Wednesday February 21, 2007 - 10:31:19 GMT
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Black Swan Capital - www.blackswantrading.com
A fickle game of following central bankers
â€˘ Encouraged by signs of robust economic growth, Japan's central bank raised its benchmark interest rate to 0.5 percent on Wednesday, judging that price stability and consumer spending would withstand slightly tighter credit. (AP)
â€˘ Reserve Bank of Australia Governor Glenn Stevens said it is ``too soon to declare victory'' on inflation and the bank is more likely to raise interest rates than cut them. (Bloomberg)
â€˘ Key Reports Due (WSJ):
7:00a.m. MBA Refinancing Index. Previous: +4.5%.
7:45a.m. ICSC Chain Store Sales. Previous: -0.8%.
8:30a.m. Jan Consumer Price Index. Expected: +0.1%. Previous: +0.4%.
8:30a.m. Jan Consumer Price Index, Ex-Food & Energy. Expected: +0.2%. Previous: +0.1%.
8:55a.m. Redbook Retail Sales Index. -1.4%.
10:00a.m. Jan Conference Board Leading Indicators. Expected: +0.2%. Previous: +0.3%.
2:00p.m. Jan FOMC minutes.
â€śOft expectation fails, and most oft there
Where most it promises; and oft it hits
Where hope is coldest, and despair most fits."
Shakespeare, From All's Well That Ends Well
FX Trading â€“ A fickle game of following central bankers
The Bank of Japan raises interest rates on the belief its economy is normalizing and its consumer is rebound, yet its currency falls. The Reserve Bank of Australia hints about a potential future hike â€śifâ€ť inflation is a problem, and its currency rises. The Bank of England says its recent hike in rates might lead to â€śexcessive tighteningâ€ť and its currency falls.
What does one glean from this? Trying to follow the machinations of central banks, at least within a short-term trading time frame, makes for a fickle game.
Some quotes from Richard Wyckoff, the old hand on Wall Street back in the 1920â€™sâ€”a man that supposedly made real money playing the speculation game. He sums up the game pretty well:
"Sometimes it is scientific to go with the crowd; at other times it is scientific to go against the crowd. The main thing is to be right."
"Reading all the financial news and evaluating it will avail you nothing. The market may rise on bad news and go down on good news. Then where are you?"
"The Tape is the best guide... The Law of Supply and Demand never fails and it is the only safe guide under these extraordinary conditions. No one can judge the probable trend of the market from the study of fundamental statistics, economic changes or political development, with any continued success."
Is it any wonder why one gravitates to the technical side of the game?
USDJPY Daily: The next key retracement number is at 12092â€”itâ€™s fast approaching, even though it seemed the BOJ said the right things: â€śThe central bank said further increases will be gradual and that prolonging a low-interest-rate policy could spur overinvestment and asset bubbles. Higher rates may discourage investors from borrowing in yen to buy overseas assets, the so- called carry trade that helped drive Japan's currency to a 21- year low against its trading partners,â€ť Bloomberg reported.
U.S. CPI data out this morningâ€¦the euro is hovering patiently among the pack waiting for the news.
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