Global Economy

Cassandras warn that the foreign appetite for US debt is satiated and wonder who is going to buy US Treasuries when the Federal Reserve stops. Not only are US officials not concerned about this, but the Department of Treasury continues its campaign to discourage foreign central banks from buying so many Treasuries.

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Some noteworthy downside volatility in US stocks in the last couple of weeks has got the global markets quite nervous. Have we seen the top in the market? That risk is certainly there.

The first thing on the chart which jumps out negatively to me is the shooting star candlestick pattern on the weekly chart from last week. That was the result of the market making a new high, then failing and actually finishing low on the period. That’s visible in the weekly S&P 500 chart below.

Weekly S&P Chart - click to enlarge

The other thing I’m looking at which isn’t yet decisively bullish or bearish yet, but which represents potential either way, is the narrowness of the Bollinger Bands. As the lower plot on the graph above shows, that width is at its narrowest for quite some time – lower even than it got in late 2012 before the S&P 500 went on a 100 point rally over the next few months.

Narrow Bands worth both ways, of course. As such, if the market were to fall below about 1775 and get the Bands widening as a result, the implications would be negative. We are already seeing in the daily chart time frame that a relatively narrow Band situation there, combined with the break below the bottom of a key range, is seeing the S&P flip into a negative trend mode.

Daily S&P Chart - click to enlarge

It looks very likely from the daily chart set up that we’ll see the S&P 500 test the lower weekly time frame Bollinger Band. That would be a meaningful move at this point, so on a first go we may not quite see 1775 broken at this stage. That, however, could just set things up for a move through that level, and the widening of the Bollinger Bands which would happen as a result, signalling a likely longer-term bear trend move. Even then, though, the 1650-1700 area where the market ranged before would be a sticking point.

The emerging market carry trade is back on, helping to chase higher the very assets that were sold off last year amid concerns U.S. interest rates were set to rise.

“The U.S. yields haven’t actually risen,” said Nizam Idris, head of fixed income and foreign-exchange strategy at Macquarie. “That environment encourages funds to look for yields,” which can typically be found in the very current account deficit countries that were sold off last year, he added.

Read the original article at Forex News

Diverging rates are expected to benefit the dollar – a hawkish Fed will trump a dovish Draghi every time. This is the scenario that dollar ‘bulls’ have bought into, however, it’s currently not working for them this week – the release of the dovish FOMC minutes coupled with some economic slack comments from Yellen has the dollar ‘hawks’ on the run. Leading to many ‘long’ dollar positions being squeezed, as the market drastically prices out an early rate hikes by the Fed.

Read the original article at Forex News

FXStreet (Bali) - According to Federal Reserve Board Governor Daniel Tarullo, who is giving a prepared speech at the Hyman P. Minsky Conference on “Stabilizing Financial Systems for Growth and Full Employment” in Washington, when time comes for interest rate rises, Fed can do so gradually.

Read the original article at fxstreet.com

Quoth the FT, "Emerging market recovery and low interest rates and volatility in developed nations’ currencies have lifted appetite for the risky carry strategy." Borrowing in a low interest rate market to buy securities in a high rate market has been a thing since markets existed, but there's always the risk of a long and painful unwinding...

Read the original article at ft.com

Let’s take a big picture look at the oil market for a moment. Below is the monthly chart of the front month futures contract. Since prices mailed their failed attempt to get back above 120 again in 2011, they have essentially gone nowhere. The market has been increasingly narrow in either side of about $100 for just about three years now. That has led the Bollinger Bands to become very narrow – even more narrow than they were before the Financial Crisis. Narrow Bands are generally an indication of a market getting ready to make a meaningful directional move.

Monthly chart - futures contracts - click to enlarge

Of course I’m not suggesting we start looking for another round of massive price moves and extreme volatility like we say in 2008 and 2009. Rather I’m suggesting it’s time for us to start looking for a range break to unfold in the long-term time horizon.

We may have to wait a while, though.

The weekly chart below shows us that range entrenchment is a major feature in that time frame. We can see a similar narrow Bollinger Band situation which has developed there, also suggesting that the market is poised to get more interesting in the weeks to come.

Weekly chart - futures contracts - click to enlarge

The issue, though, is any sort of volatility expansion or trend move from here would only move oil toward the edge of its long-term range, not beyond it. There would still be a significant hurdle to overcome to get into new territory and start that bigger picture move. As such, what we need to see in the weekly timeframe is a two-stage trend move – one to get to the range limits, then a second one to push beyond.

Naturally, the longer a range is in force, the harder it is to break. At the same time, however, once the range does break, things can get really exciting very quickly.

As things stand, probably the best plan of action for market participants for now is to expect more of the general same in the intermediate term. For those with a longer-term aspect to their work, however, now may be the time to start planning for the eventual pattern change.