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Quoting JeremyWS
{quote} urghh... please try again... this doesn't explain at all, why you think an easing program from the ECB (techincally will be a credit easing, not quantitative easing) will lead to a weaker EUR? My problem here is not personal against your claims, it is a problem that near everyone has. Someone states something, and then without their own thought people just regurgitate the statement without knowing WHY! So, WHY/HOW will the ECB undertaking a CE/QE program lead to a weaker EUR fx rate?
QE might not even be implemented but if it does it might not work at all.
The principle behind QE effect in the exchange rate is that investors will seek to protect their returns, the ECB in this case would be reducing the yields of their bonds as a net result even if you would expected otherwise, I can only say that as soon as investors sense QE is on the way, the currency of that country will tend lose value and has been seen before as research on the same subject showed. Now, this is what I think and I do it with my own mind, I gather as much info as I can and go from there to make my own judgements. I would like however to know your views on this.
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This!

Quoting ill_be_back
{quote} Like I said before This whole Business is dependent on Fundies & Data release, If u can understand & get this correct u have almost made it, Use Technicals for Entry & Exit Only
Quoting pedro319
{quote} QE might not even be implemented but if it does it might not work at all. The principle behind QE effect in the exchange rate is that investors will seek to protect their returns, the ECB in this case would be reducing the yields of their bonds as a net result even if you would expected otherwise, I can only say that as soon as investors sense QE is on the way, the currency of that country will tend lose value and has been seen before as research on the same subject showed. Now, this is what I think and I do it with my own mind, I gather...
The principal argument in QE/CE is to lower real yields. (nominal - inflation)

So, this comes about in two ways, Higher inflation and lower yields.

Given low yields already, a negative rate cut is barely anything on the margin, and therefore it can be seen that the impact of a rate cut (or even yields pushed lower via QE) won't have a meaningful impact on the rate spread (vis a vis the USD rates)

On the second hand, does QE/CE raise inflation. Most argue it does not. Especially if its a credit easing as opposed to QE.

It is beyond clear that real yields determine the EURUSD, there is no doubt, nor anyone doubting this (see chart)

so, IF QE/CE lowers real yields we may see a lower EURUSD. But it cannot be seen that a CE/QE program will lower real yields, hence, unlikely to have much impact.
Attached Image (click to enlarge)
Click to Enlarge Name: real yields.png Size: 173 KB
printing money encourages carry trades. i still think that applies with credit easing.


negative rates are even better to get the fx rate down. All the money in the short end can go somewhere else, they would actually get paid to hedge.
Twitter: @TrendersGame
Quoting JeremyWS
{quote} The principal argument in QE/CE is to lower real yields. (nominal - inflation) So, this comes about in two ways, Higher inflation and lower yields. Given low yields already, a negative rate cut is barely anything on the margin, and therefore it can be seen that the impact of a rate cut (or even yields pushed lower via QE) won't have a meaningful impact on the rate spread (vis a vis the USD rates) On the second hand, does QE/CE raise inflation. Most argue it does not. Especially if its a credit easing as opposed to QE. It is beyond clear...
Which is why when Eu says QE EUR/Usd goes north??? Seems this was the case the last time it ramped
Quoting ill_be_back
{quote} Like I said before This whole Business is dependent on Fundies & Data release, If u can understand & get this correct u have almost made it, Use Technicals for Entry & Exit Only
i agree. As, IMO, entry and exit is everything.
Quoting Citiboy
printing money encourages carry trades. i still think that applies with credit easing. negative rates are even better to get the fx rate down. All the money in the short end can go somewhere else, they would actually get paid to hedge.
on the margin, a negative rate cut is far less effective at reducing the FX rate than say an ordinary 50bps cut or whatever.

plus, given the FX forward curve, one already gets paid to hedge
Quoting JeremyWS
{quote} on the margin, a negative rate cut is far less effective at reducing the FX rate than say an ordinary 50bps cut or whatever. plus, given the FX forward curve, one already gets paid to hedge

'ordinary" cuts havent been effective because the effective EONIA is below the overnight funding rate because of LTRO excss liquidity.

if the cap on the effective rate is cut to 10bps from 25 currently then I think that does take euribor fixings a little bit further out the curve down. marginally lower rates in the 3-12 month area will help weaken the euro.
Twitter: @TrendersGame
Quoting Citiboy
{quote} 'ordinary" cuts havent been effective because the effective EONIA is below the overnight funding rate because of LTRO excss liquidity. if the cap on the effective rate is cut to 10bps from 25 currently then I think that does take euribor fixings a little bit further out the curve down. marginally lower rates in the 3-12 month area will help weaken the euro.
for sure it will hit the forward starting curves...

like the EONIA 1y1y etc, but I wouldn't consider that too important for the FX rate right now... there is a time and place for each interest rate
Quoting JeremyWS
{quote} for sure it will hit the forward starting curves... like the EONIA 1y1y etc, but I wouldn't consider that too important for the FX rate right now... there is a time and place for each interest rate

no i mean like 3 month, 6 month... etc. if Markets will assume that negative rates may persist for 6 months+

It would be huge if they could get 6 month euribor down below 5bps.

that will move the fx rate. We can agree to disagree but I think it pays more to be positioned for higher volatility, at least on a risk reward basis.
Twitter: @TrendersGame
Quoting Citiboy
{quote} no i mean like 3 month, 6 month... etc. if Markets will assume that negative rates may persist for 6 months+ It would be huge if they could get 6 month euribor down below 5bps. that will move the fx rate. We can agree to disagree but I think it pays more to be positioned for higher volatility, at least on a risk reward basis.
I meant the rate path curve, that is where the most impactful FX reaction will occur.

A rate cut, certainly pushes out the rate path. The 6 month EURIBOR is 42.6bps, I doubt that gets under 5bps, remember that is interbank lending not prime rates and thus will not move as much, especially as there will be a disincentive to save at the ECB, and thus interbank rate less affected (if really affected at all??)

so, maybe we should buy forward vol swaps?

I'm thinking getting long vega too.
Quoting JeremyWS
{quote} I meant the rate path curve, that is where the most impactful FX reaction will occur. A rate cut, certainly pushes out the rate path. The 6 month EURIBOR is 42.6bps, I doubt that gets under 5bps, remember that is interbank lending not prime rates and thus will not move as much, especially as there will be a disincentive to save at the ECB, and thus interbank rate less affected (if really affected at all??) so, maybe we should buy forward vol swaps? I'm thinking getting long vega too.

take away credit risk with qe so the main impact should show up in interbank rates, anchor rates low with the negative depo. i think they could get 6 month down to near 10bps.
Twitter: @TrendersGame
Quoting Citiboy
{quote} take away credit risk with qe so the main impact should show up in interbank rates, anchor rates low with the negative depo. i think they could get 6 month down to near 10bps.
what credit risk? there is none left it would seem

just load up X-CCY basis swaps. never been tighter....
Attached Image (click to enlarge)
Click to Enlarge Name: EUR CBS.png Size: 142 KB
Quoting JeremyWS
{quote} what credit risk? there is none left it would seem just load up X-CCY basis swaps. never been tighter.... {image}

this has the usd rate component in though.

probably better to use like 6 month euribor- 6 month german bill
Twitter: @TrendersGame
Quoting Citiboy
{quote} this has the usd rate component in though. probably better to use like 6 month euribor- 6 month german bill
same picture as before, but normally one uses X-CCY BS'

It would be better to consider the asset-swap spread / z-spread on the 6 month bubil
Attached Image (click to enlarge)
Click to Enlarge Name: 2.png Size: 133 KB
Quoting JeremyWS
{quote} same picture as before, but normally one uses X-CCY BS' It would be better to consider the asset-swap spread / z-spread on the 6 month bubil {image}

this isnt correct... its worked between 2010 and 2013 because US rates were stable, thats not the case anymore so that statistic doesnt measure the same typs of risks as effectively as it did during 2011.

edit: eur and ffe rates are much closer now anyway, making this even less effective at begin a realtive measure of credit conditions comparative to the period of 2011 or 2010

it is not a permanent measure of credit spreads.

Your graph being inverted makes it somewhat misleading, the spread between 6 month bund bills and 6 month euribor is near the highs of the recent 12 month range.
Twitter: @TrendersGame
Quoting JeremyWS
{quote} is it a coincidence that people with large accounts trade using fundamentals? Do they trade fundamentals because of the large account size? or, Do they have a large account because they trade fundamentals?
Are you saying that people born with silver spoons in their mouths aren't smart enough to trade technicals?

Or are you just assuming that everybody with a large account only trades fundamentals?

Either way, it is a blind sweeping statement...doesn't make you look smart...

You are the same pretentious little prick as always.

Grow up.
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
Quoting Citiboy
{quote} this isnt correct... its worked between 2010 and 2013 because US rates were stable, thats not the case anymore so that statistic doesnt measure the same typs of risks as effectively as it did during 2011. it is not a permanent measure of credit spreads. Your graph being inverted makes it somewhat misleading, the spread between 6 month bund bills and 6 month euribor is near the highs of the recent 12 month range.
re: bold text - I'm just going to pretend you didn't say this, so we can continue a quite interesting discussion (silly comment btw, probably accidental)

the graph being inverted has nothing to do with it. I could flip it upside down if it benefits you...

Either way, on the original point, there is no credit risk in the EZ. While most things are considered as strong as their weakest link, the euro zone is in an odd peculiarity... its as weak as its strongest point.

The problem is not with the credit risk, its about the credit transmission mechanism... which is a little broken.
Quoting Magix
{quote} Are you saying that people born with silver spoons in their mouths aren't smart enough to trade technicals? Or are you just assuming that everybody with a large account only trades fundamentals? Either way, it is a blind sweeping statement...doesn't make you look smart... You are the same pretentious little prick as always. Grow up.
no assumptions anywhere, purely an observation of facts I have bared witness too.

re: bold - A monkey can trade technicals, hell even a computer can...

but they cannot trade fundamentals.

In the city, one is not valued on their ability to follow some simple instructions as per a technical strategy. A person is valued on their ability to gauge the bigger picture, understand why things happen and then react accordingly.

I'm sorry if you do not see this, but it is a fact of the industry.
Quoting JeremyWS
{quote} no assumptions anywhere, purely an observation of facts I have bared witness too. re: bold - A monkey can trade technicals, hell even a computer can... but they cannot trade fundamentals. In the city, one is not valued on their ability to follow some simple instructions as per a technical strategy. A person is valued on their ability to gauge the bigger picture, understand why things happen and then react accordingly. I'm sorry if you do not see this, but it is a fact of the industry.

It's a fact in your limited scope.

Wait until you other nut drops before you come out to play with the big boys, ace.

There's a lotta learning you have left to be done.
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
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