Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  

  • Other news: News from PR Newswire
| More

The Ides of March have passed, but volatility is nowhere in sight… for now

Mon, Mar 20, 10:51 AM ET, by

The Ides of March have come and gone without much fanfare, and now it's time to toast St. Patrick's Day, or is it? The Fed may have raised rates as expected, and the Dutch may have dodged another populist bullet, but volatility remains subdued. Whatever happened to the swell of chaos that was supposed to roil its way through our foreign exchange markets and create trading opportunities for all involved? Where is that tsunami that everyone expected to appear on the horizon?

Financial markets have remained calm, trading within very tight ranges. The USD Index burped at another 25-basis point hike and then promptly "sold-on-the-news", as many had predicted, falling from 102 down to 100 where it rests today. The VIX, the generally accepted measure for market chaos and uncertainty, barely budged, choosing to stay within its 11 to 12 range, as it has for all of 2017. It did blast above 24 last November, but it has chosen dormancy over dynamism in quite a departure from what the analyst community had been expecting. The G20 meeting will end on Saturday, but so far, no great shakes are emanating from that maddening throng either.

The word on the street is that sooner or later market sentiment has got to give way to fundamental reality. In other words, gravity does not just disappear forever. What goes up will eventually come down. The fall may come swiftly, as many profess, or like a slow drip, but it will come. Whether it is a death spiral or a minor correction is to be determined at a later date, but the guessing game has begun in earnest. In order to reach a credible conclusion, however, analysts are fixating on the reasons for the boring calm that is and then modifying the prevailing narrative of how things will play out. Once again, uncertainty is having a field day playing with people's minds. These times, they are certainly different, and that supposition can mess with even the best storyline.

Read more forex trading news and tips

Why did the U.S. Dollar "Sell-on-the-news"?

The Fed has spoken. Yes, it raised its benchmark rate guideline by 25 basis points, but the Dollar actually fell on the news and stocks rallied, a rather odd response for the uninformed. In fact, the USD Index for this week may post its largest weekly decline since election results back in November. It would appear that investors may have run up the Dollar prior to March in anticipation of a Fed increase, only to take profits after momentum had died. The Euro, the Pound, and the Yen have appreciated for the month to the tune of 200, 130, and 90 pips respectively. Even the Aussie bounced up 60 pips.

Why the odd reaction? Independent of the Fed, fundamentals are improving in other markets. Mario Draghi, the head of the ECB, claimed that deflation in Europe was no longer a problem. The ECB did not change rates in the EU, nor did the BoE in the UK, but the apparent conclusion was that the gap is closing between competing economies. As for the Yen, it had materially appreciated nearly 300 pips in just the past week alone, a sign of declining risk tolerance within the investment community. It is important to remember, as one analyst put it, "People do not move to safe haven assets when "stuff" hits the fan. They move to safe haven assets when they do not want to deal with a high degree of risk." Are investors sensing an imminent pullback in equity valuations?

What is going on behind the scenes with the four major currencies?

In each case, the greenback had already had a good appreciation run versus the Euro, Pound, and Yen a few weeks prior to the critical FOMC meeting, a sign that investors were a little more confident in their consensus judgment on whether the Fed would actually take action in March. The script had read differently back in January, when analysts were not buying into the Fed's proclaimed timetable for interest rate normalization. The market was expecting moves to be delayed until June and beyond, but a mild winter led to employment gains and a sense that the time was now right.

The lack of volatility in the currency arena, however, has caused consternation in our sector. Experts point to central banking policy as the culprit, arguing that artificial controls are preventing capital flows from moving expeditiously. As one insider put it, "Currencies are trading in a false paradigm in that they have been sheltered from the storm of volatility by existing in a rather closed system. Wealth is contained within this system of fiat money by laws and rules that discourage freedom of movement. It is the coordinated collusion of the major central banks that has allowed this charade to exist."

Charade or not, the U.S. Dollar still reigns supreme as the world's leading reserve holding currency, as demonstrated in the following diagram:

CB Reserve Holdings

USD reserve holdings are nearly double those for Euros, Pounds, and Yen combined. If there is to be a paradigm shift, it would most likely favor the Dollar in all due respects, but for different reasons across the board. Here is the current thinking for each major pair going forward.

The "EUR/USD" - To parity or not to parity, that is the question?

Europe continues to under perform, but is always hopeful that a strong recovery is just around the corner, enough so to move Mario Draghi to wax eloquently that he "no longer has a sense of urgency in taking further actions prompted by the risk of deflation." After that positive note, he had to admit that all other monetary matters remained unchanged, including a negative interest rate of 40 basis points. The narrative for the EU, however, remains clouded due to impending elections. The Dutch may have avoided a problem, but France and Germany are next. We may see the Euro move higher, as optimism rises and as exports rebound in response to a strong U.S. Dollar.

What are the longer-term prospects for the Euro? Most analysts believe that, "The path of least resistance is lower." Unemployment remains high and there is still no mechanism for revenue sharing between richer northern states and their poorer southern neighbors. The Dollar is fundamentally stronger for several reasons, leading one analyst to state the obvious: "The long-term trend in the euro is lower. Politics could make the euro move within its trading range in the weeks and months ahead, and we may see lots of volatility. However, the trend is lower, and I expect the euro to work its way to parity and beyond against the dollar."

The "GBP/USD" - As with a Shakespearian play, the "Brexit" must go on.

The Pound has been bouncing between 1.20 and 1.28 since last October. It rests presently at the mean, 1.24. Prime Minister Theresa May has covered her Parliamentary bases, such that exit papers may be filed in Brussels by the end of the month. The Scots are not happy. They voted to stay in the EU, but now may be emboldened to proceed again with independence efforts. Political parties in the UK are also in disarray, which will not help matters or ensure stability for May or her comrades.

The stage will then soon be set for a lengthy round of caustic negotiations, as the Brits attempt to retain advantages, while EU officials play hard ball in order to send a clear message to other member states considering secession at the moment. The prevailing opinion for the road ahead: "The value of the pound will give us a scorecard on how market participants believe that the negotiations are going. Uncertainty implies volatility - and so one might expect some pretty interesting movements based upon current events." Expectations, however, are for a downward trend over time.

The "USD/JPY" - When is a safe haven not a safe haven?

Of the four majors, the Yen has demonstrated remarkable stability during 2017. Its value to the Dollar has been confined to the 112 to 115 range, while it closed the week at 112.7. Investors generally perceive the Yen to be a safe-haven currency and flock to it when uncertainty is in the air. The Japanese economy, however, has flirted with recession for decades, leading one to question why the Yen is so revered? The reality is that the strength of the Yen does not depend on the Japanese economy, as strange as that may sound. Over the years, Japan's export trade has created enormous current account surpluses, making it the largest creditor nation on the planet.

The BoJ and government officials have done their best to weaken the Yen since mid-2016 while committing to a low-interest rate policy, efforts designed to stimulate exports and the local economy. The result of these actions has moved the "USD/JPY" pair from 100 to its present valuation, thereby creating a critical 38.2 Fibonacci floor at 111.5. A close watch on this key value is advised: "If USD/JPY breaks below support around 111.50, then that would indicate that investors are starting to lose their appetite for risk. Given that the markets are already overvalued, that would indicate an increased chance of a correction."

Will the G20 meeting have any major impact on capital flows?

The first G20 meeting of the Trump Era concluded Saturday with measured trepidation. Treasury Secretary, Steven Mnuchin, made his debut, literally trumpeting the "America First" theme and refusing to acknowledge previous commitments of the group to reject protectionism and deal with climate change on a coordinated basis. His general position was that the United States was all for "free and fair" trade that was balanced, but the tension among the attendees was palpable. Germany and China have been frequent targets of the Trump administration, and attending financial ministers sensed a severe break in U.S. economic policy.

International trade agreements and cooperation will suffer as a consequence, amidst a backdrop of ballooning central banking balance sheets across the globe. The chart below depicts how far global monetary policy has put us out on a limb:

Central Bank Balance Sheet

One thing is certain - volatility in our currency markets will only destabilize the global economy. At some point, the above trend must be reversed, but how, when, and at what cost? Are we back to questioning the pull of gravity again?

Concluding Remarks

The Trump Era is upon us, and volatility in our financial markets, especially in foreign exchange, has been held at bay, but for how long? Uncertainty has not dissipated, but the prevailing narrative is sensing a major decision point down the road. Stay cautious!

SDI Glossary: "the Fed" Definition
SDI Glossary: "VIX" Definition
This Article's Word Cloud:   Dollar   Euro   March   What   again   analysts   basis   been   come   currency   down   economy   euro   from   going   have   haven   however   interest   investors   longer   major   market   markets   meeting   move   news   other   parity   point   policy   rate   reasons   risk   safe   that   their   then   this   trading   trend   uncertainty   value   volatility   when   while   will   with   within   would

| More

Welcome to the new
Wed, May 3, 2:11 PM ET, by ...

Geopolitical tensions weigh heavy and raise concerns about the economy
Tue, Apr 18, 8:11 AM ET, by

Easter has arrived, and with it, a four-day holiday weekend in many parts of the ...

Economic Risk Assessment: Looking for clues for what might be next
Mon, Apr 10, 8:11 AM ET, by

What's next? This question continues to resonate in hallways. We are already one quarter in, ...

Trump-onomics encounters reality, as it "Makes America Wait Again"
Mon, Apr 3, 8:11 AM ET, by

Financial markets finally received a dose of reality, as the first quarter of 2017 came ...

Major currency pairs hugging support levels until Trumpcare vote outcome
Fri, Mar 24, 8:11 AM ET, by

The level of tension in today's financial markets is palpable. Irrational exuberance has been at ...

The Ides of March have passed, but volatility is nowhere in sight… for now
Mon, Mar 20, 10:51 AM ET, by

The Ides of March have come and gone without much fanfare, and now it's time ...

Trump's Big Reveal: "A Potpourri of Platitudes, Pandering and Profligacy"
Wed, Mar 8, 8:11 AM ET, by

David Stockman, the former budget director for Ronald Reagan, is highly enraged by President's Trump's ...

Stocks, Commodities, Forex: All held hostage by Trump's tax plan reveal
Wed, Mar 1, 2:31 PM ET, by

The Devil is in the detail. This familiar phrase seems most appropriate at this stage, ...

As financial markets tense up, is a major sell off an eventuality?
Thu, Feb 23, 8:11 AM ET, by

The French philosopher Voltaire once wrote, "Uncertainty is an uncomfortable position. But certainty is an ...

FXTM are the Official Forex Sponsors of F1 Team Sahara Force India
Mon, Feb 20, 8:11 AM ET, by

International broker FXTM proudly announces its sponsorship of Sahara Force India days before the hotly ...

Weekly Forex Market Forecasts for February 13th - February 17th
Mon, Feb 13, 9:21 AM ET, by

Key Fundamental Forex Events and Forecasts for the Coming Week The following table lists the ...

FXCM sent packing and fined by the CFTC for deceiving its customer base
Thu, Feb 9, 10:41 AM ET, by

Just what we all need - more drama in the forex industry! FXCM, the undisputed ...

FXTM launches Gold as trading collateral option
Thu, Feb 9, 8:11 AM ET, by

Global awarding-winning broker, ForexTime Limited (FXTM) is following a growing global trend, by offering clients ...

Volatility - Where is it, Why was January so calm, and What's next?
Mon, Feb 6, 8:11 AM ET, by

Our financial markets are definitely in a confused state of mind. If there was one ...

Protectionist moves by Trump send shudders through global investors
Wed, Feb 1, 8:11 AM ET, by

The "Trump Train" has roared through its first week, but, over the weekend, it caused ...

Trump-onomics will fail if a strong U.S. Dollar prevails
Wed, Jan 25, 8:11 AM ET, by

Donald Trump is no longer President Elect. He has sworn the oath and assumed his ...

Gold is showing signs of life again, but how will it impact forex trading?
Thu, Jan 19, 8:11 AM ET, by

Gold enthusiasts are forever optimistic about the future prospects of their yellow metal, but the ...

Analysts looking beyond uncertainty and volatility for key 2017 themes
Wed, Jan 11, 8:11 AM ET, by

As we have already noted, if you like roller coasters, then 2017 will be a ...

And the Winner is: The Almighty Dollar triumphs again, but 2017 is in doubt
Wed, Jan 4, 8:11 AM ET, by

2016 is finally closed and in the can, so to speak. It will go down ...

Fed Post Mortem: Same December script, but 3 hikes instead of 4 in 2017
Tue, Dec 20, 8:11 AM ET, by

The Fed has spoken! The last predictable event for 2016 has come and gone, and, ...

Fed-Watch is in earnest, but will a Fed tightening portend a dismal 2017?
Tue, Dec 13, 8:11 AM ET, by

The Federal Open Market Committee (FOMC) meets this week, and all eyes, ears, noses, and ...

Ponzi Schemes
Thu, Dec 8, 9:11 AM ET, by

So, we've all heard of Ponzi schemes, but what do we really know about them? ...

Shockwaves rock forex brokers as regulators exert yearend power play
Thu, Dec 8, 8:11 AM ET, by

'Tis the season to be merry and give surprises to your nearest and dearest, but ...

What insights are Gold and Oil prices revealing about market possibilities?
Wed, Dec 7, 8:11 AM ET, by

Are you tired of reading about Trump or some other "XX-Exit" referendum on the horizon? ...

Stronger USD and higher interest rates - A combination for market failure
Thu, Dec 1, 8:11 AM ET, by

While markets continue to wrestle with the Trump rally fantasy bubble, a potent combination of ...

Trading Commodities: Let's Get Physical
Wed, Nov 23, 8:11 AM ET, by

The commodities market, which is essentially the world's oldest trading ground, offers interesting investment options, ...

Foreign Currency Exchange: The Basics
Thu, Nov 17, 9:11 AM ET, by

The world of foreign currency trading might have great appeal, but you should be aware ...

FXTM rewards clients up to $10,000 for their loyalty in new referral program
Tue, Nov 15, 8:11 AM ET, by

Global award-winning forex broker FXTM recently announced its referral program, which rewards clients with real ...

Election Day has arrived in the U.S. - Brexit on steroids now is a reality!
Wed, Nov 9, 8:11 AM ET, by

For those people, who thought this day would never come, Election Day 2016 has finally ...

FXTMbasejump Project ends with new world record in BASE jumping
Wed, Nov 2, 8:11 AM ET, by

XX October 2016: In the beginning of July, FXTM launched an original take on forex ...

Australian and New Zealand Outlooks Stay Negative (vs. USD)
Thu, Oct 27, 3:11 PM ET, by

Both the Australian and New Zealand dollars versus USD have exhibited a recovery effort through ...

Online Trading: Know Your Asset Classes - Part 1 by eToro
Wed, Oct 26, 7:51 PM ET, by

When it comes to online trading, there are thousands of assets to choose from, which ...

Is the Teflon wearing thin on this market? 12 risks that could spoil the fun
Wed, Oct 19, 8:11 AM ET, by

No mater what the news, our Teflon Bull market just keeps rolling along, but everywhere ...

What Kind of Online Trader Are You?
Mon, Oct 17, 8:11 AM ET, by

There are several approaches to online trading, and getting to know what style suits you ...

How will the U.S Presidential Election impact foreign exchange trading?
Wed, Oct 12, 8:11 PM ET, by

If you are a U.S. citizen and registered to vote, are you planning to vote ...

Three quarters down and one to go, but the last one might be a downer
Mon, Oct 10, 4:21 PM ET, by

The September ending quarter is now in the history books. Investors will soon be receiving ...

Clone Wars persist - Do you know what to be wary of?
Mon, Oct 10, 3:31 PM ET, by

Is it "dj vu" all over again? The emergence of clone broker websites began in ...

The Fed has spoken and the Almighty Dollar remains range bound
Fri, Oct 7, 8:11 AM ET, by

The long anticipated Fed meeting in September has now come and gone, and not much ...

Forex Market Recap for the Week of September 26th through September 30th
Mon, Oct 3, 9:41 AM ET, by

The following table lists the key economic data and other events that came out during ...

How to Use Social Trading to Diversify Your Portfolio
Tue, Sep 20, 8:11 AM ET, by

We all want to reduce risk when trading online. A good way to do so ...

Trading with UFX MassInsights
Thu, Sep 15, 10:11 AM ET, by

Getting into the world on online trading can be daunting to some, especially to novice ...

Currency of the Week: The Singapore Dollar By David Berman - AvaTrade Market Analyst
Wed, Sep 14, 8:11 AM ET, by

Last week we discussed the Australian Dollar, a currency virtually unique because of the lack ...

Summer silly season is over - What major concerns now trouble analysts?
Tue, Sep 13, 9:11 AM ET, by

The first of September, at least in the investment world, marks the point that the ...

Jackson Hole Summit hypes the USD, but should we brace for recession?
Wed, Sep 7, 8:51 AM ET, by

Central bankers, finance ministers, academics, and financial market participants from across the globe convened in ...

IronFX-FXDD-Nukkleus Reverse Merger Update: Tidbits and Travails
Wed, Sep 7, 8:31 AM ET, by

Whether we like it or not, the forex brokerage industry has been facing tough times ...

Forex Events Recap for the Week of August 29th through September 2nd
Sun, Sep 4, 6:41 PM ET, by

The following table lists the key economic data and other events that came out during ...

What's Next For Gold? By David Berman - Market Analyst, AvaTrade
Fri, Aug 26, 8:11 AM ET, by

Gold rallied in excess of $300 from the bottom to the recent, post-Brexit top. Now ...

Belgian regulators tighten the noose around binary broker bad practices
Wed, Aug 24, 8:31 AM ET, by

According to economists, competition in any industry is usually a good thing. It lowers prices ...

Forex markets ranging again post-Brexit, but investors are spooked by oil
Wed, Aug 24, 8:21 AM ET, by

Financial markets, especially the major pairings in the foreign exchange market, are in the summer ...

Top 5 Rules for CFD Trading by eToro
Fri, Aug 19, 1:31 PM ET, by

There's a lot of confusion among online traders about how to trade CFDs - and ...

  More articles:  1 2 next »


The Ides of March have passed, but volatility is nowhere in sight… for now | Self Directed Investor | Copyright © 2008 - 2017, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: -- a subscription-based online social networking forum of serious individual investors. | -- videos appearing on SDI are produced by Market News Video. | -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.