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Livingston nh  16:09:05 GMT - 03/06/2014  
ib - the great complexity in TRADE/FX is dollar/??? - Mexico, Canada, Japan? EU or UK? // economics not a science - it is a contextual series of studies in a given time -- analogy failure /// the Drachma was not a reserve currency and neither is its successor

My purpose has been to point out that to argue "saving" or "demise" is irrelevant


Paris ib  15:53:17 GMT - 03/06/2014  
Livingston the USD is seeing selling pressure. OK? The U.S. runs an external deficit called a current account deficit. That deficit measures it's external funding requirement. If no money comes in or if we get a situation where foreign money starts to leave then the U.S. current account will move from a deficit to a surplus. At the same time the USD will fall and U.S. interest rates and yields will rise sharply. That's how it works. If the U.S. can engineer some kind of external crisis which sees capital flight into the U.S. the opposite will occur: the USD will rise, domestic yields and interest rates will fall and the economy will do better. I don't think that is going to happen. But you never know. We'll see. But the mechanisms I outlined are what actually happens as opposed to spurious supposed correlations which in any case only supposedly measure international capital flows.


Paris ib  15:47:23 GMT - 03/06/2014  
What's happening to U.S. bond yields? They are rising and have been for a year or so now.

U.S. bond yields



Livingston nh  15:46:44 GMT - 03/06/2014  
ib - we have been thru this but you say "save the dollar" - it's trade !! - US corps foreign ops are fine w/ the dollar decline - if the US doesn't run a trade deficit what do you think happens?? -- don't confuse money w/ currency


Paris ib  15:42:16 GMT - 03/06/2014  
Livingston the data showed (did not allege) that China sold a lot of USD bonds in December. We will have to wait to see what subsequent data says. TIC data showed that there is an exit from the U.S. which has been going on for some months. U.S. yields fell in 2014 following the 7 percent swoon seen in stocks in January and February 2014 and now here we are. Weird geopolitical games and a continued move away from the USD as a reserve currency (see all the bilateral currency deals which are going on out there). Yields in the U.S. are higher across the curve (especially from 2 years and out) from a year ago, no question. A stock market swoon could see a fall in U.S. yields but that won't necessarily save the dollar.


Livingston nh  15:34:55 GMT - 03/06/2014  
I'll just note that since the beginning of the year US 10 yr yield has been dropping from the time that China allegedly dumped treasuries - rising yields will support a rising USD


Paris ib  15:26:06 GMT - 03/06/2014  
Rising yields can be a sign of economic distress, especially for a country with foreign creditors. Greece is a case in point. When the potential for default increased, yields sky rocketed. High yielding currencies were once assumed to be higher risk, and with good reason.


GVI Forex Jay Meisler  15:22:18 GMT - 03/06/2014  
Higher short-term yields are supportive for a currency more than rising bond yields although JPY seems to also react to the latter (in addition to the correlation with stocks - you should read John's article on this)


bali sja  15:18:41 GMT - 03/06/2014  
thanks again Paris ib, Livingston nh i believe it was, kept preaching about buying usd due to rising yield but I guess you have put a nice counter argument there and it makes better sense than just blatantly buying usd just because rising yield.


Paris ib  14:59:39 GMT - 03/06/2014  
bali sja 14:52 GMT 03/06/2014

No worries. The U.S. has a conundrum: how to pretend they don't need other people's money while hoping to attract bucket loads of it by talking up or even engineering crises in other parts of the world. It doesn't seem to be working.

Unfortunately a lot of people fall for the guff and assume there is bucket loads of money heading to the States despite some very unfortunate geopolitical moves by those geniuses in the CIA and the State department. It looks to me, and the data confirms it, that - if anything - the money is heading home (as quietly as possible so as not to create a rush for the exits).

It needs to be understood that if U.S. yields are rising that is a sign that there is SELLING pressure on the U.S. bond market. That is not a positive for the USD or the U.S. economy. That is the one fundamental fact that most people just do not get.


bali sja  14:52:42 GMT - 03/06/2014  
exactly Paris ib, i love it how you say utterly clear and loud: more upside for euro, thanks!

even ashraf laidi's recent tweet quoted: @alaidi: still waiting for that ...year of the dollar
that sums it up really

we even had a call usd as buying of the decade, but what use is it for a decade if year 1 you are already out of business buying usd?


Paris ib  14:52:40 GMT - 03/06/2014  
It will be interesting to see what happens to stocks when the market finally wakes up to the fact that tapering is here to stay. Then you get an interesting combination: weak economic conditions, tighter monetary policy (tapering), an absence of foreign capital inflows, higher bond yields and a weaker USD...... but perhaps we have to go through another couple of FOMC meetings before the market wakes up to what is actually happening.

NFP is infinitely LESS important than TIC data IMVHO.

TIC data



Paris ib  14:47:08 GMT - 03/06/2014  
Next up: NFP. The market assumes that NFP will determine FED policy (or at least QE tapering). The market is assuming the FED will turn on the QE tap again and that's driving the S and P further up - despite weak economic fundamentals. A lot of people were hoping the Europeans were going to do a Japan ie. start printing money (to save the USD, that's why there was all that noise about Europe going into deflation, which is rubbish). Europe is not going to start printing money which means that the EUR/USD has more upside and the weakness in the USD is WHY the FED can't turn the QE tap back on.






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