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FED vs ECB - Soft Landing As of today Thursday, December 14, 2023- ECB ( European Central Bank ) at 14:00 PM ( Budapest Time GMT+1 ) will disclouse their interest rate decision in the following categories. 11:00 EUR EU Leaders Summit 14:15 EUR Deposit Facility Rate (Dec) 14:15 EUR ECB Marginal Lending Facility 14:15 EUR ECB Monetary Policy Statement 14:15 EUR ECB Interest Rate Decision (Dec) Over the last 2Mto 1M , depending on the data frequency, such as weekly or montly we have observed that, generally speaking, inflation is under control in the Eurozone. Therefore, any further rate hikes from the ECB are absolutely unnecessary and would cause serious issues in the Italian and German economies. Even though a rate hike would cause an immediate surge in EUR/USD, which is certainly in my interest since I hold a long position, in the case of a rate hike, I would close it nearly immediately. I expect that today the ECB will keep interest rates unchanged to allow time for the effects of their previous measures to fully transmit into the economy
Long
by ElGatoTrade
1
ES: Fed Pivot Breathes Life into MarketsCME: E-Mini S&P 500 Options ( CME_MINI:ES1! ) Last Wednesday, investors cheered as the Fed kept interest rates unchanged for the second time in a row. On Friday, a soft jobs report backed up market expectations that the rate-hiking campaign is over. For the full week, the Dow was up by 5.07% in its best week since October 2022. The S&P was higher by 5.85% and the Nasdaq gained 6.61%. It was the best week for both indexes since November 2022. Investors Choose to Ignore What the Fed Says Stock market behavior shows that the Fed is still the dominant driver. Drilling down further, I find that what moves market is not the actual Fed action, but the expectation of what the Fed would do next. Very often, such market-moving expectations could be in direct contradiction of the Fed Chair’s public statement. At the post-FOMC press conference, the Fed Chair said that they had not made a decision for the next meeting. He also stated that pausing now would not prevent the Fed from raising rates again. The Fed Chair stressed that they had not discussed if or when to cut rates. The overarching focus now is to bring inflation down to the 2% target rate. Investors think otherwise. According to CME FedWatch Tool, the probability of keeping rates unchanged on the December 13th FOMC is 95.4% as of November 5th. By the FOMC meeting scheduled on May 1st, 2024, the odds for cutting rates by 25-50 bps are 71%. (Link: www.cmegroup.com) Investors acted upon their expectations. Prior to the Fed meeting, Treasury yields were rising sharply. 10Y rose from 4.5% to above 5.0% in 11 days. In the three days following the rate decision, 10Y took a nosedive and now back to 4.6%. This dramatic changes in yields took place while the Fed did nothing. The stock market rebound could be attributed to the change in expectations too. Lowering rates has the effect of raising the present value of future cash flows, thus increasing a company’s market value, as prescribed by the Discounted Cash Flow valuation method. The collapse of the US dollar is due to the expectations that it would not generate higher returns without further rate increases, according to interest-rate parity theory. Let’s look at two more examples: On July 26th, the Fed raised rates by 25 bps. This was the 11th consecutive rate hike. US stocks rose initially, with the major indexes going up 1-2%. Investors interpreted that this marked the end of Fed tightening. The expectations of Fed Pivot drove market higher, even though the Fed continued to stress the important for fighting inflation. The September 20th FOMC was the first Fed Pause. On face value, this should have been taken as a huge positive. However, investors believed that the Fed would raise rates one more time by year end. US stocks falls so much that both S&P and Nasdaq lost more than 10% from their high and entered contractionary territory. Trading with E-Mini S&P Options What’s the implication from the above observation? 1. Investors may have an easier time forecasting the Fed decision itself than the market reaction after worth. A 95% probability of a Fed Pause could not tell if the stock market would rise or fall after the decision is made. 2. Investor expectations could be adjusted very quickly. Following the Fed decision, the stock market could move up or down by 5% in a week. We could build an event-driven strategy focusing on the December 13th Fed meeting. If we think that the stock market would make a sizable move after the Fed decision, CME E-Mini S&P Options on Futures could be used to express this view. The trade would not be built by this single insight only. There are more: The November jobs report will be released on Friday, December 8th, and the November CPI data will be published on Tuesday, December 12th. These big reports, available to the Fed right before the FOMC, could have a major impact on its rate decision. More importantly, it could alter investor expectations and drive market volatility. The December 2023 contract (ESE3) will be expired on Friday, December 15th, two days after the FOMC. It is also the “Triple Witching Day”, where US stock index futures, stock index options, and single-stock options contracts all expire on the same trading day. My writeup from September shows that stock market is highly likely to make a big move on Triple Witching and on the days leading up to it. With big reports, Fed decision and Triple Witching all within one week, the stock market could enter wild swings as investors digest new data. Time is ripe for options traders. CME E-Mini S&P 500 Options provide leverage and capital efficiency. Options are based on futures contracts. Contract notional is $50 x S&P 500 Index. On the morning of November 6th, the December futures contract is quoted 4,384. The out-of-the-money (OTM) call strike 4,580 is the most active call options, with over 50,000 lots traded. If a trader purchases a call and it finishes at 100 points above the strike, she will realize a gain of $5,000 (=50 x 100), minus the upfront premium she paid. If the market moves against the trade, with the index value below the strike, she will lose money, up to but not beyond the upfront premium. The OTM put strike traded 1,023 lots. If the trader purchases a put and it finishes 100 points below strike, the trader will also make $5,000, minus the premium. If the market moves against the trade to finish above the put strike, the trader will lose money, up to but not beyond the upfront premium. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME_MINI:ES1!Long
by JimHuangChicago
6
Surprised by Fed hinting at another rate hike this year?The big story of the day is of course the Fed signaling one more rate hike this year. At the conclusion of its FOMC meeting a few hours ago, The U.S. Federal Reserve held interest rates unchanged, but projected another rate increase by the end of the year. Additionally, higher for longer is probably the new reality, with projections showing rates falling only half a percentage point in 2024 compared to the full percentage point of cuts anticipated at the meeting in June. Financial markets had widely expected that the Fed would leave rates unchanged, but the revision to its projected cuts has caught markets off-guard. The biggest mover of the day; GBPUSD was doubling impacted by the Fed decision and UK Inflation Rate Slowing Further to 1-1/2-Year Low (to 6.7% in August 2023 from 6.8% in the previous month, falling below the market consensus of 7.0%.) The GBPUSD moved from around 1.238 to a low at 1.233 (but not before some indecision and a shot up to 1.238 within the first hour). In the end, the price fell below the pre-decision (panicked?) low. The current price trades at 1.234 just above that level, but an eye will be kept on this new short-term resistance for the downside prospects of this pair
by BlackBull_Markets
3x Inverse TLT ETF: Breaking Out of Descending Broadening WedgeThe Inverse ETF for the 20-Year US Government Bond is currently breaking out of a Descending Broadening Wedge and is looking to go much higher perhaps between the 61.8% and 78.6% retraces which would be about a 500-1,400% percentage gain which also means that longer end bond yields are going much higher. I previously said I would repost this chart after the split so that the numbers would be accurate, and now that split has happened. I have my eyes on the $36 to hold and am currently looking to get some calls for that strike price expiring next year. It's worth noting the Partial-Decline we got before breaking out of the Broadening wedge, which makes it more likely to play out.
AMEX:TMVLong
by RizeSenpai
2
Cracking the Fed Rate-Setting CodeCME: Micro Russell 2000 ( CME_MINI:M2K1! ) On August 25th, Federal Reserve Chair Jerome Powell delivered his annual policy remark, “Inflation: Progress and the Path Ahead”, at the Jackson Hole Symposium. The message is very clear: It is the Fed's job to bring inflation down to the 2% policy goal. The Fed is prepared to raise rates further if appropriate and intends to hold policy at a restrictive level until inflation is moving sustainably down toward its objective. In my opinion, there is a constraint when the Fed considers its policy choices. If monetary tightening pushes the US economy into a recession, it will likely pause or pivot. The Fed aims to cool the economy, not to put the flame out. The Fed Chair maintains that he iterates his decision at each FOMC meeting based on latest available data. I liken this process to a “For Loop” and an “If Statement” in computer programming. Below is my pseudo code in human readable form: • for (i = 0; i < n; n++), where n is the number of FOMC meetings; • if (inflation goes down to 2%), then execute “End Rate Hikes”; • else if (the US economy tanks), also execute “End Rate Hikes”; • else, execute “Continue with Restrictive Monetary Policy”); In other words, the only two conditions that could trigger the end of rate hikes are: • Rate hikes successfully bring the inflation down to 2%; or • Rate hikes break the US economy. To crack the code of the Fed rate-setting decisions, we need to gain some understanding of the US inflation trajectory and the economic growth potential. Inflation Outlook: Coming Down but Still Too High According to the Bureau of Labor Statistics (BLS), the US Consumer Price Index rose 0.2% in July to 3.2% on an annualized basis. • CPI peaked at 9.1% in June 2022. The declining inflation in the past year is a welcome development and signals that the Fed tightening policy is working; • The key driver of low CPI reading is the double-digit decline in energy cost when compared to the record gasoline price last year. This is misleading and lagging data. Gasoline and diesel prices are both on the way up for months; • The Core CPI, excluding energy and food, is 4.7%. Compared to 5.9% in July 2022, the decline is not fast enough, and it is still too high; • At 7.7%, Shelter leads all categories and has the highest price increases. Higher interest rates pushed up mortgage payments and rents. This could lift overall inflation higher in the coming months. The Fed’s preferred inflation metric is the PCE price index. According to the Bureau of Economic Analysis (BEA), PCE price index for June increased 3.0% on an annualized basis. Excluding food and energy, the core PCE increased 4.1% from one year ago. The BEA is scheduled to release July PCE data this week. The new reading would influence the Fed as it debates whether to pause or continue raising rates in the September 20th FOMC meeting. US Economic Outlook: Very Resilient According to the BEA, US real gross domestic product (GDP) increased at an annual rate of 2.4% in the second quarter of 2023. In the first quarter, real GDP increased 2.0%. • Current‑dollar GDP increased 4.7% at an annual rate, or $305.2 billion, in the second quarter to a level of $26.84 trillion; • After the US central bank aggressively raised interest rates from 0.25% to 5.50% in a year and a half, the US economy shows remarkable strength. According to the BLS, total nonfarm payroll employment rose by 187,000 in July, and US the unemployment rate changed little at 3.5%. Job gains occurred in health care, social assistance, financial activities, and wholesale trade. As long as unemployment remains low, American consumers would continue to buy goods and services, pay their bills, and service their debts. • US mortgage delinquency rate was 1.72% in Q2, the lowest in 17 years (vs. 1.74% in Q3 2006), according to the Federal Reserve Bank of St. Louis; • Auto loan delinquency rates have risen from Q1 2021's 1.43% to 1.69% in Q1 2023, according to a recent Credit Industry Insight Report (CIIR) by TransUnion. • US credit card loan delinquency rate was 2.77% in Q2, up from 2.43% in Q1 and 1.59% from year-ago quarter; Why are we seeing different trends? I think that most homeowners locked into low 15- or 30-year fixed mortgage rates before the Fed rate hikes. Auto loans have shorter duration, usually between 4 to 7 years. Since last year, car buyers now were hit by both higher prices and higher interest rates. Credit card default is elevated, but still low from a historical perspective. In the 1990s and early 2000s, delinquency rates hovered around 3-5%. It peaked at 6.77% in 2009 after the financial crisis. Credit card companies charge floating interest rates. In January 2022, before the rate hikes, interest rates averaged around 16%. They are now above 24%. My takeaways Overall, my assessment is that US inflation is not likely to go down to 2% by 2024. While consumers are under stress, it’s not enough to push the US economy into a recession. Therefore, I believe that the Fed would keep higher interest rates for a longer period. At each meeting, it would iterate whether to raise or to pause, but not to cut rates. Impacts to US Stock Market Valuation Up to now, investors were obsessed with the unrealistic assumptions of Fed cutting rates three to four times in 2024. The Jackson Hole speech is a wake-up call. Stock market valuation will have to be repriced based on new long-term interest rate assumptions. Higher interest rates raise the cost of capital for all US corporations. Using the Discounted Cash Flow (DCF) stock valuation method, a company’s present value will decline as a higher rate discounts all future cash flows by a greater percentage. The S&P 500 index has gained 14.75% year-to-date. In recent weeks, it has retreated 200 points (-4.4%) from its 52-week high. The prospect of higher long-term interest rates could put further pressure on the Blue-chip US stock market index. The Nasdaq composite index has gained 29.85% year-to-date. It has a drawdown of 850 points (-5.9%) from its 52-week high. Even a blowout quarterly profit from chip giant Nvidia failed to lift the leading technology stock index higher last week. Trade Ideas On August 11th, 2022, I published a trade idea, “A Tale of Two Americas”. In assessing the impact of Fed rate hikes, I concluded that smaller companies would be hit harder than their larger counterparts. I explored the idea of shorting the lofty valued Russell 2000. At the time, the Russell was quoted at 1,974 and had a trailing Price/Earnings Ratio of 68.96. Fast-forwarding to August 25th, Russell was settled at 1,853 (-6.1%) and the P/E has collapsed to just 27.61, according to Birinyi Associates and Dow Jones Market Data. Today, I still favor the idea of shorting the CME Micro Russell 2000 ( FWB:M2K ). Why? A year ago, the US Corporate BBB Effective Yield was 5.04%. It rose 112 basis points to 6.16% last week, according to Fed data. After the Jackson Hole speech, I expect the bond yield to move up with the new assessment of higher long-term interest rate. Therefore, Russell 2000 would face further downward pressure. The March Rusell 2000 contract (M2KH4) was settled at 1,888 last Friday. Each contract is $5 x Index and has a notional value of $9,440 at current market price. CME requires an initial margin of $620. While shorting a futures contract, an investor could consider setting a stop loss. Hypothetically, a stop loss at 1,800 would limit the loss to $440 (= (1888-1800) * 5). Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZQ1!Long
by JimHuangChicago
5
📈MY TAKE ON THE FED, INFLATION AND CREDIT📊 TLDR: I think the price increase we are seeing is not inflation, the economy is going from bad to worse and the FED's actions don't make any sense. At the peak of the great inflation of the 70s in USA while both long and short term interest rates were going up together with inflation, so was the aggregate credit. In fact loans to businesses were growing faster than inflation. Whereas now, while the short term rates are going up the aggregate credit is going down. Businesses aren’t borrowing and the banks aren’t lending. And as it was established by Milton Friedman, inflation is exclusively a MONETARY phenomenon. Therefore price increase followed by unchanged or decreased aggregate credit in not inflation. Which is exactly what we are seeing right now. It might be attributed to the ongoing effects of the Covid era supply shock which created long lasting bottlenecks, the war in Ukraine or some other fundamental systemic economic problem but it’s not conventional inflation which means that raising interest rates will do nothing but further damage the already weak economy (which is reflected in the unprecedented drop in demand for credit) So, the further rate hikes that were hinted yesterday by the FED don’t make any sense and we should be expecting a fast race to the zero with more QE when the economic sh*t hits the political fan. But, let’s wait and see.
OANDA:XAUUSDShort
by TopTradingSignals
4
$BTC -Range Bound *12hr- CRYPTOCAP:BTC continues trading within a Tight Range of 2K, dancing tango with range's bottom and ceiling, until it doesn't. 40.000$+ per #Bitcoin is not as far fetched from here, all Bitcoin gots to do is break current range to the upside before resuming higher. Besides that, the awaiting Feds Rate Hike decision will impact direction of CRYPTOCAP:BTC and other Financial Market sectors. Breaking down from the range, upcoming supports are EMA200 catching up to 12Hr(tf), Demand Zone during impulsive price action in 1Hr(tf) + a small support trendline. If all these zones fail to provide support assuming a range breakdown headed South, watch for S/R zone 24K-25K to catch a decent bounce, welcoming great probability outcome Longing on Derivatives . Remain Patient ! Until the next confirmation TRADE SAFE *** Note that this is not Financial Advice . Please do your own research and consult your own Financial Advisor before partaking on any trading activity based solely on this Idea
BITMEX:XBT
by Mr_J__fx
GB10Y vs GBP/USD #gilts #gbp #recessionThe 10 Year gilt vs the GBP. Fractal taken from 2007 just before the 2008 recession. interest rates are expecting to keep raising! why this chart indicates they are coming to the end of the tightening cycle! as mentioned before I'm expecting more strength in the pound due to weakness in the dollar. Expecting the BOE to pause rate hikes next meeting after the aggressive 50 bpts increase. GBP strength would relieve pressure from BOE and we should see inflation drop. possible we see more banking contagion and possible further hike's if inflation doesn't drop fast enough. but how long can they tighten for? before revenue loss exceeds Debt. credit will be way more expensive, mortgage demand drops. - this would cause a pull back in the housing market, this is when I would expect the fed to crash rates, to support crashing market's and the BOE to follow suite. going off this chart 2007 fractal - by April 2024 we should see GBY10 back down too 2%. which mean's the fed must of cut real rates by then in order to see BOE follow their policy. bad for pension's as real inflation will be much higher than 2%. but would create much more liquidity for market's and cheaper debt for growth. more revenue to the service the mountain of debt, in order to strengthen GDP.
TVC:GB10Y
by dibz1996
More Rate Hikes on the MenuCBOT: Micro 30-Year Treasury Yield ( CBOT_MINI:30Y1! ) President Biden and House Speaker Kevin McCarthy reached an agreement in principle late Saturday to raise the nation’s debt limit and cut federal spending, ending a rollercoaster round of negotiations. The current national debt ceiling is $31.4 trillion. The tentative deal would raise it by $4 trillion through the end of 2024. In return, it would cap annual discretionary spending for two years, keeping non-defense spending levels flat. Future Fed Rate Actions With a US default and potential economic disaster being averted, the Federal Reserve (Fed) would likely stay on its course of fighting inflation. On May 26th, the Bureau of Economic Analysis (BEA) reported the Personal Consumption Expenditures Price Index (PCE) up by 0.4% in April to an annual rate of 4.4%. This surpassed both the market consensus of 3.9% and the March PCE of 4.2%. The Core PCE excluding food and energy is 4.7%, exceeding March level by 0.1%. The surprising rebound in inflation indicates that the Fed’s job is not done, even after it hiked the Fed Funds rate seven times last year and three more times in 2023. CME FedWatch Tool gauges the probabilities of rate hikes based on 30-Day Fed Funds futures pricing data. It shows that, on May 28th, the odds of a 25-bp hike in June FOMC meeting at 64.2%. The probability of raising another 25 bps in July is 27.1%. The futures market does not expect the Fed to cut interest rates before the end of the year. The interest rate market is in disarray, and this may present new trading opportunities. Mortgage Rate Tops 7% On Sunday, May 28th, the average 30-year fixed mortgage interest rate is 7.15%, rising 16 basis points from last week, according to Bankrate.com. This is an annual increase of 1.61%: the 30-year fixed was 5.54% on May 26th, 2022; Prior to the Fed rate hikes, it was only 3.65%-3.85% in February 2022. MORTGAGE30US, the mortgage rate data tracked by the Federal Reserve Bank of St. Louis, records 6.57% on May 25th. Meanwhile, CBOT 30-Year Micro Yield Futures is quoted 3.988% for its May contract last Friday. What does this mean? The 30-year duration interest rate spread between the riskless Treasury rate and a risky mortgage rate is now 258 basis points. For comparison, in September 2021, the same spread was only 80 bps with a 2.1% Treasury yield and a 2.9% mortgage rate. The spread has more than tripled in the past two years. When the Fed started raising rates last year, both Treasury yield and mortgage rate rose. The trends diverged in October. In the mortgage market, banks continued to raise lending rates in response to the actual increases in the cost of capital. In the financial market, “Fed Pivot” expectations weighed on Treasury prices. As the Fed lowered the rate increases from 75 bps to 50 bps and then 25 bps, 10- and 30-Year bond yields fell, while 1-Month and 2-Year yields rose, creating a negative yield curve, or the so-called inverted yield curve. Why Treasury Yield Needs to Catch Up In hindsight, mortgage bankers are proven to be right, while the rate cut forecast by bond investors is premature. With the new twist in inflation data, both bond yield and mortgage rate have the potential to go up further in the coming months. Treasury bond yield has some “catching up” to do as investors adjust their expectations. Here is my logic: Firstly, raising the debt ceiling opens up trillions of dollars of new government borrowing. By the rule of supply and demand, a high demand of money will raise its price, all else constant. Treasury bond yield is the price the government paid to borrow money; Secondly, the last-minute deal on debt ceiling helps avoid a potential economic crisis. The housing market is cooling but unlikely to crash any time soon. This ensures that the higher mortgage rates are here to stay; Thirdly, the large interest rate spread created an arbitrage opportunity for lenders by borrowing from the bond market to fund the mortgage operations with the same maturity; Therefore, the 30-year Mortgage-to-Treasury spread could narrow in the future. Since mortgage rate is not likely to fall, the gap could be closed by a higher Treasury yield. We could express the view of high Treasury yield expectation by establishing a long position in CBOT 30-Year Micro Yield Futures. The June contract 30YM3 is quoted 4.000% last Friday. Each contract has a notional value of 1,000 index points, which equates to $4,000 at current quote. CME Group requires an initial margin of $300 per contract. Current Fed Funds target rate is 500-525 bps. Hypothetically, if the Fed raises 25 bps in June, and 30-Year Treasury Yield goes up by the same amount, a long futures position could gain $250. This would be equivalent to an 83% return, excluding commissions. Long Futures would lose money if the yield falls, by $10 for each basis point movement. The July contract 30YN3 will begin trading this week. I would monitor the opening price to determine if it is still quoted at a discount - below short-term Treasury rate and mortgage rate. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT_MINI:30Y1!Long
by JimHuangChicago
Euro Soars with Dollar WoesOne thing about tables, they turn. This time last year, the dollar was unrivalled. Now, it is being challenged amid a banking crisis, recessionary fears, and a debt ceiling drama. Having stepped up on the rates faster than the rest, the US Fed’s combat against inflation fuelled a dollar rally . It now finds itself between a hard place and a rock. Many expect the Fed to pause. In contrast, the ECB, having been slower off the block, has gradually lifted rates with ample headroom for further policy intervention to fend off a resurgent Euro area inflation. This paper explores fundamental forces driving a rally in the Euro and the headwinds facing the dollar. With EUR/USD making a golden cross on March 27th, this case study posits a long position in Euro using the CME Euro FX Futures delivering a 3x reward to risk ratio with entry at 1.1025 and target of 1.17 hedged by a stop at 1.08. Crushed and Bruised Euro is Fighting Back 2022 was a crushing year for the Euro. Geopolitics plunged Europe into an energy crisis. Bleak prospects plus soaring inflation meant deep recession. The Euro was wounded. The Euro was dealt another blow as the ECB was slow to lift rates. Key eurozone rates were well below those in the US, as the Fed was all pedal to the metal with unprecedented hikes. Higher yields in the US attracted foreign funds, boosting the dollar at the expense of other currencies. Tables turn and times change. Euro's rise is in part thanks to milder European winter. Warmer than normal and prudent energy consumption has kept gas prices in check. The region may well avoid a recession. In fact, it posted a surprise output growth in the final quarter of last year. A hawkish ECB also well supports the Euro. It continues to hike rates to tackle inflation, which remains stubbornly high. As rates in Europe rise while those in US stall, the Euro will attract capital inflows from across the Atlantic. Dollar’s dominance is being challenged Over the last 10 years, the Dollar Index (DXY) has gained ~25% while the EUR/USD has shed ~19%. The rotation away from the dollar is underway. Not only Euros, but the dollar has also been losing ground against other majors, including the sterling and the yen. Easing inflationary pressures should spell victory for the Fed allowing it to tone down its fighting monetary stance. Premium for insuring against US government default spiked to its highest level in more than a decade amid political impasse related to debt ceiling. While this political embarrassment is likely to be inconsequential, the tiny risk of a dollar debacle cannot be ignored. Investors hedging against this risk are likely to push the dollar lower. Is this De-dollarisation? The de-dollarisation camp shouts loud. But ignore the noise. Surely, the weaponisation of the dollar has alarmed nations. Not surprisingly, many are attempting to wean away from dollar dependence for trade settlement. The dollar’s share in forex reserves used to be 71.5% at the turn of the century and has gradually declined to 58.3% as of the end of 2022. The dollar remains at the core of global trade and finance. The dollar forms 88% of FX transactions. Distant second is Euro at 31%, according to 2022 BIS figures (aggregates equal 200% as each transaction involves two currencies). Transactions involving the Chinese yuan having grown at 70% over last three years represents a mere 7% of the total. About 60% of the world's forex reserves aggregating to USD 11 trillion are still denominated in dollar. The dollar will continue to play a pre-eminent role in global trade and as a global reserve for a long time to come. Absent a credible alternative, albeit weakened, the dollar is here to stay. Rate Expectations Point to the Fed Pausing Earlier Than ECB CME’s FedWatch tool shows a 78% probability of another 25bps rate hike at the next meeting on May 3rd and a 67% probability of no rate hike at the June meeting. Fed pause before pivot remains market expectations. Meanwhile, Reuters reported that the ECB is expected to raise rates by 25bps at its next meeting in May. Crucially, ECB survey of professional forecasters points to another 25bps rate hike in Q2 before pausing. Asset Managers & Funds are positioning for Euro to rally CFTC’s Commitment of Traders (CoT) report shows that leveraged funds and asset managers are bullish Euro. Asset managers increased net longs by 7.4% over the last 12 weeks. Leveraged funds have flipped from net short to net long, increasing long positioning by 125%. Meanwhile, the CoT for DXY futures shows that asset managers are still net long but have reduced long positions by 20.5%. Options Market are signalling bullish Euro and bearish Dollar Monthly options on Euro FX futures are trading with a put-call ratio of 0.87 pointing to more calls than puts, indicating Euro bullishness. Euro buoyancy is particularly apparent for June expiry options which have a put-call ratio of 0.6. Meanwhile, thinly traded options on DXY futures expiring in June have a put-call ratio of 1.66 signalling that market participants are bearish dollar with 1.66 puts for every call option. Trade Setup Each lot of CME Euro FX Futures provides exposure to 125,000 Euros. Every 0.00005 increment in the contract represents a trading P&L of USD 6.25. ● Entry: 1.1025 ● Target: 1.17 ● Stop: 1.08 ● Profit at target: USD 8,440 ● Loss at stop: USD 2,810 ● Reward-to-risk: 3x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:6EM2023Long
by mintdotfinance
3
Gold Targets if the Fed Pauses Rate Hikes Gold has managed to surge its way to US$2,020/oz, taking full advantage of the renewed weakness in the dollar price and treasury yields. Recent data from the US showed a slowdown in the services sector growth, fewer private company job additions than expected in March, and a fall in factory orders for the second consecutive month. This suggests that the economy could be cooling down amid higher interest rates. As a result, the market anticipates that the Fed will keep the funds rate steady next month, following a similar path to the Reserve Bank of Australia which decided to pause its rate hikes this month. Investors have recently increased their bets that the Fed will opt for a pause in its rate hikes after its May 2-3 meeting to approximately 60%, up from around 43% the previous day. Gold is particularly sensitive to the rates outlook because lower interest rates reduce the opportunity cost of holding non-yielding gold. If the Fed does decide to pause rate hikes in May, how might we expect the price of gold to react? Markets see a ~60% probability that the Fed will pause. Target prices could include US$2,027, US$2,032, US$2,036, and US$2,040, with the first two being levels of recent struggle. If we want to look back to the last time that gold was this expensive (March 2022), we might like to consider a couple daily peaks at US$2,070 and US$2,060 as higher targets. The Fed decision is still quite some time away, so some downside risk is of course still present in the meantime.
BLACKBULL:XAUUSD
by BlackBull_Markets
GBP & Gold Reaction to UK Inflation and US Rate HikeTwo significant events have occurred within the past 12 hours, causing both GBPUSD and gold prices to surge. The first event was the unexpected rise in UK inflation, which jumped from 10.1% in January to 10.4% in February 2023, marking the first increase in four months. The primary factor behind this increase was the soaring food and drink prices, which surged at the fastest pace in 45 years. This inflation reading may fuel arguments that the Bank of England needs to boost interest rates again. However, the data might have arrived too late to impact the Bank's interest rate decision, which is due tomorrow. Nevertheless, the GBP rallied against the USD, before subsiding, and then rallying again on the news of the second event. The second event occurred an hour ago, with the US Federal Reserve announcing its latest interest rate decision, which included a 25-basis-point hike. While most of the market had anticipated this move, some participants believed that the Fed might pause its rate hikes. In the post-decision address, Fed Chair Jerome Powell acknowledged that recent economic indicators, particularly job data, have come in stronger than expected. However, Powell noted that the recent turmoil in the banking sector should result in tighter lending conditions, which will help combat the robust economic data. Nonetheless, Powell added that it was too early to determine how monetary policy should respond to the recent banking crisis, but it will play a role in future rate hike decisions. Gold is following a similar path to the GBP/USD and appears to be encountering some resistance at $1,970.
by BlackBull_Markets
Credit Suisse Woes Threat to ECB Rate Hike and EUR TradeAfter a brief period of calm following the collapse of Silicon Valley Bank, Credit Suisse disclosed "material weaknesses" in their financial reporting controls and ongoing customer outflows, setting off another bout of instability across global assets. Credit Suisse's biggest investor, Saudi National Bank, also noted that it could not offer more financial support to the troubled Swiss Bank leading to shares in Credit Suisse falling more than 20%. Switzerland’s central bank has come to the rescue though, saying it is ready to provide financial support to Credit Suisse, if necessary, helping the shares to recover about half of its losses on Wednesday, and rising from its record low under $2.00. There is now growing concern over wider instability in the banking sector. This led to expectations that the Federal Reserve might slow down or pause hiking rates. Although, on Wednesday, the dollar rose due to safe haven buying, while European currencies sharply declined. The Euro, which had seen a 0.02% gain over a month, fell 1.4%, and the market is pricing in a 60% chance of a 25-basis-point hike in euro zone rates on Thursday, compared to a previous 90% chance of a 50-bps hike. The ECB’s interest rate decision is due on Thursday at 9:15am EDT. Elsewhere, the dollar rose 1.8% against the Swiss franc, while sterling traded down 0.8%. The Japanese yen strengthened 0.58%. As investors sought safe havens, gold prices continued their recent rally, with gold up 0.8% and silver up 0.3%. Conversely, oil prices fell by more than $5 a barrel.
by BlackBull_Markets
Dollar Doing a Double CheckTraders, The Dollar really wants to make sure that its resistance overhead is legit. From a technical perspective, I love this! Should the dollar remain below my macro uptrend line, it will be all bulls for the next few weeks/months in the U.S. stock markets. The dollar should continue its sideways/down movement during the same interim. If the VIX is any indicator, then my thesis appears to remain intact. Watch closely. Blow off top should peak by mid/late summer or early fall. Best, Stew
TVC:DXYShort
by stewdamus
1
FED EMERGENCY BOARD MEETING - That's all we have, voting members, will participate, on the page. Closed Board Meeting on January 14, 2022 Government in the Sunshine Meeting Notice Notice of a Meeting under Expedited Procedures On Friday, January 14, 2022 at 10:30 a.m., a meeting of the Board of Governors of the Federal Reserve System was held under expedited procedures, as set forth in section 261b.7 of the Board's Rules Regarding Public Observation of Meetings, audio/video conference call, to consider the following matters of official Board business. Meeting Date: Friday, January 14, 2022 Matter(s) Considered: 1.Periodic Briefing and Discussion on Financial Markets, Institutions, and Infrastructure.9(A)(i) Effective January 14, 2022, the meeting was closed to public observation by Order of the Board of Governors1 because the matters fall under exemption(s) 9(A)(i) of the Government in the Sunshine Act (5 U.S.C. Section 552b(c)), and it was determined that the public interest did not require opening the meeting. For more information please contact: Michelle Smith, Director, Assistant to the Board, Division of Board Members at 202-452-2955. Supplementary Information: This meeting notice, which is available in the Board's Freedom of Information and Public Affairs Offices, is also available electronically at www.federalreserve.gov on the Board's Web site. (The Web site also includes procedural and other information about the closed meeting.) Dated: 01/14/2022 1. Voting for this action: Chair Powell, and Governors Brainard, Bowman and Waller. Return to Text www.federalreserve.gov
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by ElGatoTrade
Oil Prices Struggle amid Growing Recession Fears and Fed HikesEarlier today, oil prices were on the rise after the shutdown of the Keystone pipeline. However, this rally was quickly wiped out as sellers attacked the market, pushing prices even lower. The oil market has been struggling due to growing concerns about a potential recession and the belief that central banks have tightened monetary policy too much. This fall in oil prices has also had the side effect of reversing inflation, which can be seen as a positive for central banks. Despite this, there is some support for oil prices at the $70 level, as this is when the White House talked about refilling the Strategic Petroleum Reserve (SPR). Overall, the outlook for the oil market remains uncertain, with concerns about a potential recession and the actions of central banks continuing to weigh on prices. However, some analysts believe that a relief rally is still possible in the coming days and weeks, as the shutdown of the Keystone pipeline and other factors could provide support for oil prices. Jargon Explained Strategic Petroleum Reserve The Strategic Petroleum Reserve (SPR) is a reserve of crude oil stored by the United States government in underground salt caverns. The SPR was created in response to the oil embargo of the 1970s, and its purpose is to provide a emergency supply of crude oil that can be quickly released onto the market in the event of a supply disruption. Keystone Pipeline The Keystone pipeline is a system of oil pipelines that transport crude oil from Canada to refineries in the United States. The pipeline system consists of two phases: the first carries oil from the oil sands of Alberta, Canada to refineries in Illinois and Oklahoma, while the second phase, known as Keystone XL, would carry oil from Alberta to refineries on the Gulf Coast of Texas. The Keystone pipeline has been the subject of controversy, with opponents arguing that it poses risks to the environment and to local communities.
FX:USOILShort
by JoelWarby
When DXY will crash???Since FED started to raise interest rates I decided do not share any TA here… Raising interest rates bullish for U.S. dollar - bearish for our Crypto world! Im watching more close DXY since I saw an article ”Saudi Arabia requests to join BRICS” As we can see on the monthly chart DXY was moving inside of rising parallel channel since 2008 and since 2021 the DXY has been experiencing a parabolic rise. Currently, we see that the DXY has reached another area of resistance in the 114 range (which is 161.80% fib level and upper line of rising parallel channel) the next major area of resistance is only at 120 (black line). This resistance is marked by the macro peak of early 2002. Guess what?! since BRICS news came out, our magic parabola support line has been broken(blue line). Why will it affect to U.S dollar? Because Russian President Vladimir Putin announced that the BRICS economies plan to issue a “new global reserve currency.” If Saudi Arabia joins BRICS, it will be another strategic blow to the American Empire. BRICS can launch a democratic and commodity-backed global currency to challenge the U.S. dollar. On the other hand we all know FED won’t raise interest rates forever. What will happen when FED pivots and drops interest rates as England just did? Will U.S. dollar follow English Pound Sterling? I believe it will. Are we close to bottom? No one knows! Everyone is expecting 14k-9k as a bottom, even lower. Let me remind you, last time these “everyone” were expecting final pump to 100k with so much confidence! Not financial advice!
TVC:DXY
by Madinakh
Housing Market Crash Incoming!Demand always rules supply. Always. BLUF: Short-term projection = TBD Mid-term projection = bullish Long-term projection = bearish to extremely bearish Traders, I have been quick to point out the tremendous amount of disinflationary data in my videos which leads CPI reports in some cases by as much as 6 months (i.e. -rent). Now, let's take a closer look at the NAHB's Housing Market Index data which helps us to better denote market sentiment. First, observe that we have entered well below the weak demand zone. This is generally an area in which we can notice softening demand. Though the housing market may still remain hot in certain cities, others have noted softening demand. Once we dive below this "Weakening Demand Zone", it can often represent the beginning of a housing market recession, or, in the case of the 2008 era, a crash! We began this crash with certain city markets plummeting through this weakening demand zone, Detroit comes to mind along with a few others. These were our lead cities to watch at the time. At the point in which weakness in these markets began to be acknowledged and reported, it was already too late. Michael Bury (aka - The Big Short) knew this. The crash had begun. The markets did not react immediately, as we all know. In fact, the opposite: it would be a full 17 months before the stock markets reached their tops and then crashed hard. In a similar fashion, the Fed was notoriously tardy in recognizing lead disinflationary indicators and reducing rates accordingly. Not until a full year and two months AFTER the housing demand fell below its weakening zone would the Fed jump in and begin to diminish rates. By then it was too late. Fast forward to 2022. Despite the fact that our U.S. housing demand has fallen far below the weakening demand zone and below the approximate median for a housing crash start, the Fed continues to raise rates at a historic record pace. These rate hikes will come home to roost eventually, but not immediately. This is why I am under the persuasion that we WILL enter a more disastrous recession or worse in 2023. The lag effect of the Fed rate hikes will have a significant consequential impact. Just as in our past housing market crash story the impact will be significantly delayed and by the time they are noticeably felt, it will be far too late. Disinflationary data, low demand, low consumer sentiment, etc., will have hit us harder far in advance and the Fed will have realized they should have pivoted sooner. Though my longer-term outlook appears rather dismal at the onset, my mid-term outlook may be rather surprising to many. I do believe that just as occurred before the 2007-2008 market crash, the preceding price action will become bullish. It took the market a full 17 months to recognize the significance of our housing data, and the fed wasn't much better. Will it be any better this time around? It might be, but as we can learn from history, the market collective and the fed are often irrational and reactionary. The case for my blowoff top past the previous year's November highs still stands. The market will begin to recognize and digest more and more disinflationary data not least of which is housing market demand. The Fed will begin to be pressured more and more to pivot. And whether due to pressure or reason, I believe they will pause or pivot soon. Then the meltup (aka blowoff top) will begin. And sometime mid to late 2023, it all ends. Secular bull market (since 2009) exited. Secular bear market entered. Be ready my friends! And pray that I am wrong! Stew
ECONOMICS:USHMIShort
by stewdamus
2
US-DOLLAR (DXY) at Support!..AnalysisHey tradomaniacs, DXY (US-DOLLAR-INDEX) is currently re-testing the primary trendline aswell as support-zone. Question is will it hold or not? I can tell you it is tricky due to the new expectations the market prices in in uncertain times. What do we need for a bullish US-Dollar? 1. Risk-Off in stocks 2. Rising Yields / Falling Bonds Fundamentals: So far the market has reacted to different circumstances such as the Ukrain-War but first and foremost the inflation and the answer of our Central Banks. The market has never seen such a shift in monetary policy and multiple rate-hikes in this dimension. This is of course very concering as the Central Banks (Drug Dealer) takes away all the drugs (liquidity) the market is addicted to. Since the Corona-Rally is based on money-print-waves aswell as low rates it was more than clear that we get a bear-rally with the annoucement of Biden to fight inflation, no matter what it takes. (Ofc as it was his promis to biden to get a second period) However, now we have a scenario where the world is getting concerned about all the rate-hikes and their impacts. The first very critical situation appeared in the UK where Central Banks were forced to adjust the monetary policy. Now we have seen a lower rate-hike in Australia...this could become a "trend" of the CBs as they could take a step back and wait for the impact of recent rate-hakes. Trends like that can be quickly priced in the market... Yesterdays ISM-Results from the USA caused a pump in stocks as the market begins to bet the FED won`t come up with such high rate-hikes as announced to support the obviously slowing down economy. This is again a BET against the FED and Jeromes statements. I guess the market will look at the NFPs this week to evaluate whether it is more likely to get the promised rate-hikes or not. A decent job-market could give the market the impression that rate-hikes as planned are possible and we see a rising US-Dollar. A worse job-market could confirm the markets expectations (as economy aswell as jobmarket suffers) and we see a falling US-Dollar. Technically a great spot to go long but as long as SPX&Co continue to move up we will see a weaker US-Dollar. In Mid-term I expect the US-Dollar to rise again as recession is coming closer and closer (See Yield-Cuves). What do you think?
TVC:DXY
by Trading2ez
1