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FX News Trading For The Week Of May 7-And Beyond

  • #21
  • May 9, 2007 1:30pm May 9, 2007 1:30pm
from what I could decypher, ben et al were more concern with the inflation and not much on growth.

so that implied hawkishness?
  • #22
  • May 9, 2007 3:51pm May 9, 2007 3:51pm
I believe that the most significant thing you should take from the Fed statement regards housing.

For the second time, the Fed has stated that the "adjustment in housing is ongoing". This is very different from what they said in their January statement, when they noted tentive signs of stabilization.

This doesn't mean that housing will prevent growth from expanding "moderately", but if you think the Fed economists know what they're talking about there are some important implications.

Housing prices will likely go down further and it will be more difficult to get a mortgage if you have less then stellar credit. If you're trying to sell your house, it might be more difficult and you may have to lower your price to attract buyers. Likewise if you're in the position to buy a house, you may want to wait for prices to drop or bargain for a better price.

It implies that mortgage companies may continue to suffer and the same thing for home builders. Lowe's and Home Depot don't figure to do well and niether do companies that manufacture housing products or fixtures, unless they are in the commercial end of things.

It will be tougher for real estate brokers and if I was a worker in residential construction, I might look to transfer to commercial construction as that has looked good.

If I was a sub-prime mortgage holder, I would carefully asses my economic position and seriously consider cutting down on unnecessary expenses and/or get a second job, as the risk of foreclosure is heightened. You will not be able to re-finance at better rates unless the government steps in to help.

I'm sure there are other things I haven't mentioned...anyone?
  • #23
  • May 9, 2007 6:34pm May 9, 2007 6:34pm
If you've been following this story:

http://forexfactory.com/showthread.php?t=28852

You may be thinking about a major appreciation being possible for the Yen, along with some carry trade unwinding. While i'm not saying this definately will happen, it's certainly something to keep an eye on.
  • #24
  • May 10, 2007 10:56am May 10, 2007 10:56am
WOw, im kind of confused as to why when the GBP increased int rates the GBP lost value. I know that some important news came out b4 the int rates, but i never thought it would have such a huge impact.

So now im left to wonder that if the number come out dissappointing for the US tomorrow then that GBPUSD chart should skyrocket back to $2 mark.

Anyone can help explain why the GBP lost so much value today?

thanks
  • #25
  • May 10, 2007 11:14am May 10, 2007 11:14am
This is an example of "buying the rumor and selling the fact". The BoE rate increase was widely anticipated by the market and bought into before the actual announcement.

Rate moves are usually very accurately predicted by market participants, because banks signal their moves way ahead of time. For example, Trichet today signaled a rate increase for next time. That too was already bought into, so the euro was sold when he confirmed it.

The market may start buying into the rumor of an ECB pause to happen after the June increase. Trichet reiterated today that the ECB does not "pre-commit" and therefore, no signal has been given for this, however, because a 4.0% interest rate is a psychological barrier the feeling may spread. Recent EZ inflation data has been softer as well.
  • #26
  • May 10, 2007 11:32am May 10, 2007 11:32am
Quoting BurgerKing
from what I could decypher, ben et al were more concern with the inflation and not much on growth.

so that implied hawkishness?
Right now BK-I don't think anyone has a handle on exactly what the Fed will do-that's why no trend will be set from the statement. What they want to do is to remain on hold for as long as possible. For a while at least, the moves in the $ are likely to come off the data as it prints.

What we have for the four banks now:

Fed: No one can be sure-the Fed will move either way depending on how the data prints, but since they are still pointing to moderating inflation and a moderately expanding economy-no move seems likely and no move will occur as long as the projections remain as they are. I think the biggest thing to be taken from the Fed is that the housing correction is still on-going. While the weakness there is not anticipated to prevent moderate economic growth, that sector looks to continue in a weak fashion.

BoE: They have clearly stated that they see inflation trending down and expect it to return to "around" the 2% target this year. They are not anticipating the need to raise rates further, although like all banks, they alluded to the risk in that projection.

ECB: Clearly stated their intention to raise at the next meeting. After that, no "pre-commitment", but there is the possibility of the market seeing a pause after that.

BoJ: Wants (and needs) to increase, but the data so far is not helping them at all.They'll be lucky to have one more this year.
  • #27
  • May 10, 2007 12:02pm May 10, 2007 12:02pm
Always read and enjoy your posts NT.
I feel the housing market is a place for the fed to stockpile its inflation. It seems to me that inflation runs rampant when housing and the stock markets rise.

So my question is if the housing market continues to deflate and the stock market takes its imminent turn south are we going to see Fed rates drop and mortgages actually get much better in the next year?
It really is that easy.
  • #28
  • May 10, 2007 2:51pm May 10, 2007 2:51pm
Quoting THE FxORCE
Always read and enjoy your posts NT.
I feel the housing market is a place for the fed to stockpile its inflation. It seems to me that inflation runs rampant when housing and the stock markets rise.

So my question is if the housing market continues to deflate and the stock market takes its imminent turn south are we going to see Fed rates drop and mortgages actually get much better in the next year?
Thanks for the props-and here are some comments:

Inflation really has not "run rampant" for many years. Yes, it's above where they'd like to see, but inflation has been under control for a very long time.

A certain level of inflation is normal AND desireable, because deflation is a more serious problem then inflation-see Japan. That's why the Fed has a target range with positive inflation rates.

To answer your question, if housing and growth continue to trend down the Fed will cut rates if inflation allows them to. If we have a continuation of what this year has basically brought so far-a stagflationary phase-that will put the Fed in a very tough position. No clear answer that I know of exists for that question.

One thing I do know is that generally, a situation of slow growth and elevated inflation-a stagflationary situation-is something Wall St. definately doesn't like.
  • #29
  • May 10, 2007 10:28pm May 10, 2007 10:28pm
Quoting NewstraderFX
ECB: Clearly stated their intention to raise at the next meeting. After that, no "pre-commitment", but there is the possibility of the market seeing a pause after that.
NTFX, so since the rate hike is already expected for EUR (and has been for some time I take it), does it stand to reason that this is already baked into the price of the EURUSD? IOW, is a decline in the EUR a reasonable expectation?
  • #30
  • May 11, 2007 7:03am May 11, 2007 7:03am
Thinking back about this week, and what then seemed as an inexplicable rise of the usd, I have to go back to basics...not newstrading, fundamental trading, or technical trading.

the type of trading that always made me money...market sentiment trading. This thread came to mind, as the threads started by newstraderfx, although not always right in his analysis(which proves that he is human after all), were precious gems that could be of much better value if they
concentrated more on gauging market sentiment.

I invite everyone who participates in the threads to do that a little more actively.
  • #31
  • May 11, 2007 9:40am May 11, 2007 9:40am
Thanks DD-please feel free to provide any insights you may have on market sentiment-BTW is there a custom indicator for this?

All kidding aside-the rise of the $ yesterday was not at all inexplicable-it relates to carry trades and how price move as they wind and unwind.

The price of GBP/JPY = GBP/USD x USD/JPY. When carry trades are unwinding, the $ appreciates vs the GBP and depreciates vs. the JPY. The opposite appleis when they're winding.

Thursday's sentiment was best described as risk aversion. Carry trades umwind with that kind of sentiment. The reason for the aversion of risk was due to how the numbers printed-higher inflation on the import prices and lower-growth numbers from retailers and a widened trade balance (wider trade balance is a drag on real GDP).

Those numbers were stagfltionary-Wall St. hates that situation because it puts the Fed in a very difficult policy position. The market sentiment was to avert risk and the carry trades unwound a bit.
  • #32
  • May 11, 2007 12:16pm May 11, 2007 12:16pm
Quoting NewstraderFX
Thanks DD-please feel free to provide any insights you may have on market sentiment-BTW is there a custom indicator for this?

All kidding aside-the rise of the $ yesterday was not at all inexplicable-it relates to carry trades and how price move as they wind and unwind.

The price of GBP/JPY = GBP/USD x USD/JPY. When carry trades are unwinding, the $ appreciates vs the GBP and depreciates vs. the JPY. The opposite appleis when they're winding.

Thursday's sentiment was best described as risk aversion. Carry trades umwind with that kind of sentiment. The reason for the aversion of risk was due to how the numbers printed-higher inflation on the import prices and lower-growth numbers from retailers and a widened trade balance (wider trade balance is a drag on real GDP).

Those numbers were stagfltionary-Wall St. hates that situation because it puts the Fed in a very difficult policy position. The market sentiment was to avert risk and the carry trades unwound a bit.
Yes, we now have to factor carries into trading much more than at any other times past.
The weak numbers, I expected would be welcomed by wall st. as, I thought, they would have pointed to the fed the need to decrease interest rates much sooner than expected. Since the all around negative news were dollar positive, and I believed them to be wallst. positive, I surely thought the USD would lose a lot vs. stronger currencies...
I watched Trichet's speech attentively in the morning and his hawkish stance only reaffirmed by belief that the EURUSd would appreciate a lot...
I spent the whole week waiting for thursday.
I was wrong on all counts.

Thursday's unfortunate activity seemed more like profit taking than anything else.

and, yes, cesarnc came up with a custom indicator like that...he laid it down to me today. it was something like this at about 1030 est: "things don't look all that good. it's friday. I think I'm off."
  • #33
  • Last Post: May 11, 2007 3:11pm May 11, 2007 3:11pm
The weak numbers, I expected would be welcomed by wall st. as, I thought, they would have pointed to the fed the need to decrease interest rates much sooner than expected. Since the all around negative news were dollar positive, and I believed them to be wallst. positive, I surely thought the USD would lose a lot vs. stronger currencies...
I watched Trichet's speech attentively in the morning and his hawkish stance only reaffirmed by belief that the EURUSd would appreciate a lot...
I spent the whole week waiting for thursday.
I was wrong on all counts.

Thursday's unfortunate activity seemed more like profit taking than anything else.

If I may say so, the first mistake you're making is by classifying Thursday's numbers as "weak", when what they really are is stagflationary.

Read back what I said about Wall St's reaction to stagflationary numbers.
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