Interbank Market News Scan: Trading within your time reality

Beginning traders are told time and time again to keep their emotions out of a trade.  It is nerve racking to sit in front of a screen and watch Japanese candles change in color, width, and height as you second guess your trade.  It makes no sense torturing myself like that.  It tells me that I am questioning my homework or lack thereof and if that is the case, I need to work a little harder on analyzing all available data before I pull the trigger on a trade.

Making the above observation, I see why it is important to keep your trading plan and trade journal handy.  Your plan keeps you grounded and disciplined. You put time and thought into writing it. You may as well follow it, knowing that as you amass more experience and knowledge that eventually the plan will be modified. In the meantime, however, like any good athlete, you don’t want to make any changes in the game plan while in the heat of battle.  In the heat of battle is not the time to practice.

When it comes to time constraints, for those of us who are funding our trading desks ourselves, getting out of our comfort zones and trading in sessions that are not in our time zones is a “blessing.”  As I shared in my last blog post, I dipped my toes in the Asian session by trading the dollar-yen for the first time.  My business trade during the day influences when I can do my day trade in binary options.  Taking advantage of the 24/5 nature of the foreign exchange markets means there is always an opportunity to make a return. 

Alton Drew

19.10.2021

Interbank Market News Scan: Dipping my toes into the USD-JPY market

For the past week or so I have been trading the binary options in the GBP-USD market.  I focused on this market primarily because the US and UK sessions intersect during the first few hours of the American session allowing me some time to do some reading and research before making a trade.  Time spent on another project, however, meant missing the opportunity to trade during those sessions, so I decided to dip my toes into the Asian session.

I admit to having had some hesitancy toward trading during the Asian session.  I am less familiar with Japanese monetary policy and the yen.  Their central bankers get a lot less play in the business media than central bankers at the Federal Reserve, European Central Bank, or the Bank of England which means reduced insights into Japanese monetary policy.  But I find that there is upside that can result from fear: the ever-present opportunity to learn.

The first stop in taking an opportunity to learn included a visit to the Bank of Japan’s website where I identified data on the BOJ’s overnight bank rates.  I then compared these rates with the overnight bank rates of the Federal Reserve.   Banks with accounts at the Federal Reserve are getting much better rates than those with accounts at the BOJ.

The business media has been reporting on Japan’s sub-zero rate policy for years, heck decades, so there was no surprise on my part when Bloomberg data showed the wide difference in rates between the U.S. and Japan.  The 150-point spread between U.S. 10-year government bonds and Japanese 10-year government bonds supported in my mind opportunities for those holding yen to move to the dollar thus increasing dollar demand and driving up the exchange rate between the two currencies.

Business media, in my opinion, paints the USD-JPY pair as volatile which I guess can cause some trepidation for traders trying to guess where the exchange rate is going to go.  I am growing increasingly suspect of most business media.  I see them more as purveyor of narrative instead of distributor of fact.  They are as noisy as their political media cousins and contribute to the noise and trepidation I mentioned earlier.

Fortunately, there are outlets such as Daily FX and FX Street that provide analysis that cuts through the noise. Using analysis from these outlets I was able to establish a probable floor of USD-JPY=112.00 and a probable ceiling of USD-JPY=113.50, betting that during a four-hour contract the exchange rate would exceed 113.20 prior to the contract’s expiration.

My biggest takeaway from last night’s trade was one should not allow fear and lack of knowledge to limit the opportunity to profit.  Seek out good information sources and pursue a path of knowledge.  Knowledge helps to process out the fear.

Alton Drew

12.10.2021  

Interbank Market News Scan: The Bank of Canada held its policy rate today, but I was nervous about USD-CAD

The Bank of Canada today held its policy rate at .25% citing the effectiveness of its quantitative easing program which is currently comprised of asset purchases of CAD 2 billion a week. While seeing a recovery in its economy, Covid-19 and supply chain disruptions were noted as the usual suspects for dampening of economic growth in certain sectors.

The Bank noted contraction in its export sector, in particular its auto industry with consumption, business investment, and government spending contributing to Canada’s economy.  Inflation is running around 3.7%, much hotter than its 2% target.

From a yield and inflation aspect, I could not see why Americans would want to move dollars into Canada’s economy.  Granted U.S. inflation, at 5.4% over the last 12 months, is running hotter than inflation in Canada.  However, according to data from Bloomberg, ten-year treasury yields are higher in the U.S. (1.35%) than they are in Canada (1.21%).

Yesterday, data from Reuters showed the USD/CAD closing around 1.2621 and I quite frankly thought (in my gut) that the exchange rate would decrease by 11:00 am EST but decided to hold out for the Bank of Canada narrative on rates.  I did not see much change in this report versus last month’s monetary policy release.  I also did not see any calls for changes in monetary policy which added support, in my opinion, to an expected increase in USD/CAD.

The takeaway for me is there is nothing wrong with listening to your gut but always challenge the feeling with data and vice versa. 

Please feel free to share thoughts on central bank decisions and foreign exchange.  

Happy Star Trek Day!

Alton Drew

8 September 2021

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Interbank Market News Scan: Dollar, yuan see similar price increases in terms of Asian currencies. Euro has to play catch up.

25 August 2021

As US Vice-President Kamala Harris wraps up her Asia tour this week, I was curious to see how currency prices have moved since the Biden-Harris administration took office on 20 January 2021.  I see a battle for currency preference between the United States, the Eurozone, and China and so far, seven months into the Biden-Harris administration, the Eurozone is being left behind.

Where the dollar, the yuan, and the euro are priced in terms of the ringgit, Indian rupee, and the yen, the yuan has seen the greatest price increase since 20 January 2021.  For example, during the period 20 January 2021 to 25 August 2021, USD/JPY increased 6%; USD/MYR increased 4%, and the USD/INR increased 1.8% for an average of 3.93%.

During the same period, the CNY/JPY increased 6%; CNY/MYR increased 14%; and the CNY/INR increased 1.6% for an average of 7.2%.

Meanwhile, the euro got the least love with EUR/JPY increasing 2.9%; EUR/MYR relatively flat at 0.008%; and EUR/INR decreasing by 1.29%.  Using this bucket of Asian currencies, average euro increase is around .54%

In the immediate run, I don’t see dollar or euro prices in terms of the ringgit, yen, or Indian rupee increasing especially if Asian economies are somehow able to increase their respective economies productive capacities and increase trade with each other, taking advantage of their resource-rich environments.  The Harris-Biden administration’s fall in polling numbers as a result of perceived mismanagement of American withdrawal from Afghanistan and less than stellar campaign to get more of the American population vaccinated may likely weigh on the effectiveness of Ms Harris’ attempt to garner strategic trading partners in the region.  

Alton Drew

 For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

 Foreign exchange rates of interest as of 10:20 am EST

Currency PairFederal ReserveReuters
AUS/USD0.71330.7254
USD/BRL5.39905.2419
USD/CAD1.28531.2623
USD/CNY6.50126.4771
USD/DKK6.36126.3337
EUR/USD1.16901.1739
USD/HKD7.78977.7840
USD/INR74.350074.2250
USD/JPY109.7700109.9300
NZD/USD0.68300.6949
USD/MYR4.23854.2020
Sources: Federal Reserve, Reuters

Interbank Market News Scan: Waiting for Jackson Hole while Kamala Harris attempts to keep the US out of a global trading hole.

24 August 2021

The Jackson Hole Economic Policy Symposium, hosted by the Federal Reserve Bank of Kansas City, is set to begin on 26 August 2021 with oral and written presentations focused on macroeconomic policy in an uneven economy.  Federal Reserve Board chairman Jerome Powell will make a presentation on 27 August.

Since the Federal Reserve released its minutes of the 27-28 July Federal Open Market Committee meeting, the biggest buzz has been speculation s to when the Federal Reserve would begin easing back on its $120 billion per month purchases of agency mortgage-backed securities and U.S. Treasury securities.  These purchases have been instrumental in keeping interest rates low during the Covid-19 pandemic with the intent of spurring business spending and investment, sustaining consumer demand, and maintaining certainty in the financial markets.

The minutes from the FOMC meeting has hinted at a possibility of Fed asset purchases tapering off as early as the end of this year and upward pressure on interest rates, especially in the longer-term range, is expected.

Meanwhile, U.S. Vice-President Kamala Harris today heads to Vietnam as part of the second leg of a four-day tour of Asia.  Ms Harris’ primary mission appears to include not only the building of relationships with certain Asian countries, but to let Asian countries know that they have an economic partner alternative to China.

China’s Belt and Road Initiative throughout Asia as well as its claims on the South China Sea through which trillions in dollars of commercial trade passes through poses an economic threat to the United States.  Unless the US can pose itself as a reliable economic trading partner to Malaysia, Vietnam, Singapore, and Taiwan, amongst other nations, then the United States may be locked out of the Asian markets or forced to buy and sell goods and services in the region on onerous terms.

Ms Harris has been making the argument that China’s efforts in the South China Sea are illegal under international law.

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

Foreign exchange rates of interest as of 9:00 am EST

Currency PairFederal ReserveReutersOANDA
AUS/USD0.71330.72430.7184
USD/BRL5.39905.37895.3793
USD/CAD1.28531.26181.2718
USD/CNY6.50126.47726.4833
USD/DKK6.36126.33596.3399
EUR/USD1.16901.17351.1728
USD/HKD7.78977.78787.7912
USD/INR74.190074.194074.0634
USD/JPY109.7700109.6700109.8400
NZD/USD0.68300.69490.6867
USD/MYR4.23854.21704.2265
Source: Federal Reserve, Reuters, OANDA

Interbank Market News Scan: The crypto-digital world finds the fiat currency worthless …

30 July 2021

The Takeaway: The crypto-digital world finds the fiat currency worthless …

The past couple posts I have been harping on whether Amazon or Facebook can create a viable digital nation-state.  Right now, I am putting Amazon in lead, but if Facebook can create a more viable transactions-based economy rather than relying on being a pure private data aggregator and reseller, then Facebook may have the potential in the longer run to rival Amazon.

For now, occupants of the digital world are not placing any crypto-monetary value on fiat currencies.  I don’t see this no-value perspective changing any time soon on the part of digital world residents.  For example, according to OANDA data from twelve months ago, USD/ETH was priced at .0031.  Today, the price of USD/ETH is at .0004.  I believe the more closed-loop the digital world can remain, the less the digital world’s demand for fiat currency. 

Holders of cryptocurrency are still interested in holding crypto as an asset versus a medium of exchange for trade even though the rhetoric is quick to describe crypto as a payment system as well. Examples of commercial entities accepting crypto as payment should be discounted by the preference for holding crypto as an asset versus medium of exchange.

On the other hand, I am mindful that on a global basis crypto as a medium of exchange is creeping into consumer mindset with El Salvador’s decision to accept crypto as legal tender.  It is way too early to tell what degree of success crypto will see in the Central American nation.  In the meantime, public policy in the United States is to treat cryptocurrency as a digital asset and until the time comes where legacy nation-states view the digital world as a trade partner, USD/ETH and USD/BTC will be priced at zero for a while.

Alton Drew

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

Rates reported by the Federal Reserve (Release Date 29 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.05%

1-year Treasury bill: 0.07%

Prices

Exchange rates of interest as of 9:49 am EST

Currency pairExchange rate
AUD/USD*0.7371
EUR/USD*1.1884
GBP/USD*1.3965
USD/CAD*1.2434
USD/CHF*0.9061
USD/JPY*109.6500
USD/MXN*19.8480
USD/BTC+0.0000
USD/ETH+0.0004
Sources: *Reuters +OANDA

Interbank Market News Scan: How close is Facebook to becoming a digital nation-state?

The Takeaway: Brokers and traders should pay close attention to how Facebook addresses regulation of Diem

Yesterday I shared some insights about Amazon’s potential for building a digital nation based on the creation of its own digital token.  The company signaled efforts in this area by announcing a search for staff with experience in creating digital currency.  Writing about their efforts naturally led me to thinking about the efforts of another large platform manager, Facebook.

Given over 2 billion subscribers to Facebook’s platform and millions of daily users, The Menlo Park, California-based company seems like another likely candidate for “digital nation” status.  Arguably it is ahead of Amazon in the creation of its own digital currency, the Diem.  But is it ahead of Amazon when it comes to putting in place the transactional environment necessary for a “digital country?”

Facebook’s purported mission, according to its annual report, is to “give people the power to build community and to bring the world closer together.”  Facebook generates almost all of its revenues from advertisement and while it considers Amazon a competitor in the advertisement space, Facebook has not invested in transportation, storage, or distribution systems for goods and services or subscriber content production.  In my opinion, these channels have boosted Amazon’s value as an issuer of digital coins because they represent the underpinnings of a transactional environment.  Transactions are the underpinnings of growth in output and income and while there are notices of items for sale in numerous Facebook groups and advertisement appearing on users’ profiles, Facebook is more of a personal data aggregator than it is a market for trade.

Lastly, what also works against Facebook is its history of data privacy breaches.  Both aisles of Congress have come down on Facebook for its lack of transparency in notifying its subscribers as to how the company uses consumer data.  These privacy concerns have also leaked into Congress’ assessment of how the company’s proposed digital currency would be incorporated into any potential data grabbing strategies.

I believe what is more important to Congress than its rhetoric about consumer protection and privacy is how a digital currency provided by a behemoth digital platform could challenge the United States’ ability as a tax and customs jurisdiction.  Should a significant number of miners, farmers, merchants, and other business entities start using Facebook’s digital currency to exchange among themselves and with Facebook’s end user subscribers, Facebook becomes a new nation-state.

Facebook hopes to have Diem launched by the end of 2021.  What impact the current variation in the corona virus and the ensuing Covid disease will have on deployment is unknown.  Right now, speculators and broker/dealers may not have Diem on their radar, but they should, like Amazon, prepare for a large platform issuing its currency and also determine how Diem should be valued.

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

Rates reported by the Federal Reserve (Release Date 27 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.06%

1-year Treasury bill: 0.08%

Prices

Exchange rates of interest as of 9:02 am EST

Currency pairExchange rate
AUD/USD*0.7381
EUR/USD*1.1802
GBP/USD*1.3826
USD/CAD*1.2543
USD/CHF*0.9162
USD/JPY*110.1800
USD/MXN*20.0290
USD/BTC+0.0000
USD/ETH+0.0005

Sources: *Reuters +OANDA

Interbank Market News Scan: Is Jeff Bezos on the way to building a digital country?

27 July 2021

Links to follow

However, what fewer people are aware of is the way that the app world has transformed the forex industry. Forex trading apps have proliferated in recent years, and it’s easy to see why: these apps offer a chance to keep up to date with the latest events in the market, and make the taking of real-time trading decisions possible. https://techbullion.com/how-foreign-exchange-apps-are-changing-the-trading-industry/

Speculations about Amazon set to accept Bitcoin as a form of payment by the end of the year have been growing, following a job posting for a “Digital Currency and Blockchain Product Lead.” Bitcoin Prices Surge Thanks to Amazon Rumors (yahoo.com)

El Salvador is the first country to declare bitcoin legal tender. But the experiment raises big questions about what will happen next — for bitcoin and the country itself. El Salvador made bitcoin a legal currency. Now it gets interesting (cnbc.com)

Six things that happened in crypto this past week. Crypto news: bitcoin rally, Amazon digital currency expert, tether probe (cnbc.com)

The Takeaway: Is Jeff Bezos on the way to building a digital country?

There is some buzz about possible acceptance by Amazon of bitcoin as digital payment for its goods and services.  The speculation is in part a result of Amazon’s recruitment of a digital currency and blockchain product lead.  However, Amazon’s global delivery platform combined with its own digital token could take Amazon to heights higher than its New Shepard rocket.  Futures commission merchants and retail foreign exchange dealers (brokerages and brokers) should envision such a digital token as a significant future foreign exchange trade.

How soon this trade comes about depends on how quickly Amazon can design, test, and deploy a token.  I believe enough of a platform necessary for supporting a digital token is already in place.  Let us start with an important consumer item: food. 

A digital country will need a food distribution system to sustain it.  Amazon’s purchase of Whole Foods in 2017 gave the company at the time of the acquisition a retail footprint and distribution network valued at $14 billion.  With its goal of being “the Earth’s most customer-centric company”, encouraging farmers and other food processing vendors to use its digital tender creates currency agents that can trade that valuable token with other commercial entities. 

In addition to food distribution, lying at the heart of the Amazon economy are the transactions conducted on its network.  Merchants of all stripes trade on Amazon’s network.  Amazon’s attempts at facilitating trade by creating an online space for vendors who would otherwise be frozen out of a traditional brick and mortar business due to costs are generating revenues for the company and enhancing its brand as merchant centric.  Like farmers and food processors, merchants who choose to use an Amazon token become currency merchants for the company by turning around and trading the tokens into consumer, other retailer, and wholesale markets.

Lastly, pushing up Amazon’s value further will be its data and information services game.  Amazon’s cloud services and its electronic devices such as Kindle and Alexa collect data and make that data available for sale.  Allowing consumers, governments, and commercial enterprises to purchase Amazon data products and output with its tender will only help increase a digital token’s value.

It is tempting to say that there is a way to go before Amazon comes up with a digital token of their own to rival bitcoin or other cryptocurrencies, but with technology, “long way off” is around the corner.

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

— Alton Drew

Rates reported by the Federal Reserve (Release Date 26 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.05%

1-year Treasury bill: 0.07%

Prices

Exchange rates of interest as of 1:39 am EST

Currency pairExchange rate
AUD/USD*0.7381
EUR/USD*1.1802
GBP/USD*1.3826
USD/CAD*1.2543
USD/CHF*0.9162
USD/JPY*110.1800
USD/MXN*20.0290
Source: *Reuters

Interbank Market News Scan: Forex market dealers prepare for Fed monetary policy announcement ….

24 July 2021

Monetary Policy News

Markets prepare for Federal Reserve policy decision

The Board of Governors of the Federal Reserve System meet on 27 & 28 July 2021 for their policy meeting, with a press conference scheduled on 28 July after the 2:00pm release of its decision on the Federal Funds and Discount Window rates.  While the Federal Reserve does not directly regulate rates set in the interbank market, the fed funds and discount window rates set the environment for rate determination in the interbank markets.

While the Federal Reserve maintained its policy of board members not releasing any statements during the week leading up to its policy announcement, the equity markets have been signaling an expectation that the central bank will continue its policy of purchasing $120 billion a month in U.S. Treasurys and agency backed debt.  The past several weeks has seen increased discussions in Congress and the media about increasing prices for food, energy, automobiles, and other goods and services.  Traders and dealers will be paying close attention to any language that signals an increase in the costs for money and/or changes in the supply of money.

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

Rates reported by the Federal Reserve (Release Date 23 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.05%

1-year Treasury bill: 0.07%

Prices

Exchange rates of interest as of 1:15 pm AST

Currency pairExchange rate
AUD/USD*0.7364
EUR/USD*1.1771
GBP/USD*1.3746
USD/CAD*1.2556
USD/CHF*0.9190
USD/JPY*110.5400
USD/XCD+2.7000
USD/NGN+411.1590
USD/MXN*20.0430
Sources: *Reuters +OANDA

Interbank Market News Scan: Assessing the Legal and Political “Meteorology” of Foreign Exchange

The Morning Takeaway: Assessing the Legal and Political “Meteorology” of Foreign Exchange

Humans have no need to come in contact with each other but for the exchange of value.  How the value deemed from interaction is determined will be based on an individual assessment of how much benefit is to be gleaned from what another has to exchange.

Determining the benefit of what another party has to exchange means incurring costs for gathering information.  The more cogent and clear the better.  Efforts are optimized and the information gathering becomes efficient.  Understanding the environment producing the information is important.  The environment places parameters on any information obtained.  The environment within which the information is produced may lack characteristics necessary for producing the clearest information possible.

The value that is being exchanged also contains information about the environment it is coming out of.  Take corn or any other agricultural commodity.  For optimal growth, the environment that produces corn should provide a certain quality of soil, nutrients, water, and weather to create a quality yield.  What is yielded should be able to provide you with information on the quality of soil, nutrients, water, and weather from whence the yield came. 

This same approach should be taken to another commodity, currency.  The “soil’ for this commodity is a nation’s central bank and to a lesser extent the commercial banks that act as distribution channels for the currency.  The “soil” is impacted by the “weather” and “climate” generated by the level of transactions occurring within multiple markets in the political economy.  These transactions deliver “rain” onto the soil and impact the yield in currency released into the political economy’s blood flow.  And just like a corn crop can provide the farmer or the end user information about the environment that spawned the yield, so to can currency, or specifically, currency price movements, provide the trader with information about the central bank environment.

For the trader, it is important to assess the legal and political “meteorology” of the central bank environment.  Without these assessments, the trader, whether purchasing currency tails for speculation or as part of an international business transaction, risks not capitalizing on the yields that foreign exchange can bring about.

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

Exchange rates of interest as of 11:45 am AST

Currency pairExchange rate
AUD/USD*0.7352
EUR/USD*1.1794
GBP/USD*1.3714
USD/CAD*1.2739
USD/CHF*0.9192
USD/JPY*109.3100
USD/XCD+2.7000
USD/NGN+410.9850
USD/MXN*20.0353
Sources: *Reuters +OANDA

Rates reported by the Federal Reserve (Release Date 16 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.05%

1-year Treasury bill: 0.07%