THE FOREX OPEN MARKET COMMITTEE
Let’s change its name to the Forex Open Market Committee meeting instead, for the fate of the market lies in its hands.
Stress levels running high as markets ignore economic data to trade just purely on the USD sentiments and positions, like what happened to the sterling pound yesterday after their poor GDP numbers.
Since last Friday, we have seen almost every currency strengthen against the USD, including the Swedish krona (+2.3%) even though the Riksbank held rates steady and expanded their QE program.
Gold and Silver are the stars, rising 2.5% and 5% respectively.
How bad can it get for the USD ? Especially when things have not looked so bad in the US since the great recession of 2009.
Yet stock markets only continue to break new highs and bond yields around the world continue to plunge into negative territory with Poland the latest country to succumb to negative yields.
Like I said 2 weeks ago, “even by doing nothing, the USD would be giving the other global central banks the leeway to cut and the Fed need not hike in order to achieve the “hike effects”. Fortunately, the biggest challengers to the USD are the EUR and JPY, both of whom are pretty maxed out on their QE efforts.” https://tradehaven.net/market/fx/currency-wars-chasing-bad-news/
And the correction did come as we had expected with EURUSD hitting the 1.10 target just a few minutes ago and Gold did not really hit 1220 but came close at 1215 last night.
The big kahuna is yet to come because the world remains positive on US growth, being the only developed country in serious growth territory, recording 2 consecutive quarters of >3% growth last year.
With tonight’s US GDP release, the expectations for 1Q15 has fallen to a mere 1% and if that somehow manages to disappoint, the chances are that we shall see sentiments swing against the USD at last. Sentiments that have built up over the past year into heights of exuberance for the DXY index to a 12 year high on 13 March this year.
Thus we can imagine the enormity of the amount of USD involved for that to happen.
It has only been 6 months since the end of QE3 and we have had over 500 central bank easing moves since the 2008 crisis. Right now, we have various central banks pursuing their own QE programs which means the USD story is likely to remain on firm ground even if the Fed chooses to do nothing.
As such, we need not worry that the rational fund managers will be turning their books around as yet, not until US growth numbers slip up, as they would be tonight although we would probably need something more severe than 1% growth to cause panic.
And with US inflation expectations scaling highs along with the Eurozone, it becomes a tough call for the EURUSD pair, so much for the 100 parity call by our friendly bankers just weeks ago.
The simpler calls would be for the obvious rate cuts or hikes to come. Some think that the RBA is hard pressed to cut their 2.25% cash rate next week while the BOE has signaled that they would be hiking sometime in the future. And for the rest of the world, their currency rebounds are just short respites from the inevitable eg. USDSGD back up to 1.36.
I think it would be good to stick to expectations and not get too carried away tonight, especially when there will be no press conference to follow and take the extreme volatility that we will see as noise because America is still the darling and Yellen is still the shepherdess in the year of the Sheep, above the law.