User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Tuesday November 2, 2010 - 19:02:42 GMT
Foreign Exchange Analytics - www.fxa.com

Share This Story:
| | Email

QE2 (FXA)

QE2

 

Size

I think by now there is no debate over whether the Fed sets sail on QE2.  That decision was largely made in late August when the Chairman delivered his speech to the KC Fed Jackson Hole conference.  And due to the Fed’s rather arcane form of communicating to markets ahead of key policy changes we roughly know the Fed will announce a monthly purchase plan that approaches $100bln a month in government paper (2-yr to 10-yr).  This is on top of the nearly $10bln a month the Fed is already buying in US Treasuries from proceeds from maturing MBS and UST holdings bought under the Fed’s $1.7trln QE1 program (LSAP).  While it is not the entirety of new US Treasury monthly supply, buying around $110bln a month in US gvt debt is a huge piece of the market.  Moreover the drop in mortgage rates has prompted waves of refinancing which means prepayments are up on agency MBS the Fed bought in 2009 and could make for even more than $10bln a month from this channel in UST purchases.

 

SOMA Security Limitation

As it is now, the Fed has a self-imposed limit on the percentage of any security (CUSIP) it purchases…35%.  QE2 is perhaps problematic if the SOMA (Fed’s System Open Market Account) limits are a constraint on what the Fed buys, particularly if it focuses on the 2-yr to 10yr area of the curve.  So more than a few Fed watchers expect the limit to be bumped up to 50% to give the Fed more degrees of freedom in buying assets.  My guess is this change would come in a special announcement after the release of the FOMC statement (more a operational change as opposed to monetary policy change).   This change makes some difference to bond traders who have a pretty good idea of the liquidity and supply in all the different issues and could make for some upside in 2-7-yr portion of curve if announced.

 

Language/Targets

There have been indications from Fed officials including Bernanke that the Fed could announce a target for the price level, rate of inflation or nominal GDP which would make the promise to keep rates low for an extended period moot and link this promise to some quantitative target giving the zero rate promise a far longer shelf life than the current promise.  However, the Fed is not yet expected to embrace a quantitative target as it is controversial (which one to adopt) and so open ended that some worry it may tie the Fed’s hands and or play into a far more massive end total for QE2 as many question the ability of QE to impact employment and prices (in a liquidity trap).  Nevertheless, the key rationale for QE2 is that the Fed is revising down its central tendency forecasts for growth and inflation ahead (in light of the dual mandate, demands action, even action that has highly uncertain impact…risk of doing nothing is greater than the risk of doing something and not having much impact).  So it is possible that the promise to keep rates low until inflation and unemployment move toward levels consistent with the dual mandate (2% core CPI and probably a 6% unemployment rate which has some structural unemployment built in).  The Fed will not publish its new economic forecasts Wednesday but will when the minutes of the November 02-03 FOMC meeting are released on November 24. 

 

Conditionality/Election

It is also quite obvious that the Fed Chairman and his supporters on the FOMC want lots of wiggle room (degrees of freedom) on the scale and pace of QE2.  If the facts change the scale and pace of QE2 will change.  QE2 is the new Fed funds rate target and no easing or tightening cycle using the old interest rate target was ever laid bare at the beginning…work in progress.  This is why I have problems with how many in the market see this…$500, $800, $1,000 or $2,000 billion.  If the Fed has no idea how can the market?  Moreover, the election today is likely to result in an end to any major new government stimulus above and beyond the extension of the Bush tax cuts (I am betting on them being unfunded which will bloat the 2011 deficit and beyond).  But if the GOP lives up to its word and finances the tax cuts with spending cuts, then we are standing still on fiscal stimulus and if the new election message is wind down government spending and deficits, then we are entering a period of fiscal contraction at a time when the Fed is easing monetary policy in a liquidity trap…the economy will slow even more, making the Fed more likely to increase QE2 over time. 

 

Selling Message

Because the Fed is treading in unknown territory on QE2 and has loads of critics in the markets, Washington and inside the Fed, I think Bernanke will be very deliberate in how he sells the policy ahead to make it less controversial…downplay risks (from inflation, on asset prices) and emphasize gradualist approach (should not be confused with minimalist…there is nothing minimal about printing money).  Bernanke will speak Friday at the Atlanta Fed annual conference (appears Saturday on a panel with Greenspan).  But this program will be under the spotlight ahead ever more as the election is likely to bring GOP attention to bear on the Fed under the guise of getting government out of markets…what are you guys doing?   And Bernanke will also face escalating criticism from within his own ranks…Hoenig, Fisher, Plosser, Kocherlakota to name a few.  I think Bernanke will have a near impossible task ahead of convincing the public, Congress and markets that QE2 is a noninvasive pharmaceutical cure all that never had a clinical trial nor FDA approval.  And his medical and operating assumption is size matters…more = more impact.     

 

Effects on Dollar/Assets

One can’t help but think markets have done plenty of discounting of Wednesday’s FOMC statement since late August and the announcement effect is likely to prompt some profit taking (weaker risk assets, firmer dollar, weaker Treasuries).  But this is a work in progress and debt monetization trumps all else, including record wide CDS for EZ’s Club Med plus Ireland.  Moreover, the ECB which meets Thursday is likely to phase out unconventional policy accommodation early in 2011 and will likely start in Q1 with normalizing rates.  I can’t help but think that EURUSD trades north of 1.50 by year end.  And I doubt the BOJ can slow the decline in USDJPY much ahead even by matching Fed actions (BOJ moved its meeting up to Thursday and Friday this week to presumably respond to Fed QE2 to save the yen from itself).  And the Fed can’t rewrite the rulebook on monetization…its key policy channels are crowding investors into higher risk assets as savers are punished for holding cash and risk free assets (see last 5-yr TIPs auction result).  Debt monetization means risk assets go up and the currency of the money creator goes down.  Yes the easy money may have been made on this trade since late August but there is plenty of room left in the trade to ride a dollar decline ahead.  Surely we will see corrections and maybe some induced by verbal intervention from Geithner or currency intervention (unilateral by Japan…multilateral is still relatively remote).  Even with a near consensus view on the dollar, there are rare times like debt monetization by the world’s reserve currency central bank that justify a one-sided market and a sell on strength mentality.  This is one of those rare times.

 

David Gilmore

 

 

 

 

Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



Elevate Your Trading With The Amazing Trader!

The Amazing Trader includes:
  • Actionable trading levels delivered to YOUR charts in real-time.
  • Live trading strategy sessions.
  • Market Updates with Trading Tools.

Register To Test Your Amazing Trader


Trading Ideas for 18 October 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

Forex Trading Outlook


Trading Opportunities


  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



John M. Bland, MBA
co-founding Partner, Global-View.com

EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




TRADER ADVOCACY ARTICLES

Trader's Advocate Articles..

pic

Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

 
Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map


Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog

Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.

 

WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105