The Day of Reckoning

Folks we have the ‘Day of Reckoning’ in the US interest rate market.

The swing chart below shows:  For yesterday, a daily range (including Globex) of 3.42. To place the range into perspective, the current weekly range is around 2.9 with a standard deviation of around 0.90.

In short, in one day we saw a daily range that mirrored the upper boundaries of a normal 5-day range!

US Bonds (CFDs) Daily 18-day and 5-day Swing

What caused the volatility?

The tanking of US stocks. Traders were covering shorts and going long. Are they betting the FED will cut rates? Recent FED history suggests that if we see a downdraft in the stock market, the FED will come to its rescue.

The problem for the FED is it has little room to move. In its view, the economy is picking up steam, and it still has all those reserves sitting in the St. Louis Fed.

Asset Monetary Base

Notice that before QE (2008), the deposits grew at a steady rate. After QE, deposits rose parabolically. At some point, they’ll need to repatriated or moved into Main Street. The FED needs to do this release gradually enough to hit its inflation target without causing hyperinflation.

My belief is it will do nothing – at least for the moment. It may delay the expected rate rise in March – that’s about three weeks away, so we’ll see. But, it’s unlikely will see a rate easing before then.

So, what we have is the US Bond market in an 18-day downtrend AND incredibly overbought. If the FED does not intervene, we should see a test of the lows – even if the downtrend is to abort. Great place for a short – which I effected just before the last night’s close.

The 290-min chart shows the ideal stop (CFDs) would be above 150.36; that’s too big a risk for me. So, I have lowered them to above 148.90. I also have a ‘soft’ stop – a stop based on what I don’t want to see if my scenario is incorrect.

US Bonds (CFDs) 290-min

My target is 142 (H&S target on the 18-day).

I may exit part of the position at yesterday’s low. I’ll do this if the Linear Regression Band shows momentum divergence on the 60-minute or 290-minute.

And oh….I almost forgot – I’ll talk about US Stocks tomorrow.

Interest Rate Rise Dec 2017?


BarroMetrics Views: Interest Rate Rise Dec 2017?

I had rated a rate rise by the FOMC in December as close to a certainty as you can have in the uncertain game of trading. But the recent massive move up in interest rates  has changed my mind. (for an example of the move, click the link below to a chart for the 30-year US Bond cash rates).

The movement in the cash rates may have done the job for the FED. On the other hand, having signalled strongly for a Dec rise, if it doesn’t raise rates, its credibility will come into question.

So, what to do?

The answer is the Non-Farm Payrolls scheduled for release on Dec 2.

Normally, I guess at the figure by looking at what the FED may want the figure to be. This approach has served me to good stead. This time, I am reversing the approach:

  • If the number comes in near the bottom end (or worse) of the consensus range, I’ll take it that the FED won’t raise rates at the FOMC on Dec 14.
  • If the number comes in near the top end (or better) of the consensus range, I’ll take it that the FED will raise rates at its FOMC in Dec.

Why will a lower than expected jobs report provide the FED with wiggle room? Well, remember its ‘get out clause’: a rise is data dependent.   So, if the jobs data is poor, the FED need not raise rates.

If I can blog next week, I’ll post around Nov 30 on how I expect the markets to respond to the FED decision.

Note that I won’t be posting most of next week with a cataract op on Nov 28 and a hip replacement on Dec 2.