Get started

Fed

Yen Step Back, Two Steps ForwardDespite sharp inflation, the Bank of Japan (BOJ) left YCC unchanged on March 10th. This was Haruhiko Kuroda’s last meeting as BOJ Governor. Japan is still struggling to stoke growth at risk of sustained stagflation. Hence, his decision to leave rates intact was no surprise. Kuroda left the YCC unchanged. Analysts expected him to scrap the YCC so that the new incoming governor, Kazuo Ueda could start afresh. Hopes of change are now expected at the next BOJ policy meeting on April 27th. Kuroda leaves behind a mixed legacy. His strong monetary stimulus lifted the Japanese economy out of deflation at the cost of hurting bank profits with ultra-low rates. Growth has remained tepid. Kuroda has been a source of stability. More than what was needed in the staid land of the rising sun. Now, the monetary policy landscape is expected to shift as Ueda takes charge. New BOJ leadership and an aggressive US Fed will create near term weakness in JPY followed by medium term strength. This case study analyses a two staged positioning in CME Japanese Yen Futures to harness yield from anticipated currency moves. Change of Guard at the BOJ Under the new governor, definitive shifts are afoot. Inflation in Japan is non-negative. Really? Yes. Not only non-negative but also at levels unseen in 43 years. Kuroda may not have radically transformed Japanese economy, but he managed to revive its equity market. The risk of uncertainty and volatility exists once he leaves the office. Markets are used to perennial Japanese low inflation, and to a consistent central bank leadership. Both are now going or gone. Another big shift is BOJ's more definitive independence. While separate from Government of Japan, BOJ was seen as being an integral part of Abenomics to snap out of deflation. The Kishida-Ueda relationship is different. Prime Minister Kishida has not outlined a particular direction on macroeconomic policy. Politically, the LDP is far from united, not least on fiscal and monetary policies. Kishida’s base of support within the party is fragile, and his approval ratings have been in a prolonged slump. As a BOJ governor, Ueda comes from an unconventional background. He is the first academic to assume leadership of BOJ. He has not managed a large organization. He is knowledgeable about monetary policy and is a protege of Stanley Fisher. What, then, can we expect from Ueda? He is not convinced that inflation is sticky. Ueda maintains that “…inflation is led by cost-push factors” and “it will still take time to achieve sustainable inflation.” It does hint that he isn't someone who will make any sudden major moves. That said, in a parliamentary hearing earlier this month, Ueda hinted that the current YCC was unlikely to survive. Engaging the market is essential he said before adding that “in some cases, adding a surprise factor is unavoidable.” There is growing evidence emerging from the annual “shunto” (a big wage negotiation between unions and employers) that workers are asking for the largest raise in base pay in 25 years. Some Japanese employers have already raised wages sharply higher with case in point being Fast Retailing (a Japanese listed firm and parent company of Uniqlo) which raised pay by 40% earlier this year. Until now, it has been possible to attribute Japan’s inflation to the rise in the cost of imports driven by weak yen. Big wage increases would change that. However, the latest data, published Tuesday, shows that wage growth is not rising as fast as expected. In cash terms, it reached the highest level in decades last year, but the January figure was far lower. Real wages adjusted for inflation have been falling the most since 2009. Balancing growth while keeping inflation under control is not a small feat. Next BOJ policy meeting is more than a month away. Meanwhile, the US Fed is becoming more hawkish in its fight against domestic inflation. Another rate hike by the US Fed will further weaken the fragile Yen. The US macro environment is making an already complicated situation even more difficult. The failure of Silicon Valley Bank along with closure of Signature Bank and Silvergate Bank is testing the Fed’s wit. US Inflation continues to remain hot and three times the Fed’s target. With the liquidity backstop in place, the Fed is likely to jack up its rate by another 25 basis points when it meets on March 22nd. CME’s FedWatch tool pegs the likelihood of that happening at 82% as of March 14th. Against that backdrop, Ueda could do one of the three once in office – (1) further widen the 10-year JGB interest rate band, (2) target shorter term yields & thereby reduce JGB holdings, and (3) abandon yield targeting altogether. Options Markets are Bullish JPY/USD Options on CME’s Japanese Yen futures have an overall Put/Call ratio of 0.56 across all expiries, indicating that investors are expecting the Yen to weaken. In sharp contrast though, options for the July contract show a deviation from the trend with a Put/Call ratio of 2.6x. This coincides with the release of the 2nd Outlook Report by the BOJ after Ueda takes over, indicating the market expectation on Yen’s reversal versus USD starting July. How much more JGB can BOJ keep buying to sustain YCC? Can this last? Last December, the BOJ tweaked its YCC policy, to allow the 10-year Japanese Government Bonds (JGB) yield to move 50 basis points (bps) on either side of its 0% target, wider than the previous 25 bps band. The move stunned markets as BOJ hinted at monetary tightening after having stuck to its ultra-loose policy stance for a long time. YCC tweak spilled over into January as BOJ was forced to purchase a record $182B of JGB to defend its higher yield cap from breaching the ceiling of 0.50%. The BOJ now holds more than 50% of JGB, making the situation ever more unsustainable. Adding to the JGB burden, BOJ also owns the majority of domestically listed exchange traded funds (ETFs). Besides massive JGB purchases, the BOJ remodeled in January a funds-supply operation into a tool to prevent yields from rising rapidly. Beyond the current short-term loans, the BOJ amended the rules to offer funds extending up to 10 years with variable rates. In January, BOJ provided loans of 3T Yen in the January offer before extending the terms of the loan to 10-year for subsequent loans. In February, BOJ tweaked the fund-supply policy terms, including the quadrupling of minimum lending fee from 0.25%-1%, to limit the short-selling of JGB’s, this indicates that the BOJ is having to use all tools at their disposal in order to defend JGB yields from rising above their defined cap. The BOJ defended yet another attack on the YCC again in February prompting a further $2.2B of JGB purchases to keep yields from breaching the ceiling. Economists anticipate that Ueda will fundamentally revisit YCC before BOJ lands in crisis. Ueda starts on April 9th. It is unlikely that he will make any radical moves instantly. Meanwhile, Fed Chair Powell is going all guns blazing to tame inflation down. Jobs data released last Friday showed the creation of 311,000 jobs smashing expectations of 225,000 jobs indicating a tight labor market. A strong labor market risks fueling a wage-inflation spiral, leaving the Fed with no choice but to jack up rates further. Two Stage Trade Setup to Gain from Near Term Weakness & Medium-Term Strength CME’s Japanese Yen Futures provides investors an exposure of 12.5 million Japanese Yen for every lot with the price quoted in USD per JPY increment. Every 0.0000005 change in JPY provides an increment of $6.25 in contract value. With the USD expected to strengthen in the near-term, JPY will weaken until the next policy meeting on April 27th. As such a short position using CME Japanese Yen futures expiring in June (6JM2023) would provide a reward-to-risk ratio of 0.6x. Stage 1 Entry: 0.0075390 Target Level: 0.0074550 Stop Level: 0.0076670 Profit at Target: $1,050 Loss at Stop: $1,725 Reward-to-Risk: 0.6x Stage 2 Thereafter, if Ueda starts to steer Japan’s monetary policy stance differently, JPY will start to strengthen in the medium term. Following from a short position in the near term, a subsequent long position in CME’s Japanese Yen futures will allow the investor to gain from the strengthening JPY. Entry: 0.0074550 Target Level: 0.0081445 Stop Level: 0.0072775 Profit at Target: $8,620 Loss at Stop: $2,220 Reward-to-Risk: 3.88x 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 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. This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or needs of any person. Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of future performance. All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience. Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk. These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
CME:6JM2023Long
by mintdotfinance
2
Has The U.S. Dollar DXY Peaked In 2023?After steadily climbing throughout 2021, the DXY saw a solid start to 2022. The US Dollar Index rallied from a low point of 94.63 in mid-January to a 20-year high of just over 114 in late September. DXY has experienced a significant drop since the publication of cooler-than-expected inflation data. Expectations of slower rate hikes from the Fed, and a lower potential terminal rate for US interest rates, have resulted in a repositioned dollar. I believe the USD will weaken further in 2023, as its significant overvaluation (based on the real effective exchange rate (REER)) can no longer be supported, once the Fed stops hiking, global growth shows signs of toughing and market volatility comes down. Technically, the dollar index DXY on the monthly timeframe closed below the 21-EMA for the first time since Aug. 2021, below the critical resistance represented in 102.80 level. Next downside target: 99.35 support level. (on the medium-to-long term)
TVC:DXYShort
by AlyaAkram
AUD/USD climbs, RBA likely to pauseThe Australian dollar has started the week with gains. In the North American session, AUD/USD is trading at 0.6636, up 0.25%. The Reserve Bank of Australia is widely expected to pause rates for a second straight month at Tuesday's policy meeting. The latest inflation numbers indicated that inflation fell from 7.8% to 7.0% in the first quarter. This is much too high for the RBA, but if inflation continues to drop in large increments, the central bank may be able to forego further rate hikes. The RBA has tightened dramatically over the past year, and the rate hikes are having an effect on the economy and on lowering inflation. The markets have priced in a 100% chance of a pause on Tuesday, according to the ASX RBA rate tracker, but some analysts feel there is an outside chance of a 25-basis point hike, given that inflation remains much higher than the 2% target. The RBA is trying to guide the economy to a soft landing, and the deceleration in inflation is welcome but poses a challenge as to whether further rate hikes are needed or whether will inflation continue to fall without additional tightening. The Fed meets a day after the RBA, and the markets have priced in an 89% chance of a 25-basis point hike, according to the CME Group, up from 83% on Friday. What will be interesting is if there any dissenting votes, after a unanimous vote in March to raise rates by 25 bp. With inflation heading lower, there are concerns that the Fed's aggressive rate tightening could push the economy into a recession and that it's time for a pause. The banking crisis, which has claimed First Republic Bank as its most recent victim, has resulted in tighter credit conditions which are equivalent to a 25-bp or even a 50-bp rate hike. That should translate into the Fed winding up its tightening cycle earlier than it anticipated, and Wednesday's decision could well be the final rate hike in the current cycle. In the US, the ISM Manufacturing PMI rose to 47.1 in April, above the forecast of 46.6 and the March reading of 46.3. Manufacturing continues to falter and has contracted for seven straight months, with readings below the 50.0 level. AUD/USD is testing resistance at 0.6632. The next resistance line is 0.6664 0.6558 and 0.6434 are providing support
by OANDA
Dancing on the Ceiling In recent days, a variety of technology stocks have surged as a result of robust earnings reports. Microsoft's impressive cloud and AI performance have been particularly noteworthy, leading to a ~8% increase in its stock value. The company was on the verge of breaking its single-day record for market capitalization growth. In contrast, cryptocurrency markets have experienced a far more substantial upswing than equities over the past few days. Bitcoin has once again spearheaded the crypto rally, as expectations for future rate hikes dropped substantially due to continuing cracks in the regional banking system. However, this time, the change in the narrative was triggered by a larger-than-anticipated decline in deposits for First Republic (FRC), which has inflicted severe damage on FRC’s balance sheet and will be difficult to overcome. On Tuesday, FRC's stock plunged by about 49%, followed by another 25% drop on Wednesday morning. In other news, the ongoing U.S. debt ceiling crisis presents a compelling and potentially precarious situation that warrants close attention. Earlier in January, the U.S. government reached its borrowing limit and has since relied on "extraordinary measures" to manage its cash flow due to the absence of new treasury issuances. As a result, the Treasury's cash balance has been steadily decreasing this year, and financial markets are becoming increasingly concerned as funds are expected to run out by June, potentially leading the government to default on its debt obligations. This scenario merits close monitoring, as evidence suggests that a technical default could trigger contagion effects, which, in a worst-case scenario, could potentially double the U.S. unemployment rate to around 7%. Furthermore, a divided Congress will make raising the debt ceiling particularly challenging for Democrats unless compromises are reached. Market apprehensions are evident in soaring credit default swap spreads—an indicator of the cost to protect against a U.S. government default—as well as the spread between 1-month and 3-month Treasury Bill yields (approximately 3.4% vs around 5.1%) widening. Recently investors have sought 1-month Treasury Bills that mature before the predicted exhaustion of government funds, causing the price of 1-month Bills to rise and their yield to fall. From a technical standpoint, Bitcoin has experienced a minor pullback from its local top of around HKEX:31 ,000 and has since tested the 50-day moving average before regaining some bullish momentum. In the event of another pullback, traders will likely watch for the 50-day moving average to serve as support once again. MA9 and MA50 are also beginning to converge, with a potential crossing of MA9 below MA50 imminent. This would be a bearish signal. When MA9 previously crossed above MA50, Bitcoin gained significant momentum, underscoring the importance of a potential crossing of MA9 below MA50. Looking ahead, key dates to monitor include May 3rd and 4th, when the upcoming FOMC meeting is scheduled. The Federal Reserve has already hinted at a further 25 basis point hike, which the market has likely priced in. Nonetheless, exercising caution is advisable, as the Fed may take unexpected actions during this meeting.
BINANCE:BTCUSD
by Coinrule
EUR/USD's hidden clues & key levels? Here’s an interesting chart: the inflation differential of the US and the EU plotted against the EUR/USD pair. If we approximate the range of the inflation differential with an upper bound of 1.5 and a lower bound of -0.5, we get a compelling signal for trading the EUR/USD pair. Buying EUR/USD when the inflation differential bottoms has resulted in success 4 out of the 5 times this signal was triggered. Repeating the analysis using the preferred inflation measures for both central banks – PCE for the Federal Reserve (Fed) and EU HICP for the European Central Bank (ECB) – yields similar results. Is this spurious correlation or is there more to this? Our guess is that the inflation differential drives expectations of one central bank’s move versus the other which affects the currency pair. The upcoming US PCE release on 28th April will provide insight into whether the inflation differential between the US and EU will continue to narrow. The validity of this data remains to be seen, but it's certainly an intriguing observation to consider! The rather eventful economic calendar over the next two weeks offers opportunities for this pair. Starting with the PCE Price Index released on April 28th, it is followed by the Fed meeting on Wednesday, May 3rd and the ECB meeting on Thursday, May 4th. With these events in mind, we want to position ourselves for the flurry of announcements coming out, which could play into EUR/USD strength. The long-term price action still seems to point towards an uptrend, with the 100-day Simple Moving Average (SMA) crossing the 200-day SMA and clearly marking previous swings. The current price is also consolidating at the 1.1000 psychological level, with parity and 1.2000 levels roughly marking the EUR/USD range for the decade. Zooming in, the EURUSD has been trading in an uptrend. An attempt to break above the 1.11 level was quickly rejected, with prices trading back to the trend support shortly after. We are currently witnessing another attempt to break this same level once again. Hence, a risk-managed trade could yield opportunities here with the upcoming onslaught of announcements. Setting up a long position at the current level of 1.1074 with a tight stop just below the trend support at 1.0945 and take profit level of 1.1400 would give us a risk-reward ratio of roughly 2.5. Each 0.00005 increment per EUR in the EURUSD futures contract equal to 6.25$. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. 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: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com
CME:6E1!Long
by inspirante
EUR/USD Rises Back Above 1.1000The EUR/USD advanced on Monday, reaching the strongest level in ten days, above 1.1000. A higher euro across the board is helping the pair, while the dollar is performing mixed. At the time of writing, the EUR/USD is trading at 1.1008, up 0.17% above its opening price after topping at 1.1019. European equities and US stock futures are little changed, with the focus primarily on what will happen next week, which includes the Federal Reserve and the European Central Bank meetings and the US official employment report. There will be no words from FOCM officials these days (blackout period). Markets are pricing in rate hikes from both central banks. A 25 basis points from the Fed looks like a done deal, considering recent labor market data and the stability in financial markets. It will probably be the last rate hike of the current tightening cycle. Before the meeting, the key report will be on US Q1 GDP growth on Thursday, that also includes consumer inflation. The ECB is seen rising by 25 basis points, but it could also be a 50 basis point. If the odds of a larger rate hike increase, the euro would have scope for extra gains. Inflation and growth data from the Eurozone this week will be watched closely. From a technical standpoint, the EUR/USD remains with a bullish bias in the short-term, particularly while above 1.0970. A consolidation above 1.1000 would strengthen the positive outlook for the euro. The next target is the 1.1045 resistance, ahead of the April high at 1.1075. The pair is moving slowly at a quiet beginning of the week. A failure to hold above 1.1000 would suggest the pair is not ready for more gains and could likely keep moving sideways between 1.0900 and 1.1000. After that, however, the odds of a sharper bearish correction under 1.0900 would rise significantly.
by Alex_Boltyan_FXAnalyst
EURUSD: "...It's not over yet!!"The title of this analysis reproduces with a clear synthesis the key concept about the FED's monetary policy. The inflation data released in recent weeks should not mislead us, the core data still remains high. My view at the moment is that Fed will still be hawkish through late 2023, so I expect more rate hikes at upcoming meetings. The banking sector is holding up well after Yellen reassured the markets several times about a potential banking crisis, and I also think the sector will not lack liquidity, at least for 2023. The US currency may have found a short-term bottom, but we need 1-2 sessions to confirm it. FX:EURUSD pair is still trading below its previous top, but should remain structurally well supported in medium-term. With this in mind, in next update we will try to follow the pair also from a technical point of view on intraday chart (setup). Trade with care! Like if my analysis is useful. Cheers!
by TheAnonymousBanker
The Fed Just Broke SomethingThe chart above shows the CBOE Equity Put Call Ratio (CPCS) . Last week the put-call ratio broke its all-time record high, surpassing the levels seen during the Global Financial Crisis and the March 2020 market crash by almost twice as much. In this post, I will explain my thoughts about what's going on. I welcome others to also give their thoughts in the comments below. Let's begin with the basics of the put-call ratio. The put-call ratio is simply a measure of the relative amount of trading in put options versus call options. Typically the put-call ratio rises during periods of extreme fear in the market, when volatility is also high. Historically, the put-call ratio has been used as a contrarian indicator, meaning that when it is very high it signals that too many market participants are bearish and when it is very low it signals that too many market participants are bullish. Typically anything above 1 is considered too bearish. A put-call ratio above 1 has historically marked significant stock market bottoms. However, something very strange has been happening recently. The put-call ratio has been exploding to such extreme levels that some people are now saying the indicator is broken. Last week, the put-call ratio reached an insanely high level (2.4). Yet, on the day this record spike happened, the VIX was in the low 20s, which is only modestly elevated, (see the chart below). As the chart above shows, a VIX in the low 20s is only slightly above normal. The put-call ratio was so extreme last week that one would have expected the VIX to be off-the-charts. In the chart below, I've calculated the general area (marked by a flag) of where we would have expected the VIX to be if the put-call ratio accurately corresponded to such an extreme put-call ratio. Some market analysts and many people on social media are attributing the unprecedented spike to 0DTE , or Zero Days To Expiration, options trading. Zero Days To Expiration refers to options that are traded on the same day (or within 24 hours) that they expire. This speculative form of trading has proliferated over the past year. Those who cite 0DTE as the reason for a malfunctioning put-call ratio argue that its utility as a contrarian indicator has become confounded at best, or noisy and meaningless at worst. The below chart shows the proliferation of Zero Days To Expiration options trading. When compared alongside the put-call ratio, we can visually garner a potentially high correlation. Some market analysts have stated that the proliferation of 0DTE options trading has become so disruptive that not only has it broken the role that the put-call ratio plays as a contrarian indicator, but it has broken the essential role that the VIX plays in measuring volatility. The VIX, which is calculated based on only S&P 500 options expiring 23 to 37 days into the future, may not be properly capturing the true panicked nature of market participants who are mostly trading options with much less time until expiration. Yet, questions remain, even when considering the rising prevalence of 0DTE options trading. Specifically, why is 0DTE causing puts trading, in particular, to increase so dramatically? The answer is likely that 0DTE option trading is not the only cause of the exploding put-call ratio. Some informed market participants have argued that the Fed's extreme monetary tightening is largely to blame, though their reasoning is not as obvious as it may seem. Although it's likely true that the Fed's tightening is likely driving up fear and causing market participants to load up on puts. The more informed explanation involves an arbitrage strategy that seeks to take advantage of those who are loading up on puts. An academic paper entitled, Put Option Exercise and Short Stock Interest Arbitrage , explains this strategy. The strategy takes advantage of those holding deep in-the-money puts with no time value remaining and which ought to be exercised such that the cash can earn interest. Above is a screenshot of the academic paper, which I cannot distribute because of copyright restrictions. I can only show the abstract which is publicly available. For educational purposes, I will cite a small excerpt from the article to explain exactly how the strategy works: The game involves capturing short open interest. The game, dubbed “short stock interest arbitrage,” involves simultaneously buying and selling a large (relative to existing open interest), but equal, number of deep ITM puts and then immediately exercising the long puts. Since exercises are randomly assigned to open short positions, the arbitragers systematically capture the dominant share of the total short open interest and thereby earn the dominant share of the forfeit interest. Now that the Federal Reserve has dramatically hiked interest rates, this strategy is much more lucrative than in the past since the interest that can be earned by arbitragers is much higher. Furthermore, the stock market's decline in 2022 caused more puts to become in the money thereby expanding the volume of puts traded by arbitrageurs. Since this strategy is non-directional, meaning the strategy involves simultaneously buying and selling an equal number of puts, its net effect is theoretically zero. Thus, this strategy's proliferation may be causing the put-call ratio to malfunction. Despite these reasons, other market participants have speculated that the extremely high put-call ratio is due to large institutions and other informed market players loading up on large hedges because they believe a major market crash is coming. While this is largely speculative, there is some evidence that informed institutions are becoming increasingly concerned about a liquidity crisis due to the Federal Reserve's tightening. Last month, the Bank for International Settlements (BIS) recently issued an unusual warning about the potential for a liquidity crisis in the global FX swaps and forwards market. Link to the BIS article: www.bis.org The BIS, which is often thought of as the central bank for central banks, explained that dollar payment obligations in the FX swaps and forwards market are generally not recorded on balance sheets and that the risks associated with these debts could be understated by tens of trillions of dollars. In effect, the Federal Reserve's rapid rate hikes have caused the U.S. dollar to rapidly become more valuable relative to other currencies, creating risks in the FX swaps and forwards market that were not fully anticipated. In some regards, the actual causes of the breakdown of the put-call ratio are not as relevant as the mere fact that it has broken down. According to Exter's Pyramid (shown below), during periods of extreme instability of asset classes lower down on the inverted pyramid, everything higher up becomes some degree more unstable. The meteoric rise in Treasury yields has made everything above shakier, especially derivatives. Rapidly rising Treasury yields are destabilizing the highly-leveraged derivatives market in unanticipated ways.   Now that U.S. Treasurys suddenly yield much more, this means that capital will tend to flow lower down the pyramid into them. Leaving riskier assets higher up vulnerable to collapse. Despite all of this, some market participants continue to believe that the put-call ratio is still a reliable contrarian indicator. These market participants argue that whenever fear is high, people always say "this time is different" when in fact it is not. They believe that not only is the put-call ratio indicator still working but it is indicating a high chance for a major short squeeze. Only time will tell what will become of the current situation. Yet, one thing is for certain. Despite the highest put-call ratio on record last week, the rules of good trading and good investing remain the same. No matter the fear, volatility or crisis that may transpire, if one adheres to these principles, one will be successful. Sources Barraclough, Kathryn and Whaley, Robert E., Put Option Exercise and Short Stock Interest Arbitrage (May 17, 2013). Journal of Investment Management (JOIM), First Quarter 2013, Available at SSRN: ssrn.com
INDEX:CPCS
by SpyMasterTrades
76
The Fed Must Pivot When This Happens...We can try to predict when the Federal Reserve may pivot to a less hawkish stance by using charts. Below are some helpful charts. 1. Money Supply The chart shown above is a monthly chart of the U.S. money supply (M2SL). The white line shows the money supply over time. Below the white line is a stepped moving average (9 period), which I consider the 'steps of a debt-based economy'. In order for our debt-based economy to persist, the money supply must continue moving up these steps endlessly. For reasons beyond the scope of this post, if the money supply falls much below this level a financial crisis is likely to ensue due to credit and liquidity issues. Below are some examples in which money supply came down to the stepped moving average before climbing higher. Not even during periods of higher inflation did the Federal Reserve let the money supply fall below this level. Therefore, the closer the money supply comes to this stepped-moving average, the more likely we are to see the Fed pivot to a less hawkish stance. Since money supply is largely negatively correlated to the value of all assets priced in U.S. dollar, reaching this level may also be somewhat of a buy signal for these assets (e.g. stocks, Bitcoin). Indeed, the fact that money supply always goes up is a large part of the reason why the stock market always goes up, too. Whereas if inflation becomes so severe that it forces the Fed to take the unprecedented step of dropping the money supply below this critical level, then a financial crisis will likely ensue. Indeed, under the surface a crisis is already brewing. (You can see my posts linked below for more charts on this). 2. Eurodollar Futures It is generally accepted that the Eurodollar Futures chart is one of the best leading indicators for the Fed Funds Rate. (Don't know what Eurodollar Futures are? See the link at the bottom of this post.) Therefore, when Eurodollar Futures plateau or begin dropping, we can expect a Fed pivot. However, this assumes that the Fed Funds rate has actually reached the terminal rate implied by Eurodollar Futures, which has not yet happen because the Fed is so far behind the curve with hiking. Keep an eye on how markets react to quad witching on September 16th, the time at which stock-index futures, options on stock-index futures, single-stock options and index options simultaneously expire. This period has been known to generate significant volatility. See the bottom of this post for more information about quad witching if you're unfamiliar with it. 3. Yield Curve Inversion Usually around the time or shortly after the yield curve inverts, the Fed pivots to a less hawkish stance. Right now the 10-year and 2-year yields on treasuries are inverted. Below is a chart of the US10Y/US02Y ratio. In the below chart, I marked the points at which the Fed pivoted in the past (pivots were measured by marking the last date the Fed raised rates). The values that you see labeled on the bottom right are the values of the US10Y/US02Y ratio at the time the Fed pivoted in past hiking cycles. In the chart below, I zoomed into the current time. As you can see, the US10Y/US02Y ratio is currently below all the levels at which the Fed previously pivoted. Green is the highest ratio at which the Fed pivoted and red is the lowest ratio at which the Fed pivoted. The chart above shows that we are in uncharted territory in the scope of yield curve inversion that the Fed has created. The fact that the Fed has forced the yield curve invert to this extreme degree and has still not pivoted is likely reflective of one or both of the following hypotheses: (1) The Fed started hiking rates too late. (2) The factors of inflation from the demand side and/or supply side are worse than we experienced in the past (since at least 1988 -- the period covered by the data in the chart). Nonetheless, the Fed must pivot soon or risk causing a financial crisis. My hypothesis is that an inverted yield curve can have the effect, among others, of destroying money. Since some banks borrow at short term rates and lend at long term rates, an inverted yield curve makes this less profitable or even unprofitable. Therefore some banks will lend less. Since bank lending creates the most money, an inverted yield curve can decrease the money supply substantially. The Fed cannot let this monetary phenomenon continue for long without causing significant issues. 4. Inflation Of course the biggest consideration for the Fed is the rate of inflation. The next CPI report is not scheduled to be released until the morning of September 13, 2022, but we can use chart analysis to, with a high degree of certainty, predict the rate of inflation. The above chart is a chart of the price of gold (GOLD) multiplied by the Commodity Index Tracking Fund (DBC). This chart allows us to extrapolate both the supply and demand side of inflation to a high degree of certainty. It is a statistically valid leading indicator for the inflation rate. You can see how drastically it has fallen recently. You can also see how closely it matches the chart of the inflation rate on a lagging basis. For those interested in the statistics GOLD*DBC correlates to USIRYY as follows: r = 0.904, r-squared = 0.8844, p = 0 In the chart above I provide an even better correlation to the rate of inflation. In this chart I provide the total securities sold by the Federal Reserve as part of their overnight reverse repurchase facility, I then attempted to improve the correlation values by adjusting the value by using the price of gold as a multiplier. Although this may sound complex to those who are not familiar with the repo facility, in short it just represents the amount of dollars that the Fed is pulling out of the banking system. To diminish the effect of any non-inflationary factors that would cause the Fed to do this, I adjusted the value using the price of gold. Recently, the Fed has been pulling less dollars out of the system and on some days it has actually been putting more dollars back into the system. The Fed would not be putting more dollars into the system if inflation were still spiraling out of control. While anything can happen in the future, and additional inflationary shocks can occur, this equation gives us a tool to predict the rate of inflation before the CPI report is published. For those interested in the statistics, GOLD*RRPONTTLD correlates to USIRYY as follows: r = 0.954, r-squared = 0.94, p = 0 In the chart above, I've adjusted the values to match the inflation numbers as best as I could (I simply used a divisor that equates the peak values in both charts). It is far from perfect and it is definitely not something that you should use to trade on. The number that is actually reported by the government could be way different. The best that we, as traders, can ever do is use charts to try to predict what may happen, which is what I've done here. More information about Eurodollar Futures: www.investopedia.com More information about Quad Witching: www.investopedia.com
FRED:M2SL
by SpyMasterTrades
108
Bitcoin, Fed, and EquitiesIn supplementation to my most recent chart, "In bitcoin we trust" I wanted to make my point even more clear by adding the Fed Balance Sheet. As you can see, it has been and always was the Fed pumping every asset. March 2020, the Balance Sheet exploded higher, as did stocks and bitcoin/crypto market. Prepare for anything because they're on to something. This just seems very odd and worrying. So much printing, so much new debt.. what happens to the USD, inflation? None of this is good. The higher markets go, the harder the crash will be. These rallies are not based on sound healthy economy or inflation hedge or good earnings.. this is pure pump nonsense.
CME:BTC1!
by WorldEconomics
Bond Fund Entry Points Looking Attractive - Long Term As interest rates continue to rise, existing bond values have fallen over the last year and a half. It looks as though the Fed will continue to raise rates at a slower (25 bps) pace than last year, which will still create some downward pressure on bond prices. However, as prices are falling and yields are increasing, this makes these entry points extremely attractive for both risk management and tax advantaged yields. Once rates stabilize, bond pricing should as well and set up for a return to the mean. In this case, that would be 200 WMA, currently sitting at $59.22. This would be especially true if there is a scenario in which the Fed begins to lower rates in a couple of years. As mentioned in the title, this Municipal Bond Fund could be a great low risk place to park cash in the event of an economic downturn for long term portfolio stability and/or income generation. Bonds, while inherently boring, tend to out perform the market in poor economic conditions. This is a long term analysis, and will take time to fully play out (5-10 years). Bonds could be cool again come 2025 and beyond. Happy trading!
CBOE:HYDLong
by spaceboots
AUD/USD slides on hawkish FedspeakThe Australian dollar has been relatively quiet during the week but is getting pummelled on Friday. AUD/USD is trading at 0.6685, down 0.84% on the day. The sharp drop can be attributed to technical factors and hawkish comments from Fed members on Thursday. The Federal Reserve is not yet ready to wrap up its current rate-tightening cycle and has sent out the troops to blitz the airwaves and reiterate the Fed's hawkish stance. On Thursday, Fed member Bostic said he favors one more rate hike and then an extended pause, saying the tightening will take time to work its way through the economy. Bostic noted that the banking crisis had led to tighter financial conditions, which has made the Fed's work easier. Fed member Mester also came out in support of more rate hikes but suggested that the economy would have a soft landing. A day earlier, Fed member Williams said "inflation is still too high" and the Fed would use monetary policy to "restore price stability". Williams added that he expected inflation to drop to 3.25% this year and hit the 2% target by 2025. The markets are hearing this message loud and clear, and have priced in a 25-basis point hike in May at 81%, according to the CME Group. Where the markets and the Fed differ is on rate cuts - the markets are anticipating cuts before the end of the year, while Fed members have said that it does not see the economy stalling to such an extent as to justify rate cuts. . AUD/USD Technical There is resistance at 0.6803 and 0.6896 AUD/USD is testing support at 0.6711. Next, there is support at 0.6618
by OANDA
EURUSD Potential Forecast | 19th April 2023Fundamental Backdrop 1. Stronger dollar and bullish sentiments in USD is being brought forward from last week. 2. However, given the interest rate differential between the 2 currencies, EURUSD is anticipated to continue bullish. Technical Confluences 1. Near-term support at 1.08848 2. Price is still forming HH and HL, on a bullish trend 3. We could see the retracement head in line with the 0.786 level on the fibs Idea Looking for price to tap the area of support at 1.08848 before heading bullish. NOT FINANCIAL ADVICE DISCLAIMER The trading related ideas posted by OlympusLabs are for educational and informational purposes only and should not be considered as financial advice. Trading in financial markets involves a high degree of risk, and individuals should carefully consider their investment objectives, financial situation, and risk tolerance before making any trading decisions based on our ideas. We are not a licensed financial advisor or professional, and the information we are providing is based on our personal experience and research. We make no guarantees or promises regarding the accuracy, completeness, or reliability of the information provided, and users should do their own research and analysis before making any trades. Users should be aware that trading involves significant risk, and there is no guarantee of profit. Any trading strategy may result in losses, and individuals should be prepared to accept those risks. OlympusLabs and its affiliates are not responsible for any losses or damages that may result from the use of our trading related ideas or the information provided on our platform. Users should seek the advice of a licensed financial advisor or professional if they have any doubts or concerns about their investment strategies.
Long
by OlympusLab
Strong Banks / Point of inflection for the Markets Bank Earnings have been great! Though, The market wasn’t overly thrilled about it. We believe this is due in part to the uncertainty it caused regarding the fed rate path. The bank failure(s) that occurred, and fear of continued failures, cast doubt on the feds ability to continue to raise rates. This elevated markets, in our opinion, in conjunction with favorable inflation and NFP reports showing a cooling economy.… then the bank earnings arrived snd acted as a headwind to the indexes. What we think is important to watch for: 1) ES1! 4200 This region has been a repeated battleground for Price action. and a close above it .. or failure at it, would be a good indicator for midterm direction. 2) FED comments on the banks earnings Overall bullish on the market- but I do think we may range for a bit longer. 3) XLF may yield sustained alpha
CME_MINI:ES1!
by WillNixTrading
Gold under the pressure of a strong DollarHey Traders, Gold was trading in an uptrend and successfully managed to break it out after some hawkish comments from Fed Waller about the US monetary policy and the necessity of further rate hikes which have triggered some USD strength. USD Does correlate negatively with metals like Gold so that put more weight on it. Technically we have noticed the breakout of the uptrend so we will be monitoring a potential retrace of the trend from 2000 Support and resistance zone. Trade safe, Joe.
FOREXCOM:XAUUSDShort
by JoeChampion
23
Relationship of the Fed interest rate + SP 500 index Logarithm. The time frame on both charts is 1 month. It is worth considering as an indicator of large market cycles in general. I will not describe it, because I have already said a lot about it before. There is a correlation, which is logical, but not always. There are also reasons for this, which I have voiced before. Expensive and cheap money - the regulation of the growth and decline of the U.S. economy (the whole world). The Fed Funds rate , is the target interest rate set by the Federal Open Market Committee (FOMC) on the basis of which commercial banks borrow and lend their excess reserves to each other for short periods (usually overnight). The Federal Open Market Committee (FOMC), the monetary policy setting body of the Federal Reserve, meets eight times a year to determine the federal funds rate. The federal funds rate can affect short-term rates on consumer loans and credit cards, as well as the stock market. By law, banks must maintain a reserve equal to a certain percentage of their deposits in a Federal Reserve Bank account. The amount of money a bank must keep in its account at the Fed is known as the reserve requirement and is based on a percentage of the bank's total deposits. The rate target set by the Federal Reserve is achieved through open market operations. Since the Fed cannot set the rate's exact value through such operations, the actual value may fluctuate near the target rate. The Fed Funds rate is one of the most important interest rates in the U.S. economy because it affects monetary and financial conditions, which in turn affect critical aspects of the overall economy, including employment, economic growth and inflation. SP 500 Index . S&P 500 (SPX) is a stock index whose basket includes 503 stocks of the 500 selected publicly traded companies with the largest capitalization on U.S. stock exchanges. The list belongs to and is compiled by Standard & Poor's. The index is published since March 4, 1957. Major trend (long term) SP500 index. The entire trend. 100th Anniversary Plot of the index during the "Great Depression." SP500 index. Pumping before the "Great Depression" Code 372-69
SP:SPX
by SpartaBTC
19
NAS100 | RECESSION |DECRYPTERSHi Welcome to Team Decrypters The Chart Aligns completely with "FAMOUS Wall street cheat sheet" What Features coincides with charts ?? 1-It give a proper DIP 2-A HUGE MULTI Y ear Rally 3 -Covid Crash Dip 4-Top Blow 5- Creating low and than Lower LOW 6-Multi months consolidations ( with in a continuation Pattern) Lastly , Using Pure Technical niche we get Target :- "HEIGHT of Flag" = "Target of Flag" Surprisingly That Target is Exactly on the top of COVID PEAK Which further Aligns with FED PRINTING OF MONEY , So FED need to Fill that GAP For example:- if you input 100kW of Energy and The out put will be Same 100KW ( in Other form) The printed Money should Be Reversed in Same Way Fundamental Reason :- We think if Recession comes which will make $$$$ TO RALLY ABOUT 8% -12 % Fed Agree with recession Also they need Strong $$ to crush economy , making consumer confidence Down and thus making consumer spending Down as well "CAUSING STOCK MARKET CRASH " NOTE :- THIS MULTI MONTHS PLAN ONLY USED BE USED AS A "QUARTERLY BIAS"
NShort
by DECRYPTERS
Dollar Hits Support. Now Bounce. Everything Else? Pulls Back.Traders, I said it all in the title. Yes, the dollar has now conclusively formed a very ominous Head and Shoulders pattern. The dollar will die once (not if) it breaks that neckline. But do I think that is going to happen immediately. I think you all know the answer. News has hinted at a Fed rate hike pause this week. Next week another news story will come out. I think caution is warranted here. Personally, I'm going to sit the sideline this weekend and play it safe. There will always be more opportunity in the future. Always. Best, Stew
TVC:DXY
by stewdamus
2
DXY Potential Forecast | Post CPI | 13th April 2023Fundamental Backdrop 1. CPI m/m printed 0.1% compared to forecasted at 0.2% 2. Fed hikes effects really slowing inflation down 3. USD fell shorting after, signifying the slowing down of inflation at a faster pace than what the market has been pricing in. Technical Confluences 1. Price rejected off resistance at 102.8. 2. Price looks good to form a new higher timeframe low and continue its bearish trajectory. 3. There has not been a strong confluence for any longs on the DXY thus far. Idea We are looking for price to continue its bearish trajectory till 101.67 and the probability of it forming a new low is now high. NOT FINANCIAL ADVICE DISCLAIMER The trading related ideas posted by OlympusLabs are for educational and informational purposes only and should not be considered as financial advice. Trading in financial markets involves a high degree of risk, and individuals should carefully consider their investment objectives, financial situation, and risk tolerance before making any trading decisions based on our ideas. We are not a licensed financial advisor or professional, and the information we are providing is based on our personal experience and research. We make no guarantees or promises regarding the accuracy, completeness, or reliability of the information provided, and users should do their own research and analysis before making any trades. Users should be aware that trading involves significant risk, and there is no guarantee of profit. Any trading strategy may result in losses, and individuals should be prepared to accept those risks. OlympusLabs and its affiliates are not responsible for any losses or damages that may result from the use of our trading related ideas or the information provided on our platform. Users should seek the advice of a licensed financial advisor or professional if they have any doubts or concerns about their investment strategies.
TVC:DXYShort
by OlympusLab
US Inflation Slows for Ninth Month: What's the Plan, Jay Powell?The US annual inflation rate has slowed down for the ninth month in a row, hitting 5% in March of 2023. While this is the lowest it's been since May of 2021, it's still well above the Fed's target of 2%. Investors are trying to figure out when the central bank will put the brakes on its hiking campaign to slow inflation. The March FOMC minutes (released this morning) revealed that some Federal Reserve policymakers discussed hitting the pause button on interest rate increases, following the collapse of two regional banks. However, ultimately, all policymakers decided that tackling high inflation was still the top priority. In the end, they went ahead with a rate hike, despite the potential risks Complicating matters, core CPI (which excludes food and energy components) has gone up to 5.6%, after rising by 5.5% in February. This has led some people to believe that more tightening is in the cards. Initially, money markets thought that the Fed might not raise interest rates in May, but expectations have since risen to 70.5%. The Dollar index remains at its lowest since February 2nd, steady near 101.5. As for Canada, things are looking up - the Bank of Canada has left its key overnight interest rate on hold at 4.50% as expected, while curbing language warning of a potential recession. The Canadian dollar has responded positively, inching up to around 1.34 per USD. Meanwhile, the British pound has risen towards $1.25, nearing a ten-month high of $1.2525 that was touched on April 4. Bank of England Governor Andrew Bailey has stated that he doesn't see any signs of a repeat of the 2007/8 global financial crisis, which is reassuring news for investors. They're betting that the Bank of England will continue to raise interest rates to combat inflation, adding some fuel to the GBP.
TVC:DXY
by BlackBull_Markets
Fed v.s Market: the fight may last for a whileAfter the Non-farm payroll event last week, which saw 236,000 jobs added through March, it is clear that the job market is still creating many jobs compared to pre-COVID levels. However, the market has been experiencing some short-squeezing from yields to the dollar. The reason for this short-squeezing can be attributed to the mispricing between Fed fund futures, which are giving a dovish perspective beyond May, and the Fed's view from its last meeting, which hinted at least one more rate hike. However, with two holidays in a row right at NFP last week, the short-squeezing action was impaired after the news, and the market quickly came back to price in the CPI tomorrow, as well as retail sales on Friday. The Fed fund futures dropped a few percentage points for a 0.25% chance of a rate hike in May and the dollar also retreated. While tomorrow's CPI's headline may slow down and be close to the market forecast with a 0.1-0.2% m/m gain due to some correction from the energy price for the period back then, the service and rental costs are back, and they will continue to haunt the core CPI, which may print a 0.4-0.5% m/m gain for last month. From this perspective, the market is likely to price in the headline instead of the core, as the media would cover that number more, and it may continue to extend the mispricing between the Fed fund rates and the reality that the Fed may continue to have at least one more hike provided a still-hot labor market and stubborn inflation. Another reason for expanding the mispricing is retail sales on Friday, which may not meet expectations and give the market another reason to beg for Fed to ease. However, it is unlikely that the Fed will reduce that soon. Remember how eagerly people talked about a 0.5% rate hike for the last meeting before the banking crisis? It has only been a few weeks since the latest news on the bank, and things are calm, and the Fed is confident in containing liquidity issues. So things will be back on track, along with Fed's hiking. The more mismatching there is between the market's expectations and reality, which the Fed may continue to do, the more significant the opportunity when going against the crowd. In short, the yield will gradually come back, provided that the banking crisis is over and there are no more or fewer deposit drains. Then, the other assets follow the yields then. 
OANDA:XAUUSD
by DatTong