Forex rebates on every trade - win or lose!

Well I'm keeping my eye on China:

BEIJING (Dow Jones)--Premier Wen Jiabao acknowledged Tuesday that hitting this year's inflation target will be hard, and signaled China's efforts to cap prices and prevent an economic overheating were being complicated by serious troubles in the U.S.

"What I'm worried about now is: When will we see the bottom of the U.S. dollar's relentless depreciation, what kind of monetary policy will the U.S. employ, and how will its economy fare?" Wen asked during a news conference.

The severity of the U.S. subprime crisis fallout became clearer with a bailout over the weekend of Wall Street investment bank Bear Stearns Cos. (BSC). The Bear bailout whipped up more volatility in stock markets and pushed the dollar lower.

Wen acknowledged China might have a difficult time meeting its target of 4.8% inflation for the full year, but said Beijing will keep working to bring down prices.

Pressing ahead with the campaign against an overheating economy, the central bank said Tuesday it will raise the reserve requirement ratio for banks, the second increase this year and the 12th since the start of 2007.

The People's Bank of China will require most commercial banks to keep 15.5% of their deposits on reserve from March 25, up from 15.0% now. The last hike took effect Jan. 25.

China needs to find a balance between maintaining economic growth and curbing inflation, Wen told a news conference after China's legislature, the National People's Congress, finished its annual meeting Tuesday morning.

The U.S. Federal Reserve's loosening policy - it is expected to further cut rates this week - makes it harder for Beijing to raise interest rates, a move that could attract speculative funds and worsen China's problem of excess liquidity.

Wen said changes in interest rates or foreign-exchange levels carried both benefits and costs that must be weighed.

His remarks on the weakening U.S. dollar and the Fed's monetary policy suggest China "fully understands its policy constraints," and will rely on a faster rate of yuan appreciation, rather than on interest-rate hikes, to fight inflation, said Morgan Stanley economist Wang Qing.

The latest reserve-ratio hike, while part of the central bank's frequent mopping up of liquidity, suggests Beijing is seeking to curb inflation through draining liquidity.

PBOC Vice Gov. Yi Gang said earlier this month the central bank will use moral suasion, open market operations, the reserve requirement ratio, and credit policy to deal with a complex domestic and external economic environment.

A stronger yuan would make imports cheaper in China, and could help curb growth of the trade surplus, which adds to inflation pressure by injecting liquidity into the domestic banking system and boosting credit and investment growth.

But Wen and PBOC Gov. Zhou Xiaochuan damped expectations of another revaluation of the yuan.

Wen said China would base the yuan's exchange rate on market forces and reference it to a basket of currencies - restating policy and implying that big changes, such as a revaluation, are unlikely.

China has said in the past it wants the appreciation of its currency to be gradual and orderly, despite calls from Western powers including the U.S. and the European Union for a quicker yuan rise to combat the huge trade imbalances.

Asked about recent rumors in foreign-exchange markets that China would soon revalue the yuan, Zhou said: "There are a lot of rumors in the market. People shouldn't trust them."

Asked about rate hikes, Zhou said earlier Tuesday that Beijing has scope to adjust its tight monetary policy, but didn't specifically refer to rate hikes.


Expectations Key In China's Inflation Battle


Inflation in China has been driven mostly by food prices, but it has been picking up for more than a year and the consumer price index rose 8.7% in February, a nearly 12-year high. Stubborn inflation could encourage workers to ask for higher wages, boosting costs and non-food prices.

Wen said Beijing set an inflation target of around 4.8% this year to demonstrate its resolve and calm expectations of further price rises, but warned that the fight against inflation will be more than a one-year project for China.

"When prices are rising rapidly, the expectations for price rises are more scary than the price rise itself," Wen said.

To alleviate inflation fears, Wen revealed a figure that it normally keeps a state secret: China's grain reserves are between 150 million to 200 million metric tons. That's about 30% to 40% of China's grain output last year.

Wen added China will boost investment in agriculture and ensure steady growth in the production of grains and key agricultural products.

Outlining the longer term plans for his government, Wen said China intends to boost domestic consumption over the next five years. Beijing will boost the market's role in allocating resources while continuing to reform its financial sector, he said.

Out all day since last post. Because I wasn't around I put really tight stops on my positions. On returning I've found both the E/J and U/J stop out for b/e, though they are both over a 100 pips higher now! Oh well. Cable has made me feel a lot happier with the frustation of the other 2 positions though as I'm over 150 pips in profit.
Could of been so much better, but can't complain too much though :-)

Right now I'm not sure that this evening's outcome is as big a deal as what is or isn't happening in Tokyo.

It's only a few years ago that the Finance Ministry was madly defending the greenback through the BOJ, selling trillions of yen to keep a stronger domestic currency from derailing an export dependent recovery. Despite widespread expectations at the time that Tokyo would remain in the market, it has stayed under the covers ever since. I read somewhere earlier this month that the average break-even point for Japanese corporations is Y106.60, so they are hurting badly.

But Japan is better equipped to tolerate a stronger yen now and anyway, the yen is actually weaker in real terms now, when judged against a trade-weighted basket of currencies. Their economy is healthier after six years of 'recovery', and with prices no longer falling, the world's second-biggest economy can put up with a strong yen - which contracts overseas earnings and puts pressure on prices via cheaper imports. And given US inflation and Japanese deflation over the years, a dollar that buys Y98 worth of goods or services now will in fact go a lot further than it would have several years ago at the same nominal exchange rate. And this time round it's helping to offset some of the costs of higher crude oil prices.

It simply wouldn't be cricket for Japan to weaken its own currency just as China heeds a long standing demand from the G7 industrialised countries to let the yuan rise faster. And while European officials are complaining about the euro's strength, the yanks are probably happy to have a weaker dollar boost their exports. As long as currency moves don't get out of control, that is.

From this morning's Singapore newswire:
Many central banks and large institutions in Asia, for example, are big holders not just of U.S. Treasurys but also of the debt issued by the main housing agencies.
It certainly wouldn't be in, say, China's own interests to start dumping Treasurys, reducing the value of its large investment in U.S. bonds. Indeed, January data out overnight from the U.S. Treasury bear that out, with China still a net buyer of Treasury bonds and notes.
But there are plenty of other institutions that might be tempted, or even forced by circumstance, into selling agency and other debt, sparking further outflows from the U.S. and further weakness for the dollar.
UBS notes in the January data that while official purchases of long-term government securities increased, private purchases declined sharply. Net private inflows of $10 billion in December swung to a net outflow in January of $4.4 billion, well below the 12-month average of purchases, the bank says.
With the Fed slashing rates and yields coming down so much, some heavy selling may start to hit these debt markets - and selling may also pick up speed in the equity market.
The dollar already looks fragile.
It wouldn't take that much to turn the selling into something much more sinister, which wouldn't be good news at all for the U.S. economy.
This would raise market chatter about the chance of coordinated currency intervention to fever pitch - which would only serve to inject another note of nervousness and volatility.
And that would render the Fed's actions on the interest rate-front at least pretty counterproductive.

Notionally, Japan will probably put up with a gradual dollar/yen fall, but all bets are off if the market descends into chaos. Japan's currency policymakers are usually very helpful in signalling their pain threshold, engaging in clearly calibrated rhetoric before intervening. Finance Minister Fukushiro Nukaga (love the name!) struck the first notch a couple of weeks ago with his assertion that they "will keep watching movements in foreign exchange rates from now on." :)

Y90 is viewed by some as a potential line in the sand and the trigger might well be if the yen strengthens markedly against the Chinese yuan.

One comment to add is that I understand the leadership of the BOJ is currently 'up in the air' and this is causing some softness to market direction. For what it's worth I have had some of my best ever Yen trades recently, so that must mean lots of others have as well! Should be good early tomorrow after the Fed have pronounced.

WASHINGTON (Thomson Financial) - The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

Todays policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York and San Francisco.

Just as the Dow was hitting resistance before the announcement, so EUR/JPY (which is the one I'm trading atm) was too, from around 5pm onwards (according to a down slopey jobbie I've had in place since February's high). They're both back up there and have bounced off for now.

Edit: looks like the dollar's finally found a friend.

More than a few very recent friends but more so perhaps cable than others

Anyone know what caused that 80 pip drop in cable in a couple of minutes?

Rumours circulating among Fx dealers that a UK bank is in trouble.

Thanks. Had just gone short but missed out on covering at the peak down.

Dealers cite the recent cancellations of numerous BOE officials from scheduled appearances over the last 24 hours.

Anyone any views then on if the market is so susceptible to rumours at the moment, which unlike news are unplanned whether we should be trading at all or keeping out until things settle down.
Seems to me that I've been very fortunate entering a short and catching the right side of a rumour but it could quite easily have been the over way. More of a lottery than trading in that sort of environment. What does anyone else think?

MPC Minutes shortly, FF, which are almost certainly contributing to volatility this morning as well as the Fed being digested from last night and the troubled bank rumours.

I'd suggest that you look no further afield than the 5 or 15 minute charts for the time being. They both say down for now.

Thanks Hils,

Think the MPC minutes has potential to make a big move in cable one way or another. Even though the 5/15 mins charts say down just makes me a bit nervous and the trend could be reversed within seconds potentially so any stops easily taken out. Think I'll take half my posittion off and let the other half ride. At least that way I'll have a profit regardless.

Incidentally 8-1 is the concensus vote, but watch closely the accompanying gobbledegook for excessive talk of inflationary pressures as this would stifle expectations of the threatened further cuts this year.

I note the denial of both HBOS and BoE that emergency funds have been requested by HBOS. A contrarian investor would of course see that strong denial as proof that something is amiss, on the other hand it could be a buying opportunity. Either way it is having a serious impact on the currency markets. Analysts believe HBOS will need to raise some 100+bln later this year to cover short term maturing funds, so it could get a little sticky if the current market conditions continue.

Meanwhile real glad I am sticking to the 15/5min charts. Never mind long term positions...just grab the pips on the movements.

Johnt,

As a matter of interest when you are trading on 15/5m timeframe how do you deteremine your stops in particular when it is really volatile like now and very spikey? Do you just set it beyond previous significant high/low point or wait to reverse on an opposite signal like Hilary?

I want to start studying to trade on the lower time frames when I get chance so interested in how others do it.

Hi Foxy,

Re your request. I use trendlines across highs/lows of 60min chart + Pivots (using GMT values as have found them to be more accurate than those based on EST), this help me clearly see potential support resistance bounces. I also draw trendlines across high/lows on 15min (same reason). I have overlayed the slow Stoch on the Price chart and look for turns + oversold/overbought indications with Price Candle to tell me when to enter/leave mkt. Stops placed above last peak/trough, but generally give my little soldier some time to win the war and give it no less than 20pips.

Hope it helps.

John

Thanks for that John,

You seem to do pretty much what I do on a larger timeframe, (and I guess most others); trendlines, support/resistance, swing highs/lows but applied to the lower timeframe. I have used pivots in the past myself but dropped them but may have a look again for the shorter timeframes.

Do you have ever have a maximum stop that you will never exceed or will it always be dictated by the last peak/trough?

Hi Foxy,


I try to judge the entry position to minimize the potential loss. In fact I always calculate how much I will lose by placing the trade and until the trade is in profit, I continually run the losses through my head! it is a good discipline for me and makes sure I do not enter a 'wild emotional trade'. So placing a stop is always a personal matter but when trading the lower timeframes I believe you can maintain good discipline by keeping the Stop within 20 - 25 pips. Of course you get slippage and commission as well to contend with, but I think the best objective is to focus on what is the best trade for you. May I suggest you try out some paper trades and see how it works out for you before putting your money on the table, to coin a phrase! Today when my cable moved into profit I took some profits and moved the Stop down with the price, so it happened to work out well for me this time.

Hope it helps.


John