Friday August 18, 2017 - 15:22:32 GMT
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More Fed Twist And Turns. USD Helped By Risk-Off
John M. Bland, MBA
Following Fed Policy Is Like Trying To Nail Jell-O To A Wall Trying to pin down the current policy of this Fed is muck like trying to nail Jell-O to a wall. First of all, their message is convoluted as they speak with way too many conflicting voices. The leadership (Chair Yellen, Vice Chair Fischer and N.Y. Fed President Dudley), keep signaling that the preference of the board is to “normalize” (= tighten) monetary policy, but they never seem to follow through. Policy seemingly is based on internal economic growth models and inflation forecasts, but their models have consistently been misreading the economy for nearly a decade. Structurally the economy is undergoing major changes and economic orthodoxy has not kept up with these changes. The old policy levers and gears are not having the predicted impact on growth, inflation and employment.
The latest Fed Minutes released on Wednesday afternoon once again were more dovish than expected just three weeks following its latest meeting. Policy makers seem befuddled that low inflation just won’t improve. If you ask the average “man in the street”, you will be told by most that his/her cost of living has been rising significantly. Are the Fed inflation metrics realistic? The analogy of the weatherman who does his forecasts based on models while never looking out the window seems apt here. Maybe the Fed needs new models based on what is ACTUALLY happening in the real world rather than what they think SHOULD happen in their fantasy universe? Could it be that their models and economic data are just plain wrong and obsolete?
EUR Demand Waning? In forex trading the EURUSD pair has been losing some of recent luster as demand appears to be waning. Since the end of February, EURUSD has rallied roughly from 1.0500 to just shy of 1.2000. That is about 14%. There is no doubt that a rise of that magnitude in this key exchange rate will be closely watched by the central council of the European Central Bank (ECB). A rising value of a county’s forex rate has an impact similar to a monetary policy tightening and will impact. A rising EUR will likely slow the speed at which the ECB normalizes (tightens) monetary policy for the Euro-Area. Liquidity has been returning to the markets as the summer holiday period winds down. From a trading perspective, I am always keeping a close eye on the yield on the U.S. 10-yr Note (last 2.220%),. At the current time, the 2.30% yield level in the 10-yr represents the key psychological barrier for the financial markets. The current Risk-Off posture of the markets is constructive for the USD.
Amazing Trader EVENT RISK Calendar:
Tue 22 Aug
12:30 CA- Retail Sales (prelim)
Wed 23 Aug
All Day Global flash MFG PMIs
Thu 24 Aug
Jackson Hole, Wyo Symposium
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