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FOMC trade

  • #1
  • First Post: Aug 5, 2006 7:05pm Aug 5, 2006 7:05pm
After analyzing the crap out of it. This is what will happen.

1) USD bear spike from lack of rate hike..
2) Fade the trend for the rest of the day....usd strength materializes

Similar to what happened in equities this last friday.
Price is the only indicator.
  • #2
  • Aug 5, 2006 8:00pm Aug 5, 2006 8:00pm
just beware what can happen from fading a spike...look at gbp friday..
Price is the only indicator.
  • #3
  • Aug 6, 2006 12:51am Aug 6, 2006 12:51am
But what it there is a rate hike?

Seeing that the consensus is No rate Hike, this would be in for a surprise. And I bet the dollar bull will run wild....

However, once the FOMC minutes is out, the market would react once again - dollar bear perhaps for the next 3 months till NOV/DEC.
  • #4
  • Aug 6, 2006 1:34pm Aug 6, 2006 1:34pm
I think that there will be a rate hike and that the consensus is wrong.
  • #5
  • Aug 6, 2006 3:01pm Aug 6, 2006 3:01pm
Why do you think so?



Quoting forexnoob
I think that there will be a rate hike and that the consensus is wrong.
  • #6
  • Aug 6, 2006 3:26pm Aug 6, 2006 3:26pm
Because Inflation figures inside the US are still relatively high compared to what the Feds want it to be...But if the economy is slowing & inflation numbers & consumer spending are still strong & the Feds raise rates, the market will react the opposite way & the USD will get deeply hurt, because this will give a signal of more slow down in the economy as the cost of borrowing money increases day after another, so people won't be interested in USD as long as it is expensive to borrow & also decreasing in value due to inflation....

On the other hand, if the Feds didn't raise rates, I expect the USD to react positively to this...

In my opinion, I think the Feds are going to raise rates once again due to inflation pressures...The problem is the reaction of the markets after such a decision...USD will get hammered, bonds will sink down after their great rally, gold & silver will shoot up quiet a bit, stock market will dive as well & due to these reactions, the feds won't possibly raise rates once again in the near future, at least not during this year anymore...


Thanks,

Nader
  • #7
  • Aug 6, 2006 3:40pm Aug 6, 2006 3:40pm
So Narafa,

Do you feel the Fall elections will have any bearing on the decision for a rate hike? Or do you think it is only an economic decision?
Scott

Quoting narafa
Because Inflation figures inside the US are still relatively high compared to what the Feds want it to be...But if the economy is slowing & inflation numbers & consumer spending are still strong & the Feds raise rates, the market will react the opposite way & the USD will get deeply hurt, because this will give a signal of more slow down in the economy as the cost of borrowing money increases day after another, so people won't be interested in USD as long as it is expensive to borrow & also decreasing in value due to inflation....

On the other hand, if the Feds didn't raise rates, I expect the USD to react positively to this...

In my opinion, I think the Feds are going to raise rates once again due to inflation pressures...The problem is the reaction of the markets after such a decision...USD will get hammered, bonds will sink down after their great rally, gold & silver will shoot up quiet a bit, stock market will dive as well & due to these reactions, the feds won't possibly raise rates once again in the near future, at least not during this year anymore...


Thanks,

Nader
  • #8
  • Aug 6, 2006 8:00pm Aug 6, 2006 8:00pm
Quoting Yardie
Why do you think so?
Unemployment rate is currently in a downtrend and inflation indexes are showing a weak uptrend. So the US economy is in too good of a condition for a rate hike not to happen.
  • #9
  • Aug 6, 2006 8:05pm Aug 6, 2006 8:05pm
All in all, I expect to see a strong dollar this week.
  • #10
  • Aug 6, 2006 10:55pm Aug 6, 2006 10:55pm
Quoting smjones
So Narafa,

Do you feel the Fall elections will have any bearing on the decision for a rate hike? Or do you think it is only an economic decision?
Scott
What makes you think the FOMC gives a crap who comes out on top in the next election?
  • #11
  • Aug 7, 2006 12:20am Aug 7, 2006 12:20am
Quoting smjones
So Narafa,

Do you feel the Fall elections will have any bearing on the decision for a rate hike? Or do you think it is only an economic decision?
Scott
Economic decisions are sometimes linked with politics, I believe....

Yes, I do believe that the elections will have an effect on the next rate decision, but I think that there will be a rate hike simply because the US needs a weaker dollar in the coming period to balance their trade gap & be competitive internationally...That's why a rate hike will give this exact scenario...


Thanks,

Nader
  • #12
  • Aug 7, 2006 12:23am Aug 7, 2006 12:23am
Quoting Darkstar
What makes you think the FOMC gives a crap who comes out on top in the next election?
maybe because politic is everywhere?
even in economic decision maker?
  • #13
  • Aug 7, 2006 2:37am Aug 7, 2006 2:37am
I have no opinion on this issue, that is why I asked the question. An interesting answer you offer, but not very informative. What is your opinion.
I assume you mean that it makes no difference to the Fed Board regarding elections. Is that correct?

Thanks Scott


Quoting Darkstar
What makes you think the FOMC gives a crap who comes out on top in the next election?
  • #14
  • Aug 7, 2006 2:40am Aug 7, 2006 2:40am
Thanks Nader. That is something to think about. So if I understand your point correctly, you think a rate hike fits both an economic and a political agenda. Is that correct?

Scott


Quoting narafa
Economic decisions are sometimes linked with politics, I believe....

Yes, I do believe that the elections will have an effect on the next rate decision, but I think that there will be a rate hike simply because the US needs a weaker dollar in the coming period to balance their trade gap & be competitive internationally...That's why a rate hike will give this exact scenario...


Thanks,

Nader
  • #15
  • Aug 7, 2006 3:23am Aug 7, 2006 3:23am
I tell you what was my dream last night


FOMC was increasing rates again tomorrow, a drop of more then 200 pips occured and my broker didnt let me sell Pounds !
  • #16
  • Aug 7, 2006 7:45am Aug 7, 2006 7:45am
Quoting trucco
I tell you what was my dream last night


FOMC was increasing rates again tomorrow, a drop of more then 200 pips occured and my broker didnt let me sell Pounds !
Or worse, brokers stopped trading USD for the whole day!
  • #17
  • Aug 7, 2006 8:36am Aug 7, 2006 8:36am
Quoting trucco
I tell you what was my dream last night


FOMC was increasing rates again tomorrow, a drop of more then 200 pips occured and my broker didnt let me sell Pounds !
Sell now
Try hard, think fast, die young
  • #18
  • Aug 7, 2006 8:45am Aug 7, 2006 8:45am
Quoting smjones
I have no opinion on this issue, that is why I asked the question. An interesting answer you offer, but not very informative. What is your opinion.
I assume you mean that it makes no difference to the Fed Board regarding elections. Is that correct?

Thanks Scott
I read this book on the history of risk a few months ago and one of its chapters was on game theory. One of the examples they gave to explain the theory used Congress and the FOMC to highlight how opposing participants make choices based on their own priorities.

It’s easy to conclude that because the FOMC is a component of government, it works for the government’s best interest, but the truth is that governments (as well as financial markets) are still made up of individual participants. Each participant has their own agendas and aspirations and often those goals conflict with other participants in the environment.

Ben Bernanke and his ilk are judged on their ability to control inflation. It is etched deeply in their minds that stable, long term growth is a consequence of a low inflation environment and irrespective of what else is going on in the world; their priority is to maintain that objective.

Congress works from the perspective that the happier the constituents, the higher the probability of reelection. It would please the constituents immeasurably if the economy was overheating and inflation was driving up wages at an ever increasing rate. One of Congresses many tools is the ability to lavish their supporters with tax reductions while maintaining (or increasing) federal spending.

The majority of our current budget deficit is a direct result of this excess spending mentality. A byproduct is an ever weakening dollar position in world markets which has the nasty little side effect of increasing prices. If left unchecked this has a tendency to kick off the wage/price spiral that allows inflation to get out of control.

Knowing all of this, why should we assume that the FOMC would want to endanger their own priorities to support the Republican Party? That's really what you’re talking about. There is no risk of the November elections being canceled and as such, a weakening economy would only endanger the party of majority. It could easily be argued that the FOMC would be better served by the elections resulting in a Democratic majority. An increase in taxes would reduce the budget deficit (albeit temporarily) and the resultant strengthening dollar would reduce the inflation risks.

Before this blows up into a political discussion, let me say that the majority of the time I subscribe to the Republican ideals. I think if there was a socially liberal/fiscally conservative party I would be their staunchest supporter, but since there isn’t, I prefer the lesser of two evils. The above is not a diatribe of either political party and examining it in that light would only detract from the discussion.

In summary, I believe it would be dangerous, and borderline foolish, to assume elections have any baring on monetary policy decisions.
  • #19
  • Aug 7, 2006 9:19am Aug 7, 2006 9:19am
Quoting narafa
Economic decisions are sometimes linked with politics, I believe....

Yes, I do believe that the elections will have an effect on the next rate decision, but I think that there will be a rate hike simply because the US needs a weaker dollar in the coming period to balance their trade gap & be competitive internationally...That's why a rate hike will give this exact scenario...


Thanks,

Nader
Hi Nader,

you think that the dollar will weaken if the fed hikes the rate because of the slowing economy? that's what i understood from your comment.
and if so, we can predict that the $ is depreciating tomorrow no matter of the interest rate decision.

thank you
Trading is a long and a short story.
  • #20
  • Aug 7, 2006 9:23am Aug 7, 2006 9:23am
Quoting Darkstar
I read this book on the history of risk a few months ago and one of its chapters was on game theory. One of the examples they gave to explain the theory used Congress and the FOMC to highlight how opposing participants make choices based on their own priorities.
......

In summary, I believe it would be dangerous, and borderline foolish, to assume elections have any baring on monetary policy decisions.
Here we go again....

You read a chapter in a book Darkstar. I double majored in economics and politics at a top university, because I understand that basic axiom that "he who has the gold, makes the rules." I was born here and I live in this political arena. You discuss game theory. I worked in politics. In other words, you're doing the demo while I'm qualified because I mastered the theories and my finger is on the pulse in real-time life.

Monetary policy has a bearing on elections because it directly impacts voters. Period. Even the talking heads and television pundits and market analysts acknowledge as much. FOMC has so much impact, there's a rumbling at the grassroots level to disband it...because no one elected them to such a powerful position. Perhaps extreme, but true nonetheless.

It was within the context of the looming elections that I predicted the government's economic releases for July would support a "non-inflationary" environment. That statement alone helped make a lot of money for some folks.

And it has nothing to do with Democrats, Republicans or Independents or Greenpeace or whatever affiliation. It has to do with power.

But believe what you want to believe. Just as you have the right to speak those beliefs, you have the right to err and that's okay.

Bottom line is, the market cares not one twit about my opinion or yours.

Just information; not a recommendation.
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