Central Bank Watch

Opps, forgot about the UK central bank. I agree with this outlook:
BoJ, RBA, ECB, BoC, SNB, FED, BoE, RBNZ

No doubt the RBNZ is going to use Aud/Usd bearishness to increase rates, keeping NZD/USD confined but the diverting of RBA & RBNZ's monetary policies are killing the Aud/Nzd exchange rate. I don't expect Nzd/Usd to be near parity once rates start moving or RBNZ is going to be in a pickle.

BOJ head Kuroda says it will continue QE as long as needed, and increase it if necessary.

Being more export reliant than the other major economies, a rising yen will hurt Japan far more than rising local currencies in other countries. Abe and Kuroda appear absolutely committed to keeping the yen weaker than everything else and willing to move heaven and earth to make it happen.

http://www.bangkokpost.com/breakingn...policy-in-2014

http://www.bloomberg.com/news/2013-1...g-in-2014.html

Last week's Japanese Tokyo & National CPI releases (0.7% & 1.2% YoY respectively) were multi-year highs, showing that the BoJ can start rasing inflation.

CPIs are to be watched closely as lower than expected figures could mean the BoJ must increase QE to accomplish at least 2% y/y inflation.

Some interesting 2014 policy predictions and trade ideas from the DailyFX analysis team

John Kicklighter: Eur/Chf "peg" at 1.2000 may mean trading USD/CHF on diverging monetary policy may be a better idea than trading EUR/USD
AUD/NZD sits at historic support, RBA and RBNZ statements may already be priced in and poised for a major reversal
http://www.dailyfx.com/forex/technic...icy_Gaurd.html


David Rodriguez: BOJ will continue working together with Japanese govt on its "weak yen policy, and they're in a unique position of having plenty of ammunition left in potential easing. "
http://www.dailyfx.com/forex/technic...Top_Trade.html


Ilya Spivak: Fed's tapering in 2014 stands in "stark contrast" to ECB's monetary policy trajectory. Fed is committed to a hawkish direction, ECB to a dovish one.
Euro inflation has continued to fall despite ECB's surprise rate cut in November - US and Japan-style bond buying isn't an option but ECB has plenty of other easing tools at its disposal.
http://www.dailyfx.com/forex/technic...cy_Trends.html


Michael Boutros: BOE is likely the most hawkish central bank in 2014, BOJ the most dovish. Monetary policy divergence must be complimented by technical confirmation before trades are taken though
http://www.dailyfx.com/forex/technic..._in_Focus.html


David Song: RBNZ and BOE may be first to normalize monetary policies, ECB and RBA face growing threat of deflation and have little choice but to embark on further easing.
http://www.dailyfx.com/forex/technic..._for_2014.html

At present this is how I would rank the majors in 2014:

1 - GBP
2 - CHF
3 - NZD
4 - EUR
5 - USD
6 - AUD
7 - CAD
8 - JPY

(1 = strongest; 8 = weakest)

what algo you using for profiling?

Interesting that you have USD so low, and EUR so high on your list. I take it you don't think the fed will carry through with the taper? What are you basing EUR's relative strength on? The rest of your list is pretty much in line with what others are saying.

The SNB (Swiss National Bank) is at the whim of the Euro. I'd put them with or just above the ECB as the E/C peg will force Franc depreciation.

I'm afraid that the RBA cuts and the RBNZ hikes have been priced in pretty well. Seems like that's all I've been reading on the bank reports lately. Though Aud/Nzd 1.0900 would have been an awesome short yesterday.

The list is based on correlation analysis.

What I think will happen is irrelevant. EUR simply ranked a little better than USD.

Talking CB's here. ECB better outlook than the FED? Idk.. ECB is having to deal with deflationary headwinds now.


Hey Numb, do you know when the market is expecting another Fed taper? Been waiting since Septaper, Octaper, Novemtaper for just the first!

When you mention specific targets regarding currency value/rate hikes, those targets will get priced in very fast. RBA and RBNZ are the only CBs to have mentioned specific targets (aside from the eur/chf floor) so I am starting the year very cautious about those two. For that reason my main focus now is on EUR and JPY weakness, and GBP and USD strength.

Also of consideration to traders is not so much where a CB stands now but where it has the potential to move - RBNZ is the most hawkish CB right now but it isn't going to get any more hawkish than it already is. BOE and Fed on the other hand will continue to slide along the scale if their economies continue improving. It is those movements along the scale that move currencies.



No, nobody seems to be agreeing on this. There were a bunch of fed speeches in the last four hours I have been waiting for to maybe get some idea - I just woke up so I haven't gone through them yet. I don't expect them to come straight out and tell us, but hopefully they will let us know how closely they will be watching certain economic indicators and what kind of numbers they have in mind.

Good analysis. Agreed on BOE and FED movements dominating as conditions improve. If NZD rates improve and USD strengthens(with Fed tapering), would we get a range in Nzd/Usd? Would you only buy NZD with EUR & JPY then?


Saw these Fed headlines on the OFT feed:

1. Fed’s Lacker: Fed watching inflation, expects for it to rise to 2% goal; sees modest growth for 2014; tapering was right call and still on table for next meetings.
2. Bernanke: US has made progress but isn’t done yet; cautiously optimistic on future outlook; taper doesn’t mean less accommodative; decision to taper based on jobs

Bernanke sounds optimistic about GDP growth in 2014, meaning taper will likely continue if unemployment keeps falling. An uptick in unemployment could throw the cat among the pigeons.

The other two fed speakers from this morning, Lacker and Plosser, both continue calling for the end of QE in 2014 and the start of rate hikes in 2015 - but those guys are the most consistently hawkish board members anyway. Taper/rate hike talk from a devoted dove like Dudley or Evans would be far more significant.

Here is a scale of Fed policy makers and their relative hawkish/dovishness:
http://graphics.thomsonreuters.com/F/10/scale.swf

Bernanke's speech:
http://www.federalreserve.gov/newsev...e20140103a.htm


I like his quote at the end - "We often speak of the Federal Reserve or other institutions as if they were autonomous actors. Of course, they are not. The Fed is made up of people, working within an organizational structure and with an institutional culture and set of values."

Just finished some fresh analysis using previous quarter data. Interestingly, it shows the way USD correlates with the other majors is returning to the normal state pre-Abenomics.

Yeah I try to buy only currencies I am bullish on and sell on bearishness. I think a pair like NZD/USD, where I am bullish both currencies on CB policy, would be more likely to slip into a range (or a weak trend I can't predict) while a pair like GBP/JPY, with two diverging monetary policies, is better for a trend following system. I try to trade with trends which coincide with divergent monetary policy.

Just looked at the latest COT data - specs on JPY are 91.5% short, the most extreme level in six years. Just one more landmine to sidestep. When you sell a currency, you are expressing a belief that other speculators will come in afterwards and sell - and according to the CFTC there aren't many potential sellers left. I am still bearish JPY - Abe and Kuroda are still committed to keeping it low, and they still have ammunition in their guns - but with these extremes of sentiment, positioning, and monetary easing, combined with slowly rising inflation and economic growth, there could be a perfect storm brewing on the horizon.

After reading all I could find on fundamentals during the weekend, I must say your and Numbnuts CB outlook is spot on. BoE vs Fed and ECB vs RBA leave doubt tough.

The last I heard of a specific level from the RBA was when Gov Stevens stated they would rather see 0.8500 than 0.9500 for a fair value of the Australian Dollar. Viable short around the 0.900 level before the next round of cuts? (if AUD doesn't fall)

Aud/Usd rate may be at the hands of the Fed during the next US hurdle.

A nice article by Simon Kennedy about the diverging monetary policies, kind of lines up nicely with what we've been saying in here
http://www.bloomberg.com/news/2014-0...ed-tapers.html

WSJ's outlook on Fed direction and challenges in 2014
http://blogs.wsj.com/economics/2014/...-2014-outlook/

It certainly looks like diverging monetary policies will be the dominant theme in FX, at least in the short/mid term - the last two years have seen an unusual situation where all central banks face the same challenges and all implement pretty much the same policy. Now they are starting to shift in different directions.

A lot of data coming this week. Inflation figures from Europe and Switzerland, Trade balances from USA, Australia, Canada and UK. Employment figures from Europe, Canada and USA (nfp), interest rate announcements from Europe and UK. Whew. Coupled with unpredictable volumes as traders gradually dribble back from holidays, it makes for a hell of a week to be trading.

Hi numbnuts, what a great thread idea! I've been monitoring the ECB and the Fed for years now and I'll try to contribute here as well, as much as I can between my studies, trading and social life.

I'm going to offer a few of my own thoughts mixed with what I've read and then offer links to two interesting articles on tapering. First of all, as regards to tapering, it appears that the Fed didn't want to shock the markets by taking away the punch bowl too suddenly (remember 1994, anyone?). The economy has been improving and largely due to QE - the monetary expansion (that all market participants realize is temporary and as such hasn't given rise to undue inflation, the search for yield has increased speculation, but it hasn't given rise to goods/wages inflation) associated with QE has been large enough to stabilize the economy, improve job growth and keep banks from collapsing in on themselves. People still don't realize how close we came to complete financial collapse in 2007/8. Not implementing QE or similar policies would've been de facto monetary tightening. However, GDP growth has been positive (compare that to the eurozone, which is de facto tightening).

With all that said, the Fed is also worried about inflation running too low, so they had to compromise the last meeting. They also lowered their unemployment threshold by saying that "The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal." The Fed's statement also said that "...the Committee will also consider other information, including additional measures of labor market conditions." These two quotes have led many analysts to believe that the Fed is no longer looking at the unemployment figure in isolation, but combining it with other labor market figures to take into account the number of people who have (unwillingly) left the job market because they couldn't find anything and are no longer eligible for benefits.

Whatever the case, it looks to be a very interesting year in terms of Fed action with Janet Yellen taking over the throne. There's been some talk that Yellen is an NGDP target supporter, which is something we haven't seen before. Might prove to be quite interesting, especially as everything I've read about targeting nominal incomes has been very thought provoking. It actually might work. We'll see.

Here are the two articles:
http://perspectives.pictet.com/2013/...ing-with-care/
http://macromarketmusings.blogspot.c...-to-taper.html

Bank of England yesterday decided to leave its monetary policy unchanged. The UK continues to recover faster than other economies, with annualised GDP growth around 3%, inflation steady at 2% and unemployment falling to 7.4%. BOE head Mark Carney said in August that it won't consider raising interest rates until unemployment falls to 7%, although if inflation falls it may revise that target lower. At the time it was expected to hit 7% in 2015/16 - now it looks like getting there in the first half of 2014. BOE will probably cut its asset purchases before raising interest rates, so I expect more hawkish moves from the UK in the coming months.

http://www.bankofengland.co.uk/publi.../2014/001.aspx
http://www.reuters.com/article/2014/...A080K020140109
http://www.theguardian.com/business/...interest-rates