I scratched that USD Cad. Going to let it settle out. Looks like market trying to decide USD bullish or bearish here. May lead to more chop before trend resumes.
Yeah I sold it at 1.1559. Watched as USD Cad took off above 50, but didn't want to reenter based on time of day and the potential for Cad to be choppy. So I sold EUR. Cad still weaker though.
Flat. Going to watch and see if we get a spike up.Doesnt seem to be much interest in pushing anything lower against USD right now.
by John Authers If ever there were a good place to take a deep breath and gain context on our unnecessarily complex world, it would be Jackson Hole, Wyoming. The landscape inspired some of Ansel Adams' greatest photography. So it is good for the health of central bankers, and by extension for the entire world economy, that it is the venue where economists meet to put the world to rights at the end of summer each year. Central banking always involves pressure and dilemmas. Central bankers must choose their words knowing they will be examined in minute detail. That, in turn, means that we should take very seriously the reaction of money markets to the speech made on Friday (Saturday AEST) by Jay Powell, who is currently in his first year as chair of the US Federal Reserve. As his words filtered from the Grand Tetons to traders' computer terminals, the S&P 500 rose to a new all-time intraday record. And the yield curve yet again flattened. The excess of 10-year over two-year Treasury yields dropped below 0.2 per cent for the first time since 2007, before the financial crisis. And the dollar fell against most of its peers, while emerging market currencies gained 1 per cent in less than 24 hours, according to JPMorgan's emerging FX index. Emerging currencies have still dropped 4.6 per cent since the beginning of this month, thanks in large part to the crisis in Turkey, but this was a significant release of pressure. Unlike many of his predecessors, Mr Powell employs clear and direct language, using memorable metaphors to make his points. But just like his predecessors, it was still necessary to analyse his text in detail to work out why investors thought it was of such significance. You also needed to understand what has become a very complicated context. Not long ago, the Fed seemed to have a clear path for the next year or so. It was going to raise rates again, in September and again in December, raise rates a few more times next year, and continue with so-called "quantitative tightening" — the steady undoing of previous crisis measures by slowly selling off the assets it had bought and left on its balance sheet. Now the Fed's path begins to look fraught with complications. Messy US politics are part of it. An impeachment drama, which suddenly looks far more plausible than it did a week ago, would ratchet up uncertainty, and thereby make it harder for the Fed to raise rates. And the president himself said this week that he was "not thrilled" by high interest rates, as they raised the dollar and counteracted his trade policy. EM currencies matter more But the fall in EM currencies matters more. Higher US rates attract funds to the US, push down on emerging currencies and add to the risk of EM crisis. Emerging assets have a longstanding inverse relationship with the dollar (they fall when the dollar rises). A strong dollar makes it harder to repay dollar-denominated debt. The moves in the yield curve, as investors remain convinced of imminent rate rises while money pours into longer-dated Treasuries, is more important. An inverted yield curve, in which short yields are higher than longer-dated yields, indicates a future recession. A flat curve implies a lack of enthusiasm about economic prospects (hence rates need not rise in future), and a fear that the Fed will raise rates imminently, then be forced to desist. Further, the evidence of a need for higher rates to combat inflation is weakening. The bond market's implicit prediction for inflation over the next 10 years had risen from 1.2 per cent in early 2016 to 2.2 per cent earlier this year — but it has since settled closer to 2.1 per cent, barely above the Fed's 2 per cent target. Finally, US economic data have begun to disappoint, at least compared to reasonable expectations from a few months ago. Citi's economic surprise indices, which measure how data compare to forecasts, show the US in negative territory, and below the eurozone. Faced with all of this, Mr Powell deliberately said he was avoiding all foreign and political questions, admitting that these were risk factors that "could demand a different policy response, but today I will step back from them". Clear signal But he could have given a clear signal that the Fed needed to keep tightening, and did not. "We have seen no clear sign of an acceleration above 2 per cent" in inflation, he said, and "there does not seem too be an elevated risk of overheating". So no desperation to tighten there. His predictions for future tightening were strictly conditional. With my emphases added, he said: "If the strong growth in income and jobs continues, further gradual increases in [the target rate] will likely be appropriate." He has used previous speeches to say that the impact of US monetary policy beyond US shores was overstated. The change in tone matters. And expectations for 2019 are wide open. If the Fed hikes twice more this year, the market puts the chance that it does so even once more next year at only 60 per cent. Clear evidence of inflation would change things again, but for now the winds from Wyoming suggest muted growth and low rates, in which equities can still flourish, even at high valuations after a protracted bull market. john.authers@ft.com Financial Times https://www.afr.com/news/world/jay-...is-fraught-with-complications-20180826-h14jhe
Short EUR 1.1633. Thanks for the post. The Fed, when it begins a tightening cycle, usually keeps tightening until they break something. It seems a little early to begin backing off,but if they do you probably should be long equities. Like, really really long. So bad news is still good news in the bigger picture. Bubbleicious!
Flat. I have no conviction in that trade. Plus the near term trend has caught traders off guard. Going to watch. The good news is that summer is almost over. So liquidity will come back soon.