalisation risks. Bond vigilantes may be ready to come out in droves, but central banks will call their bluff in the current growth environment, leading to significant instability in yields. As such we would position for a general rise in FX volatility. As for yields, we will maintain focus on AUD, NZD and the coordinated positioning of BoC and the FED. The FED first needs to bring the bank rate higher before tightening the OCR.
Read More...
So, how close are we to intervention?
21/10/09 20:30
It was a pleasure to be involved in the CompassFX
Traders Summit last week. I had just returned from a
trip to Asia the day before, but managed to get
organized to speak at the event. I enjoy dedicating
time to training in this business, but it is
sometimes frustrating. I believe that my
qualifications and extensive institutional experience
in this business can be of tremendous value to those
willing to take on this business with the respect and
the attention it warrants. With respect to persons
new in this business, we call "developing traders,"
we see common patterns. We call it the "Just tell me
where to get in" syndrome. Developing traders run
around aimlessly looking for the magic formula, the
holy grail, the golden goose, the thing that is going
to do the thinking for them so they don't have to
think for themselves. Folks, to succeed over the long
term in this business, it goes much much deeper than
that and requires much more.
To know what is really required to succeed, you can start by viewing my latest webinar on Psychology and Risk and work from there.
Forex Notes
The Eurogroup meeting 'on the euro' Monday yielded very little of substance, but comments outside the forum suggest concern is mounting. As the November G20 approaches, Eurogroup finance ministers are expected to voice their displeasure at current FX levels, and the Eurozone's key policymakers are heading to Asia by year-end to press their case. So, how close are we to intervention? Looking back at the developments which unfolded just prior to the ECB's last foray in markets in 2000, we are probably some distance from that step. Read More...
To know what is really required to succeed, you can start by viewing my latest webinar on Psychology and Risk and work from there.
Forex Notes
The Eurogroup meeting 'on the euro' Monday yielded very little of substance, but comments outside the forum suggest concern is mounting. As the November G20 approaches, Eurogroup finance ministers are expected to voice their displeasure at current FX levels, and the Eurozone's key policymakers are heading to Asia by year-end to press their case. So, how close are we to intervention? Looking back at the developments which unfolded just prior to the ECB's last foray in markets in 2000, we are probably some distance from that step. Read More...
Eurozone economic data did not beat expectations
05/08/09 22:11
Eurozone economic data did not beat expectations as
much as UK data but nevertheless provided some
positive momentum heading into the ECB decision. We
expect the ECB will not change the official rate, but
most important is the press conference for any
signals of potential future policy actions. But we
also think there is a chance the ECB could be more
dovish on balance, wich will pull EUR back.
Despite the recent string of positive data, the ECB decision may be more delicately poised than the market is currently positioned for and the recent breakout in EURUSD above the June high would only increase the ECB's fears that monetary conditions are tightening earlier and at a faster pace than necessary. As EUR strengthens, it puts further pressure on the economic conditions.
The Article IV consultation by the IMF published last week issued several warnings for the Eurozone economy and in particular called for the Governing Council to fully utilise what little margin it still has for rate cuts. It is interesting to note that at every single post-meeting conference, ECB President Trichet stressed that 1% is not the floor in rates, indicating that there is still a body of opinion within the Governing Council which favours further cuts. While we are by no means suggesting that the ECB will administer an unexpected cut, we think at the very least it is possible that the outcome would be more dovish than expected.
Read More...
Despite the recent string of positive data, the ECB decision may be more delicately poised than the market is currently positioned for and the recent breakout in EURUSD above the June high would only increase the ECB's fears that monetary conditions are tightening earlier and at a faster pace than necessary. As EUR strengthens, it puts further pressure on the economic conditions.
The Article IV consultation by the IMF published last week issued several warnings for the Eurozone economy and in particular called for the Governing Council to fully utilise what little margin it still has for rate cuts. It is interesting to note that at every single post-meeting conference, ECB President Trichet stressed that 1% is not the floor in rates, indicating that there is still a body of opinion within the Governing Council which favours further cuts. While we are by no means suggesting that the ECB will administer an unexpected cut, we think at the very least it is possible that the outcome would be more dovish than expected.
Read More...
ECB Widely Expected to Keep Rates on Hold
23/06/09 20:40
The [ECB WEBER] has warned banks that they have to
pass on lower rates of interest to their customers.
Note, the ECB refi rate currently stands at just 1%,
with the most recent cut being seen on May 7th
(-25bp). The ECB are now widely expected to keep
rates on hold for the rest of 2009.This means the
likelihood of QE in the forseable future is
diminishing as EUR rallies.
Yesterday's nervousness serves as a timely reminder that talk of green shoots or even exit strategies for central banks are highly premature. "Greern Shoot's" is well overrated, in my opinion and serves the media cheerleaders feel good slant to maintain viewership and gives them something to talk about. Commodities also slumped and the FOMC now faces the unwelcome prospect of trying to reassure markets that there is still cause for optimism, while only a few weeks ago it was under scrutiny for failing to contain debasement fears in the face of a global economic recovery. The market took notice of the World Bank's downward revisions to global growth yesterday, as the new outlook for a contraction of 2.9% was well below the 1.7% envisaged in March. The World Bank warned that it saw a deeper global economic recession this year and called for more 'bold' policies and coordination. Stay tuned! Most importantly, it noted that the recovery would be 'much more subdued' than normal, and we believe the FOMC will express similar views in its post-meeting statement this week. Read More...
Yesterday's nervousness serves as a timely reminder that talk of green shoots or even exit strategies for central banks are highly premature. "Greern Shoot's" is well overrated, in my opinion and serves the media cheerleaders feel good slant to maintain viewership and gives them something to talk about. Commodities also slumped and the FOMC now faces the unwelcome prospect of trying to reassure markets that there is still cause for optimism, while only a few weeks ago it was under scrutiny for failing to contain debasement fears in the face of a global economic recovery. The market took notice of the World Bank's downward revisions to global growth yesterday, as the new outlook for a contraction of 2.9% was well below the 1.7% envisaged in March. The World Bank warned that it saw a deeper global economic recession this year and called for more 'bold' policies and coordination. Stay tuned! Most importantly, it noted that the recovery would be 'much more subdued' than normal, and we believe the FOMC will express similar views in its post-meeting statement this week. Read More...
ECB Remains on the Fence and Buys Time
14/04/09 19:32
Investors remain cautious after the first financial
institution reported better than expected earnings. A
major US bank holding company announced above
expectation earnings and profits ahead of schedule
and announced it would use the proceeds of a proposed
equity offering to repay the $10bn in TARP funds it
received. Come on folks, read between the lines,
there is a reason they reported ahead of schedule.
Press reports suggest that the government will not
allow any repayment of TARP funds at least until the
conclusion of the stress tests, the results of which
should be available by April 30. But it remains to be
seen how other financial sector earnings release are
viewed in light of the recent change in accounting
guidelines, whether positive results like this are
sustainable and how much more capital raising will be
needed after the conclusion of the stress tests.
Read
More...