post25.1

Forex, Interest Rates, the Fed and Conspiracy Politics

by with No Comment AMT MarketsAssetsFeatured Highlights

Forex, Interest Rates, the Fed and Conspiracy Politics

If you have been looking for road signs regarding what the U.S Federal Reserve is going to do next week and trying to get a feel for its rhetoric which will be delivered in the FOMC Statement on the 3rd of May, this week’s U.S data outcomes should be monitored. And as of now the data might be suggesting the Fed will remain aggressive in June.

post25.1

GBP/USD One Month Chart

A Fed Funds Rate hike is going to happen on the 3rd of May unless there is a financial catastrophe that suddenly emerges that is nearly cataclysmic. While First Republic Bank wobbling is certainly a problem (Mark Zuckerberg is supposedly a rather large client of the bank), if this entity fails completely it may not cause massive bedlam. The stock has dropped violently, so a collapse should not be a surprise. No, it will not be welcome, but it should not be an unexpected calamity.

The question is how much the U.S government will protect depositors? The large clients who are not insured above the standard 250k USD ratio will want the same benefits that clients of Silicon Valley Bank received in March. Should they be rewarded the same way? The American public may not like the idea of another bailout for the deep pocketed, but there may not be much they can do about it, except to vote the politicians out, but who do you exactly punish?

post25.2

First Republic Bank – One Month Chart as of 27th April 2023

What a collapse of First Republic Bank will do is hurt the corporate bond sector in banking again, because it is likely holders of these bonds will be put at the back of the line once again if the U.S government decides to protect big depositors of millions of dollars like Zuckerberg, before it protects bond holders.

U.S Data in Focus and the Allure of a Black Dress with Growth

But I digress, yesterday’s Core Durable Goods Orders statistics came in better than expected. Today Advance GDP will come from the U.S and if this number produces an increase instead of a downturn, the U.S Federal Reserve will have more ammunition to remain aggressive regarding interest rate hike rhetoric. An increase of 0.25% has been calculated into Forex for next week. The USD has done rather well recently, but what is of intrigue is the perception the USD is doing well after the financial markets have seemingly priced in a rate hike on the 3rd of May. Meaning, typically the USD would have started to ebb a bit lower after financial houses put their interest rate outlook into their Forex positions. Yesterday’s better than expected Core Durable Goods Orders leaves the door open for another hike on June the 14th to be precise.

While Core Durable Goods Orders isn’t a sexy statistic, GDP numbers frequently are, and if the growth numbers show up with a stunning black dress on with alluring ‘expansion’ it could send large speculators into a tizzy and make them believe the Fed could increase by another quarter of a point in June. The Fed during its FOMC Statement next week will certainly try to help financial institutions anticipate outlook. The Fed doesn’t need to hold the hand of investors, but it often treats them like children.

Financial houses had largely believed the Fed would hike in May and might raise in June. The notion that a June increase is certain would then put the focus back on the long-term again, and Forex could then break free of its rather consolidated incremental USD strength seen the past couple of weeks. Inflation remains a drum beat that is steady. And while today’s GDP numbers will be important. Tomorrow PCE inflation statistics will be the final nail in the coffin. If growth is stronger than expected today, and inflation numbers remain stubborn tomorrow, the Fed would certainly consider another June increase valid.

On the bright side for day traders is that the cautious choppy air which has circulated the past couple of weeks in Forex is almost done. While steady trends may not reappear for a while, at least near-term outlook will have more clarity by this time next week.

Big Institutions Have Long Term Outlooks and Treat Trading Conditions Differently

Long term outlook is another game as day traders should know and one they cannot easily participate. Long term investors have the money to specialize in assets which are not expecting profits today, but instead have a larger time frame for making money. Deep pockets, patience and the need for less leverage help financial institutions trade in a more stable manner, frequently putting the ‘odds’ in their favor.

The price of Crude Oil is actually behaving politely in recent trading, and its ability to find a mid 70.00’s USD price range is interesting and may help inflation move lower if it can be sustained. If supply of goods can adequately stabilize and global logistics costs come down, inflation could decrease. These factors are part of the long term perspective of financial institutions. Day traders may want to consider this because it could affect behavioral sentiment moving forward.

Higher interest rates from the Fed are causing other currencies to loss value and this has caused increased costs for international manufacturing companies located outside the U.S which frequently have to buy commodities in USD from their converted domestic currencies, this causes inflation. This is a factor not spoken about enough and traders need to consider this within their perspectives too.

The Fed and Perhaps a Conspiracy Theory

If the Fed actually starts to decrease its interest rates, it would help other currencies stabilize. And yes, if the Fed stops increasing interest rates it may actually help weaken global inflation. The Fed has caused import inflation to occur into the U.S. Are they aware of that? It is a good question. The likelihood is a yes, and it has been disregarded, but why? Perhaps there is another reason; does the U.S Fed and U.S government want to cause inflation globally to strike politically at some competitors? This is a different topic………kind of. Conspiracy theory.

While insight regarding the dialogues between the Federal Reserve and U.S government is certainly above my pay grade, one has to wonder about considerations regarding inflation and a stronger USD and its potential effect on China. The Fed increases may be a way of trying to inflict harm economically and in a subtle manner, but this cannot be proven. Perhaps the Fed is unaware of the global conflict being waged.

On another note, Gold remains near 2000.00 an ounce – almost steadily, displaying a certain amount of cautious behavior.

post25.3

Gold One Month Chart

post22

Quick Thoughts for Friday 21st April

by with No Comment AMT MarketsAssetsFeatured Highlights

Quick Thoughts for Friday 21st April

It appears the broad financial markets are producing rather cautious price ranges which day traders should be wary of and this could continue until the 3rd of May. The Federal Reserve will release its FOMC Statement and Federal Funds Rate on Wednesday the 3rd of May. It is likely a quarter of a basis point will be added then, meaning an increase of another 0.25%. The worry for financial institutions is the potential for another Federal Funds hike in June and unease regarding the possible move.

Choppy markets are also happening because of a lack of major U.S economic data the past few days, which has created an air of uncertainty and undefined trends in many assets.

The difficulty of finding a defined trend for day traders can cause them to get eaten alive. Skittish conditions are not good for a majority of retail Forex and CFD traders – and plays into the fact 90% of retail speculators are eventually wiped out. An absence of deep pockets to withstand volatility because leverage is being used too excessively, and an inability to digest overnight ‘carrying charges’ which must be factored in too as ‘costs of trading’ also causes money to disappear – although your broker might try to ‘sell’ this as part of your learning curve while they try to convince you to trade again.

Next week the U.S will see the CB Consumer Confidence report on Tuesday the 25th of April, Thursday will have Advanced GDP and Friday will finish with inflation data. However, it is the week afterwards which is already a large focus. Yes, corporate earnings are being published today and in the coming week too, but many eyes are on the U.S Federal Reserve. Clarity on interest rates is what is desired.

post22

Gold price the past month of trading as of 21st of April 2023

If you are looking for evidence regarding what ‘smart money’ may be doing, it should be noted the price of Gold remains hovering around 2000.00 USD per ounce. Suddenly the price of Gold has become almost calm, please do not expect this to continue. The rather tight and ‘high’ price range of the precious metal is a potential sign that financial folks still believe that the U.S Fed may remain semi-aggressive in the mid-term, while ‘hoping’ over the long-term lower interest rates are coming.

As traders should know by now, nothing is guaranteed. Trying to understand behavioral sentiment helps.

post17

Angry Voters and the Federal Reserve

by with No Comment Federal Reserve, Interest RatesForexRisk Analysis

Angry Voters and the Federal Reserve

Federal Reserve Chairman Jerome Powell is scheduled to testify before the U.S Senate tomorrow. Certainly we are going to hear the words inflation and growth mentioned, this as the Fed Chairman speaks about monetary policy and the trajectory for the U.S central bank to continue raising interest rates over the mid-term.

Via prices in the Forex market since the start of February, financial houses have likely priced in two additional interest rate hikes from the U.S central bank into the USD, one of them being a quarter of a point increase coming on the 22nd of March. The USD has been mostly stronger across the board the past four weeks. This week’s coming Non-Farm Employment Change numbers and Average Hourly Earnings data results should be monitored on Friday.

post17

USD Index One Month Chart

While financial houses may have accepted the interest rates to come, this doesn’t change the rather complex economic data in the U.S which is demonstrating rather stubborn inflation, while also showing growth is not slowing down as much as has been anticipated. GDP numbers reported recently from the States showed only a slight decrease.

  • How much more can the U.S Federal Reserve increase interest rates over the next six months without making the USD too strong?

  • At what point will the Fed become less aggressive?

  • While an additional .50% has been ‘accepted’ by financial institutions, will the Fed bring the lending rate to 5.50%?

  • High inflation and limited growth could result in political quicksand for many elected officials.

The U.S Federal Reserve is going to get pressure from both sides of the aisle in Washington D.C.. Traders should not discount their perceptions that elected officials are starting to consider the ramifications of the coming elections in a year and half, because this will affect behavioral sentiment in the markets. Neither Democrats or Republicans will be happy if inflation remains a problem going into the vote. Rising costs equal less money in the bank accounts of American voters.

The U.S public has a history of voting via sentiment generated from their wallets and the power to consume. Prices that feel like they are out of control will win no friends. While energy prices seem to have calmed down in the headlines, energy costs remain a risk and concern for manufacturers worldwide. The inability to save money for individuals, and lack of profits for corporations makes for potentially angry voting results.

There is an additional problem lurking. The strong USD driven by the Federal Reserve’s increased borrowing costs, the Federal Funds Rate, has weakened currencies across the world. Vulnerable currencies have spurred inflation in many nations which are producers of goods that global consumers buy, these rising prices are being imported into the U.S economy.

As much as international economic integration helps the world, the rise of coronavirus and its knock-on affects via costs were not anticipated enough, causing weaknesses to be exposed. The U.S attempted to save its skin economically by creating a massive amount of stimulus, which certainly fueled domestic inflation. The U.S might have saved the American public in the short-term, but the government faces a long climb upwards to fix the problems overspending has caused.

The rising costs of logistics and the spotty supply of commodities internationally generated higher prices in the aftermath of coronavirus. Commodity prices have become more tranquil, but the costs of production has not eased because weaker currencies globally are hurting producers who need to use the USD to purchase resources. The U.S Federal Reserve’s attempt to tackle inflation with higher interest rates, has fueled ‘import’ inflation. This is not an easy problem to solve.

The Fed will not say in public they want the U.S economy to slow down, this acknowledgement would costs jobs which rely on political backing. The White House certainly doesn’t want the economy to suffer as it prepares for an election within a year and a half, but quietly officials likely accept slower growth and perhaps recession may become inevitable. Both the Fed and elected officials are performing a delicate dance that may be interrupted any moment.

The Fed doesn’t want us to remember they said inflation would prove transitory almost two years ago. The Fed needs to fight rising costs certainly, but very carefully. The desire to weaken inflation is correct but a dangerous balancing act, because the USD remains the global reserve currency.