Get started

Inflation

Hyperinflation WARNING ! 🚨🚨🚨⏰Now that I have your attention. I would like to discuss the history of hyperinflation and explore certain aspects of it to enable more informed decision-making in trading and investing. Hyperinflation is a situation in which the general price level of goods and services in an economy rises rapidly and continuously, often by more than 50% per month. History of hyperinflation During World War I, many countries printed large amounts of money to finance their military expenses. This led to a significant increase in the money supply, but after the war ended, the demand for goods and services declined sharply, leading to a mismatch between the amount of money in circulation and the supply of goods and services in the economy. As a result, many countries experienced hyperinflation, with prices rising rapidly and continuously. For example, in Germany, the hyperinflation crisis of 1923 saw prices double every two days, with the value of the currency ultimately collapsing. This was caused by a combination of factors, including war debt, loss of productive capacity, and excessive money printing. During and after World War II, several countries experienced hyperinflation again. Some of the countries that experienced hyperinflation throughout this period include: Germany: During World War II, Germany again experienced hyperinflation due to the massive amounts of money printed to finance the war effort. Hungary: In Hungary, hyperinflation occurred after the end of World War II due to the government's attempts to finance the reconstruction of the country, combined with a lack of goods and services. Poland: Poland experienced hyperinflation after World War II as a result of a combination of factors, including wartime destruction, Soviet occupation, and economic policies that led to a decline in production. Greece: Greece experienced hyperinflation in the aftermath of World War II due to political instability and a lack of economic resources. China: During the Chinese Civil War, hyperinflation occurred due to a combination of factors, including wartime destruction, a lack of resources, and the printing of large amounts of money. These countries experienced hyperinflation due to various reasons such as war, destruction of infrastructure, political instability, and printing of excessive amounts of money to finance government expenditures. The resulting hyperinflation led to a decline in living standards, widespread poverty, and economic instability. Upon reviewing a brief history of hyperinflation, it is reasonable to expect cyclical patterns, although these may not be exact, they can be quite similar or closely related for the future. Key factors to look for before hyperinflation occurs Rapid money supply growth: Hyperinflation is often triggered by excessive money creation by the central bank or government, leading to a rapid increase in the supply of money in circulation. Unsustainable fiscal policies: Large budget deficits, high levels of government debt, and unsustainable spending policies can also contribute to hyperinflation. Political instability: Hyperinflation can also be triggered by political instability, such as a war or revolution, which can disrupt economic activity and lead to a loss of confidence in the currency. Collapse of the banking system: If a country's banking system collapses, it may be unable to provide the credit necessary for economic growth, which can lead to hyperinflation. Loss of confidence in the currency: When people lose confidence in a currency, they may rush to exchange it for another currency or for tangible assets, such as gold or real estate, which can lead to hyperinflation Currently, we are observing indications of cracks in the system, but we have not ticked all the boxes just yet. While we may be witnessing some of these events, they are not yet occurring on a scale significant enough to result in hyperinflation. It is possible that we may encounter some events of inflation panic before hyperinflation truly comes to fruition. Many respected traders are providing specific dates or timeframes for when the economic collapse may occur. However, it is important to note that most of the time these predictions are off the mark when it comes to timing. It is also important to remember that as a trader, you are essentially betting against those traders who are also betting against you. Thus, it is important to conduct thorough research and analysis before making any decisions. Undoubtedly, inflation is on the rise; however, it is crucial to approach the situation objectively and without emotional bias. It is likely that some of us may make hasty and panic-based decisions in response to the inflationary environment, but those of us who remain level-headed and well-informed may be better positioned to make sound decisions Should I buy and hold Bitcoin or Gold? While it may appear reasonable to assume that prices will continue to rise indefinitely in an inflationary or hyperinflationary environment, the reality is often more complex. In fact, prices can experience whiplash in both directions, as seen in the example of gold depicted in this chart. Note the pattern of rising highs and lows. This pattern may look familiar to those who follow Bitcoin, which has also experienced volatile price swings in both directions. As market conditions evolve, investors and traders must exercise caution while implementing sound strategies to safeguard their financial portfolios. As the market is bound to experience periods of panic in the future, it would be wise to proactively assess your portfolio and take or re-allocate profits accordingly. By adopting a dynamic approach that is responsive to evolving market conditions, you can position yourself for success in an environment of heightened volatility. Thus, it is essential to remain nimble and adapt to changing market conditions to minimize risk and maximize returns.
COINBASE:BTCUSDEducation
by UnknownUnicorn45342505
4
The story of a hawk and a dove in GBPJPYHey everyone. Welcome back to another forecast, this time on GBPJPY. This will be for the future outlook of GJ and where it can possibly head to. BOE hiked rates by 50 bps in its previous monetary meeting and market has priced in a 25bps rate hike in today's monetary policy meeting of March. However, the story of the hawk does not end here as its latest CPI y/y printed whopping 10.4% compared to a 9.9% forecasted. This really shows the stubbornness of the inflation that the POUND is facing. This makes their upcoming meeting a complicated one and the market could potentially price in a 50bps hike instead. This paves the way for more rate hikes if inflation were to remain sticky and stubborn. A hawk remains a hawk to come for the coming months. On the other side of the universe, BOJ has remained through to their stance and stuck by with a -0.1% short term interest rates and for 10 year bond yields at 0% during its month of March. It remains steadfast in its approach and the interest rate differential between POUND and YEN cannot be missed. JPY's inflation has however been rising at a steady rate, with the latest printing at 4.3%, yet it's widely expected that the BOJ remains dovish , especially after the multiple opportunities to hike rates but deciding against them. In my opinion, the story of the hawk and the dove continues to be the case for the upcoming weeks in GBPJPY and that is one of the reasons I believe that GJ is a bull story. On a technical front, I believe price can continue up to create a newer high and flirt the highs at 165. The BOE's monetary policy will be key to seeing if the hawk shall continue flying well above the dove. Long story short, GBPJPY bulls . Let's see.
Long
by Jon_Jones_Junior
GBP/USD - Pound steady, inflation expectations easeThe British pound is in positive territory on Tuesday. In the European session, GBP/USD is trading at 1.2277, up 0.50%. For Bank of England policy makers, the "how not to start the day" manual likely included inflation climbing higher. That was the bad news earlier today, as UK headline CPI rose to 10.4% in February, reversing the deceleration trend in recent months. The reading was up from 10.1% in January and above the consensus estimate of 9.8%. The core rate climbed to 6.2% in February, up from 5.8% prior which was also the estimate. The usual suspects were at play, with the food and energy prices driving the increase in inflation. The inflation print will complicate matters for the BoE, which has hiked rates to 4.0% in a bid to contain inflation. Higher inflation will require further rate hikes, but the fallout from the banking crisis, which has roiled the financial markets, means that central banks will have to tread carefully with rate moves. The BoE is almost certain to deliver a 25-bp hike at the policy meeting on Thursday. In the US, the response to the banking crisis has been swift and decisive, which has helped soothe market jitters after last week's panic. Over the weekend, the Federal Reserve and five other major central banks announced coordinated action to bolster liquidity, and Treasury Secretary Yellen said that the bank system was stabilizing and she would intervene if necessary in order to protect depositors of small banks. The Federal Reserve announces its rate decision later today and after massive shifts in market pricing lately, a 25-bp increase is almost a certainty. What will be of interest to investors is whether the Fed follows the stance of the ECB and avoid any direct signals about future rate moves. GBP/USD is testing resistance at 1.2253. The next resistance line is 1.2324 There is support at 1.2132 and 1.2061
by OANDA
BTCUSD looking to head for BTC$80000+ on MN timeframeGood day traders, There are several reasons why Bitcoin is expected to reach $80,000 in the next 6 to 9 months. Firstly, Bitcoin has been experiencing a surge in demand from institutional investors, who are increasingly recognizing the potential of Bitcoin as a store of value and a hedge against inflation. This has led to a significant increase in Bitcoin purchases from institutional investors, which is expected to drive up the price of Bitcoin in the coming months. Secondly, the recent halving of Bitcoin has reduced the supply of new Bitcoins that are being added to the market. This means that there is less Bitcoin available to be purchased, which is expected to drive up the price of Bitcoin as demand for the cryptocurrency continues to increase. Finally, the ongoing economic uncertainty caused by the the silicon valley bank crash's has led to increased interest in Bitcoin as a safe-haven asset. As governments around the world continue to fight this falling economy, investors are increasingly turning to Bitcoin as a way to protect their wealth and hedge against inflation. This increased demand for Bitcoin is expected to drive up the price of the cryptocurrency in the coming months, potentially pushing it to $80,000 or higher. Lets have a look at the analysis: What we see from the technical analysis is that we've spotted an ABCD harmonic trendhike forming, we recently beat our local resistance (marked R1) and we anticipate BTCUSD to meet our R2 sooner than later. This is a great time to buy BTCUSD seeing that the pprice is still fairly low and promises to meet figures above $100K by the end of this year. Please share your thoughts. Disclaimer NASDAQ Guru offers general trading signals that does not take into consideration your own trading experiences, personal objectives and goals, financial means, or risk tolerance.
BITSTAMP:BTCUSDLong
by Mezzoforte_Privilege
USDCAD Outlook 21 March 2023The USDCAD traded lower through the trading session yesterday as the DXY continued to weaken. The price reversed from the 1.3745 resistance level, down toward the key support level of 1.3650. Today, the Canadian CPI is due to be released and is expected to indicate a slowdown in overall inflation growth with the Median CPI y/y (Forecast: 4.8% Previous: 5.0%) and the Trimmed CPI y/y (Forecast: 4.9% Previous: 5.1%). Recently the Bank of Canada paused on its rate hikes, to allow time for the effects of the previous rate hikes to be reflected. A slowdown in inflation growth would be supportive of their recent decision to pause and could reinforce a continuation of the decision. This could result in some strengthening of the Canadian dollar. The USDCAD is likely to retrace to test the 1.37 round number level and 50% Fibonacci retracement level. However, if the USDCAD breaks below 1.3650, the next key support level would be at 1.3560.
Short
by JinDao_Tai
The FED HAS already pivoted! Who cares what the FED does next?Apologies for the click-baity title, but I did want to get your attention to make (once again) my point that inflation is ON now and that the FED has actually pivoted while many are watching and don't see it that way. Let me explain. Back when the FED started raising rates rapidly I grew worried that at this unprecedented pace of rate hikes, something would break. I stated this all along through each of my post. Foolish people and businesses simply do not have the acumen to hedge against the rapidity of dried-up liquidity in the markets. I did not know the banks would become the first culprit exposed in their foolish investment endeavors. But here we are. Banks are failing because of their own stupidity and guess who gets to pay for it once again? That's right, you and I do through the continued devaluation of our U.S. dollar. "But the dollar's getting stronger", you emphatically retort. Yes. It was. As the FED moved to increase rates in a reactionary manner, as they always are, the dollar did gain strength and is currently fairly strong, relatively speaking. However, things will soon change and many do not even know it as they are focused on the wrong indicator, FED rate hike action and future interest rates. While this is certainly still important, it does not tell the whole story. As you know, I have been calling for a pause or pivot from the FED soon. That pivot has already come. "How so?", you asked. The FED has not articulated strong indicative language regarding a pause or pivot. That's true. But while the banks were failing, the FED did begin to guarantee depositors their money due to 'systemic risks'. I've heard this before (think 2008 and the BIG 3). In guaranteeing depositors their funds, the FED mushroomed its balance sheet by roughly $300 billion dollars last week alone! And this may just be the beginning! Incredible. This is the pivot that I was looking for from the FED. So, while everyone else continues to focus on what the FED will do next in terms of interest rates, savvy investors have already spotted the change and recognize that it's now inflation ON! This subtle (or not so subtle, pending perspective) change in direction correlates with three important thesis points that I have been making all along: That something will break That the FED will pause/pivot That we will see a blowoff top in the US stock market It also aligns with current technicals. As you can observe from the chart above, price action has retested our macro-downtrend line precisely as anticipated, has bounced from there as anticipated, and is currently trending up as anticipated. I do believe this is the beginning of our blowoff top with a price target of US500 to be at or around $5,500 to $6k by early to late fall. Maybe early winter. Timing is difficult. Best to you all, Stew
ULong
by stewdamus
2
Europe is treading a fine line between growth and inflationEuropean equities have ushered in 2023 with a strong rebound, up 7.72%1. Exchange-traded fund (ETF) flows into the European region have risen by US$13bn, in sharp contrast to the US that has seen US$9bn of outflows year-to-date (YTD)as of 27 February 2023. The confluence of China re-opening its economy and prudent management of resources during the energy crisis, alongside better valuations, helped European equities flourish. Essentially, the worst impact from the energy crisis that was priced in for Europe did not end up materialising, thereby improving sentiment. Resilient Q4 2022 earnings season but outlook remains cautious Europe is seeing better earnings growth for Q4 2022, up 8.81%3. The deep value parts of the market – financials, energy, utilities, consumer staples, and healthcare – continue to contribute to positive earnings growth. At the same time, China’s reopening has benefitted cyclical sectors across consumer discretionary and communications which posted the strongest earnings growth up 49% and 38% respectively4. At 8% of sales, Europe has the second-highest exposure to China after Asia-Pacific (ex-Japan). It therefore would make sense to position for a better China macro-outlook in the sectors with the highest revenue exposure to China – semiconductors, materials, consumer durables, energy, and automobiles. We also know Chinese consumers saved one-third of their income last year, depositing 17.8 trillion yuan ($2.6 trillion) into banks, and investors are pinning their hopes on those savings finding their way into Europe’s luxury goods market. Another factor favouring European equities has been European buyback activity which has increased to a record level, with a net buyback spend reaching around 220bn thereby creating an additional yield of around 2%5. This has helped Europe’s total yield (that is, buyback + dividends) outpace that of the US for the first time in 30 years. Headwinds persist from further tightening by European Central Bank (ECB) Euro-area Purchasing Manager’s Indices (PMI) continued their rebound in February reaching a nine-month high of 51, helped by easing headwinds from the energy crisis and resilient consumer spending amidst fading inflation. Headline inflation in the Euro-area for January dipped to 8.6%, showing further evidence that price pressures are easing6. However, core inflation in the Euro-area rose to 5.6%5 from 5.2% in December, highlighting that underlying price pressures continue to remain sticky. The more resilient economic data of late is likely to keep the ECB on a more hawkish monetary path. As monetary policy works with approximately a 10 - 12 month lag, we are yet to see the full impact of the recent spate of tightening. Euro-area M1 growth is down to 0.6%, marking the second weakest reading on record pointing to weaker growth ahead. Furthermore, the Q1 results of the ECB Bank Lending Survey showed Euro-area credit conditions tightening at the fastest pace since 2009. In the Euro-area, moves in M1 growth tends to lead economic momentum by six months. This suggests that tighter monetary policy is leading to reduced credit availability for the real economy. Tailwinds from looser fiscal policy to aid the Euro-area recovery Prior to the Ukraine war, the Euro-area was characterised by relatively tight fiscal policy. However, the shock of the energy crisis drove a shift in fiscal policy. Governments are loosening their fiscal purse strings again, offering significant support to both consumers and businesses amidst the recent energy shock. Government expenditure, as a share of GDP, surged to almost 60% as COVID-19 hit (from just over 45% prior to the virus) and it is now rising again higher than before the pandemic7. The Eurozone budget deficit is now widening and heading towards 4% of GDP. Eurozone government expenditure as a share of GDP in 2022, through Q3, was 3% higher than the average from 2017 to 2019, with revenues up less than 1%. The think tank, Bruegel, estimates that EU economies have set aside €680bn to date to protect consumers from the energy crisis, which comes in addition to the EU Recovery Funds (€750bn from 2021 to 2027) which are now flowing. This is close to 10% of GDP, which excludes the cost of COVID-19 support. The European economy remains caught between tailwinds – loose fiscal policy, easing energy prices, strong labour market, the re-opening of the Chinese economy – and headwinds of a weakening credit cycle in response to tighter monetary policy. Amidst this macro backdrop we expect investors to be more selective as the existing tailwinds should help Europe endure a milder than expected recession.
ICEUS:MPU1!
by aneekaguptaWTE
EUR/USD - Euro heads higher as ECB delivers 50-bp hikeIt has been a busy week for the euro, reflective of the gyrations we're seeing in the financial markets. EUR/USD has bounced back from a mid-week slide and is trading at 1.0661, up 0.46% on the day. In the midst of market turmoil and fears of a full-blown financial crisis, the ECB held its rate meeting on Thursday and had everyone guessing about its intentions. The central bank had strongly signalled it would raise rates by 50 basis points but the bank crisis certainly complicated matters. Credit Suisse shares tumbled by as much as 30% a day before the meeting, weighing on the euro and eurozone bonds. It would have been understandable if the ECB had opted for a 25-bp move due to the market mayhem, but the central bank kept its word and delivered a 50-bp hike, bringing the main rate to 3.0%. Was the 50-bp hike risky in these volatile conditions? Yes, but policy makers may have been encouraged by the Swiss National Bank stepping up and lending Credit Suisse $53 billion, and there was the issue of the ECB's credibility, after President Lagarde had essentially pledged a 50-bp increase. Also, a 50-bp was the strongest medicine the central bank could deliver in the fight against sticky inflation. Inflation may have been knocked out of the headlines this week, but it hasn't gone anywhere and remains the ECB's number one priority. There was good news as the ECB's inflation projections were revised downwards from December. Currently, inflation is expected to average 5.3% in 2023 and 2.9% in 2024, compared to the December estimate of 6.3% in 2023 and 3.4% in 2024. In her press conference after the meeting, President Lagarde was careful not to commit to further rate hikes, saying that rate decisions will be "entirely data dependent.” Still, with inflation well above the 2% target, it's a safe bet that the ECB is not done with the current rate-tightening cycle. 1.0622 has been a key level throughout the week. EUR/USD is testing resistance at this line. Next is 1.0718 There is support at 1.0542 and 1.0446
by OANDA
Backfiring BondsTwo financial institutions, Silvergate Capital and Silicon Valley Bank (SVB), collapsed early last week due to a series of ill-fated investment decisions which were exposed by global interest rate tightening. The collapses came after the institutions invested large amounts of capital in long-dated US government bonds, which were considered relatively low risk. However, as interest rates rose rapidly to combat spiralling inflation, bond portfolios started to lose significant value. As a result, when cash demands got high enough, Silvergate and SVB had to sell those backing assets at substantial losses. Silvergate announced a $1 billion loss on the sale of assets in the fourth quarter of last year, while SVB lost $1.8 billion. In both cases, US Treasury bonds comprised large portions of the liquidations. SVB, once the 16th largest bank in the US, then announced a $1.75bn capital raising to plug the hole caused by the sale of its bond portfolio. As one would anticipate, this news resulted in a run on the bank's reserves, and two days later, the bank collapsed, marking the largest bank failure in the US since the global financial crisis. The US government has since guaranteed all deposits of the bank's customers, which has attempted to address concerns of widespread contagion and further runs on other banks' reserves. After the collapse of these institutions, the Federal Reserve announced the Bank Term Funding Program (BTFP), which will provide banks and other depository institutions with emergency loans. However, JPMorgan has since stated this program could inject as much as $2 trillion into the American banking system, which would nullify all hope of inflationary pressures easing. All of the talk in recent years has been about protecting the banking system from crypto. However, ironically, we had a situation where a digital asset had to be protected from the banking system. The SVB debacle caused USDC to temporarily lose its peg after it was revealed that its issuer, Circle, had $3.3bn wrapped up in a SVB bank account. The stablecoin fell to as low as $0.88 over the weekend before recovering after the US government's deposit guarantee was announced. These events have highlighted an underappreciated problem with increasing interest rates to reign in inflation. The issuance of new Treasury bonds with higher yields causes the market value of existing bonds with lower yields to decrease. As a result, all banks that hold a significant amount of Treasurys as legally required collateral are vulnerable to the same risk that has affected banks like Silvergate and Silicon Valley Bank. Recently, it looked as if the contagion effects had spread to Swiss banking giant Credit Suisse when their stock began to plummet after questions were raised about the banks' stability. However, since then, the bank has secured a £44.5bn lifeline from the Swiss central bank. The importance of this should not be underestimated. Credit Suisse manages assets in the region of $1.6 trillion. If the bank collapses, it could trigger a domino effect, bringing about a 2008-like crisis. All in all, it would be ironic if increasing interest rates failed to lower inflation but instead resulted in a number of banks collapsing as a result of their bad bets on treasuries. Despite this market turmoil, yesterday, the European Central Bank stuck to its plan and went with a 50bps rate hike meaning that Credit Suisse may not be out of the woods yet. In recent weeks, the market had been pricing in a 50bps rate hike from the Fed. However, the collapse of SVB and broader risks to the financial system may lead the Fed to raise interest rates by no more than a quarter percentage point next week, with some institutions such as Barclays expecting the Fed to pause all rate increases. Despite these events, in recent days Bitcoin has significantly outperformed markets. Since the 11th of March, Bitcoin is up over 20% whilst other asset classes are up between 0-2% with 10Y US Yields down around 4%. The key reasons for this most likely come down to the dampening of US CPI data along with the decreased likelihood of future rate hikes as a consequence of the events of the past week. Ironically, while inflation and bank crisis now look more likely, the expectation of more liquidity has provided risk-on assets, such as Bitcoin, bullish momentum.
by Coinrule
Australian dollar climbs on strong employment dataThe Australian dollar has taken investors on a roller-coaster ride this week, reflective of the gyrations we're seeing in the financial markets. In the North American session, AUD/USD is trading at 0.6656, up 0.56%. Australia's employment report for February was stronger than expected. The economy produced 64,600 news jobs, after a decline of 10,900 in January. This beat the estimate of 48,500. What was especially encouraging was that full-time jobs rose by 74,900, with part-time positions declining by 10,300. The unemployment rate fell to 3.5%, its lowest level in almost 50 years, down from 3.7% and below the estimate of 3.6%. The tightness in the labour market has allowed the RBA to aggressively tighten, with ten straight rate hikes since April 2022. Inflation slowed to 7.4% in January, down from 8.4% in December, so the rate hikes are having an effect on curbing inflation. Still, it will be a long road back to the inflation target of around 2%. The central bank is leaning to taking a pause at the April meeting and leaving the cash rate at 3.60%. Major central banks are moving away from continued tightening and the RBA will have to take that into account, as well as the Silicon Valley Bank crisis which has investors on edge about contagion spreading. Central banks have to be cautious with all the market turmoil, for fear that additional tightening would make a global recession more likely. Market pricing of rate moves has been gyrating like a yo-yo, and currently there is a 10% chance that the RBA will cut rates by 25 basis points at the April meeting. Just a month ago, the markets expected rates to peak at 4.1% in August. The SVB crisis has completely shifted pricing and the markets are currently expecting rates to fall to 3.35% by August.On There was more good news as Australian consumer inflation expectations for March ticked lower to 5.0%, down from 5.1% and below the forecast of 5.4%. AUD/USD is testing support at 0.6639. Below, there is support at 0.6508 0.6713 and 0.6844 are the next resistance lines
by OANDA
4
AUD/USD falls ahead of employment reportThe Australian dollar, which has posted strong gains early in the week, has run into a wall on Wednesday. In the European session, AUD/USD is trading at 0.6638, down 0.66%. Australia releases the February employment report on Thursday (Australia time). Job growth is expected to rebound, with a consensus of 48,500 after a soft January read of -11,500. The unemployment rate is expected to tick lower to 3.6%, down from 3.7%. The Reserve Bank of Australia will be watching closely, as a robust labour market has enabled the central bank to continue its tightening - the Bank raised rates last week by 25 basis points, a 10th straight hike which brought the cash rate to 3.60%. The good news is that the end of the tightening cycle could be near, with the markets pricing in a pause at the April meeting. Consumers and businesses are weary of rising interest rates and confidence indicators do not paint an optimistic picture. Along with the job data, Australia releases consumer inflation expectations for March. The markets are braced for the indicator to rise to 5.4%, after a 5.1% gain in February. Inflation expectations is a key inflation gauge as it can set the direction of actual inflation, and the RBA will not be happy if inflation expectations accelerate. There is an uneasy calm in the air as the dust begins to settle after the Silicon Valley Bank collapse. The sky is not falling, not even above US bank towers, as regional bank stocks have rebounded. The US inflation release on Tuesday delivered as expected, with both the headline and core CPI readings matching the estimates. Headline CPI fell to 6.0%, down from 6.4%, while the core rate ticked lower to 5.5%, down from 5.6%. Inflation is cooling but we're not seeing the disinflation process that the markets were celebrating only a few weeks ago. AUD/USD is testing support at 0.6639. Below, there is support at 0.6508 0.6713 and 0.6844 are the next resistance lines
by OANDA
DXY Potential Forecast | Pre-CPI | 14th March 2023Hi everyone, back with a pre CPI forecast. Today's CPI release will be wild and will be the determining factor to solidify the general direction and bias on the USD. There has been very bearish sentiments on the USD since last Friday after NFP's release. Fundamental context 1. Employments was good, well above the forecasted or what the market has been pricing in. 2. This shows the strong labor market in the US economy. 3. However, average hourly earnings increased at a decreasing rate to 0.2% from 0.3%. 4. This shows the slowing down of the wage inflation, which is directly correlated with the inflation print and numbers, showing an important signal/sign that inflation could be worse off. 5. In addition, unemployment rate increased by 0.2% compared to previous months. 6. The average earnings and unemployment rate prints showcases the effect of the continuous rate hikes that the Fed has partaken in. 7. This directly discourages the Fed from taking on a more hawkish stance in the market, upon seeing the fruition of the restrictive policy the Fed has performed. CPI 1. If CPI were to be worse off than forecasted, this really solidifies the bearishness of the USD as it confirms that the Fed policy has been coming to fruition and there might not be a need to hike interest rates anymore. 2. However, if CPI print continues to be resilient and strong or greater than expectations, there is a marked chance that the Fed will hike interest rates by 50bps in the upcoming FOMC meeting, in which this hawkish stance will continue to drive the market bullish for the USD. 3. All eyes will be on the CPI print tonight. Regards, Chern Yu
TVC:DXYShort
by Jon_Jones_Junior
1
EUR/USD Takes a Breather After U.S. CPI Data, ECB EyedThe U.S. dollar took a breather on Tuesday following the previous day’s sell-off as markets’ jitters surrounding the Silicon Valley Bank (SVB) collapse quieted, while U.S. consumer inflation data showed a slight deceleration in February. At the time of writing, the EUR/USD pair is trading at the 1.0730 zone, virtually unchanged on the day, with the upside still capped by the 1.0750 zone. Meanwhile, the DXY index trimmed daily gains and stabilized around 103.60 after hitting a daily high of 104.05. The U.S. Bureau of Labor Statistics reported that the Consumer Price Index came in line with expectations in February, with annualized inflation hitting 6%, down from its previous reading of 6.4%. On the other hand, the core CPI inflation rate was reported at 5.5% YoY, in line with analysts’ consensus. Following the data, U.S. bond yields recovered across the curve, helping the dollar. The 10-year bond yield is trading at 3.69%, while the 2-year rate recovered nearly 7% and stands at 4.25%. Amid the banking crisis triggered by the SVB collapse on Friday, investors seem to have taken out of the table a 50 bps rate hike by the Federal Reserve at the March 21, 22 meeting. The bets on a 25 bps increased to 73%, while on Monday, the case of a no-change decision was stronger. Wall Street indexes welcomed CPI data and the improvement in sentiment. The S&P 500 gained 1.65%, the Dow Jones Industrial Average advanced 1.06%, and the Nasdaq Composite posted a 2.14% daily advance. On Thursday, the European Central Bank (ECB) will decide on monetary policy, with analysts expecting a 50 basis point rate hike despite the recent developments. Technically speaking, the EUR/USD pair maintains a slightly bullish short-term outlook, according to indicators on the daily chart. The pair is trading above its key moving averages, and the RSI and MACD have moved into the green. On the upside, the following resistance levels are seen near this week’s highs at the 1.0750 zone and 1.0800 ahead of the more significant 1.0900 region. On the other hand, supports could be faced at the 20-day SMA at 1.0630 and the 1.0600 psychological level, followed by the 100-day SMA at 1.0545.
by Alex_Boltyan_FXAnalyst
⚠️ 🔥 No Time to FOMO!!!! ⚠️ 🔥⚠️ 🔥 NO TIME TO FOMO!!!! ⚠️ 🔥 Goodday for the markets and Crypto as the news came out being ok: US inflation slows to 6% annual rate amid looming banking crisis Let me rephrase it: the worst news where avoided, inflation did not rise. Look at CPI chart maybe: SP-5OO gets rejected despite the predictions for a 'softer more dovish' monetary policy: In the meantime bank charts look pretty bad to me: What i called 'good scenario' level did work as support for BKX but it will be retested: Also, Credit Swiss is nothing but bad news: www.bloomberg.com Lastly , i really don't like this rejection on Wells Fargo: In a few words: let's be careful... No love these days, just volatility. The FXPROFESSOR
CME_MINI:ES1!
by FX_Professor
1
SVB: Understanding and Managing Interest Rate Risks CBOT: 10-Year Treasury Futures ( CBOT:ZN1! ) Last Wednesday, Silicon Valley Bank (SVB) NASDAQ:SIVB announced that it incurred $1.8 billion loss in the sales of its bond portfolio and sought to issue new shares. Within 48 hours, a bank-run induced by panic customers brought down the legendary bank. On Friday, US banking regulators seized control of SVB. By Sunday, the Treasury Department, the Federal Reserve, and Federal Depository Insurance Corporation (FDIC) jointly announced a rescue plan that would make whole all depositors. However, SVB shareholders are not protected. Why has happened to the well-respected and once well-capitalized bank? Opportunity and Risk Go Side-by-Side Traditional banks seldom extend credit to startups, which are mostly under-collateralized, with little or no profit and big uncertainties about their future survival. SVB developed a niche competitive edge to provide banking services to companies funded by venture capitals. In the past 40 years, it nurtured many high-profiled tech startups through their entire life cycle, from early-stage to IPO and to Big-Tech giants. If Sequoia Capital invested in your firm and you apply for a loan from a commercial bank, you can expect the loan officer to ask: “Sequoia Who?” But if you go to SVB, they would say: “$10 million will be in your account tomorrow.” VCs are exceptionally good at spotting future technological trends, and they follow a rigorous due diligence process to pick investing targets. By working with VCs and startups closely, SVB created an ecosystem that foster technological innovations, and grew to become the 16th largest US bank by deposit. However, SVB’s concentration in the high-tech sector also make it vulnerable to a boom-and-bust cycle. Last year, bear market hit the industry hard. Publicly traded firms couldn’t raise money with falling share prices. Private companies found the path to IPO got blocked. As startup clients withdrew deposits to keep their companies afloat, SVB is short on capital. It was forced to sell most available-for-sale bonds at a huge loss. Bad news travelled fast in close-knit tech investing community. VCs urged their portfolio companies to get the hack out of SVB. All told, customers withdrew a staggering $42 billion of deposits on Thursday. By the close of business day, SVB had a negative cash balance of $958 million, according to the filing, and this triggered the government takeover. A Commercial Bank with a Failing Grade In fiscal year 2022, SVB earned $4.5 billion in Net Interest Income (NII) and $1.7 billion in non-interest income. When you take away the bells and whistles, SVB is by large a commercial bank. About 73% of its revenue comes from taking in deposits at a low interest rate and making loans at a higher interest rate. Based on its 2022 10K filing, SVB managed $209.2 billion in total interest-bearing asset and earned $5.7 billion. This represented an effective yield of 2.73%. During the same period, SVB paid out $1.2 billion in funding cost, which equated to 0.57%. • Therefore, in 2022, its NII = 2.73% - 0.57% = 2.16% • In comparison, its NII for year 2021 was 2.02% (=2.09% - 0.07%). • On the surface, SVB was doing well, with NII spread increasing by 14 basis points year-over-year. What has gone wrong then? Dive deeper into SVB’s balance sheet, we see the long-dated Treasury bonds and illiquid mortgage-backed securities it held got hammered by the rising interest rates. Simply put, SVB got its interest payment back, but the value of its investment principal eroded in a huge way in a rate-hiking environment. All in all, managing interest rate risk is at the core of banking business. A Naked Bond Portfolio In its 10K, SVB puts its investment portfolio in Available-For-Sales (AFS), Held-To-Maturity (HTM) and Non-marketable securities categories. AFS balance was $26.1 billion as of December 31st, including: • U.S. Treasury securities $ 16,135m (61.9%) • Agency-issued MBS $6,603m (25.3%) • Agency-issued CMBS $1,464m (5.6%) • Foreign government debt securities $1,088m (4.2%) • Agency-issued CMO—fixed rate $678m (2.6%) • U.S. agency debentures $101m (0.4%) • Total AFS securities $26,069m (100%) Last week, SVB sold $21 billion in the AFS portfolio and incurred a loss of $1.8 billion, or -8.6%. AFS assets are marked to market every quarter. My understanding is that the loss figure was based on selling price vs. year-end fair market value. Total loss calculated from purchasing price could be much bigger, as these bonds may have been marked down multiple times during previous quarters. Evidence: Since March 2022, CBOT 10-Year Treasury Futures (ZN) price went down from 124 to 109 (-12%) and 30-Year Treasury Bond (ZB) fell from 152 to 118 (-22%). CBOT Treasury futures market, with its sheer size and liquidity, makes it the marketplace of choice to manage interest risk in times of uncertainties. Each ZN contract has a notional value of $100,000. • On Monday March 13th, daily trading volume is 3,760,911 lots, which translates into total notional of $376 billion. Open interest (OI) stands at 4,311,338, or $431 billion in notional. • Volume and OI for ZB are 719,518 and 1,209,881, respectively. Notional value for each is $72 billion and $121 billion, respectively. What’s Next On Friday, Signature Bank customers spooked by the SVB collapse withdrew $10 billion. That quickly led to the bank failure. Regulators announced Sunday that Signature was being taken over to protect its depositors and the stability of the U.S. financial system. Despite government intervention over the weekend, fear ran contagious through the financial industry this Monday. San Francisco’s First Republic Bank, which had $212 billion in assets at the end of 2022, saw its stock price plunge as much as 70% when the market opened Monday morning. By market close, US stock market stabilized. Investors wonder if a banking crisis could be the final punch to end the year-long Fed rate hikes. Lessons Learnt As investors, we usually allocate our financial assets across various instruments, such as stocks, bonds, and derivatives. The 60 (stock) / 40 (bond) portfolio is the most popular advice from Wall Street. People generally pay more attention to what stocks to buy and hold, but we may not think twice about managing interest risk in a rising rate environment. The SVB fallout shows that even the safest, risk-free Treasury bonds, if not actively managed, could fall prey to interest rate changes and liquidity risk, resulting in loss of market value. For me, this is a wake-up call and a good time to review my bond holdings. Some may be hidden in a 401K retirement plan. Hedging interest rate risk with CBOT Treasury futures and Micro Yield futures could go a long way to stay solvent. A View on Interest Rate Trajectory Today, the Bureau of Labor Statistics reports that the consumer price index rose 0.4% in February and 6% from a year ago, in line with market expectations. This is the most recent data the Fed will consider before it makes interest decision on March 22nd. Inflation is cooling, but still too high. A bank run shows how damaging rising interest rate is to the economy. Whether the Fed will continue its rate hikes, pause them, or end them altogether, I think all options are open. In my view, interest rate is in an uncharted territory once again. With investors in panic mode, they will likely overreact to the Fed decision. This may be a good time to place an order of out-of-the-money options on CBOT 10-Year Treasury Futures (ZN). On March 14th, the June ZN contract is quoted at 113’220. Quoting convention in Treasury market is 100 and 1/64th. The quote reads as (113 + 22.0/64), or $113.34375 on $100 par value. If the Fed slows or pause the hike, Treasury price will likely go up. Call options would be appropriate in this case. • The 115-strike call is quoted 0’20 (=20/64). This is converted into $312.5 premium on the $100,000 contract notional for each contract. If the Fed stays its course on fighting inflation, Treasury price could fall. And put options would be a way to express your view. • The 112-strike put is quoted 0’14, or $218.75 premium per contract. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZN1!Long
by JimHuangChicago
6
DXY Potential Forecast | Pre CPI | 14th March 2023Fundamental Backdrop 1. Employments was good, well above the forecasted or what the market has been pricing in. 3. However, average hourly earnings increased at a decreasing rate to 0.2% from 0.3%. 4. This shows the slowing down of the wage inflation , which is directly correlated with the inflation print and numbers, showing an important signal/sign that inflation could be worse off. 5. In addition, unemployment rate increased by 0.2% compared to previous months. 6. The average earnings and unemployment rate prints showcases the effect of the continuous rate hikes that the Fed has partaken in. 7. This directly discourages the Fed from taking on a more hawkish stance in the market, upon seeing the fruition of the restrictive policy the Fed has performed. CPI 1. If CPI were to be worse off than forecasted, this really solidifies the bearishness of the USD as it confirms that the Fed policy has been coming to fruition and there might not be a need to hike interest rates anymore. 2. However, if CPI print continues to be resilient and strong or greater than expectations, there is a marked chance that the Fed will hike interest rates by 50bps in the upcoming FOMC meeting, in which this hawkish stance will continue to drive the market bullish for the USD. 3. All eyes will be on the CPI print tonight. NOT FINANCIAL ADVICE DISCLAIMER The trading related ideas posted by OlympusLabs are for educational and informational purposes only and should not be considered as financial advice. Trading in financial markets involves a high degree of risk, and individuals should carefully consider their investment objectives, financial situation, and risk tolerance before making any trading decisions based on our ideas. We are not a licensed financial advisor or professional, and the information we are providing is based on our personal experience and research. We make no guarantees or promises regarding the accuracy, completeness, or reliability of the information provided, and users should do their own research and analysis before making any trades. Users should be aware that trading involves significant risk, and there is no guarantee of profit. Any trading strategy may result in losses, and individuals should be prepared to accept those risks. OlympusLabs and its affiliates are not responsible for any losses or damages that may result from the use of our trading related ideas or the information provided on our platform. Users should seek the advice of a licensed financial advisor or professional if they have any doubts or concerns about their investment strategies.
TVC:DXYShort
by OlympusLab