The FED held its annual monetary symposium in Jackson Hole, Wyoming today. That was the big event of the day, one that everybody waited for. Currencies, and most other financial markets, practically froze in hours leading to Bernankes’s speech at the meeting. Mr Chairman acknowledged that the economy is not doing what he had been predicting. At the same time he declared that FOMC “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”
So, what is it that the FED will or can do to stimulate economy? They can further increase purchases of securities, mainly the US treasuries, in an attempt to keep long term interest rates low. Another option is a reduction of the interest rate the Fed pays on banks’ excess reserves, supposedly encouraging (forcing) US banks to start lending. Currently, the central bank pays 0.25% on these deposits which would drop to 0.1% or even 0%.
Frankly, neither one of these steps seems like strong stimulant to the economy, but Mr. Bernake is a very convincing speaker and the markets responded positively. Currencies reversed their recent trends, for today at least, with both the Yen and the Swiss Franc falling. Apparently today nobody was interested in safe havens and “risk” was the name of the game. Before getting too enthusiastic, though, one should remember that we have had these phases of “Bernanke effect” before and they did not last…
Outside of the last few hours of trading, it has largely been a boring day. I stayed away from trading, why bother? Out of trades mentioned here during this week only the EUR-CHF long is still opened. It was taken using a daily chart so has s respectively longer time horizon. Above is the hourly chart of EUR-CHF, showing what happened since the position was initiated. Also, it shows a possible new buy opportunity forming there, much shorter term. A breakout above the 1.3140 high looks promising, if the upside continues, with a target of 90-100 pips. But this has to wait until next week. If the price action develops as I would like to see it, the trade would have to be taken in different account, to keep risks reasonable. Have a great weekend!
Mike K.
[...] the Swiss Franc, weakened considerably during last hours of trading. That was in response to the speech by Bernanke during the FED annual symposium in Jackson Hole, Wyoming. He outlined likely additional steps to be [...]
[...] the Swiss Franc, weakened considerably during last hours of trading. That was in response to the speech by Bernanke during the FED annual symposium in Jackson Hole, Wyoming. He outlined likely additional steps to be [...]
[...] considerably during last hours of trading. That was in response to the speech by Bernanke during the FED annual symposium in Jackson Hole, Wyoming. He outlined [...]
I still have long in cable; but both euro & cable seems to be not doing so well during Today – Monday’s trading section, not sure just a correction for friday’s sharp reverse. or friday’s reverse just fade …
tomorrow seems to be very important to set the whole Tone for markets, on cross-asset based.
How do u think, mike?
It all depends on time horizon. I’m sticking to short term trades, using something like daily charts is too unclear – sentiment shifts with every comment. I think enployment numbers are the key, NFP on Friday. Until then there are couple of speeches by FED officials and FED minutes release. Consumer confidence tomorrow, but I don’t take that seriously. Everybody is looking at QE – more of that = “flight to safety” nonsense. It is rough, a lot of people are having hard time trading. What is your objective for the cable?
[...] We might not have an answer until after Bernanke’s speech on Friday, or maybe even the Jackson Hole conference over the [...]