$ for the week of 10/2 | Forex Factory

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$ for the week of 10/2

  • #1
  • First Post: Oct 1, 2006 7:33pm Oct 1, 2006 7:33pm
There is alot is mixed sentiment about the future direction the Fed will take in the coming months, between those who are looking for a drop and those who believe the Fed will hold steady for the forseeable future. The one thing that is absent in the economic media is any opinion that the Fed will actually be increasing the rate. However, the one thing to be aware of is that various Fed govenors have stated over and over they they are still data dependent and right now, their preferred measure of inflation-core PCE is at the highest level since April of 2005. That being said, since housing prices are down, I think that even if the ISM and NFP numbers come out a bit stronger then expected, you still won't be hearing anything about a rate increase. At least for this week.

What also seems to be obivious, is that the decrease in housing prices has trumped the elevated PCE. In other words, the Fed is accepting the current level of PCE as long as the housing prices are down.

Also keep in mind, that there is a real need for the $ to devalue somewhat-the current account is getting out of control. We are essentially selling out country to China-right now it is estimated that they are holding about 1 Trillion of our dollars. Our government wants China to float its' currency, but they're not going to do that right now-hence, the only way to get hold of things is by $ devaluation (making chinese goods more expensive). All i know is that I can go to my local chinese .99 cent store and get 2 double A batteries for .99 cents, an 8 oz container of hand soap for my office bathroom for .99 cents, etc. So I guess for now, me and alot of other people are gonna keep shopping there and our $'s are gonna keep going to China .99 cents at a time...
  • #2
  • Oct 1, 2006 8:20pm Oct 1, 2006 8:20pm
Back in July 2006, I explained, more than once:

(1) why the fed would pause the rate increases prior to November elections;
(2) that the fed would leave rates alone until Q2, FY 2007.

Today I won't explain, but I will state the following: the next number to watch is not housing or PCE, but employment, or rather the lack thereof.

Rising unemployment in this current economic environment ("soft landing") signals recession. And all you economists out there know what that means for interest rates. So sure, NewstraderFX is right stating that the fed remains "data dependent" (as well as politically influenced) but the real question is which data? I submit the focus will shift to unemployment data.

When monitoring fedspeak, watch their mouths move, hear what they say but listen to what remains unsaid. That's what the great magicians always knew - the art of misdirection. The fed wants you to look at housing and pce ("oh me oh my, we're so concerned about inflation" fedspeak) while they'll be monitoring unemployment ("the truth is, we're concerned about a possible recession") during the next several months.

Just information; not a recommendation.
  • #3
  • Oct 1, 2006 8:30pm Oct 1, 2006 8:30pm
Quoting MoneyMa$ter
Back in July 2006, I explained, more than once:

(1) why the fed would pause the rate increases prior to November elections;
(2) that the fed would leave rates alone until Q2, FY 2007.

Today I won't explain, but I will state the following: the next number to watch is not housing or PCE, but employment, or rather the lack thereof.

Rising unemployment in this current economic environment ("soft landing") signals recession. And all you economists out there know what that means for interest rates. So sure, NewstraderFX is right stating that the fed remains "data dependent" (as well as politically influenced) but the real question is which data? I submit the focus will shift to unemployment data.

When monitoring fedspeak, watch their mouths move, hear what they say but listen to what remains unsaid. That's what the great magicians always knew - the art of misdirection. The fed wants you to look at housing and pce ("oh me oh my, we're so concerned about inflation" fedspeak) while they'll be monitoring unemployment ("the truth is, we're concerned about a possible recession") during the next several months.

Just information; not a recommendation.
Some of you amaze me with your wealth of knowledge.
  • #4
  • Oct 1, 2006 8:53pm Oct 1, 2006 8:53pm
Good call MoneyMa$ter! Is the water slowly seeping in while the passengers are looking the other way?
  • #5
  • Oct 2, 2006 7:46am Oct 2, 2006 7:46am
I agree totally with MM-u need to "listen" to what's not been said. That was my feeling behind the trade off between PCE and housing...Of course, the Fed fears recession and unemployment is a big part of that. What's interesting is that the expected number of jobs created m/m has been lowered by about 50-60,000. Our economy is making a lot less jobs right now and no one seems to be too concerned.

I'm sure these numbers can all be manipulated to a degree. Look at the August NFP. Remember the difference betwen the ADP number and the government's number? I always wondered why there was such a vast difference that one time-afterall, ADP prepares the payrolls for well over 200,00 US companies-how can they not know if more jobs are being made at these companies or not?
  • #6
  • Oct 2, 2006 10:07am Oct 2, 2006 10:07am
As posted on the FXB forum-the EUR had been bought into on the rumor of a $- report prior to the trade-so the actual release of the report had no effect because the numbers had already been priced in. The ISM was very $-, especially the prices paid component. This will only add to the overall $- sentiment in the market.

At the level the EUR is sitting at now-2750-the $ is still way overbought relative to the consensus of the ADP and NFP reports-there's no question the EUR will go higher as at some point-traders will again buy into those rumors.

To put it another way-the EUR right now is cheap relative to the value of those reports, if they come out on consensus. If the EUR is sitting where it is now when those reports come out, the EUR will explode up.

What is likely to happen is that traders at some point will by into the $- consensus and this is especially likely given the ISM numbers. The sharks smell a lot of blood in the water here. The dollar is very wounded and a feeding frenzy could happen. When will that happen? I wish I knew. The EUR could drop down sometime before Wed, as traders could be looking to take some profits. That would be the best thing, because if you do see the lower 2700's or better, a great oppurtunity to buy the EUR will be there. However, it could keep going slowly up from here and if it goes to the upper 27's to low 28's, the value of ADP report on Wed will be gone.

If you had the capitol and the cojones-you could buy now and just hold on. I have to wait and hope for a drop-but i'll buy if it does drop, for sure.
  • #7
  • Oct 2, 2006 10:34am Oct 2, 2006 10:34am
Quoting NewstraderFX
...The EUR could drop down sometime before Wed, as traders could be looking to take some profits...
Reminder: EUR is expected to raise rates thursday. thats a sign to go EUR bull.
  • #8
  • Oct 2, 2006 10:45am Oct 2, 2006 10:45am
I'm not sure about the impact of this action here, the us is selling 8billions bills tomorrow, what would happen to the USD, wouldn't it strengthen because the amount of money will decrease in the market? anyone?
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Trading is a long and a short story.
  • #9
  • Oct 2, 2006 10:46am Oct 2, 2006 10:46am
So there is even more "blood" in the water then...still a drop before the enevitable rise is possible...
  • #10
  • Oct 2, 2006 4:17pm Oct 2, 2006 4:17pm
My first impression of the above would be that a lot of selling drives a price down..I really don't know if the above might even have an effect...but if it's public information, the market has already digested it, i would think...
  • #11
  • Oct 2, 2006 4:50pm Oct 2, 2006 4:50pm
Another wood to fuel the long GBPUSD?


Quote
IFR Forex Watch

19:41 GBP BRIEFING: Hopes for Early Rate Hike Reignited - - See 2339

Boston, October 2. Cable enjoyed a two-cent rally today as interest rate speculation built for a move to higher UK rates perhaps as early as this week. Last week"s news of a statistical error which overstated CPI helped cool speculation of a hike in the October/November window but very firm manufacturing PMI today helped revive speculation of an early move, as did a vote to tighten by the Times Shadow MPC. Cable bounced as high as 1.8876 in New York and barely backed off as EUR/GBP fell through 0.6762 support, contributing to the pound"s bid. USD/JPY slipped nearly a JPY intraday but GBP/JPY turned in an impressive performance, dipping briefly into the 221.60s before closing the day back above 222.00. Dealers noted talk of reserve diversification by an Asian central bank to open the last quarter of the year, and the pound would figure to be a major parking place for reserve assets owing to its relatively high yield and dip capital markets. US PMI was weaker than forecast today, though construction spending and pending homes sales unexpectedly improved. [email protected] /rd


Hmmm... wished I havent closed my long GBPJPY position yet...
  • #12
  • Oct 2, 2006 8:53pm Oct 2, 2006 8:53pm
Something from a different broker:

Quote
Dear XXXX-Forex User,


Good Day!

Despite overnight USD weakness, signals still favour a continuation of USD support. Maintain Buying USD on dips.

TRADE STRATEGY:

Buy USD vs CAD at 1.1157, stoploss 1.1080. Objective 1.1260, then 1.1350
Buy USD vs CHF at 1.2429, stoploss 1.2320. Objective 1.2550, then 1.2650
Sell Euro at 1.2741, stoploss 1.2830. Objective 1.2630, then 1.2550
Sell GBP at 1.8861, stoploss 1.900. Objective 1.8700, then 1.8600
Buy USD vs Yen at 117.70, stoploss 116.70. Objective 119.00, then 1.2000

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Thank you.

Hmmm... Why is this one sticking with USD? I wonder?
  • #13
  • Oct 4, 2006 3:06pm Oct 4, 2006 3:06pm
Ok, we have some very interesting developments this week. While I agree the market shrugged off the ADP report-I believe that the very negative number is going to play into the mind of the market. The number was so neg-it's going to be very hard for the market to ignore. My thinking is that an NFP that comes out as neg as the ADP is going to be worth 80-100 pips from where the EURO opened this week-about 2680.

Now, we still have to get thru the ECB and BoE rate announcements, so we'll have to see where the EUR is sitting after that. Likely, the EURO rate has already been priced in and a 3.25% rate for the EUR is really no big deal anyway-it shouldn't entice people to buy into the EURO because rates are higher other places.

So the bottom line for the NFP report is this-given that the EURO rate annoncement will not have too much of a permanent effect, the target for an NFP that looks like the ADP report is 2780-2800. That may get priced in prior to the report. If London opens with the EURO in the low 2700's...it is probably wise to take a long position. If it's in the low 2700's just prior to the report-then a nice spike will occur. If the EURO is already up there and the report comes out looking like the ADP-you'll probably see a 10-20 pip spike, followed by a nice sell-off as traders grab their profits for the week. Good Luck.
  • #14
  • Oct 4, 2006 5:15pm Oct 4, 2006 5:15pm
Oct. 4 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. housing market is in a ``substantial correction'' that will lop about a percentage point off economic growth in the second half and restrain the expansion next year.

``There is currently a substantial correction going on in the housing market,'' Bernanke said. The decline in residential housing construction is one of the ``major drags that is causing the economy to slow.''

My take on this is a paraphrase of the old Clinton saying: "It's the decline in residential housing construction, stupid".
  • #15
  • Oct 5, 2006 8:11am Oct 5, 2006 8:11am
OK we've had some interesting developments so far this A.M. The ECB has gone to 3.25% and the BoE held-Trichet has belched and the the markets have settled into the new reality: It's all about the NFP now.

We can debate the importance of the ADP report all we want, but the way I see it-the $ is wounded, there's blood in the water and the sharks are circling. I love it that the EUR has gone down like 30 points since Trichet uttered his famous last words-"Ze interest rate, she will go up, up up!!" What this tells me is that the big traders are pulling back the string, loading up the crossbow before letting it go. And go it will, because based on the ADP-which will be playing in the minds of the hedge fund guys-the NFP is likely to be down, down, like way down to the ground, man. There is an oppurtunity here.
  • #16
  • Edited 7:15am Oct 6, 2006 1:57am | Edited 7:15am
Dollar has been gaining value before London opened!

Hmmm.... Dollar blood?
or the market is fooling us to go Dollar Long for a huge killing later?
  • #17
  • Oct 6, 2006 7:13am Oct 6, 2006 7:13am
Good post-actually my expectation of the market buying on the rumor hasn't happened. This means 1 of 3 things to me:

1. The NFP is a report that traders can't figure out, so they stay away from buying into the rumor

2. Traders have gotten wind that the report is gonna be close to consensus either way and the only thing that's gonna happen after the release is some back and forth flopping around that they would rather stay away from.

3. You're right-the dollar strengthening is traders who have a pretty good idea that the NFP is gonna be very negative and they're pulling back the bowstring for an even bigger release.
  • #18
  • Edited Oct 7, 2006 11:31am Oct 6, 2006 4:32pm | Edited Oct 7, 2006 11:31am
Well, the NFP number was way down to the ground, man-that is until the revision was released. That caused the 50k to look more like 175k and that indeed caused a 100+ pip $+ move. It was a good report to trade IF you waited until all the info was released and understood what the revision meant. A number this far off consensus was worth about 100-120 pips.

So the $ closes strong, 2 yrbond yeilds and the fed futures rate are up and all that talk about a rate decrease is dead-for now. Monday is a holiday and the next US reports that look important are the CC, Mortgage applications and the Beige Book. Friday's retail sales should be important as well.

Bernanke's depending on a continued new housing construction slowdown to further tame the economy. Former Fed Chairman Greenspan had some interesting comments today
http://www.bloomberg.com/apps/news?p...C1o&refer=news

It will be interesting to see if today's profits are taken before Wednesday's report. Right now, no consensus has been published for the mortgages, so we'll see how that shakes out for the week. The last time the $ closed around this level was on 7/18 when it closed at 2595.

There is a lot of talk regarding the BLS and the amount of jobs that have been created. For the year ending in march, the number could be revised up by over 800,000. Revisions are likely to be seen after April as well.
http://www.bloomberg.com/apps/news?p...&refer=economy

So, if it turns out the economy is creating many more jobs then thought, Greenspan's assessment is correct and next week's reports show strength, coupled with statements by Fed Govs Plossner and Kohn that suggest Fed policy is not firm enough, can a stronger $ not follow? Yes. I just shorted the EURO.
  • #19
  • Last Post: Oct 6, 2006 7:26pm Oct 6, 2006 7:26pm
Newstrader - nice link, I missed Greenspan's comments

Anyway, he has international precedent. In the UK mortgage applications have been a good lead indicator of UK house prices, which bounced off flat y/y after many years of 10%+ gains, and are now back on the up. The housing market crash just didn't materialise. It's storing up problems for the future, but we are in the present.

I think market participants fail to account for the positive feedback mechanisms in a freely functioning market the economy that kind of act like automatic stabilisers (eg; lower bond yields indicate economic weakness but also act as a palliative to that very weakness). This linear extrapolation way of thinking produces extreme scenarios which are often too extreme and can sometimes be bet against. Makes me sound like the total opposite of Taleb!.
"Always bet on black"
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