Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17
Crude Oil Price Outlook 2017 - Video - 16th Mar 17
Dutch and French Electons - Winners are Losers and Left is Right - 16th Mar 17
The Straddle Trade Stock Market Brief - 16th Mar 17
Gold Up 1.8%, Silver Up 2.6% After Dovish Fed Signals Slow Interest Rate Rises - 16th Mar 17
Stocks Get Close To Record High Again As Fed Hikes Interest Rates - 16th Mar 17
Scotland Second Independence Referendum War - SNP Determined to Destroy the UK - 16th Mar 17
Here’s How Pharma Is Using AI Deep Learning To Cure Aging - 16th Mar 17
Stock Market Chaos in the Chicken Coop - 15th Mar 17
Gold and Silver Price Manipulation: The Biggest Financial Crime In History - 15th Mar 17
“Ryancare” Dead on Arrival: Can We Please Now Try Single Payer? - 15th Mar 17
Fanaticism, Stock Market Crash 2017 or Continuation of Bull Market - 15th Mar 17
Stock Market Most Overvalued On Record — Worse Than 1929? - 15th Mar 17
Desperate Saudi Arabia Turns to Asia for Investment - 15th Mar 17
Startups Will Define the Future of US Employment - 15th Mar 17
Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold? - 15th Mar 17
SNP Declare Scotland to Commit Economic Suicide Early 2019, 2nd Independence Referendum - 14th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Euro, Dollar, Buy the Rumor and Sell the News Alive in Forex Markets

Currencies / Forex Trading Dec 05, 2015 - 10:12 AM GMT

By: EconMatters

Currencies

ECB Disappoints

All those who continue to forget this trading maxim were royally punished on Thursday morning as the ECB could not match the trading enthusiasm built into the move in shorting the Euro and thus going long the US Dollar for the prior 7 weeks lead up into the ECB Monetary Policy Decision.

This is such a strong trading maxim to buy the rumor, and sell the actual news that it is the exception rather than the rule where an event over delivers. The best move is to take profits the day before the event as opposed to getting crushed on the news which happened today in the Euro and US Dollar forex trades. Literally the amount of crushing that some traders took this morning regarding giving up a month`s worth of profits in an hour is stomach churning.


Eurozone Economy & Growth

If one looks at the uptick in economic numbers the Eurozone economy is outperforming the rest of the world including the US on a relative basis since the devaluation program pushing the Euro Dollar Cross from the 1.40 area to the 1.05 level that began 17 months ago by Mario Draghi.


This has been a concerted effort to devalue the Euro by Mario Draghi, namely against the US Dollar and Japanese Yen to some extent. This is why many countries continue to do this practice because for the short term to medium term it is an effective tool to make currency related gains that juice up the economic numbers; at least from an artificial currency standpoint.

Currency Wars Work in the Short Term

It helps tourism, and this is a mainstay of European revenues, and the Eurozone has definitely benefited from being more affordable to tourists due to a much weaker currency. It also helps German cars be more competitive from an exports standpoint, especially when previously they were getting hammered by the Japanese Yen devaluation program that started before Mario Draghi. The BMW Lexus pricing dynamic of two years ago has definitely shifted and become more favorable for Germany. It also helps European exports become more affordable and competitive around the world. Of course, these are all artificial short term currency fixes that don`t address the real drivers of economic growth from a structural long term perspective.

German Unemployment Levels & Inflation Expectations

At any rate, I expect Inflation to pick up in 2016 for Europe as the energy comps become more favorable year over year, and the effects of the currency devaluation program continues to percolate through the European economies. Forget about 2017 the ECB will be raising rates long before this date, discussion of ECB rate rises will probably start towards the back half of 2016. Have you seen the German Unemployment numbers? I look for wage pressures and increasing housing costs to affect Germany and much of the core European countries, and the overall inflation numbers to trend higher for 2016. I think this is the big surprise for economists in 2016, the rise in overall core inflation readings in the developed world.

With regard to the US Dollar, I expect a few days of trying to find a support level against the Euro and then traders running the US Dollar Index up into the FOMC Meeting on Wednesday December 16th. On the day of the FOMC Meeting, I also expect either a quick spike to clear out the overhead stops on the Policy Announcement, followed by a prolonged selloff into year end. Or alternatively, a complete slam down of the US Dollar on the FOMC Meeting Policy Announcement. However, it is worth noting that even today in the US Dollar Index chart there is a long wick on the third 5- minute bar following the initial ECB Policy Decision. This is clearing out the overhead stops in the US Dollar Index, and protecting a few participant`s positioning so they can get back on the right side of today`s trading action – nice if you have the resources to trade in this manner!

This is a common Financial Market trading truism where you have manipulated markets, and all markets are manipulated; they always have been, and always will be. The truism is to clear out stops in the opposite direction of the big move that is going to occur for the day. But at any rate, I expect traders to try and run up the US Dollar into the FOMC event. Only to sell the US Dollar off for a prolonged period as Janet Yellen makes it abundantly clear to financial markets that although the FOMC wants to save face and actually show that the they can conduct a rate hike, they aren`t about to stand for a strong dollar in a world where it is a competitive advantage to devalue currencies from a multinational profits, tourism and global trading perspective.

Protective Stops

So again pay attention to buying the rumor, and selling the news as this trade has been a mainstay of financial markets since the Tulip Market Fiasco. The market dynamics of profit taking, priced in news, market hype, and herd mentality all contribute to why the old trading maxim of buying the rumor and selling the news comes to fruition more often than not in financial markets. Another truism as can be seen by today`s action in the Euro and the US Dollar Index is the necessity for stops in trading and investing. I cannot over emphasize this point for market participants. I guarantee you there were some professional traders today who got caught wrong-footed by the ECB Rhetoric leading up to today’s meeting, and didn`t utilize protective stops which could have saved them a hefty sum of money. Therefore do your analysis, take a position, and protect your profits or limit your losses with strict protective stops.

Euro Policy Tools at Zero Bound

I expect the US Dollar Index to trade back to the 94 level sometime over the next three months, and then we will see who outperforms in 2016. As what we are really looking at is whether Europe or the United States experiences the biggest relative pickup in inflation, and inflation expectations since the Euro makes up the biggest weighting in the US Dollar Index. I think inflation and inflation expectations are both going to be higher than economists think for 2016 in Europe and the United States. And given the low starting point for European Monetary Policy with a negative deposit rate, and effective funds rate differential between Europe and the United States after the Fed hikes 25 basis points in December, I expect the biggest turnabout from the ECB in terms of quickly pivoting to meet these higher inflation readings for 2016. But it is too early to tell whether my assumptions regarding inflation expectations for 2016 surprising financial markets to the upside comes to fruition.

The 1.15 Level in Euro Dollar Cross

But my early forecast is that the Euro surprises to the upside against the US Dollar sometime during 2016, and eventually reaches up to the 1.20 to 1.25 level in the Euro Dollar Cross for my counterview. I realize this prediction is against the current trend, and against the forecasted currency projections for 2106. However it is something to pay attention to if the Euro breaks the 1.15 level with purpose, as the entire currency market will be off sides on this move above the 1.15 level. In conclusion, compared to many of the markets that have dried up, the currency markets remain some of the most vibrant and alive markets for trading and investing.

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2015 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

EconMatters Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife