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Tapering

US30Hey guys, just an update from my side since we had our FOMC statement and press conference by FED chairman Jerome Powell. The FED hinted that they are positive that the US economy is growing stronger, "With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery.", even if it's not optimal but should grow as they contain the virus. A vague directive was also alluded to regarding the monetary policy, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.", this doesn't give investors the needed confidence to hold their long positions and we may see a continued downward movement and this is not a major sell off but a mere correction in the market. They also alluded to the fact that they may start their tapering process soon (likely to have a timeline in the next meeting) "Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted." Taking this few points into consideration, I am still waiting for a retest of the broken structure as well as the order block that was left untested. I believe we will see a downward movement 33270 in the remaining half of the month into November. Out of the 10 most weighted components of the Dow on two we down and not significantly either (UNH -0.83% & AMGN -0.49%) and these two stocks are only 2 of 4 of the components that are down so it is important to be cautious when selling too. Keep the risk minimal! Do me a solid, like & comment on the ideas I post and follow me for more. To read and interpret the statement for yourself please view it here: www.federalreserve.gov This analysis does not constitute financial advise but rather an analysis & interpretation of financial instruments.
OANDA:US30USDShort
by Austin_Palmer
4
THE MECHANISM BEHIND QUANTITATIVE EASING &THE IMPACT OF TAPERINGOver the past few months one of the most popular topics generally has been related to whether the FED will taper its asset purchases. Now that we are almost past the recovery phase and about to enter the economic mid-cycle expansionary phase as inflation is far about target (>4% compared to 2%) and GDP is far above trend (2021 Estimate of ~6-8% vs potential GDP of 1.9%) it is clear that the current accommodative monetary stance may have higher risks than returns in the medium run. This idea will go into detail and I will attempt to answer the question of how does QE and FED balance sheet tapering work and what are the implications for broad assets prices and your investment portfolio? 1. Firstly, what is the mechanism behind QE, tapering, and how does it affect your portfolio? The FED has 3 key methods through which it conducts its monetary policy: 1) Discount Rates 2) Required Reserves 3) Open Market Operations (OMOs). Within OMOs fall any operations that expand, stabilize or unwind assets of the FEDs balance sheet (here too derivative products such as dollar swaps can be included). Moreover, in even broader terms, credit creation can be directed at consumer credit, commercial and industrial business loans and financial products. This is just an attempt to illustrate how it all works. It's arguable that the more important side of QE is the Mortgage-backed securities (your housing mortgages pooled together in one security and sold to investors, the FED etc) purchases, which is more directly aimed at particular market segment. The enormous question is why are FEDs MBS purchases perhaps the most influential OMO tool? The MBS market is fairly complex, but one potential explanation (not mine) is that as the FED is the most secure and largest buyer of MBS, for the rest of the investors the portfolio risks (ex Value-at-Risk) fall substantially for this part of their portfolio allowing them to take a more risk-on approach for other asset classes (equities). Additionally, my guess is given that MBS purchases imply a steadier equity value for US home owners for whom the majority of their equity is tied to the value of their houses, as credit becomes more easily available to new home buyers, existing home buyers can also take on a more risk-on approach to investing into other assets. This is observed from the FEDS MBS balance sheet operations in 2013 and 2018 and 10 year curve which reflects growth, the MBS QE side is most directly related to changes in the 10 year. Higher housing demand can perhaps imply higher growth due to the Real Estate component of GDP (ex China), although the net-benefit is debatable. The relationship between asset purchases, housing prices and rents in the past 10 years has been fairly complex (snipboard.io), since it takes time for the newly created money supply to show in the national Case-Shiller housing prices, causing an instable lead-lag relationship. Moreover, the two tapering Operation twists in 2011 and 2014 (Operation twist is a yield curve control measure, where the FED sells short-term treasuries and buys longer term treasuries, with the aim of flattening the yield curve), caused drops in the 10 year yields, leading to even more elevated stock prices (particularly high duration growth stocks). In essence, the FED over the past decade, has actively attempted to suppress yields whose by-product lead to even more elevated P/E ratios (www.multpl.com). How? All assets are priced based on their cashflow(profit) growth and the riskiness of it. In the component of riskiness, are nominal interest rates, hence if nominal interest rates fall => required return falls => for the same earnings growth you get a higher P/E multiple. Running a simple linear regression on SPX P/E multiples and 10 year FED >10 year asset purchases and MBS for the past 5 years, the beta coefficients of both purchasing programs are 0.385 and 0.4, however only the 10 year asset purchases beta is significant (t-stat of 2.4, obviously not robust, many further iid checks are necessary). This means that if the FED does taper and is not forced to do a third Operation Twist, P/E ratios should remain relatively stable in 2021 (snipboard.io), although this is also assumes no major fiscal changes (capital gains/corporate tax related) and no large demand shocks. 2. Alright, then what gives, based on what outcomes do the FED members vote whether to taper and/or do other monetary policy adjustments? It comes to two simply stated mandates, yet their relationship is quite complex and it is a trade-off between 1) Maximum employment (Unemployment rate below <5% of the long-term rate) and 2) Price stability(inflation within the target range 1-5 to 2.5%). The FED has recently been focused primarily on Maximum employment, however it is clear that there are many structural issues in the labor market that have slowed down its recovery. It is arguable that this has caused even greater pressures on wages. With both wage and commodity input prices rising, business are forced with a choice of whether to pass through costs. If they do, higher prices imply lower sales volumes impacting their market share and if they don't, their profit margins are squeezed. However, neither seems to be happening on a large scale yet as the SPX profit margins are at an all-time high (snipboard.io), although the SPX is heavily tech sector skewed, whose margins are not as affected by commodity prices. Eventually, business will pass through costs, if the company costs are persistent (such as wages), and profit margins will readjust lower. The old inflation paradigm was, shelter CPI growing above the 2% target at 3-3.5%, while the rest of consumer goods and services growing below 2% allowing for the overall core inflation to be within the target range. However, wages are growing above trend, shelter prices are picking is above target, and consumer credit is starting to grow again (snipboard.io). The longer the FED delays cooling down the market, the higher the risks of persistent inflation. The global supply chain bottlenecks are just the icing on the cake. However, if the FED does taper, that will provide quite an immediate slowdown in PMIs. Additionally, if the FED tapers today, that would imply potential dollar shortage accompanied with the current slowdown in China, which can be a serious threat to EM, as it would be harder for companies to satisfy their dollar denominated debt obligations. The dollar rise from rising hawking expectations from the FED, are partially off-set by the quicker hawkish schedules from other central banks, however the dollar should still gain, especially if the slowdown in China persists and other EM countries continue to struggle dealing with Covid. 4. Interestingly, given zero interest rates and vast increase in money supply, how has inflation been very muted post 2009 until the pandemic occurred? Having zero interest rates, accompanied by expansion in financial asset credit, implies that cash needs of households and businesses are satisfied. Any major credit risks are further alleviated as the excess liquidity decreases roll-over risks for companies, allowing them to borrow at increasingly low debt costs. This paradigm reinforces competition, which reinforces innovation, which has been a greater drag on inflation than excess liquidity has been an inflation push. This allowed for muted inflation in goods and services, even further placing pressure on the yield curve level, driving asset prices even higher. The owners of financial assets have been the greatest beneficiaries due to the high real yields. This has also meant a higher income inequality, which a real systematic risk on a going forward basis. The difference relative to post 2008 and the post-pandemic policies, which also included expansion in credit to households (government checks) and credit to small business on a far greater scale(Bush admin only gave 300$), which were principally financed by the Fed as the major buyer of Treasuries (snipboard.io). The Fed now owns >20% of the entire treasury supply, however still less relatively to most other central banks (snipboard.io). Hence, the major problem that the FED is in, is how to tackle income inequality, as the current fiscal policies are directly related to inflationary pressures (government gives people cash checks, people spend it on consumer goods, prices rise). Democrats policies with are aimed at dealing with inequality, may have major inflationary expectations, which if they get out of control, may force the Feds hand, in which case the fed would have to raise interest rates or perform a major balance sheet unwinding, causing a major short-term downturn and possibly a recession. For now this is the unlikely scenario, and chances are that the stagflationary scenario in the medium term is more likely, however this issue will be reserved for some other post. 5. What returns to expect for the rest of 2021 and going forward into 2022? To summarize this idea, the is a chart showing the SPX/FED assets ratio, summarizes the reliance of equity prices to QE where the SPX would be nearly flat if it weren't for QE, as the rises in QE purchases are almost tad-for-tad followed by rising equity prices. This is why before making any investments, the most fundamental consideration to make should include how will the FED guide asset prices forward. QE used to be aimed at elevating financial stresses as central banks bought toxic assets so that banks capital ratios improved, however because of lack of flexibility on interest rates as they were nearly pegged to the zero-lower bound post 2008 and the far greater sensibility to interest rate changes as leverage rose (both private and public), QE or asset purchasing programs became the primary monetary policy tool used by developed regions central banks. It's clear that QE can be considered as an asset price guiding program. The current consensus at the FED is that they will adjust asset purchases (taper) downwards by year end which should last until the middle of 2022, when they can readjust policy and start expanding asset purchases again. Currently I would not rely on any guidance by the FED and rate hike dot plot expectations are pointless given the current volatile environment. Overall, if the FED decides to taper today, or in the upcoming months expect a choppy first half of 2022, followed by a drift higher in the second half with high conditionality on inflation being muted and lower probability of rate hikes. One thing is certain, which is do not expect the same 2020, 2021 returns in 2022. If the FED does not taper today expect a short-lived rally, and another drop going into the year end, otherwise if the FED does taper today last weeks dip should extend which should be followed by a potential year end rally. On the fiscal side risks remain high of policy adjustments that may target investment income which may cause the reward from investing to drop while risks to rise, in addition to other highly inflationary fiscal policies such as the current infrastructure plan. If you are highly risk-averse and are looking to buy the dip, I would recommend caution, and perhaps wait (if the FED does taper) until May to invest and do consider whether 6%-10% potential returns in 2022 and the potential forward market risks are aligned with your risk profile. There are many other factors to consider such as negative real yields and the factors that can cause a stagflationary environment going forward which I will analyze in some other ideas! Thanks for taking the time to read this idea! Any comments, questions and discussions are welcome! -Step_ahead_ofthemarket ________________________________________________________________________________________ >>I do not share my ideas for the likes or the views. This channel is only dedicated to well-informed research and other noteworthy and interesting market stories.>> However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated! Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content- contact me through any of my social media channels.
Editors' picks
SP:SPX
by step_ahead_ofthemarket
40
USD JPY - Sell imbalance, before long term buying opportunities.Hello Traders and Analysts, Breakdown: 1. Note 2. Contents 3. Research breakdown 4. Education recap 5. Information on Lupa. A Note before reading - this is a forecast analysis - based upon our trading strategy. This is tagged short, due to purchasing further increments upon imbalances. Please do not take this as face value and conduct the relevant investment strategy to successfully trade the probabilities. However, note - the overall trend is bullish. Master Key for zones Red = Three Month Blue = Monthly Purple = weekly Scarlet - Four day Orange = Daily Green = 8 Hour, 16hour Grey = 4hour Pink = 1 hour Previous analysis's Original - Updated - Firstly, if you have been following - the longs are still active - in the form of a forward contract, will be looking to open more FX positions as and when based on the analysis below. As analysed - the buying power imbalance was key to the buying positions upon multiple opportunities to add along the way. Monthly imbalances for USD JPY These zones have been highlighted due to the imbalance showing a strong pivotal reversion point where price has set a psychological level of 100.00 to be a structural level for the USD. The monthly wicks also highlight a great opportunity where the imbalance is strongest within the wick zones around 100-102. Second to this, the monthly test occurring back in January 2021 created a higher low, informing that the buyers have taken over the monthly imbalance and have created a weekly imbalance zone where price will use as a discounted zone. Since the previous analysis update - price has now reached the monthly zone between 109.6 - 111.8X which has is show below. From the analysis - a short opportunity is present, but overall the structure is bullish, so whilst this is a counter trade, please keep in mind the overall monthly indicates a long* - this is due to a correctional play which will have a probability of occurring. -Short, -before very long opportunity occurs. Bullish pattern outline Imbalance Netting* Where the buying power and selling power have now successfully netted to Zero, based upon a volume level of 50/50 tug of war. This can now shift the probability towards the transition of sellers, taken Cross-asset comparison; Looking to the DXY, US05-US02Y short term yields, look towards the critical levels here where DXY and USDJPY shows an opportunity where imbalances have established. Breakdown of Technical write up Quantitative easing (QE) is where the increasing the money supply of the system, where the Central Bank creates new money and uses the money to make asset purchases. These asset purchases inject the new money into the system. (QE) tapering will be seen on interest rates. The impact is almost immediate - affecting the sentiment. (QE) can be used where interest is at zero %, as the central bank(s) want to introduce more stimulus. Conversely - when easing occurs, adoption of a new introduction is will send the interest rates shooting, the money to those who can offer the highest interest rates and this competition will send the interest rates skyrocketing. This directly affects the Equity market and the FX safe-haven pairs immediately. Employment In relation to employment is closely linked to that state of inflation or deflation in the economy. When there is excess money in the economy, the confidence is upbeat and CPI aligns with goods production resulting in people getting employed in the economy or in this case - returning to the original job before the pandemic. Therefore quantitative easing (QE) is positively correlated to a higher employment level* subject to NFP "True" figure of new jobs created, not in the aspect of 'Return to work'. See the article snippet below affecting the US Market. "On Labor Day, COVID-era expanded unemployment benefit programs expired. Those temporary programs included the $300 weekly bonus checks as well as coverage for those who are normally ineligible for unemployment insurance, like gig workers and the long-term unemployed. More than 11 million people were impacted by the cutoff, and roughly 7.5 million people lost their benefits entirely". - Source CNET.com/personal-finance/your/money Inflation or Deflation? inflation is likely to turn into deflation through (QE) where tapering pulls money out of the system, where less money (as compared to before) chasing the goods available, making every good less expensive. Great for consumers?! Daily Fibonacci The technical aspect here is price will need to engineer a long movement so when coming to a pivotal point on the Fibonacci extension target, price will react here, allowing discounted buy opportunities. However, price is within a trading range at this moment - this is a point of interest or (POI), where price has consolidated heaps Using the inverse Fibonacci based upon a channel formation for the short covering position, based upon a tapering scenario Do you enjoy the setups? Professional analyst with 5+ years experience Focus on technical output not fundamentals Position and swing trades Provide updates where necessary - with new updated ideas tracking the progress. If you like the idea, please leave a like or comment. To all the followers, thank you for your continued support. Thanks, LVPA MMXXI
Short
by LupaCapital
7
It’s Recalibration, Not Tapering (10 September 2021)The ECB’s decision. The European Central Bank (ECB) held its interest rates unchanged during their monetary policy meeting yesterday. Main Refinancing Operations Rate: 0.00% Marginal Lending Facility Rate: 0.25% Deposit Facility Rate: -0.50% The size of its quantitative easing (QE) programmes remains unchanged as well. Asset Purchase Programme (APP): €20 billion per month Pandemic Emergency Purchase Programme (PEPP): €1,850 billion in total On top of that, the central bank has opted for a reduction of pace in its assets purchase under the PEPP but did not provide more details on the amount. At the moment, €80 billion worth of assets are being purchased on a monthly basis. It’s recalibration, not tapering. Just when the market is trying to figure out from the monetary policy statement if the ECB has just carried out a QE tapering, the central bank’s President Christine Lagarde elucidated that the reduction of the pace is not a tapering, but a recalibration. The ECB’s decision “is to calibrate the pace of our purchases in order to deliver on our goal of favourable financing conditions”. President Lagarde’s comment left the market wondering how significant is such an action carried out by the central bank going to have on QE if it is not considered as tapering. As a result, the euro was moving in an unclear direction. Positive inflation projections. Although the ECB’s action is likely going to spark some discussions over its ambiguity, one thing we know for sure is that the central bank is feeling confident in the recent rise in inflation in the eurozone. As released in the quarterly projection materials, overall inflation forecasts have been revised upwards. Inflation Projections: 2021: revised upwards from previous 1.9% to 2.2% 2022: revised upwards from previous 1.5% to 1.7% 2023: revised upwards from previous 1.4% to 1.5%
by GH_Lee
Dovish Tapering Locks In QE (08 September 2021)The dovish tapering decision. During its monetary policy decision yesterday, the Reserve Bank of Australia (RBA) kept its cash rate unchanged at 0.10%. As promised, the central bank proceeded with its quantitative easing (QE) tapering plan announced back in the July’s meeting. What came as a surprise is the duration of the new round of QE. Previously, the RBA opted for a two-month QE duration. But during the announcement yesterday, the central bank decided to extend the duration by five months instead. Thus, the tapered A$4 billion QE will run from September until at least February 2022. As a result, the Australian dollar strengthened for a brief period of time before weakening across the board, reflecting the dovishness as a result of the extension of the QE duration. Delta variant still a concern to the RBA. Despite RBA Governor Lowe saying previously that fiscal policy will prove to be more effective than monetary policy in providing aid at the moment, this does not deter the central bank from making a more cautious decision. As explained in the rate statement, the RBA’s decision to extend the QE duration “reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak”. Rate hike remains out of sight. As with the previous meetings, the RBA continues to reiterate that its cash rate will not be increased until inflation falls within the 2-3% target range and this condition will not be met before 2024 based on their current projection.
by GH_Lee
Bye-Bye Tapering Announcement (06 September 2021)Jobs growth in August way off market’s expectation. Last Friday, the U.S. Bureau of Labor Statistics reported 235,000 jobs being created in August, way below the market’s expectation of 720,000. The leisure and hospitality sector, the main driver behind the strong jobs growth for the past several months, added zero jobs amid the rise in COVID cases. With the leisure and hospitality sector taking a backseat, the professional and business services sector led the August’s jobs growth with an increase of 74,000 jobs. The worsening COVID situation has impacted the job market more negatively in August than in July. 5.6 million people reported not being able to work as their employer wind down business due to the pandemic. This figure rose from the July’s figure of 5.2 million. All is not lost. Despite the poor August figure, upward revisions were made to the number of jobs created for the past two months. In July, the number of jobs created was revised from 943,000 to 1,053,000 while in June, the figure was revised from 938,000 to 962,000. In total, these revisions reflected 134,000 jobs more than previously reported. Furthermore, based on history, nonfarm payroll figures have a tendency of subjecting to substantial revision due to discrepancies as a result of people going on summer vacation. Hence, there is a chance that the scanty figure released this month may be revised upwards to salvage the situation a little even though the shortfall may be too big. Chance of a September taper announcement is dimming. Without a doubt, the Federal Reserve is not going to like what they see from this jobs report. This will definitely lower the chance that the central bank will be making a QE tapering announcement during their meeting later this month. As a result, the Fed may postpone such an announcement to the meeting in November while buying some time for the jobs market to prove its worth.
TVC:DXY
by GH_Lee
Powell's taper comments coming-up: Potential scalp opportunitiesI have set-out my logic in prior posts of how I am exiting the SP500 market from prior longs bought more than 18 months ago - by selling into rallies. If an infrastructure deal goes ahead and debt ceiling issues are dealt to successfully, I will reconsider my current stance. However, I am happy to scalp particularly from needless / senseless market over-reactions for short term scalp trading opportunities. We may see an opportunity coming up with Powell and the Jackson Hole meeting coming up. My rationale set-out below: - tapering is simply a reduction in the Fed's open market operations (OMO) whereby treasuries are purchased from dealers (secondary market) with the result being that cash from trader's is deposited into the Banking system. This cash is also known as reserves ( Refer blue Histogram ) - The effect of this QE style OMO is to strip credit interest out of the non-government sector that would have otherwise been paid to holders of treasuries as one form of money (treasurites) is replaced with another form (Bank cash / reserves). - the banking system is 'pull system' , not a 'push system'. Banks need capital to make loans; not deposits as the Fed, like all Reserve Banks, they act as lender of last resort. Stuffing the banking system full of cash does not benefit Banks, rather it makes regulatory capital management harder for Banks and produces scarcity of interest bearing securities, with downward pressure on rates. - to offset some of this effect, reverse repos have been employed by the Fed as a 'temporary' measure - but is its like a senseless merry-go-round. Why am I saying all of this? - where you have record high fiscal growth supporting a market (risks looming in the background - debt ceiling), and potentially needless market panic regarding the word 'taper', which is actually positive not negative for the market, then that's a great short term buy opportunity to scalp back to the mean. What level will I buy at: I would like to buy around the cost basis of swing traders which is marked on the chart and which represents around 20% market capitalization. I will be checking out my Market Risk indicator which looks at a range of factors including futures spreads for a potential long scalp trade. Instead, call writing maybe your go-to strategy here instead but there's not much Vol to sell (yet!) #MMT
AMEX:SPY
by Adam-Cox
Will FED Taper?Fed tightening 10 year surged to almost 3.2% when Powell tried to tighten this can be seen on the chart below. Now following that measure to tighten you see the S&P fall 20% this miscalculation of the FED to increase rates. Powell was out to pop the equity bubble, but again this miscalculation caused them to stop tightening, and on the chart below you can see this was followed by the cutting of rates. Low growth married to market expecting liquidity has allowed us to see huge growth. We are stuck in the circle of asset growth over strong economic growth.
SP:SPX
by tahirg0010
Nasdaq: Weekly Forecast 22nd August 2021Nasdaq pretty much recovered from a dip last week and is about to retest its current high at 15170. For the past couple of weeks, we have been waiting for a major correction in the stock market amid a strong sentiment of tapering from the Fed. Ironically, both the S&P and Dow continued to break new high except for the Nasdaq which continued to range around 15000. Last week, we finally saw all three of them trading lower together (and Russell2000 trading at a range bottom). The Nasdaq has been resisted around 15000 for an entire month and it has been half a year since the last major correction. This week, we will focus on selling the Nasdaq at its current supply level just above 15100, and aiming for a target at the demand level just above 14000.
UShort
by AlgoVenture
7
USDOLLAR Weekly Chart Trends Up As Market Anticpates TaperingThe above chart show’s FXCM’s USDOLLAR index on a weekly time scale and is reflective of the primary trend. Longer-term charts tend to align with the underlying fundamentals and here we can see a higher trough followed by a higher peak – the technical definition of an uptrend. The greenback is trending up as market participants start anticipating the tapering of Fed expansion. In this regard. last Friday’s NFP was a good number and the USD responded. The Fed is likely waiting for another NFP print before any policy change as last month’s number did not fully factor in the current wave of Covid-19 sweeping through the US, and which doesn’t seem to have peaked yet. We note that price never moves in a straight line and if the uptrend continues we will be monitoring for evidence of a zig-zag structure similar to the dashed red lines.
FX:USDOLLARLong
by FXCM
2
QE Tapering Plan Will Go On (06 August 2021)Three days ago, the Reserve Bank of Australia (RBA) delivered a little surprise when it decided to stick with its quantitative easing (QE) plan announced back in July despite the recent spike in COVID cases in Australia. (Refer to my post "RBA Sticks With QE Tapering Plan (04 August 2021)" on RBA monetary policy) Details on why the central bank decides to proceed with its decision on QE tapering were provided during Governor Lowe testimony earlier today. Lowe’s Testimony During his testimony before the House of Representatives Standing Committee on Economics, Governor Lowe said that the RBA has considered holding back its plan for QE tapering during the monetary policy meeting. However, the central bank’s positive projections on the economic growth for 2022 permitted the plan to continue. Lowe explained that “any additional bond purchases would have their maximum effect at that time and only a very small effect right now when the extra support is needed most.” Furthermore, he mentioned the RBA felt that fiscal policy would be more appropriate than monetary policy in terms of providing aid at the moment. Nonetheless, the flexible approach of its QE programme allows the central bank to make adjustments to the rate of bond purchases in response to any unexpected turn of events. On the subject of the RBA cash rate, Lowe highlighted that the central bank will not be increasing cash rate until inflation is sustainably in the 2-3% range. He emphasised that the RBA needs to be confident that inflation will remain within the targeted range before any rate hike is considered. Finally, Lowe said that the condition for a rate hike “is not expected to be met before 2024”. RBA economic projections. For year 2021, Australian GDP: 4.00 (4.75) CPI Inflation: 2.50 (1.75) Unemployment Rate: 5.00 (5.00) For year 2022, Australian GDP: 4.25 (3.50) CPI Inflation: 1.75 (1.50) Unemployment Rate: 4.25 (4.50) For year 2023, Australian GDP: 2.50 (N/A) CPI Inflation: 2.25 (N/A) Unemployment Rate: 4.00 (N/A) *Figures shown in parentheses refers to projections from May 2021
by GH_Lee
Fed QE Tapering Talks Reaching A Crescendo (05 August 2021)Just a couple of days before the release of the long-awaited U.S. nonfarm jobs report, several Federal Reserve committee members expressed their hawkish views on an QE tapering. Fed Vice Chairman sees QE tapering to start this year. During his speech at the Peterson Institute for International Economics yesterday, Fed Vice Chairman Richard Clarida said that together with the other committee members, they expect the U.S. economy to continue recovering towards the central bank’s “substantial further progress” standard although this was not met in July. Also, Clarida highlighted that if his “baseline outlook does materialize”, then he expects the announcement for quantitative easing (QE) tapering to be made later this year. With the progress made in recent months, he believes the Fed is ready for a first round of tapering by year-end. In regard to interest rate, Clarida explained that the three conditions required before the Fed considers a rate hike are: Labor market conditions reaching levels consistent with the Fed’s assessments of maximum employment Annual inflation rising to 2% Annual inflation is on track to moderately exceed 2% for some time And in a scenario whereby the Fed’s economic projections realized over the forecast horizon, Clarida believes that the three conditions will be met by the end of 2022, thus anticipating a rate hike in 2023. Other committee members in favor of carrying out QE tapering soon. Fed committee member Robert Kaplan said in an interview yesterday that the Fed should start tapering QE soon and gradually as this will give the central bank more flexibility in the future in terms of interest rate adjustments. He also highlighted that continued progress in the job market for July and August should warrant an early tapering of QE. Another Fed committee member James Bullard also supported the idea of an early tapering of QE during an interview with the following reasons: Economic growth in 2021 will likely exceed the central bank’s projection of 4% Unemployment rate has declined much faster than projected Annual inflation for 2021 will likely surpass the projected 1.8% Hence, Bullard believes it will not be an issue meeting the criteria to get QE tapering started.
TVC:DXY
by GH_Lee
1
AUDUSD bulls attack monthly hurdle on hawkish RBAThe Reserve Bank of Australia’s (RBA) keeping of September tapering on the table, despite covid woes at home, offered over 40 pips of immediate upside to the AUD/USD pair on the announcement. However, the quote remained below a one-month-old horizontal hurdle surrounding 0.7400–7410 and seems to ease of late. Although firmer RSI and RBA’s hawkish title favor AUD/USD bulls to cross the 0.7410 hurdle, 200-SMA near 0.7455-60 adds to the upside barriers before directing the quote to the mid-July top near the 0.7500 round figure. In a case where the quote steps back from the stated resistance, as it did the last Thursday, 0.7350 may return to the charts. However, any further weakness of the pair will be challenged by a two-week-old rising support line near 0.7330. If at all the AUD/USD bears dominate past 0.7330, the yearly bottom surrounding 0.7290 will be the key before direct the quote towards the October 2020 tops surrounding 0.7245.
Short
by MTradingGlobal
USDCHF bulls aim for 0.9115 confluence after Fed, SNBUSDCHF extends Fed-led rally to the fresh high since May 06 even as the Swiss National Bank (SNB) reiterated status-quo during early Thursday. The pair seems to prepare bulls for the bi-annual SNB press conference while heading towards a convergence of 100-day SMA and 50% Fibonacci retracement January-April upside. Given the upbeat RSI conditions, not oversold, the quote may battle the 0.9115 hurdle with a notable strength. However, a daily closing beyond the same becomes necessary to aim for another hurdle, near 0.9080, to the mid-March low of 0.9213. Meanwhile, failures to cross the 0.9115 resistance could trigger a pullback towards the early month top close to 0.9050. Though, any further weakness will be questioned by the 0.9000 psychological magnet and a horizontal area comprising multiple levels since December 21, 2020, around 0.8930-20. In a case wherein the USDCHF prices drop below 0.8920, February lows near 0.8870 and January bottom close to 0.8835 could offer intermediate stops before dragging the pair to the yearly low of 0.8756.
Long
by MTradingGlobal
Gold Relative Analysis Indicates An Oversold ConditionGold has pulled back over the last few trading sessions and the Bollinger bands have narrowed (green rectangle). This would suggest an imminent expansion and a volatility increase. We note, that although Bollinger analysis is insightful with regard to volatility cycles it does not have much to say on price direction. An expansion with price maintaining its position within the lower blue and lower red bands will indicate a bearish expansion. However, relative to the recent bullish strength shown by the precious metal from April through to the beginning of June, the RSI does show that the recent pullback is oversold (orange rectangle). Thus, when the expansion of the Bollingers does happen, it may be that the price moves upwards towards the upper blue and upper red bands in a show of strength. Much of this is to be resolved on Wednesday when the Fed statement is released and Fed Chair Powell holds his press conference. Any hawkishness towards tapering is likely to support the dollar and keep pressure on the precious metal. However, if this hawkishness does not materialise, the normalisation of the relative oversold position is likely to play out.
FX:XAUUSD
by FXCM
3