Forex Musings : To Have Nothing To Worry About

I had a strange encounter recently, hanging out at a club where I was a guest of a member and somehow managed to antagonise a lady with my singing and dancing “prowess” that resulted in a string of complaints and amazing efforts on her part to get me evicted each time.

I found myself developing an admiration for this lady and her zest who clearly must be quite worry free in her life to devote her energies to little old me, fanning my little ego.

It is wonderful to have a life where you do not have to worry much and least of all, about the FOMC tonight which, will set the stage for market sentiments in the coming weeks.

And I find myself worrying less about this FOMC than all the others because we have been expecting those rate hikes since last year and take a look at the disgusting record of what economists have been thinking of since Jan – First, it was June and less and less for June and then now its September….

 

fomc rate expectations

 

The good thing is that nobody is listening to them  as Jeff Gundlach, the new Bond King, is not expecting more than a 50% chance of a rate hike by December.

“Jeffrey Gundlach, chief executive of investment firm DoubleLine Capital, said on Tuesday he still believes the U.S. Federal Reserve will probably not raise interest rates this year, in part because of a lack of wage inflation.

Gundlach, reiterating his Federal Reserve call first made in early May, said on a client webcast that odds of a Fed rate increase in December are less than 50 percent and under 30 percent in September.” http://www.reuters.com/article/2015/06/10/us-investing-gundlach-outlook-idUSKBN0OP2F320150610?feedType=RSS&feedName=businessNews

 

And the market in general is also not buying the rate hike story, looking at Libor expectations derived from the Eurodollar futures.

FED RATE FORECAST

And not forgetting the incredible sway presidents and chancellors have over the currencies.

8 June

(Bloomberg) — President Barack Obama told fellow Group of Seven leaders that the strong dollar is a problem, according to a French official with knowledge of the talkshttp://www.bloomberg.com/news/articles/2015-06-08/obama-said-to-tell-g-7-leaders-strong-dollar-poses-a-problem

Later that day.

(Bloomberg) — Obama did not state that strong dollar was a problem, as French official said at G-7 earlier Monday, U.S. official says on condition of anonymity.
U.S. official says Obama repeated point made previously a number of times that global demand is too weak and that G-7 countries need to use all policy instruments, including fiscal policy as well as structural reforms and monetary policy, to promote growth

12 June

STRONG EURO MAKES REFORMS HARDER IN SPAIN, IRELAND: MERKEL
(Bloomberg) — German Chancellor Angela Merkel said it’s the European Central Bank’s mandate to avoid deflation.

  • Too-strong euro makes it harder “for countries like Portugal, Spain, Ireland, but especially Spain and Portugal,” to harvest the fruits of their economic reforms, especially in terms of exports
  • “I want to call for understanding when a central bank like the European Central Bank thinks about what you need to do when the inflation rate is so low”

With leaders getting involved in FX markets and central bankers out in force to spread confusion like BoJ did in the past week, I think we have little to worry about except about market positioning !

Because they can say whatever they like and it will not matter as the market will move only on positions. Every central bank outlook is pretty much in accommodative and cautious policy mode from the latest that I managed to extract.

Source : Bloomberg

Source : Bloomberg

 

I note that JPY shorts are at their 6 month high (market is very short) while EUR shorts have decreased considerably to a 6 month low.

It would be nice if we saw some reversals into and after this FOMC where Yellen’s speech is entirely up to interpretation, as usual.

Thus selling USDJPY (target 121.50-122)  into strength and the EURJPY (target 137-137.50) would appear like good risk reward trades.

USDJPY

USDJPY weekly candlesticks

eurjpy

EURJPY weekly candlesticks

 

The key to success would be to let others worry more about their positions into the FOMC than you.

Good luck !