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Posts Tagged ‘Fed’

bernanke-helicopter.jpg The scoop on the Fed is that they lowered rates 0.50% and said more were to come. Obviously that is bearish for the dollar and can be bullish for carry trades too since it is a balm for economic pain. Were it so simple to “fix” economies. Yesterday afternoon U.S. stocks sunk as bad news came out about some bond insurers – more weakness in the financial sector.

So now the big “event” (Fed) is out of the way and what are we left with? Carry pairs and others which benefit from growth are at resistance. You’d think the Fed could have obliged by being more hawkish to help a pair out!

Case in point, two pairs we’ve looked at lately: AUD/JPY and EUR/USD. My opinion on which way they’ll go? Down, following continuing economic weakness. But, opinions are irrelevant (and often wrong, the world is complex) and we follow that which we see happens.

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The Fed disappointeth

danger_of_death.gif     They simply did not drop rates quite as much as many were hoping, today.

    This hit the carry trade hard. The yen and franc rebounded, as did bonds. Part of this is surely the disappointment that the Fed isn’t doing “more” to help the U.S. economy. Worry over the U.S. economy, stocks going down, is sending shivers down the spines of most other currencies.

    Of all the down days this month, this is one to be reckoned with. With no other rate-drop “hopiums” what more can investors expect to buoy carries (beside the famous Santa Claus rally)?

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shaysworthy2.jpg     If you missed out on yesterday’s audio commentary, tune to listen to special guest Todd Granthem to talk about trading the current volatility in the markets.

 

    Today, we are discussing the implications of the non-farm payroll numbers and what it means for the Fed and your currency trades. Successful Trading.

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Jim Rogers is a bit odd (sorry Jim) in some ways, but a pretty sharp crayon when it comes to the markets. First off, I apologize about the crappy quality of this video, I think someone filmed their TV, yuck. But, it is timely since it is from yesterday, and he has some pretty interesting things to say about the markets. He also admits he is “horrible” at market timing, so fear not if you have some trades that have gone bad and think you’ll “never make it”!

This discussion started when some of us coaches emailed about Jim. A month ago Jim said he was selling USD, but with this caveat toward the end of an interview:

If anything, if I were a good trader, I would probably buy the dollar, because it’s probably going to have a rally. But when it rallies, I would suggest you get out of dollars.

And sure enough, Edward Goettig (one of the coaches) said Jim said yesterday that he is buying dollars, until the dollar stops rallying whereupon he’ll sell them again. I totally agree with his posture and have been thinking the same thing. Anyway, the interview:

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don_kohn.jpg    The Fed (VP Donald Kohn) said today that they would be using

 

“(these uncertainties require) flexible and pragmatic policymaking — nimble is the adjective I used a few weeks ago.”

and carry trades got a shot in the arm as stocks jumped – no matter that durable goods and housing data came in wimpy, all is well apparently(!)

    The test will be if good fundamental (economic) news comes in to support this. Investors shall not live on rate cuts alone.

    Read the whole thing here if you are bored tonight and can’t sleep.

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dollarsmoking.jpg A student emailed in and asked:

Hey Michael – I was just curious, why did the $DXY take such a dive yesterday? I’m still trying to keep straight what moves with/leads/follows what.

The $DXY is the dollar index. Basically, an average price of the dollar versus many major currencies, not just the euro, pound, etc. It’s just another way of looking at the dollar, but broader. Here was my reply, so here’s a heads up on the buck this morning:

The big one was that a Chinese politician said some USD negative comments last night. They were to the effect that China needs to get the heck out of the dollar.

Also I think I read somewhere that the Fed’s Lacker was more dovish in the last voting than people anticipated, a ratings agency downgraded U.S. bond insurers which causes a fresh wave of financial panic and there was a news article today that said George Soros (famous money manager) and Alan Greenspan said that the U.S. is in a worse position that the Fed will admit.

To read more of this story of the dollar debacle, the latest in a series and of more to come, read here. That sweet tinder smell you smell is the dollar going up in smoke.

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Stocks cratered in today with a resounding thump as investors got thinking about no more rate cuts (per interpretation of the announcement.)

It looks like they may be making lower highs and lows – the Zig Zag indicator is trying to show that objectively. For sure the uptrend is interrupted again.  We’ve talked here about stocks hitting long term resistance before.

The interesting thing is that stocks are only now struggling at resistance, while the GBP/JPY we looked at is already at a resistance level.  Sort of scary if the leader (stocks) are late to the party.

stocks.jpg

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