Todays European Central Bank announcement marks the very last “Central Bank risk event” on the calendar for 2014, as the world awaits even more easing / asset purchases from yet another of our favorite Central Banks.
The Euro has been beaten down for weeks leading up to the announcement this morning, with general market expectations “on high” – assuming Draghi will do what he’s been told to do, stay extremely dovish and give the market what it wants.
Unfortunately……The ECB has a much more difficult task than most CB’s in representing an 18 member group of countries as opposed to only one ( in the case of Japan or The U.S ) so I can only assume that we get “more of the same” from Draghi here today ie…….alot of talk ( which has been working well enough ) but very little action.
The “shared currency experiment” certainly has it’s drawbacks as it’s nearly impossible to keep everybody happy with countries such as Germany generally “towing the line” while Spain, Portugal, Italy etc continue to drift into the economic abyss.
One could assume that whatever the immediate reaction to Draghi’s statement is, this will likely put a floor under the Euro as there will be nothing more to expect until the first quarter of 2015.
So Kong, you expect a higher € and a lower $ the next few months? How does the ¥ fit into the picture?
Yen bottoms and moves higher along side gold and silver while USD takes a nose dive.
What’s your premise for Yen to bottom? If/When Abe wins election in two weeks time, gives credence to his policies and it will continue. Look at YEN action this week, absolutely no hesitation at moving to new highs. Over 121 now and showing no weakness at all, 125 next week? 130 by year end?
In my humble opinion, Yen will implode much much higher, there is no fundamental or technical reason for it not to do so. When the Japanese can no longer find any foreign buyers for its bonds (why should anyone buy JGB bonds anyway) then it will be forced to offer much higher rates. This will be the catalyst that causes the JPY trade to start unwinding. This event is still between 12 months away.
Look at NFP today – the FED can now not justify keeping rates down next year. We could now be potentially in an environment where US rates are on the way up whereas JPY/ECB/AUD are on their way down.
Perhaps this continuing US$ strength will act as a brake on US equities? After all, what can the FED do to weaken the US$? can’t lower rates and they can’t do more QE – the economic figures and strength of equity markets means they can’t justify it
All in all, as I keep saying, a thousand reasons for markets to fall, but there is no catalyst. Even if US stocks fall 5% from here, it’ll hardly be a blip compared to the 12% rise over past seven weeks.
I think all us bears truly underestimated the strength of this market and the will of the CB’s to keep this afloat. All bears are terrified to go short, I don’t blame them.
USD/JPY seems like 125 could be in the cards this year; 140 next; latest calls are for 200 when it collapses due to hyperinflation. How low can USD/JPY go? Even a dip back to 120 seems like a good time to buy now.
Hypothetically, what if the market “crashes”? 110-115 USD/JPY maybe? This pair just seems poised to go up up and away.
The US Dollar is now at a level where it’s been rejected the last 3 times – producing sizeable sell offs, and this time with consideration of how many “gazillion” of them that have been printed….even common sense ( supply / demand ) would have it that USD runs into trouble here.
The USD maybe rejected at current levels but one has to face the possibility that the USD may fall against all currencies except JPY. What we are seeing is desperation policies from the Japanese and desperate people do stupid things even though they can see what they are doing is harmful and not working.
A falling US$ is positive for US equities and I am beginning to read that whereas once Yen would lead risk, now any rise in equities is seen as an excuse to sell Yen.
As I said before, with US rates now on their way up, and with other major nations looking to decrease or engage in more QE, US$ will have a positive rate differential. There is absolutely nothing the FED can do about it.
David:
I completely agree with you. Until we get some sort of political shift in Japan which stops the current policy path they are on, there is absolutely no reason to buy JPY. 115-117 would be my worse case scenario which is hardly a blip compared to the fall we have seen over the past seven weeks. The only policy the Japanese now have is more QE therefore people are simply borrowing Yen, then buying US$ stocks or bonds. They then make money on the rising US asset as well as the depreciating Yen.
So for the above carry scenario to reverse, we need a severe risk off in US equity markets or a US bond sell off, until this happens, there is no reason to buy JPY at all. And looking at how US equities are behaving of late, where every situation is spun in a positive light, am not seeing this until maybe in the New Year.
I said on this forum in mid Nov that we could be heading towards 18000 on Dow and 120 in USD/JPY, look where we are today. I can understand USD/JPY but Dow a 18k??? Look what happened last night, US equities markets had given up their highs and were due to tend fairly flat but then the last 10 minutes, what a rally. They not letting this beast go down.
There won’t be another QE in 2015! Nor will there be rate hikes next year! The FED will just forward guide, in other words talk and jawbone. It’s all what’s left for them. More talk, less action. The FED goes ECB style!
My suspicion is that “there will be further QE” in the U.S but that it won’t manifest in such a blatant and obvious way as to just “straight up buy equities / bonds”.
Perhaps some other “fancy program” named something different and even “aimed” at something different ( at least via the mainstream media ) as to quietly run “under the radar”.
Mortgage stuff, student loan stuff, and god only knows what else they can easily dream up in order to keep the flow “quitely coming” from underneath.
Either way, I don’t think the equity markets will be as “thrilled” the next time “any kind of easing” is suggested.
This is a good and valid point. It won’t help the stock markets too much, though. That QE crap policy is regarded as a put for all these overvalued shares. The only thing that amazes me that the stock market still didn’t roll over. The last times when QE was about to finish the stock market tanked *before* QE ended. This time we saw kind of a dip and then thrusted higher again. Shocking. But I expect much more volatility next year. The Saudis will keep the oil price down at around $60 which is enough for them to keep their welfare state running and killing the competition at the same time, esp. the fracking guys. More currency and commodity wars in 2015.
The BOJ is just an extention of The Fed…and would have been more or less “forced” to do what they did in “upping their already massive QE program” as The Fed “supposedly” ended its.
Hence the “stick save” and continued move higher in risk markets.
The question of how much longer this can continue ( ie….the CB’s continued propping up of global markets) is a mystery to us all but…….
I imagine we need to see a “massive repricing” before anything else “huge” comes down the pipe.
As I’ve reiterated all year on your blog. I’ll prefer to keep buying dollars and shorting pops in the commodity currencies. I understand how things are ‘supposed’ to work but that has never been the case in the markets. It can take many years before things unwind and most people cannot stay in business long enough fighting the trend and waiting for what ‘should’ happen. I’m a trader not an investor or analyst so I’ll take what it’s giving me now and if next week the markets change then I’ll change with them and take the other side.
If there is to be more QE from the FED, in any form, I can’t imagine it happening with equity markets at such highs. We’d need a mini crash in asset prices together with a run of bad data for it to be even justified.
The FED is at a point of losing control, or has done already. With US debt now over $18 trillion, with Congress making no attempt to reign it in, the FED doesn’t want to raise rates as it’ll have to end up paying more plus the effect on businesses that have borrowed cheaply to buy back it’s own stocks. The FED knows the true state of the US economy doesn’t warrant higher rates, however as it has lied manipulated it’s way to making the public believe that everything is getting better, it then cannot then justify not raising rates either.
What needs to happen is another rating downgrade of the US. With debt continuing to rise, with Congress not wiling to reign in spending, with a country who cannot even raise rates 0.25% without fear of another major downturn, these are not the attributes of a healthy economy. However we all know what happened the last time a ratings agency had the temerity to downgrade the US.
Nice nr4 pattern in gold actually it is now a nr 5. Tony crabel made billions with this patterns so either way gold is gonna breakout. It is gonna be ab big volatile move those patterns ussualy give explosive breakouts especially in gold.
Seems to be a good call!