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March 16th, 2014 at 8:15 am

The Russian Factor.

By all appearances, we are in for an interesting week for financial markets. Of course, at the top of the economic calendar for the period is the regular policy meeting of the FED, the first one chaired by Janet Yellen. While nobody expects immediate policy change, all markets observers will look for hints about future adjustments. The committee will probably stick to the current tapering plan of 10 billion a month. Anything else will be viewed as a surprise, with currencies responding with a spike in volatility.

The FED meeting, however, could take a back stage to the unfolding geopolitical event, namely the Crimean referendum. On Monday, the EU and the USA are almost certain to impose economic sanctions on Russia. This round could be followed by more pressure later in the week. Interestingly, to date Russia simply ignored these threats, as if they were meaningless. They may be preparing for longer-term economic pressure. Last week, over $100 billion in US Treasury securities were withdrawn from custodian holdings at the Federal Reserve, the largest such outflow on record. It does not mean that somebody dumped these securities, but they were moved to another financial center. Given the amount involved, it must have been a foreign central bank. Many suspect it was Russia moving its holdings somewhere where they cannot be frozen by economic sanctions. This suggests escalation of hostilities, because so far western countries have not even mentioned freezing of national assets. Obviously Russia suspects that will be the next step, meaning they are willing to go the distance, at least economically, on this one. Personally, I find their relative silence on the issue more telling than counter-threats. Would not be surprised in the least if they were willing to turn the gas/oil spigot off for some time, if for no other reason than to create shakeout in financial markets. Or just turn the flow of these materials to China. Sure, Russia cannot afford to lose income from these resources for long, but even a short-term action would create significant market uncertainty and volatility.

NZD-USD 0316
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March 9th, 2014 at 5:32 am

Mixed Bag Last Week.

Lack of time prevented me from posting last week, so here is what happened to the trades discussed on these pages. Overall, my results were mixed, even on the poor side. Nothing tragic, to be sure, but a weak period to start the month of March. Just hope that market patterns and conditions will become more compatible with my way of trading soon.

USD-CAD 0309

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March 2nd, 2014 at 10:35 am

Currencies and Events in Ukraine.

For the past few days, global news have been dominated by events in Ukraine. So far, financial markets responded in a muted way, but that could change following escalation in tensions over the weekend. The most likely markets to become volatile are the energy sector, oil and natural gas, followed by currencies. Late last week, the Ruble and the Hryvna declined in value, but seems very few people actively trade them this fact escaped major coverage. However, the Swiss Franc responded to its safe haven status by making measured gains versus all other majors. If the situation in Ukraine turns into a shooting war, we should expect more appreciation in the CHF and most likely the US Dollar. A lot will depend on what other countries get involved in the conflict and to what extent, but the Yen could become another beneficiary, and the expense of the Euro, the Pound and most emerging currencies. The commodity currencies are as clear-cut, because the CAD, for example, could benefit from rising oil prices and yet decline on general flight to safety trend. Personally, I hope that war can be avoided and we all can concentrate on the normal traders’ headaches, such as policy meetings of central banks. There are several of them on the calendar this week, making it an extremely busy period, even without the increased uncertainty of geopolitical developments.

GBP-JPY 0302 H

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