The weakness of the euro and strength of the commodity currencies has driven certain currency pairs to key levels. We think the moves are set to continue and want to position accordingly with 2 new orders. These are the ONLY orders we have on the books aside from the GBP/USD live trade (GBP/CHF order was canceled)
1. Sell EUR/AUD at 1.4547
Stop at 1.4607
Close 1/2 at 1.4517, move stop to breakeven
Close rest at 1.4425
2. Sell GBP/CAD at 1.8145
Stop at 1.8205
Close 1/2 at 1.8115, move stop to breakeven
Close rest at 1.7995
***Remember, if 2 orders trigger without one hitting T1 first, all other orders are canceled
March is the fiscal year end in Japan and there tends to be a significant amount of repatriation of foreign earnings as companies look to window dress their balance sheets. This leads many investors to believe that USD/JPY will have a downward bias this month. However taking a look at how USD/JPY has behaved in March between 2001 and 2013, we can see that seasonality has very little impact on the currency pair. In fact over the past 6 years, USD/JPY appreciated 5 times in March. Therefore while seasonality is interesting, it should not be blindly traded.
The Federal Reserve’s Open Market Committee changes every year and 2014 in particular iss a big year for the Federal Reserve because there are a number of new faces on the Federal Open Market Committee or FOMC. With her official confirmation on Monday, Janet Yellen will become the first woman to lead the world’s most influential central bank. Having served as the Vice Chair of the Federal Reserve since 2010, she is not new to the FOMC but her voice will be heard much louder this year in the highly anticipated quarterly post monetary policy meeting press conferences. Yellen is a vocal dove that puts growth ahead of inflation but actions speak louder than words and her vote to taper asset purchases in December suggests that as Fed Chair, she may not be as dovish.
Every year, the makeup of the Federal Open Market Committee also changes with previous voters rotating out and new voters rotating in. This year’s policymakers have the huge responsibility of determining the pace that asset purchases will be tapered and when Quantitative Easing will end.
Two major doves favoring easier versus tighter monetary policy (Evans and Rosengren), one moderate hawk who favors tighter policy (George) and one centrist (Bullard) will be rotating out of voting positions. They will be replaced by Plosser and Fisher, two major hawks, Pianalto a moderate dove and Kocherlakota, who shares a similar bias as Yellen.
Former Bank of Israel Governor Stanley Fischer has also been nominated to replace Yellen as Vice Chair and if confirmed, another hawk would be added to the roster.
There will also be 2 vacancies this year – Elizabeth Duke’s seat (she retired in summer of 2013) and Sarah Raskin’s slot once she moves over to the Treasury. Jerome Powell’s term ends January 31st but President Obama is considering a reappointment. This would leave the central bank more hawkish and willing to follow Bernanke’s proposal for reducing asset purchases by $10 billion at every meeting this year.
Click on image to zoom
2014 FOMC Voters
New Fed Chair Janet Yellen
Fed Board Member Daniel Tarullo
NY Fed President William Dudley
Minneapolis Fed President Kocherlakota
Cleveland Fed President Pianalto
Fed Board Jerome Powell* (term ends Jan 31 but possible reappointment)
Fed Board Member Jeremy Stein
Vice Chair Stanley Fischer** (waiting confirmation)
Philadelphia Fed President Charles Plosser
Dallas Fed President Richard Fisher
2 Vacant Slots
Fed Chairman Ben Bernanke (dove)
Kansas City Fed President Esther George (moderate hawk)
St. Louis Fed President Bullard (centrist)
Boston Fed President Eric Rosengren (dove)
Chicago Fed President Charles Evans (dove)
Potential Replacements for Vacant Slots
Lael Brainard, the former Treasury undersecretary is a possible candidate to replace Sarah Raskin’s seat on the Federal Reserve Board of Governors. She stepped down from the Treasury in November and has been known to play a major role in negotiations with China and Europe during the sovereign debt crisis. Brainard is a strong negotiator who pressured European leaders for a more aggressive response to the debt crisis. Thomas Hoenig’s name has been floated around as a possible replacement for Duke. Hoenig is a former Kansas Federal Reserve President who was a vocal hawk during his time at the central bank. Finally Jeremy Stein is expected to step down from the Fed and return to teaching at Harvard in May, which means that he could leave another seat vacant. The Obama Administration will be eager to fill these slots quickly and bring the FOMC back to full capacity.
The Reserve Bank of Australia’s monetary policy meeting is this evening. Only 4 out of 28 economists expect the RBA to cut interest rates. Here’s part of the reason why. Take a look at how the economy has performed since the last meeting in December:
Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:
I like EUR and AUD
-- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
-- Strong German data means IMF and others could be underestimating EZ growth
-- ECB begins taking back liquidity with LTRO repayments
-- Sharp move lower not warranted
-- Chinese data consistently surprising to upside
-- RBA will leave rates on hold
-- Triple Dip Recession Risks
-- Investors and central banks dumping GBP
-- Talk of EU Referendum weighing on currency
-- BoJ Easing, need I say more?
-- Yen weakness not helping trade much give territorial dispute with China
-- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
-- Incoming BoJ Gov in April could speed up open ended asset purchases
The Federal Reserve’s Open Market Committee changes every year and for 2013 in particular, the new makeup of the FOMC will be extremely important because this group will decide whether asset purchases should end in 2013. Gone are Lacker (the most hawkish member of the FOMC), Pianalto (a dove), Williams and Lockhart. Three doves and one hawk will be replaced with two uber doves (Evans and Rosengren), one moderate hawk (George) and one unknown (Bullard). What this implies is that the new voting members of the FOMC may not be as eager to phase out asset purchases this year as the prior committee.
Here is the updated FOMC Voters Dove Hawk Scale for 2013
These new members will have their first opportunity to vote on monetary policy at the January 25th FOMC meeting and here’s where they stand:
Openly Dovish Chicago Fed President Charles Evans
Boston Fed President Eric Rosengren
NY Fed President William Dudley
Vice Chair Janet Yellen
Fed Board Member Jeremy Stein
Fed Board Member Sarah Raskin
Fed Board Member Daniel Tarullo
Slight Lean towards Dovishness
Fed Chairman Ben Bernanke
Fed Board Member Elizabeth Duke
Fed Board Member Jerome Powell
Slightly Hawkish Kansas City Fed President Esther George
St. Louis Fed President Bullard
If you haven’t heard already, I no longer work for GFT. Boris Schlossberg and I expanded our business and launched a new website WWW.BKASSETMANAGEMENT.COM This is the new home for all of our commentary. Don’t miss a beat -- make sure you fill out the green “Articles to your Email Box” to get our research as soon as its published
My trade of week on CNBC’s Money in Motion on Friday was to sell EUR/JPY. It was a jam-packed show and my window to talk about the trade was short. Therefore I want to take this opportunity to explain in further detail why I really like this trade, particularly since its finally rebounding and could potentially trigger an entry.
On the show, I said trading EUR weakness through EUR/JPY is the best of both worlds because we can take advantage of
1) Lower EUR for European Weakness
2) Stronger JPY for risk aversion, weaker global growth, and softer Chinese data
The great thing about trading EUR/JPY is that it benefits from a sell-off in the EUR/USD or a sell-off USD/JPY so if this week’s FOMC minutes confirm that QE3 is still on the table, it will also help our trade.
If you know me, then you know that when I identify trades, I always look at it from 3 perspectives:
a. Spanish bond yields back on the rise and I don’t expect much from Monday’s EZ Fin Min meeting, which should be bearish for EUR
b. Renewed expectations for QE3 should weigh on the U.S. dollar with the FOMC minutes as a potential catalyst for driving USD/JPY lower
c. If this week’s Chinese data surprises to the downside it could set off a wave of risk aversion that will drive the JPY higher
a. EUR/JPY Broke 1 month low which opens the door to a move down to 97 and possibly even a move below 96 (as Todd Gordon pointed out). As you can see in the chart below, EUR/JPY is in a “downtrend” according to my Double Bollinger Bands. While 97 is my target, theres no real support in EUR/JPY until the 11 year low of 95.60.
a. Investor sentiment or what I call the “flow” is on our side with the sharp sell-off in EUR/JPY.
EURJPY is the quintessential “risk off” trade, which means that it traditionally underperforms when investors are nervous and given the extreme pessimism of the ECB and other central bank officials, the possibility of weakness could raise the level of anxiety in the market and help my EUR/JPY trade call.
These were the levels that I provided on CNBC
Sell EURJPY at 98.25
Stop at 99.00
Click on the EURJPY Chart to Expand
Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.