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The Federal Reserve's mandate leads or lags?

  • #21
  • Sep 19, 2017 6:40pm Sep 19, 2017 6:40pm
With no rate hikes tomorrow, expect the USD to get stronger!
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  • #22
  • Sep 19, 2017 8:20pm Sep 19, 2017 8:20pm
Quoting COGSx86
The FED continues to follow. Recently in Canada we seen the same thing. {image}
Sorry to burst your bubble but there is an easy explanation for that. Central banks give signals and hints about what they anticipate to do. Trading FX, bonds or equities, you will see that before every FOMC meeting, there is additional volatility every time a voting member speaks.

In fact, they almost always make it rather clear what they intend to so, which is why the general consensus on an interest rate decision before it is announced is correct like 95% in the US and at least 80% worldwide wide.

Also, an increase in interest rates would make the USD stronger, so no change would be negative. However, the market is more interested in their balance sheet changes and forecast for the future.
  • #23
  • Sep 19, 2017 9:46pm Sep 19, 2017 9:46pm
Lets break down what you said.

Quoting shylastrikes
Central banks give signals and hints about what they anticipate to do.
On Monday November 9th, 3 month US Treasuries broke through the FEDs fund rate. Before the November FED meeting minutes were released on Nov 18th. In that meeting the "“most” participants felt conditions for a rate hike “could well be met by the time of the next meeting,”. The market had already broke ahead of the FEDs FUND rate before any hint of a increase was issued. The FED meeting took place on October 28th. At that time lets look at the US Treasury yields. We can clearly see 3 Month Treasuries starting to gain strength.
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  • #24
  • Edited 10:10pm Sep 19, 2017 9:56pm | Edited 10:10pm
Lets fast forward to Dec 2016.

Here we see 3 Month Treasuries making a strong push from late September.

Oct 31st 2016 Headlines:

"Traders see remote chance of Fed rate hike this week"

"Jobs data keeps Hawks sidelined"

"November FED hike odds Tanked on these events"

Boom December 14th, rates get raised. After 3 month US Treasury's break the FED Fund Rate. See post 13 (https://www.forexfactory.com/showthr...29#post9977829)
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  • #25
  • Sep 19, 2017 10:09pm Sep 19, 2017 10:09pm
Quoting shylastrikes
{quote} Also, an increase in interest rates would make the USD stronger, so no change would be negative. However, the market is more interested in their balance sheet changes and forecast for the future.

If interest rate increases make the USD strong why then has the USD gotten weaker ?
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  • #26
  • Nov 3, 2017 7:21pm Nov 3, 2017 7:21pm
With the rumors earlier this week of Jerome Powell leading as the favorite candidate in Trump's eyes for taking control of the FED, we began to see the market respond.

How did the market respond?

They started selling off short term 3-month Treasury Bonds, and the rates started to increase. Current rates are about to pierce the FED FUND RATE, leading the charge and for the FED to follow suite.


This will lead to a weaker USD value IMO, in the not to distant future.
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  • #27
  • Edited 8:50am Dec 4, 2017 8:39am | Edited 8:50am
USD gets weaker! Please see post above! On Nov 4th.


Attachment g
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  • #28
  • Dec 4, 2017 8:44am Dec 4, 2017 8:44am
Expect an increase in FED FUNDs rate and expect the USD to get weaker.


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  • #29
  • Edited 3:03pm Dec 10, 2017 1:49pm | Edited 3:03pm
This week 3-month treasuries maintained their lead above the FEDs fund rate, but the market seemed to ignore these values as it pushed higher. The USD got stronger. The USD move can be attributed to the talk of huge tax reform, in Washington and large tax cuts being presented for all Americans but more specifically, cooperation's, who will see tax cuts from 35% to 20%. The idea being an increase in corporation profits and dividends etc pushes the dollar higher.

This past week the USD got stronger moving from close on the previous Friday at 1.189 to a close this week @ 1.172. With the DXY also making a huge move. I wrongly called for a weaker USD last week, and over looked the talk in Washington with regards to tax reform. Personally I shorted USDJPY at the beginning of last week with the idea of rate hikes this week, weakening the USD. I think I was just early. But come Wednesday I believe the USD will make that turn around.

A battle is taking place in Washington, with the FED and congress as the market is betting on congress. But will the FED prevail?

This week on Wednesday with FED policy being delivered, the FED will throw its leading punch.
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  • #30
  • Dec 13, 2017 12:34pm Dec 13, 2017 12:34pm
Largest percentage increase for Treasury yields over the FEDs FUND rate, the past 10 years. Today will be interesting.
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  • #31
  • Jan 3, 2018 7:28pm Jan 3, 2018 7:28pm
The markets reaction todays FED meeting minutes means d$$k s%#t. Treasury yields have gone up from 1.3 on dec 13th (last rate hike) to 1.435 today. My bet is by next week they will have passed the FEDs fund rate, again.

USD goes down, down, down and the flames went higher And the USD burns, burns, burns, the ring of fire

The ring of fire!



https://www.investing.com/rates-bond...treaming-chart
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  • #32
  • Jan 3, 2018 7:31pm Jan 3, 2018 7:31pm
EURUSD Since Dec 13th, the last rate hike.
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  • #33
  • Jan 27, 2018 9:25am Jan 27, 2018 9:25am
Quoting COGSx86
With the rumors earlier this week of Jerome Powell leading as the favorite candidate in Trump's eyes for taking control of the FED, we began to see the market respond. How did the market respond? They started selling off short term 3-month Treasury Bonds, and the rates started to increase. Current rates are about to pierce the FED FUND RATE, leading the charge and for the FED to follow suite. This will lead to a weaker USD value IMO, in the not to distant future. {image} {image} {image}
COGSx86,

Thanks for your generosity in sharing great insights...
  • #34
  • Jan 27, 2018 9:29am Jan 27, 2018 9:29am
Quoting COGSx86
With the rumors earlier this week of Jerome Powell leading as the favorite candidate in Trump's eyes for taking control of the FED, we began to see the market respond. How did the market respond? They started selling off short term 3-month Treasury Bonds, and the rates started to increase. Current rates are about to pierce the FED FUND RATE, leading the charge and for the FED to follow suite. This will lead to a weaker USD value IMO, in the not to distant future. {image} {image} {image}
COGSX86,

a. How do you check 3 Month Treasury Yield with FED funds rate?

For comparison with FED funds rate:

I mean do you use Daily Charts which would indicate Daily Changes in 3 Month Yields

or

Weekly Charts as reference, since weekly Changes could smooth out the volatility to indicate the Change in 3 Month Yields?

b. What is a Ball Park figure % increase in 3 Month Yield that would make you pay attention?

Thanks
  • #35
  • Jan 27, 2018 9:35am Jan 27, 2018 9:35am
Quoting COGSx86
Back in march we seen the FED increase rates, with 3 month treasuries moving above the FED's rate. Over the next 3 months we seen a steady increase in 3 months (march to now) yields, but unable to move above the FED's rate. This will be sign of what is to come on Wednesday. The FED will not adjust interest rates. {image} {image}
COGSx86,

a.What could be the reason for FED trying to maintain the upper hand over 3 Month Treasury Yields?

b. You have shown that an increase in rates seems to have an opposite effect on USD becoming weaker which is reverse of conventional wisdom.

I mean, it is supposed to be common wisdom that increase in Interest Rates is increase in Demand of a Currency. What exactly is causing the scenario to be opposite?

Please share your thoughts...

Thanks
  • #36
  • Jan 27, 2018 4:13pm Jan 27, 2018 4:13pm
Quoting aaven
{quote} COGSX86, a. How do you check 3 Month Treasury Yield with FED funds rate? For comparison with FED funds rate: I mean do you use Daily Charts which would indicate Daily Changes in 3 Month Yields or Weekly Charts as reference, since weekly Changes could smooth out the volatility to indicate the Change in 3 Month Yields? b. What is a Ball Park figure % increase in 3 Month Yield that would make you pay attention? Thanks
Hey thanks for asking, I would gladly share: https://fred.stlouisfed.org/series/DGS3MO#0

You have to add the Federal Funds Rate >Edit Graph (top right) > Add Line > Federal Funds Rate> Effective Federal Funds Rate and just make sure the date is the most recent, the date will be 3 lines under the heading.

I use daily and check it once a week. Its not a very fast moving market, but a very strong force. Just think of a very large tractor on a field vs an ATV. Its pretty easy to determine the trend, and the trend holds more steady.

AS for the % change in 3 month yields that I pay attention to, its not so much the % increase in the yields but more of the relation to the other instruments that can be used for comparison. The biggest being EU and UJ and of course the Federal funds rate.

As was highlighted in your thread, High Yields - Weak USD..............Low Yields - Strong USD.

As for example over the past 3 weeks, the treasury yields shot up on Dec 26th then flat lined. The EU slowly followed and this week they have finally met. I would expect the USD to get a bit stronger or a least channel, allowing for the market to take a breath.
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  • #37
  • Jan 27, 2018 4:45pm Jan 27, 2018 4:45pm
Quoting aaven
{quote} COGSx86, a.What could be the reason for FED trying to maintain the upper hand over 3 Month Treasury Yields? b. You have shown that an increase in rates seems to have an opposite effect on USD becoming weaker which is reverse of conventional wisdom. I mean, it is supposed to be common wisdom that increase in Interest Rates is increase in Demand of a Currency. What exactly is causing the scenario to be opposite? Please share your thoughts... Thanks
a. What could be the reason for FED trying to maintain the upper hand over 3 Month Treasury Yields?

This is a really good question, and I will do my best to answer this. I'm not a Phd Economist or an expert on this subject so please don't take my word for it, I will only be giving you my theory.

Lets do an example, lets say 3 month treasuries go from 1.41 (current rate) to 3% over night. What would this signal? This would signal that no one is purchasing government bonds. This would then cause government to pay higher yields on its treasuries, obviously. Eating up more tax dollars, paying the interest payments on accumulated debt. How does the market react? They either a.) trust that government can handle these payments or b.) the government can't and rates go higher.

If rates go higher it's because the banks have lost faith in the fact the government can handle the debt load.

Now how does the FED tie into this? Well if the FED stepped back and allowed these rates to occur the currency would lose substantial value, as foreign investment leaves, stock market drops, creating huge volatility. When huge volatility occurs, countries stock markets go crazy, people send less (less mortgages, new vehicles, etc), bank defaults etc, resulting in less money in circulation, less debt.....the fuel of the economy and low inflation.

The idea of the FED is to keep volatility in check, think of a toddler walking down a very narrow path. Would you allow the toddler run free? or keep the toddler as close as possible, to keep the toddler safe?

b. You have shown that an increase in rates seems to have an opposite effect on USD becoming weaker which is reverse of conventional wisdom. I mean, it is supposed to be common wisdom that increase in Interest Rates is increase in Demand of a Currency. What exactly is causing the scenario to be opposite?

Conventional wisdom> by who? the 90% of traders who lose money? Hahaha jk

An Increase in interest rates is a sign foreign money is leaving a country or higher spending by the population result in less government bonds being purchased. Interest rate increases are the central banks way of trying to have money return to that country or to the bank vaults, as a reaction to the market.

Would you rather invest in 1.2% yearly bonds in one country or 6.7% yearly stock market in another? Or purchase a house in one country for 1% interest vs 4% interest in another country?
Learn, a forex trader must, unlearn and relearn he will.
  • #38
  • Jan 28, 2018 12:21pm Jan 28, 2018 12:21pm
Quoting COGSx86
{quote} Hey thanks for asking, I would gladly share: https://fred.stlouisfed.org/series/DGS3MO#0 You have to add the Federal Funds Rate >Edit Graph (top right) > Add Line > Federal Funds Rate> Effective Federal Funds Rate and just make sure the date is the most recent, the date will be 3 lines under the heading. I use daily and check it once a week. Its not a very fast moving market, but a very strong force. Just think of a very large tractor on a field vs an ATV. Its pretty easy to determine the trend, and the trend holds more steady....
Much appreciated for really going out of your way to give a detailed explanation COGSx86...
  • #39
  • Feb 12, 2018 7:53am Feb 12, 2018 7:53am
With the DOW suffering its largest one day drop ever, Treasury yields climbing higher and a Billion dollar market Guru calling for investors to hold "burning coal" instead of Bonds, all lead to the FED increasing interest rates.

As the FED continues to watch 3-month treasuries, the market continues to follow treasuries. Watching treasury yields has resulted in huge moves, with the EURUSD rising from 1.032 (Dec 2016) to 1.224, today, USDJPY dropping from 118.6 (Dec 2016) to 108.6, and the DXY dropping from 103.21 (Dec 2016) to 90.02 today.


Government bonds attract the banks money, following the money is the key.
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  • #40
  • Feb 17, 2018 9:56am Feb 17, 2018 9:56am
Quoting COGSx86
The FED continues to follow. Recently in Canada we seen the same thing. {image}
COGSx86,

You mention that we have seen the same in Canada,

Can we apply the analysis for other countries? and if so how do we go about it?

b. From one of your posts,

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Is there a minimum duration Does the 3 month yield needs to stay above the Fed fund rate to warrant a hike?

Looking forward to your insights...

Thanks
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