Making Sense

“Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.” ~ Howard Marks Bonds continued to rally this week with yields on US2s printing a high and low range of 3.71% - 3.55% to close the week at 3.584% and US10s printing a high and low range of 3.76% - 3.6050% to close the week at 3.655%. I highlighted in my blogpost on Aug 31, the triangle breakout target at 15.50 bps on US2s10s. We dipped to -0.004% on the CPI release and closed the week at 0.0710%. On Crude Oil prices we dipped to lows of $ 68.71 but closed the week higher at $ 72.09. ECB annou...

Yesterday's CPI release had the bond bears growl. The headline and core reading were above consensus exp. of 0.30% and are mentioned in the table below. The core gds inflation provided a bit of relief but the core services component rose 0.52% mom, the much spoken about decline in shelter inflation still eludes us. Atlanta Fed's sticky Price CPI which excludes Food, Energy and Housing rose 5% yoy.  Last week's curve steepening flattened out this week with US2s10s back to -43 bps from highs of -33 bps at the start of the week.  Fed Fund pricing materially pared back rate cut bets into 2024 from 66 bps before the CPI release to 42 bps after with 22 bps now priced until the Sep policy.  JPY bears finally had a catalyst in rising bond treasury yields and broke above the 152.00 handle after consolidating for over 14 trading days. Markets are talking about 155 and 160 levels on USDJPY. The yield spread on German - US 10Y bonds worsened to -210 bps , a level last seen in Oct 20...

USDJPY / EURUSD / AUDUSD broadly performed in line with expectations as highlighted in the view earlier  with strong gains in JPY and w e hit our  SL on the GBPUSD  trade.  USDINR is seeing a rounded top technical formation and we may be breaking out lower. Today's close will be important and then the next immediate support is seen as 82.66.  Fed Chair Powell's testimony offered nothing new - Fed believes that they are peak of the tightening cycle.  T he statement reflected a cautious approach to monetary policy, with a recognition of the uncertainty surrounding the economic outlook and a focus on achieving the central bank's inflation target while supporting economic growth and employment and the delicate balance that policymakers must strike. The statement acknowledged that if the economy continues to develop as expected, there may be a need to start easing the current policy stance at some point during the year. The Central Bank would follow a data driv...

Look at the charts below, USD index chart has a H&S formation and also a wedge formation which appears to be breaking out to the downside. 104.78 is the 61.8% Fibo retracement of the larger 107.35 to 100.62 and resistance offered by the trendline joining the Sep 22 top seen at 114.78.  Also the second chart will show a descending triangle in formation on the larger time frame.  We saw AUDUSD earlier breaking out of the wedge formation and EURUSD broke out earlier. I suggested AUDUSD long at 0.6520 and we briefly dipped to 0.6519 lows.  We see a shark pattern in USDJPY and the stops are clear at 151.00 for move lower. GBP continues to be a puzzle on the backdrop of multiple Head and Shoulder pattern but H&S are best traded on breakouts.  I am biased to short USD ahead of the 104.80 resistance.  Tell me your take on the charts?

"Failure of Imagination" is the inability to understand in advance the full range of outcomes. Overnight, USD index weakened and USTs were unchanged. The implied Fed Fund pricing shows 20 bps of Fed Fund Rate cut priced into the March Policy and a cumulative 143 bps of Rate cuts priced until the Dec 2024 policy. Post the FOMC Rate decision, Markets had priced in 23 bps of rate cuts by March Policy and 148 bps of rate cuts by Dec Policy. We had comments from 2 Fed Speakers both of whom are FOMC Voters into 2024. Raphael Bostic reiterated his view of 2 rate cuts into 2024 starting sometime in Q3 and  stated that there is no urgency to back away from restrictive policy stance. Thomas Barkin stated that inflation continues to move in the right direction and if inflation trajectory evolves on expected lines, the Fed would act appropriately. U.S released housing data where Housing Starts rose 14.80% mom while Building permits at 1.46 mn were below consensus of 1.465 mn. On the dome...

 The big news today morning was the release of the Tokyo CPI Inflation. The core CPI for the area of Tokyo in Japan jumped 4.3% in January 2023, accelerating at the fastest pace since 1981 and exceeding forecasts for a 4.2% rise amid broadening inflationary pressure. Tokyo’s core inflation rate, a leading indicator for nationwide price trends, also followed a revised 3.9% gain in December and surpassed the Bank of Japan’s 2% target for the eighth straight month, signaling that upward price trends in the country have not reached its peak yet. **trading economics The BoJ announced the  Funds-Supplying Operations to Support Financing for Climate Change Responses for a notional of $ 21.73 bn as yields inched closer to the upper bound of the YCC band at 0.50%. The CPI data sparked a sell off in yields in the Asian session with US 2YT at 4.19% and US 10YT at 3.53% and the 2x10 inversion at 66 bps. Domestic yields also opened higher with 10Y treasury trading at 7.39% from Wednesday's...

Bank of Japan made no changes to the Yield curve control policy. It kept the band at +/-  0.50% and amended the rules for a fund supply market operation. Under the amended rules, BoJ can offer funds upto 10 years against collateral to financial institutions for both fixed and variable rate loans.  Post the announcement, JGBs yields quickly fell to lows of 0.36%. I anticipated JPY to depreciate after a pull back on the sharp fall in yields but nah nah nah.. JPY completely reversed course.  The price development only goes to show that the market anticipates YCC to likely end in march which is the last policy announcement by Governor Kuroda before the end of his term. The inflation data released today further emboldens the expectation. Japan's core consumer prices in December rose 4.0% from a year earlier, double the central bank's 2% target, hitting a fresh 41-year high. Dates ( according to Reuters) 10th Feb - Present nomineed to Parliament 16-17th Feb - hea...

The BoJ amended the rules for a fund supply market operation to use it as a new tool to prevent long term interest rates from rising too much. Under the amended rules, BoJ can offer funds upto 10 years against collateral to financial institutions for both fixed and variable rate loans .  What is Fund supply operations against pooled collateral?  Also known as open market operations, are a monetary policy tool used by central banks to control the money supply in an economy. In these operations, the central bank provides funds to commercial banks in exchange for a collateral, such as government bonds. The central bank can use these operations to increase or decrease the money supply in the economy, depending on its monetary policy goals.  Financial institutions can therefore buy say 10Y JGBs at 0.50% and use it as a collateral to borrow funds from BoJ. This would keep the yield on JGBs. The BoJ simultaneously announced that it will offer 5 years loans under the fund supply...

Good morning !! The hard work in trading comes in the preparation. The actual process of trading, however, should be effortless. BoJ monetary policy meeting kept the yield curve unchanged at +/- 50 bps. It is the only Central Bank that has a NIRP (Negative Interest Rate Policy). The bank will continue with its current monetary policy of maintaining its short-term interest rate at minus 0.1% and its long-term interest rate around 0%. The Bank will offer to purchase 10Y JGBs at 0.50% every business day through fixed rate purchase operations unless it is highly likely no bids will be submitted. You may revisit the earlier decision  here . Earlier local media reports suggested that policymakers will be looking to review the side effects of current ultra-easy monetary policy and potential risks following the December move. This had lead to consternation among the market participants with market opinion widely divided between status quo / widening of the band / abandonment of YCC policy....

Expect the unexpected !! The Big news today morning is the Bank of Japan (BoJ) monetary policy decision. BoJ Governor Kuroda who is nearing an end to his term did not fail to shock and awe the markets.  BoJ decided to modify the conduct of YCC (Yield curve control) in order to improve market functioning and encourage a smoother formation of the entire yield curve while maintaining accommodative financial conditions. Please note the modification was not attributed to higher inflation. So BoJ tightened and eased at the same time. BoJ expanded the band around the 10Y yield target to +/- 0.50% from +/- 0.25% . It will offer to purchase 10Y JGBs at 0.50% every business day through fixed rate purchase operations. It will also make nimble responses for each maturity by increasing the amount of JGBs even more and conducting fixed rate operations. BoJ increased the monthly bond buying under the new quarterly bond buying plan to yen 9 trn from earlier yen 7.3 trn.  BoJ's monetary polic...

On my post dated 10 November, 2013, I had shared my view to go long around 99.00 levels with a clear stop below 97 for a target of 108.15. We are currently trading @ 105.00 levels having already captured 6 big figure move. One may take profit on half the position and run the remaining for 107.00 levels. We may first test 106.00 and then retrace for 107.00 levels. P.S. I am a long 15 day leave and hence not updating frequently. Promise to be more regular !!