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Interestrates

Will FED Taper?Fed tightening 10 year surged to almost 3.2% when Powell tried to tighten this can be seen on the chart below. Now following that measure to tighten you see the S&P fall 20% this miscalculation of the FED to increase rates. Powell was out to pop the equity bubble, but again this miscalculation caused them to stop tightening, and on the chart below you can see this was followed by the cutting of rates. Low growth married to market expecting liquidity has allowed us to see huge growth. We are stuck in the circle of asset growth over strong economic growth.
SP:SPX
by tahirg0010
U-Turn In Rate Hike Decision (18 August 2021)The last-minute decision. During their monetary policy meeting earlier today, the Reserve Bank of New Zealand (RBNZ) carried out a last-minute change in decision, holding its overnight cash rate unchanged at 0.25%. New COVID case in six months thwarted RBNZ’s rate hike plan. Just yesterday, the first local COVID case was reported in New Zealand in six months. As a result, Prime Minister Jacinda Ardern announced a nationwide level-four lockdown with immediate effect. Prior to this new COVID case, the RBNZ was expected to announce a rate hike during today’s meeting as the country’s economic recovery has been robust and the economy is starting to overheat. In the released rate statement, the central bank mentioned that the “ Committee discussed the merits of an increase in the OCR at this meeting and considered the implications of alternative sequencing of OCR changes over time ”. However, with what went down yesterday, the central bank decided to put on hold their rate hike decision, highlighting in the rate statement that the “ decision was made in the context of the Government’s imposition of Level 4 COVID restrictions on activity across New Zealand ”. A delay rather than a setback. New Zealand’s “go hard, go early” approach to the containment of the pandemic has been highly effective as is evident from being one of the first few countries to declare COVID-19 free. With the country’s snap lockdown and effective approach, it is possible that the spread of the virus will be contained within a short period of time and is unlikely going to pose a setback to the country. Moreover, the RBNZ has carried forward their expectation of a rate hike from September 2022 to this coming December as indicated in the quarterly monetary policy statement, delivering a hawkish tone. To conclude, this sudden turn of events is unlikely going to hold the New Zealand economy down for long. As the next monetary policy meeting will be held on 6 October, this will give the central bank sufficient time to make a hawkish return, with the condition that the virus is once again contained swiftly.
by GH_Lee
GBPUSD - basic Interest Rates StudyThis is a simple study of how interest rates influence the market. I included 10 last values in my indicator. The base currency (GBP) is black. The second currency (USD) is red. Between June and December, FED (USD) increased the interest rates 3 times by 0.250 BoE (GBP) also increased the interest rates by the same number but only once. Obviously, this was a catalyst for a major bearish move. Not only that the rates difference had already been bearish at a time. The gap between the rates further increased! But look at the moment when BoE increased their rates. Even if insignificant for the long-term, it started a good counter-trend rally in the short-term. In 2019, FED decreased the rate a few times, hence the difference changed a little in favor of GBP. At look how long the pair grew. It even smashed the previous highs until it resumed its downward trend based on the rate difference. March 2020 was full of interest rate changes across all currencies. When BoE dropped the rate a little (in relative terms), FED decreased the dollar's interest rate rather drastically leading to a more than a year and a half long rally. Although it is losing its steam, it might yet continue for a while. I created two indicators that can be used to study these relations and create a long-term vision once the rates change again (might take a moment to update). You can find them both in the public library :)
Education
by OrcChieftain
1
QE Tapering Plan Will Go On (06 August 2021)Three days ago, the Reserve Bank of Australia (RBA) delivered a little surprise when it decided to stick with its quantitative easing (QE) plan announced back in July despite the recent spike in COVID cases in Australia. (Refer to my post "RBA Sticks With QE Tapering Plan (04 August 2021)" on RBA monetary policy) Details on why the central bank decides to proceed with its decision on QE tapering were provided during Governor Lowe testimony earlier today. Lowe’s Testimony During his testimony before the House of Representatives Standing Committee on Economics, Governor Lowe said that the RBA has considered holding back its plan for QE tapering during the monetary policy meeting. However, the central bank’s positive projections on the economic growth for 2022 permitted the plan to continue. Lowe explained that “any additional bond purchases would have their maximum effect at that time and only a very small effect right now when the extra support is needed most.” Furthermore, he mentioned the RBA felt that fiscal policy would be more appropriate than monetary policy in terms of providing aid at the moment. Nonetheless, the flexible approach of its QE programme allows the central bank to make adjustments to the rate of bond purchases in response to any unexpected turn of events. On the subject of the RBA cash rate, Lowe highlighted that the central bank will not be increasing cash rate until inflation is sustainably in the 2-3% range. He emphasised that the RBA needs to be confident that inflation will remain within the targeted range before any rate hike is considered. Finally, Lowe said that the condition for a rate hike “is not expected to be met before 2024”. RBA economic projections. For year 2021, Australian GDP: 4.00 (4.75) CPI Inflation: 2.50 (1.75) Unemployment Rate: 5.00 (5.00) For year 2022, Australian GDP: 4.25 (3.50) CPI Inflation: 1.75 (1.50) Unemployment Rate: 4.25 (4.50) For year 2023, Australian GDP: 2.50 (N/A) CPI Inflation: 2.25 (N/A) Unemployment Rate: 4.00 (N/A) *Figures shown in parentheses refers to projections from May 2021
by GH_Lee
No Signs Of QE Tapering From The BoE Yet (06 August 2021)The BoE’s decision. As widely expected, the Bank of England (BoE) carried out no change to its monetary policy during its meeting yesterday. Interest rate remains at 0.10% with all eight voting committee members voting for no change. Quantitative easing (QE) remains at £895 billion in total. Michael Saunders, one of the hawks of BoE, voted for a reduction in government bonds purchase by £45 billion. Overall positive outlook of the UK economy in the near future. In the quarterly release of the BoE’s monetary policy report, the central bank said that the “impact of COVID on the UK economy fades further over time” although the Delta variant of the virus continues to spread in the UK. The confidence on the economic recovery led to the central bank’s positive revision of its economic projections. Economic Projections: For year 2021, UK GDP: 7.25 (7.25) CPI Inflation: 4.00 (2.50) Unemployment Rate: 4.75 (5.00) For year 2022, UK GDP: 6.00 (5.75) CPI Inflation: 4.00 (2.50) Unemployment Rate: 4.75 (5.00) For year 2023, UK GDP: 1.50 (1.25) CPI Inflation: 2.00 (2.00) Unemployment Rate: 4.25 (4.25) *Figures shown in parentheses refers to projections from May 2021 The BoE expects the UK economy to return to pre-pandemic level during the fourth quarter of 2021. As with the other major central banks, the BoE also felt that the recent rise in inflation is due to transitory factors. With the ceasing of the UK furlough scheme at the end of September, BoE Governor Andrew Bailey highlighted that unemployment was “no longer expected to rise”. He also mentioned that the challenge for the economy now is whether employers can fill up the job vacancies. On the matter of QE. Little was mentioned on QE during this meeting. The BoE said towards the end of its rate statement that “should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term”. The committee members also intend to start unloading the bond purchased by the central bank when interest rate has risen to 0.5% and will consider to do so actively when interest rate is at least 1%. According to the BoE, interest rate is projected to be at 0.5% by the third quarter of 2024. Hence, it is likely that the central bank will be holding on to its purchases at least in the near future. Interest Rate Projection: 2022 Q3: 0.2% 2023 Q3: 0.4% 2024 Q3: 0.5%
by GH_Lee
🔥 Strong fluctuation on gold today! Be ready! This is what we said in our analysis on EURUSD from earlier today about the FED Interest rate decision: "Today is the FED Interest rate decision. This is the most important event right now. Based on that we will see certain moves in the market. That's why we will wait for it in order to see in what direction we want to trade. The question is not if there will be change in the interest rate - there won't be! The question is when is that expected to happen in the future. The comments following the news are even more important and they will definitely cause some big moves. Right now, no one knows what will happen, what will be said and how it will affect the market. That's why in moments like this the market is quiet. We prefer to stay away from trades before the news but to spend more time analysing. If you don't want to be exposed to too much risk, then I suggest you wait." The news regarding he USD also affect price on gold and that's why we expect volatility in price here as well. It is possible to see market up at 1820, however until price is below previous highs we're going to be expecting a downside move. If price quickly gets up to 1820 and it then rejects that level, then we could be looking for aggressive entries. Whatever the case is, be prepared for some big moves and don't exceed your risk limit. 👍 Please support this idea with like and comment so we can help more people together. Thank you in advance! 🙏
FX_IDC:XAUUSD
by ForexTrendline
51
EURUSD before FED. What do we expect? Today is the FED Interest rate decision. This is the most important event right now. Based on that we will see certain moves in the market. That's why we will wait for it in order to see in what direction we want to trade. The question is not if there will be change in the interest rate - there won't be! The question is when is that expected to happen in the future. The comments following the news are even more important and they will definitely cause some big moves. Right now, no one knows what will happen, what will be said and how it will affect the market. That's why in moments like this the market is quiet. We prefer to stay away from trades before the news but to spend more time analysing. If you don't want to be exposed to too much risk, then I suggest you wait. Those are the key levels that we will be watching out for. We now have a higher low and a higher high. This is a sign for an additional upside move. In such a case the level that we will be looking for is 1,1880. Looking to the downside the first support is at 1,1777. Price closing outside any of those levels will give us a clear picture of what to expect, but we will be commenting on that tomorrow.
by ForexTrendline
18
📈EURUSD awaiting the FED decisionWe are waiting for FED's interest rate decision tomorrow. This is the most important event right now. Based on that a lot of trades are being taken and future moves are being determined. That's why we recommend to not trade before such an important news. Once we have a clear market direction, that's when we want to get involved. What are the expectations and more likely scenarios? EURUSD is still in a downtrend. As long as the pair doesn't go above 1,1880 that will remain unchanged. Also, it's very likely that we will see price reaching 1,1840-50. This is an entry opportunity using a low risk. If you will be doing that then make sure to wait for a push of the level and a reversal candle! Everything will be clear after the news, therefore if you don't want to take on unnecessary risk just wait! 👍 Please support this idea with like and comment so we can help more people together. Thank you in advance! 🙏
Short
by ForexTrendline
6
ECB Meeting And Its New Inflation Target (23 July 2021)New monetary policy strategy. Earlier this month, the European Central Bank (ECB) reconvened its policy review that was postponed since last year due to the COVID-19 pandemic. During the review, the central bank revised its current goal of achieving an inflation level of “below, but close to 2%” to the new goal of achieving 2% inflation with overshoots allowed. This new inflation target is symmetric, meaning to say that inflation falling below or rising above the 2% target are both equally undesirable. However, knowing that it is unlikely inflation will be constantly maintained at the 2% target, slight deviation from 2% temporarily is still acceptable by the ECB. But if inflation were to deviate from that target by a significant amount for a sustained period of time, the central bank will carry out the necessary actions to address it. Revised forward guidance. During the monetary policy meeting yesterday, the ECB held its interest rate and quantitative easing (QE) unchanged. The central bank’s President Christine Lagarde said that no discussion on quantitative easing was carried out. In response to the newly adopted inflation target, the ECB has revised its forward guidance on interest rates. “In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.” Simply put, the central bank will consider an interest rate hike only when inflation is seen to be reaching the 2% target way before the end of its projection horizon and is deemed to sustain for the rest of the projection horizon. Based on the ECB’s economic projection material, the projection horizon is defined to be three years. With the revised forward guidance, the ECB is now seen to be more accommodative for a longer duration. Looking at the ECB’s quarterly economic projections released in June, Inflation Forecast 2021: 1.9% 2022: 1.5% 2023: 1.4% we can see that the central bank’s inflation expectation is still quite a distance from 2%. During the press conference, Lagarde also highlighted that the ECB is expecting “inflation to rise over the medium term” although it is still below the 2% target, while “longer term inflation expectations have increased” but are some distance away from the target. Lagarde also mentioned that the recent rise in inflation in the eurozone is largely due to temporary drivers such as higher energy prices and base effects from the strong decline in oil prices. With the persistently low inflation in the eurozone, it is unlikely the ECB will carry out a rate hike in the near future.
by GH_Lee
EURUSD before ECB | What to expect? The analysis from yesterday is going as expected and it confirms the direction that we were looking at. And that gives us an opportunity to look for short positions today! But there are a few conditions! Do not enter a trade now. We're still waiting for ECB interest rate decision. That will cause volatility in the market. It is also very likely that there will be some misleading moves and that will be our moment to make an entry. We are going to be watching out for a certain price reaction in the selling zone and in case we see engulfing candles or long wick candles, then we're going to be looking for an entry. EURUSD should not rise above 1,1880, otherwise this scenario wouldn't be valid! If we see price pushing off of the zone then we could expect another downside move to 1,1700!
Short
by ForexTrendline
34
STOP STOP HUNTING!!!THIS IS THE DEFINITION OF A STOP HUNT! we've all seen how the dollar has exploded over the past couple of days but NZD is not giving up without a fight you can see that every time the kiwi goes below .695 on the weekly candle it rushes back up before the week is over. now fundamentally speaking, WE KNOW the RBNZ (New Zealand Central Bank) will be raising rates next month from the current .25%. & WE KNOW THE SMART THING TO DO IS TO PUT OUR MONEY INA STRONG CURRENCY WITH HIGH INTEREST RATES, ESPECIALLY AGAINST LOW ONES JPY( -.10%) CHF(-.75%), & USD (.25),which happens to be all the "SAFE HAVEN" currencies i cannot be the only one looking ahead and seeing the true potential of the KIWI. nzdusd must go to .7315 (400+ PIPS) nzdchf must go to .662 (250+ PIPS) nzdjpy MUST GO TO 83.9 (800+ PIPS)
Long
by SlattYSL
3
M2 Money StockWe are witnessing a Crisis on par with LTCM, similar to the Russian Bond collapse. The Reverse Repo pool can be used in Net Effect to raise Rates. "Net" as it has another insidious component to it - Money Markets will again come under duress as the DX moves below Par at 100 Basis. Money Market Funds are seeing large inflows as Primary Institutions are telling Corporate Depositors to stop placing Liabilities on their Balance Sheets (Deposits are a Liability) - Interest Rates are relatively low for Money Market Accounts. We are watching a liquidity crisis begin to unfold. Wells Fargo cutting off personal loans - banks will be in trouble beginning in August. Loans are how Banks profit. The moratorium of eviction and mortgage defaults is lifted on July 31st. Defaults on loans are assured. Wells Fargo calling in all personal loans now in order to buffer the approaching defaults. When cash in Banks is reduced - the ability for Banks to weather a series of defaults is impaired - the impairment only serves accelerates the liquidity crisis merely weeks away.
FRED:M2REALShort
by HK_L61
3
BULLISH reversal in play for the US Dollar! Following the 2008 Financial Crisis, the Federal Reserve had to apply loose monetary policy measures in order to stabilize and stimulate the economy. The Fed started lowering the Federal Funds Rate back in late 2007, as a response to the rising unemployment at the time. This is the most traditional monetary policy measure, which aims to stimulate both businesses and individuals to borrow and spend more, which in turn would lead to an increase in economic activity. When rates are low borrowing money to start a business, buy a house or a car looks much more appealing and attractive. When the economy is in a recession such monetary policy actions are helpful and needed, but if interest rates stay very low for way too long after the economy stabilizes, then the higher spending levels caused by the cheap available credit would simply lead to higher inflation. Inflation has been one of the most heavily discussed subjects so far in 2021 and rightfully so. You see, a substantial increase in inflation is a net negative for all of the major markets out there – Bonds, Stocks, USD Bonds Inflation is a bond’s worst enemy as basically a bond is a contractual agreement between a borrower (Seller of the bond) and a lender guaranteeing that the Lender (Buyer of the bond) would be receiving the bond’s Face Value at maturity plus all of the regular and fixed interest payments (coupons) up until that point. Well, considering that both the Face Value and Coupon are fixed US Dollar amounts, a higher inflation would basically erode the real returns of that bond. To put it in simple words if the yield on a 10-year Treasury bill is 2%, that means that the investor is guaranteed to get a 2% annual return on that bond investment. However, if annual inflation is at 5%, then that makes the bond investment much less appealing as an investor would be technically losing 3% per year in such environment. This is the main reason why bond yields constantly adjust to both Inflation and Interest Rate expectations. When Inflation goes up, Interest Rate expectations start shifting towards expecting a rate hike, which leads to lower bond prices and higher bond yields. This dynamic exists and occurs as in an inflationary environment bonds become less attractive and in order for demand to come back to the bond market investors need to see an adjustment in the bond yields (an increase), which will protect them against inflation and would make it worthwhile for investors to lend their money to the US government by buying these bonds instead of putting it in a savings account with the bank. The bond yields rise either when we see a rate hike or when investors expectations of a rate hike increase. This mechanic ends up protecting bond investors in a higher-interest and inflation driven environment and makes bonds more stable and attractive investment vehicles than stocks. Stocks With stocks it is much more straightforward. Stocks trade largely on current as well as discounted future corporate profits, and higher rates tend to cut into profits because they increase the cost of money. Additionally, when rates are higher that means that discounting future cash flows to the present occurs with a higher denominator, which leads to lower profitability. If the underlying reason for higher rates is inflation, rising prices and wages also increase a company's costs, which further erodes profits. As you can see higher inflation and higher rates lead to plenty of problems for stocks. USD Last but not least, inflation is also bad for the US Dollar as it erodes the purchasing power of every dollar in circulation. To put it in simple words, if you have $100,000 in your savings account earning 1% interest annually, but the inflation in the country sits at 3% you would technically lose 2% from the purchasing power of your capital, or in other words $2,000, in just 1 year. Now, after seeing why and how higher rates and higher inflation affect Bonds, Stocks and the US Dollar, you probably understand why all journalists, economists, investors, hedge fund managers, politicians, central bankers etc. are constantly discussing these topics. Inflation and Interest rates expectations are not static but rather very dynamic and are constantly modified and affected by economic reports, central bank commentary, monetary and fiscal stimulus etc. The predominant view in the market at the moment is comprised of the following elements: 1.”The US economy is on fire” – companies continue to deliver better than expected earnings, consumers are sitting on record levels of savings, people are eager to get back to their normal lives eating out, traveling, shopping. 2. “We will see 8-10% GDP growth in the 2nd half of the year” 3. “Inflation will continue to rise as a result of the low interest rate environment and the huge spending driven mostly by the heavy Fiscal Stimulus by the US Government. 4. “The Fed need to raise rates sooner in order to prevent a hyperinflation scenario” 5. “The Fed will most likely end up being behind the curve once they start tapering, which will force them to rise interest rates quicker” Now, while all of the above-listed arguments make sense to a certain extent, we believe that some of the most recent movements in the US Dollar Index (DXY) as well as the price action in the bond market, which sent bond yields lower despite the hawkish Fed in mid-June are giving us very valuable indications that there is more to that equation. We believe that the whole narrative that is circulating at the moment starts from the wrong place. Considering the fact that the US Dollar is the global reserve currency and that it has a direct impact on both US and Global inflation levels and GDP growth, every US economic analysis should start from analyzing the US Dollar performance and its possible future trends. It is true that inflation expectations affect the value of the dollar and that some people might argue that this is a “what’s first the chicken or the egg” argument, but the US Dollar is so much more than the inflation expectations that people throw at it left and right. The USD is the most influential currency in the world and depending on whether it gets stronger or weaker we see whole countries, regions and even continents either struggling or prospering. The US Dollar index (DXY) has been in a clear downtrend throughout the last 15 months, as a result of the unprecedented printing of money that we have witnessed by the Fed in response to the COVID-19 pandemic shock to the economy. The monetary M2 supply in the US increased from $15.5 trillion in February, 2020 to $18.84 trillion in October, 2020 and to $20.1 trillion in April, 2021. This represents a 21.29% increase in 2020 and a 29.7% increase year over year. Technically, such a massive printing of liquidity debases and devalues the underlying currency. As a result of that and the increased inflation speculations and worries among investors we have seen the US Dollar index dropping from $103 down to the $90 level. A lot of negativity has already been priced in the US Dollar as the logic shows that inflation will definitely be picking up, which makes it unattractive to hold significant cash reserves. Thus, everybody has been selling the USD for over a year now. However, what happened in the beginning of the year (January) was that the DXY reached the $90 strong multi-year support and found a lot of buying interest there. After a strong rebound up towards the $94 level back in April, the index came back and re-tested the $90 level and once again found a lot of buying interest, which pushed the price back up to the $92 mark in a matter of few trading sessions. This has created a clear double-bottom pattern with rising relative strength and a clear bullish interest at these levels. We believe that this is something that not many people are paying attention to as they are riding on the bandwagon that the “Dollar is going lower”. However the $90 support has been a crucial level for the DXY going all the way back to 1990s. Back in 2018 that was the exact level where the DXY stopped declining and reversed the 1.5 year long bear market that the USD was trading within since the start of 2017. The reason why we believe that the way the USD moves is so crucial at the moment comes from the fact that the main argument right now for a tighter monetary policy is associated with the “double-digit” GDP growth that everybody expects in the 2nd half of the year and the inflation that this is expected to create in the economy. Well, it seems that most people have forgotten that currency appreciation usually reduces inflation because imports become cheaper and the lower prices lead to lower inflation. It also makes imports more attractive, causing the demand for local products to fall. Local companies usually have to cut costs and increase productivity so they can remain competitive. Furthermore, that means that with the higher price, the number of U.S. goods being exported will likely drop. This eventually leads to a reduction in gross domestic product (GDP), which is definitely not a benefit. That translates to a benefit of lower prices, leading to lower overall inflation. The bond market also signaled that it does not expect the Fed to start tightening any time soon as there was a clear discrepancy between the hawkish Fed and the movement in the 10Y Treasury yields. You see, usually when an Interest Rate hike takes place or when Interest Rate expectations shift towards an increase in the Federal Funds rate, that is considered as bullish for bond yields. The reason for that as we pointed out earlier is associated with the fact that a rising interest rate environment and a potential for higher inflation makes bonds less attractive at the current extremely low yields. Bond yields then go up in order to bring back investors to the Bond market. Well, that has not happened this time around as even though we had a surprisingly hawkish Fed in mid-June, the 10Y Treasury yield has continued to fall. It seems that the 40-year long bull market for bonds has further to go. The Bond market always gives indications as to what is actually happening in the economy but very few people know how to read the correlations and information properly. The most recent price action in the 10Y Treasury yield shows that the real probability of the Fed tightening sooner than expected is much lower than what the equity markets and all other market participants are currently pricing in. Bond investors tend to have more macro-oriented view, which allows them to see the big picture better. So what does that mean? Well, with the US Dollar threatening to reverse its 1-2 year downtrend and break above the critical resistance sitting at 92-93 and Bond yields falling, the economy and inflation growth will be tamed organically by the higher dollar. We believe that this would lead to the Federal Reserve also pushing back its tightening program, which in turn will reignite risk-appetite in the market. Thus, we expect to see Growth outperforming Value in the coming months.
TVC:DXYLong
by DowExperts
GBPUSD analysis. Key levels! GBPUSD reached 1,40. At the same time EURUSD is at 1,20 After the FED interest rate decision yesterday, we saw a stronger USD and a sharp drop on both these pairs, which took price to their support levels. Right now those moves could continue to the next possible levels, but we expect it to end and therefore price will reverse and go back to the upside. We suggest that you don't enter short but look for a trend reversal on the lower timeframes with a long bias. Follow us for more opportunities!
Long
by ForexTrendline
9
EURUSD analysis before FEDToday is the most important day of the month for the future movement on EURUSD. The interest rate decision and the comments during the press conference will couse big moves. It's clear to everyone that there won't be changes in the interest rates but comments about any possible future changes will affect price immediately. Our expectations: a downside push in the zone around the 1,20 level and then an upside move will begin. Follow us for more opportunities! Good luck!
Long
by ForexTrendline
5