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Friday Barometer Regarding the BoE Decision and Gold Prices

by with No Comment AMT MarketsAssetsFeatured Highlights

Friday Barometer Regarding the BoE Decision and Gold Prices

The Bank of England’s rate hike of 0.50% cements the notion that global central banks remain steadfastly locked on inflation, and understand politically the implications on the public regarding higher consumer prices which are being experienced. The Bank of England ‘met’ before its Official Bank Rate announcement with corporate bank executives it was whispered, to discuss their concerns regarding the knock on affects of higher mortgage rates to come. However, this did not stop the BoE from being aggressive.

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GBP/USD Three Month Chart as of 23rd June 2023

Is the BoE Move a Sign Regarding the Fed’s Next Decision?

The move by the BoE also is intriguing because the larger than expected hike puts into play the notion the U.S Fed may be raising the Federal Funds Rate in July. The reasoning is based on the idea the Bank of England wants to protect the British Pound from another interest rate hike from the Fed, thus ‘securing’ the value of GBP/USD Forex mechanics.

The U.S Federal Reserve, the BoE and ECB finally seem to have a grasp on import inflation implications. Although higher costs and dynamic pressures on exporting countries like China, India and others that face the gauntlet of these challenges remains critical, because these nations need to raise the costs of manufactured goods internationally when they sell.

Smart Money and the Value of Gold

Let’s talk about ‘smart money’ for a moment surrounding Gold – and please try to hold down your laughter – but the price of the precious metal is interesting and should be monitored even by folks who do not trade the commodity. Gold as of this morning is near the 1915.00 USD ratio.

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Gold Six Month Chart as of 23rd June 2022

On the 4th of May the price of the precious metal momentarily challenged the 2080.00 level. On the 1st of June the price of the commodity was near 1985.00. Do you see a trend here? Please note, Gold isn’t going to zero.

The point to be made is that the build up in the price of the precious metal from the 22nd of November 2022 when Gold was around the 1625.00 USD per ounce level, until early May anticipated the U.S Federal Reserve was going to become more dovish regarding their interest rate polkicy. For consideration look at the price of the USD during this time too, against many major currencies – the value of the USD also started to come down.

‘Smart money’ is showing signs of nervousness certainly since the start of June that more hikes are feared from the Federal Reserve. However, the price of Gold and the USD are not correlating well at this moment. This is a potential sign that Gold and the USD are both within speculative trading zones in which financial institutions are seeking ‘true’ equilibrium and are not comfortable. Fragility in the financial marketplace is likely to be seen until the Federal Reserve Federal Funds Rate announcement late in July. Expect financial institutions to price in their outlooks respectively depending on their outlooks.

Gold and U.S Treasuries: Inverted Interest Rate Implications

Gold definitely fluctuates within daily trading conditions, it is a speculative commodity, but it is also a solid barometer of risk management among the elite. If financial institutions are in favor of buying items like U.S bonds because of their guaranteed short term interest payments (look at the fact U.S Treasuries are mostly inverted – meaning shorter term bond interest rates are paying higher returns compared to longer term bonds) instead of buying Gold as an investment tool.

The Gold and USD Forex dynamics tells us that investment institutions are still very nervous about the Fed potentially raising interest rates a couple of more times this year. July and late this year appear to be reasonable bets. This Fed consideration and concern remains legitimate while looking forward as long as inflation remains elevated in the U.S. However, the Federal Reserve must also feel comfortable they will not kill mid and small sized banks, which by now should have shifted their business practices allowing for slightly higher interest rates to be delivered.

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Anticipated Federal Reserve Shop Talk to be Delivered Today

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Anticipated Federal Reserve Shop Talk to be Delivered Today

For what it’s worth, here is my prediction regarding what the Federal Reserve will do today. The Federal Funds Rate will remain unchanged in my opinion. The FOMC Statement may show that the vote actually was debated and not unanimous. The statement is likely to warn that inflation remains stubborn and potentially problematic, meaning the Federal Reserve continues to believe it may have to raise the Federal Funds Rate over the mid-term and again before the end of 2023.

The Forex market has seen the USD get weaker against many major currencies since late May. While financial institutions have seemingly positioned for no increase from the Federal Reserve today, this move has also likely been priced into Forex. Day traders need to understand institutional traders will not be betting on what took place the last three weeks, but are trying to anticipate what will happen into early July and beyond regarding their Forex positions.

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GBP/USD One Month Chart as of the 14th June 2023

Many financial institutions may still be betting the Fed will remain more dovish than the U.S central bank wants to admit, but this is a dangerous perception and could prove costly. Financial institutions are concerned about the Fed because they know the central bank has painted itself into a corner it may not be able to maneuver freely within. The battle to conquer inflation while trying to fuel economic growth is not an easy one. Mixed sentiment abounds regarding the U.S economy depending on who is asked.

Talk of a soft landing and a small recession continues to be heard, this while some analysts warn about a hard drop and darker days ahead. Folks, it is all about timelines and their interpretations, experts warning about brighter or darker days ahead have a tendency to be vague regarding exact moments in time. Everyone has an opinion, and people often have more than one.

In my opinion – my one opinion, the Fed is likely to say that it is not going to raise rates today, but may have to do so in the mid-term. If these were normal times and economic conditions were not suffering from huge spending running amok in Washington and the corporate banking sector wasn’t fragile, the Fed may actually have raised the Federal Funds Rate today to continue to battle inflation deliberately. However, a pause for the moment seems like the logical choice, this while ‘hoping’ inflation continues to diminish. And hope is a key word here. Everyone seems to be hoping. The question financial houses and traders need to decide after the FOMC Statement takes place today is how seriously do they consider the Fed’s remarks.

If they believe the Fed will have to continue to remain neutral regarding its mid and long-term interest rate policy, the USD may soften and incremental selling might be demonstrated. Human instinct tends to be optimistic, which means financial institutions and maybe even the Fed wants to believe inflation will ebb lower. If this happens the USD would weaken further. However, the Fed may have to sound more aggressive than people want, but that would damper the mood of financial institutions – so look for optimistic interpretations to abound with rose colored glasses, even if they are wrong in the long-term.

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Gold One Month Chart as of the 14th June 2023

For evidence of outside barometers, traders may want to look at Gold which has essentially traded between 1940.00 and 1975.00 with a few outliers since the last week in May. The price of Gold has seemingly situated within a consolidated framework the past few weeks. The precious metal may produce a strong move if the Fed shows more dovish behavior today, particularly if financial institutions show more optimism via behavioral sentiment in Forex – meaning if a weaker USD trend continues momentarily Gold could traverse higher.

My prediction and $1.00 USD may get you on a bus. As always caution will be needed if you are trading immediately before and after the U.S Federal Reserve’s rate decision. I advise using a seat belt today consisting of entry price, stop loss and take profit orders via solid risk management, but then again these cautious attitudes should always be practiced by day traders.

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USD/INR: Elevated Range as Questions about Values Persists

by with No Comment AMT MarketsCentral BanksFeatured Highlights

USD/INR: Elevated Range as Questions about Values Persists

The USD/INR has traded the past week approximately between the 82.2200 and 82.7000 ratios. Plenty of discussion regarding what the Reserve Bank of India has been doing as they battle the strong USD has been whispered openly, and is being questioned from financial institutions and speculators. Day traders who have been trying to wager on the value of the Indian Rupee have likely found the waters difficult to swim. As of this writing the USD/INR is near 82.5200.

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USD/INR Three Month Chart as of 8th June 2023

Last Wednesday’s sudden rhetoric, from two U.S Federal Reserve officials caused mayhem briefly within the USD/INR. The currency pair got hit after India’s official trading hours closed, and essentially moved in overseas accounts based on the spoken words from the two Fed members stating the U.S central bank should not raise the Federal Funds Rate on the 14th of June. These sudden Forex moves hurt many USD/INR speculators. After this rhetoric from the two well-regarded FOMC members, like clockwork U.S economic data provided a counter punch last Friday with better than anticipated Non-Farm Employment Change numbers, this while inflation results also remained persistent.

Three Month View of the USD/INR offers Sentiment Insights and perhaps Clues

The past three months of trading in the USD/INR have produced a rather rocky price trend. A low of nearly 81.5200 was seen on the 14th of April, which turned into a high of approximately 82.9000 on the 19th of May. Intriguingly while many USD/INR speculators may be looking at the U.S Federal Reserve and casting blame, questioning the potential interventions by the Reserve Bank of India remains relevant. The Reserve Bank of India has actually been rather tranquil regarding its use of interest rate hikes; it has not raised the key lending rate aggressively in India like many of its major global counterparts. Why is this?

Is there a potential the Reserve Bank of India and the government has wanted the Indian Rupee to get weaker? Deflating the Indian Rupee’s value in order to potentially create an unseen tax is considered an old trick by economists. This because some believe inflation is a way to tax people without actually raising interest rates, the deflated value of a currency makes it easier for governments to sometimes repay debt, based on the notion the money they are now using is cheaper compared to when the Indian Rupee’s value was better.

Where is the USD/INR Going to Go Next?

I am no economist; my specialty tends to be risk analysis. There is an old joke, ‘why did god create economists? To make weathermen look good.’ The point is that economists often get their outlooks wrong, but we cannot blame only economists for getting their outlooks wrong, many of us do. The USD/INR has a tough few days ahead, it must deal with nervous market sentiment generated from a lack of clarity via the U.S Federal Reserve. Looking for correlations in the Forex market is proving difficult for the moment for all short-term speculators. Choppy trading in the USD/INR has been noticeable the past few days, this Monday’s upwards trend has turned into near-term consolidated day trading. Other major currency pairs are turning in rather turbulent results also without a firm technical stance.

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Gold Three Month Chart as of 8th of June 2023

After speaking with many associates in the financial sector the past week, it appears many people believe the Fed should stop raising interest rates for the time being. Some financial institutions seem to be leaning in this direction, but there are caution signs all over that warn about potential surprises from the U.S Federal Reserve.

Yesterday the Bank of Canada raised its Overnight Rate by another 0.25%, when most analysts believed they would pause. Another interesting sign is the current price of Gold near 1950.00. The recent lower price could indicate some financial houses believe the Federal Reserve may actually remain active regarding further interest rate hikes, this because the price of Gold has tended to rise when the perception existed the Federal Reserve is going to be dovish. Gold’s downward price action should raise suspicious eyebrows.

But then again, I am not an economist; I am merely a risk analyst. So my words to you are, be careful if you are wagering on the USD/INR before the U.S Federal Reserve’s pronouncements next Wednesday on the 14th of June.

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Risk Friday: To Freeze or Reduce is not the Correct Question

by with No Comment AMT MarketsBusinessFeatured Highlights

Risk Friday: To Freeze or Reduce is not the Correct Question

The U.S debt ceiling debate in actuality, is a vote to legally increase the amount of debt the U.S government can spend. Approval of the debt ceiling vote will give a green light to the government to be a larger debtor without consequence. Other than eventually not being able to pay its bills in the future, what’s the problem some might ask. And let’s not consider potential downgrades from S&P, Fitch Ratings and others for the moment.

Here are the Problems Ahead for the U.S

U.S debt dominoes have grown heavy and are getting harder to stand back up, but those with the ability to spend simply do not care because they will never be held responsible. The U.S government seems to have forsaken capitalism and have entered the plundering stage, where the government believes it can ‘find’ enough revenues from higher taxes and the selling of long-term Treasury bonds while remaining the big man on campus.

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Gold Five Years Chart as of 26 May 2023

Higher taxes frequently stymie businesses and make it harder to hire employees because the expenses become too big. As an example for what the future could look like in the States turn your eyes to Chicago, where elected city leadership is considering implementing a ‘head tax’ in which businesses would need to pay a fee on each person it employs. The tax situation is getting so ridiculous in Chicago, that long time economic juggernauts like the Chicago Mercantile Exchange are grumbling and threatening to leave because of “ill-conceived” policies.

Likewise, the U.S government seemingly doesn’t understand that spending cannot be replenished by tax collection alone. Actual cuts to spending need to take place. It is called reducing the deficit. The naive will eventually be made to see the light painfully.

The Ramifications for the U.S could be Economically Untenable

U.S interest rates which have been raised the past year and a half, have affected mid and small sized banks and the amount of money the U.S government has to pay on maturing bonds because of higher borrowing costs. Fitch Ratings has recently whispered publicly they may be forced to downgrade U.S debt offerings, this if the U.S government doesn’t increase the amount of money it is legally allowed to owe. Pause for a second here, do you see the absurdity in this clown show? In other words a rating service company is OK with the debtor being allowed to ‘borrow’ more money from itself that it does not have – in order for that same debtor to be allowed to ‘promise’ it can repay its debt at a later time.

The U.S government keeps allowing debts to grow and creating entitlements as if this has no effect on inflation. Quantitative easing and stimulus packages initiated by the U.S government artificially kept the Gross Domestic Product figures looking positive and the equity markets happy for more than a handful of years. However, the proverbial ‘can’ has been kicked down the road so many times it is ready to disintegrate. The debt problem is simply being passed down to the children and grandchildren of the U.S, or so the current leadership seems to hope. But what if the debt problem explodes now? This generational problem is systematic globally, other governments practice equally bad or worse fiscal policy. Politicians do not like to walk around with empty hands.

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USD Index Five Years Chart as of 26 May 2023

The Clock is Ticking Loudly and Some Investors are Paying Attention

The clock is ticking in the U.S and unless they can prove expenses can be managed better, they are on a perilous road to becoming a regular nation among others, that is looked upon with scorn and derision because they cannot pay their debts. The dominance of the USD will be punished and shattered if they do not stop the nonsense. The dollar’s status as the reserve currency of the world has been slipping incrementally for a couple of decades and this will continue if the U.S government does not seize the problem and find solutions. A failure to show budgetary sanity and decrease expenditures will eventually cause something many U.S citizens do not want, relegation to the status of a ‘regular’ nation. The attitude of, “I remember when” could become a refrain heard in the U.S sooner rather than later.

The U.S is in a precarious place and sunshine in many respects is not on the horizon. Financial institutions supposedly believe the U.S debt ceiling will be taken care of in the coming days or weeks. However, a debt ceiling agreement is not the correct bandage for a broken leg, the problem is much larger. Debt should not be allowed to continuously grow. If the situation gets worse, some nations sitting on the geopolitical fence may shift their alliances depending on the ability of mutual relationships to help deliver economic stability.