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Articles by Mark De La Paz

September 22nd, 2014 @ 12:07 pm by Mark De La Paz

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Equity markets were broadly weaker in Asia and has been indecisive to bearish in Europe while currencies appear to be on a risk averse footing with the commodities taking the lead heading lower. Today’s calendar has been typical for a monday with little to speak off and the only note worthy events hardly had an impact. Of interest is a recognition on the importance of the US monetary policy to other regulators and market players with ECB Board Member Peter Praet suggesting that other central banks need to factor in the US’s move when making decisions. Whether he is jealous, sarcastic,or making excuses we don’t know but we should point out it takes chutzpah to increase money supply by more than a quarter of your GDP the way Bernanke and now Kuroda has done.

GBPUSDH4

For today’s big trade we still have our eyes on Cable which caught plenty unawares by the big sell-off Friday. Now that the tacticians have had their money pricing in the Scottish “No”, its time to look at the Fundamentals. Economic conditions remain hail and with the much lower Cable, down 5%  from the years highs, we could only look but up particularly as policy sentiment in the BoE continue to move the dial into the hawks favor.

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September 18th, 2014 @ 2:28 pm by Mark De La Paz

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Latest polling according to the UK Telegraph is showing a slight margin for the neighs on the Scottish referendum with about 8 percent undecided. Technically that’s a big enough number that the Yeas could still get their numbers. From a psychological standpoint however people who sit on the fence have a preference for the status quo, there is a fear of the unknown and an independent Scotland is a big uncertainty. Will have my pension tomorrow? Will social services continue as they are? Are my taxes going to rise. Against such concerns I would lean on the 8% going mostly the neighs direction. For a trade we should favor a quick surge for the British Pound though protecting against the downside will be difficult as a surprise yes could see dealers gapping the market down hitting stops at the worst possible price. For those preempting the buy side, go get some put options instead of hedging in the spot market.

 

Polls for the Scottish referendum continue to indicate a narrow lead for the No campaign. The last three polls to be released on the eve of the referendum suggested the following:

• Ipsos Mori: Yes 49%, No 51%

• YouGov: Yes 48%, No 52%

• Survation: Yes 47%, No 53%

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September 18th, 2014 @ 5:26 am by Mark De La Paz

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Markets reaction to prospects of a 3.75% Fed Fund rate by 2017 was a clear dollar rally with only Cable not showing that solid strong dollar real body. The implication of the majority’s expectations on rates is clear, we will see the Fed raising rates nearly every other meeting from the middle of 2015, thus markets excitement. MetaTrader - FX Clearing

But before people start buying the greenback by the boat load lets consider what else was said by the FOMC Chair Yellen. While indeed the FOMC admits the potential for a faster pace of tightening it is also worth mentioning that they recognize the difficulties involved in forecasting economic conditions, things on the ground could change,  after all economics is not a hard science of rules. As such we expect that markets strong dollar response may find it very difficult to get a follow through going.

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September 17th, 2014 @ 2:19 pm by Mark De La Paz

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Today’s FOMC meeting at 1800GMT is one that’s worth the wait and some burning of the midnight candle. The Fed is on track to stop its bond buying program by October, aka quantitative easing and we recall the previous talk of perhaps raising rates as early as 6 months after which would mean the second quarter of 2015 though this view has long been rescinded by the phrase “considerable time”. So what exactly will the Fed be doing? The answer is no one can really be sure right now but what makes this FOMC meeting more special than usual is that we have the release of the FOMC Economic Projections allowing us to get a feel for the policy environment they expect to face six months on.

So what could drive the markets? Watch out for three things.

1) A deflationary environment, ie inflation expectations putting CPI at barely above zero could see traders discounting a prolonged low interest rate regime.

2) Labor market forecast, true that the recent NFP numbers were a disappointment and yet historically reads greater than beyond 100K have been seen as good for the US dollar.  Another six months of a 150K read in NFP would mean almost a million new jobs created during period, should the Fed predict a tight labor market you have argument for a tightening sooner rather than later.

3) And last but not the least do we keep the phrase “considerable time” in the Fed statement as a removal of this tonight would signal a bias to tighten which markets will likely price in giving us a stronger dollar.

Note, its always possible for the Fed to rephrase the words which should mean knee jerk dollar strength may not last.

 

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September 16th, 2014 @ 11:00 am by Mark De La Paz

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With currency markets getting know where thus far, a Bloomberg report has us feeling buoyant as the information asymmetry between big institutions and the retail trader is about to get narrower. With all the investigations going about their practices in different jurisdictions it appears Tier 1 market makers, they who make the prices, are putting some curbs on the information and client abuse the buy side of the market has been getting.  Of course this doesn’t mean that dealers will be unable to do some stop hunting or price fixing but these preemptive measures should make it a slightly more uncertain environment for a dealer put to fatten their bonuses.

 

Biggest Banks Said to Overhaul FX Trading After Scandals

The world’s biggest banks are overhauling how they trade currencies to regain the trust of customers and preempt regulators’ efforts to force changes on an industry tarnished by allegations of manipulation.

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September 16th, 2014 @ 3:39 am by Mark De La Paz

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USDJPYDaily

Monday’s USDJPY turned out to be a bearish Harami with the pattern suggesting we risk a pullback in today’s trade. True that with the 4th quarter a mere two weeks away we have increased speculation that the BoJ’s Kuroda may finally be in a position to pursue his quantitative agenda, we may have seen a move that is too fast too soon. With the preceding days seeing smaller real bodies the suggestion is momentum for the upside has dissipated with a push to prior highs serving as an opportunity to short from a better vantage point. Note we will be hearing from the BoJ Governor at 0530GMT, just under two hours as of this posting.

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September 15th, 2014 @ 9:44 am by Mark De La Paz

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Friday’s attempt to cover the gap from last weeks open turned into a hanging man by the close of markets in New York. Asian traders meanwhile appear to have been reading a Morgan Stanley that said be wary of a  UK rally as the big referendum date nears and the consequences of a yes vote set in for the majority of the people in Scotland. Sovereignty may be all well and good for the Scottish politicians but people need their pensions and the trend in Geopolitics is bigger is better. For now we remind people of the big date, September 18 where a No vote is the kind of reassurance that global markets need and will likely be kicking Cable into a quick reversal or recent losses. As for the Yea we may have already priced in a big chunk of the downside as governments will likely be reasonable enough to negotiate and orderly separation else just end up ruining both countries future prospect’s. The UK’s more than Scotland.

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August 29th, 2014 @ 8:06 am by Mark De La Paz

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Normally I do not believe that there is such a thing a a sure bet but when a central banks reputation is at stake then there is a lot on the line. While its true that a central bank is not all powerful nor is it infallible, recall George Soros and the Bank of England in the nineties, more than most players in the market it has the ability to consistently influence pries. And this take us to EURCHF, the open hostility between Russian forces and Ukraine’s security apparatus in rebel held territory has seen markets on the edge for risk aversion. This has meant that for the pair we have seen an acceleration of losses for the swiss franc. Yet the SNB has a standing commitment of a floor for the pair at 1.2000 and unlike the Soros / BoE tussle which saw the latter lose badly it is far more easier for a central bank to weaken a currency than to strengthen it. The latter needs credibility and actual demand by external parties to see a stronger currency. To weaken you need only resolve to print money ideally as inflation pressures are nil.

EURCHFWeekly

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