Piptopia Video #13
Here's the next Piptopia video:
Understanding the Federal Reserve
A good post is here from the folks at CurrencyTrading.net about interpreting what the Fed says in their statements. If you have ever scratched your head and wondered, "What in the world does that mean?" when you see a statement from the Federal Reserve, this post is for you.
Forex Poster
Our friend Frank Torres made a cool forex poster. You can click on the poster to get one.
Forex Simplified
I've been reading a lot of books lately, so you'll be seeing lots of new book reviews here in the next couple of weeks.
If you are a beginner to Forex, here's the single best book I've ever seen for you. It is the best nuts and bolts forex trading book that you can buy if you are just getting started. I met Marilyn in person at the recent Las Vegas Forex Expo, and she's just as engaging in this book as she is in person. Once again, if you're just getting started out in trading currency, this is a perfect book:
Another Drawing at WinForexStuff.com
The cool website winforexstuff.com is doing another drawing. They even made a video for youtube about it:
I've said it before, but I think the idea is cool. Take a look!
Chopping off the ARMs?
A friend and trader sent me a table of mortgages set to be reset (interest rate adjusted higher) over the next year or so.
Here's the table. The numbers you see are billions. With a B.
I think part of the bailout that the Fed could orchestrate, could include "encouraging" mortgage firms to refi people out of some of these really bad (read: expensive) loans, even if such people are not really credit worthy of a refi. Maybe the Fed lowers interest rates to make this more attractive. But if all these reset, without any intervention, it is going to get ugly.
And maybe it should get ugly. There is an argument to be made against bailing out everyone. We'll talk about that soon.
Millionaire Traders on CNBC
Boris Schlossberg was on CNBC today talking about the cool new book he wrote with Kathy Lien. Here's the video:
http://www.cnbc.com/id/15840232?video=513701492
And click here to get the book:
What if the Fed Does ...
1. If the fed raises rates, that will totally shock the market and the dollar will skyrocket.
2. If the fed cuts rates, no one will think it is a big fat hairy deal.
3. If the fed cuts rates and says "we think the economy sucks" in the statement, the EUR/USD is going to 1.4000 in the next week after.
4. If the fed does not cut rates, Larry Kudlow is going to have a heart attack.
2. If the fed cuts rates, no one will think it is a big fat hairy deal.
3. If the fed cuts rates and says "we think the economy sucks" in the statement, the EUR/USD is going to 1.4000 in the next week after.
4. If the fed does not cut rates, Larry Kudlow is going to have a heart attack.
The Real Fed Funds Rate
The U.S. economy lost 4,000 jobs in August, and that sent the US Dollar reeling against most major currencies on Friday, as traders began to believe that a US interest rate cut would be a lock at the Fed's next meeting in a week.
What's even more interesting to me is that, when poking around the Bloomberg terminal, I looked at the effective Federal Funds rate, which is the base rate which the Fed sets for banks to make overnight loans to each other, and which serves as a benchmark rate for the US economy. This is the rate which Bernanke and crew will make a decision about on September 18. This is the rate that everyone talks about when they talk about the Fed "cutting" or "raising" rates. Anyway, the effective rate, the rate which the Fed is already setting for these overnight loans, already reflects a 25 basis point cut in the rate. Meaning, practically speaking, the Fed has already cut rates. Here's a screen shot that shows, in column "EFF", the actual effective US Fed Funds rate. And this only includes up to September 6. You can click on the image to get a larger version:
If all of this makes no sense to you, keep this in mind: all this talk about what the Fed is going to do, is probably not as constructive as looking at what the Fed has already done.
What's more, speaking economically here, the Fed Funds Futures contracts, traded through the Chicago Board of Trade, are showing a 128% chance of a rate cut at the Fed's next meeting. How it's possible to have a 128% chance of something happening is beyond me, although I can think of a few things which would qualify:
1. Falling asleep during a Presidential debate;
2. Me forgetting to take out the trash before I left for California (this is true);
3. Me hoping that In-N-Out Burger is open when I arrive in California tonight.
All of these things have a 128% chance of happening.
Piptopia Video #12
Another video. This time we talk about forex dealers and Farm Aid. Click below to watch.
What's Driving the Currency Markets Now?
A question from yesterday's webinar (a web-based presentation that we do with charts and stuff):
Rob, what's driving the currency markets right now? What will get the market moving again?
Well, for the last week or so (at least until yesterday), it appeared that nothing at all was driving the market. It seemed that everything had calmed down so much that we were not getting much movement at all. Especially in the JPY-related currency pairs there seems to have been a major stalling point.
This often happens after giant trending moves -- we get a Phoenix Phase (what I call a trend) and then we slip into the Yuma Phase (what I call a garbage/directionless market) for what seems like an eternity. And that's exactly what the EUR/JPY, the GBP/JPY, the AUD/JPY, the CAD/JPY, and the CHF/JPY have been doing. Just sort of larfing around.
What will get the market moving again is more news about interest rates. Here's an overview:
1. The European Central Bank. Stayed pat on their base interest rate at 4%, called the, and I am not making this up, "Main Refinancing Operations Variable Rate." Yesterday's decision might have come as a surprise to some, but here's what a member of the central bank council said yesterday: "We said we were in a process of [raising] adjusting interest rates and I've said that this process hasn't ended yet. Delayed doesn't mean abandoned." What he is saying is that the ECB could actually raise rates at a near-future meeting. The decision yesterday from the ECB sent the Euro moving a bit, finally. Next meeting: October 4.
2. Bank of England. The "Repo Rate" as they call it, stayed at 5.75% in yesterday's decision. The Bank of England also issued a statement that inflation could still be a worry, and that the impact of recent financial problems on the consumer were not yet ascertained. This, like the ECB, looks to be a statement that could even lead to another rate hike in the future. This got things moving a bit yesterday as well. Next meeting: October 4.
3. Bank of Canada. On Wednesday, kept it's "Overnight Rate" steady at 4.5%. Next meeting: October 16.
The big upcoming meetings are:
1. The US Fed. The big question on everyone's mind is whether the Fed is going to lower the base interest rate, the "Fed Funds Rate" to 5%. Of 111 economists surveyed by Bloomberg, the average prediction for the rate at the next meeting is 5%. If the rate is lowered, it's absolutely reasonable to expect a ton of movement in the currency markets -- 200 pip moves within 24 hours, or even less. Next meeting: September 18.
2. The Bank of Japan. The carry trade has been in such turmoil lately that all eyes will be on the Bank of Japan on September 19, when the bank meets to discuss the "Discount Rate", which is currently set to just under .5%. There had been consensus that the Bank would be raising interest rates further this year, but according to one major investment bank, the odds of an increase at the next meeting have fallen to 4%. That's pretty low. If the interest rate is kept low, the carry trade could get a temporary (2-3 month) boost, and we could see the GBP/JPY jump back up into the 240's and the EUR/JPY jump back up into the 160's.
Interest rates, right now, seem to be dominating the conversation and driving the markets. And movement can occur after a major economic report that is strongly tied to inflation (because interest rates are set by most central banks to maintain growth in the economy and contain inflation), or on newly revealed problems in the financial markets, because these economic events lead to further speculation about what the central banks are going to do.
Continue reading "What's Driving the Currency Markets Now?" »
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