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Forex Gump is my incognito name. My real name is Feras Gimp. When I was a kid, my parents would make me hunt and gather food. So every day, I would go fish at a nearby lake and gather corn from the fields. This process took me all day and left no time for me to play. Play time actually didn’t... More
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  • Fed Officials: Hawks, Doves, And In-Betweeners

    Chairman Ben Bernanke may be the most popular guy over at the Federal Reserve, but he isn't the only one who calls the shots on monetary policy decisions. Let's get to know the other members of the central bank and see what they have to say regarding the Fed's stimulus exit plan.

    Hawks: Plosser, Fisher, and Lacker

    The hawks are those who are more aggressive towards tightening monetary policy. As of late, these guys have been arguing that asset purchases be tapered off as early as June.

    Among them are Dallas Federal Reserve Bank President Richard Fisher, Philadelphia Fed President Charles Plosser, and Richmond Fed President Jeffrey Lacker. All three of them agree that purchases of mortgage-backed bonds should be stopped.

    Fisher and Lacker both point to the pick-up in home prices and housing construction, saying that these indicate that mortgage-backed securities are no longer needed. Meanwhile, Charles Plosser says that the improving general economic backdrop is also enough reason to take a step back from easing.

    Doves: Evans, Rosengren, and Bullard

    On the other side of the spectrum, there are the doves who think that the Fed's ultra-loose monetary policy is appropriate. Fed Chicago President Evans acknowledges the improvements in the labor market but thinks that it might still be too early to withdraw stimulus.

    Meanwhile, Federal Reserve Bank of St. Louis President James Bullard is still unsatisfied with the economic growth, which he says is still slower than expected. And then there's Boston Fed head Eric Rosengren who argues that the Fed should add more stimulus with inflation still low and unemployment still high!

    In-Betweeners: Raskin and Dudley

    Lastly, we have those caught in the middle, still undecided whether the Fed should carry on with its open-ended easing program or not.

    In her speech last week, Sarah Bloom Raskin, a member of the Fed Board of Governors, said that it was still too early to tell if the Fed's latest stimulus program is having a good impact on the U.S. economy. She did note that some sectors have already showed improvements but that the pace of recovery was still disappointingly slow.

    Earlier this week, New York Fed President William Dudley mentioned that he expects QE to be tapered off at some point but that the fiscal drag is still weighing growth down. With that, he remarked that he isn't sure if the next monetary policy move should favor the hawks or the doves. For now, he is waiting for the labor and inflation outlook to change "in a material way" before deciding how to adjust the pace of bond purchases.

    If there's one conclusion that we can draw from these recent speeches by the Fed officials, it's that the central bank members are still very much divided on the issue of exiting the stimulus program. Fed Chairman Bernanke's speech this week should provide a better idea on what the Fed's next moves will be, although he appears to be leaning towards the non-committal to dovish end of the spectrum.

    It is also important to note which among these Fed officials are actually voting members of the FOMC, and these are Bernanke, Rosengren, Bullard, Evans, Dudley and Raskin - all of which are in no rush to end QE. Fisher and Plosser are merely alternate members, which means that they attend the committee meetings and participate in the discussions but are not entitled to vote on policy setting.

    In a nutshell, it appears the FOMC won't be looking to make any changes in monetary policy anytime soon, based on the sentiments of its voting members. How about you? When do you think should the Fed start dialing back the pace of its bond purchases? Let us know by voting through the poll below!

    May 30 1:39 AM | Link | Comment!
  • 4 Questions You Need To Ask Yourself For Tomorrow's Trading

    Most traders thrive on volatility. Big moves in the market only spell one thing for them: BIG MONEY! With a handful of potential market-moving events on tap for May 22 (that's tomorrow, Wednesday!) it could turn out to be one of those big days!

    If you plan on trading, here are 4 questions that you need to ask yourself before setting orders or pulling the trigger.

    Will the BOJ sound less dovish?

    We kick things off early with the BOJ rate statement to be announced at 12:00 am GMT. The central bank is expected to keep rates steady at 0.00%-0.10% and make no changes to its asset purchase program.

    However, it will be pretty interesting to hear what BOJ Governor Kuroda will have to say in light of the most recent happenings from Japan.

    Last week, Japan's Q1 2013 GDP report printed an annualized uptick of 3.5%, reflecting the benefits of a weak yen and the pick-up in consumer spending. Meanwhile, just yesterday, a key Japanese policymaker expressed his concerns about the yen's weakness. Japanese Economy Minister Amari thinks that most of the yen's surge from last year has already been corrected and any further weakness in the currency could pose a threat to the economy.

    Market participants will be keeping close tabs on the statement to see if the rebound in the economy or concern about the yen's weakness is enough for the BOJ to tone down its dovishness. If this turns out to be the case, USD/JPY could retreat even further from its four-and-a-half-year highs.

    Will GBP/USD bounce off 1.5200?

    The answer to that question may just lie in the April U.K. retail sales report and the BOE meeting minutes which are both due at 9:30 am GMT.

    According to estimates, the retail sales report will probably show that consumer spending was flat last month, which isn't exactly comforting considering that the previous month posted a 0.7% decline. Usually, the markets go nuts for this report, but it might not get as much attention this time around because it could be overshadowed by the MPC meeting minutes.

    Once again, the minutes are expected to show a 6-3 split decision on whether the bank should increase its asset purchases or not.

    One thing y'all should keep an eye out for are signs of optimism from policymakers. Remember, the BOE upgraded its growth forecasts and revised its inflation estimates downwards just last week, so there's a chance the minutes could show hints of hawkishness and reveal why U.K. policymakers decided to revise their estimates for the better.

    To top it all off, MPC member Martin Weale recently donned his hawkish feathers, saying that an expansion of the stimulus program could rekindle inflationary pressures. If the minutes show any signs that the BOE is considering an exit strategy later in the year, it could very well serve as a catalyst for a major rally on GBP/USD!

    What's next for the Fed?

    Since the Wall Street Journal started rumors about how the Fed is drawing up plans to cut back on QE, the markets have been abuzz with what the central bank might do next. Fed head Ben Bernanke could let the cat out of the bag if he drops hints on their next move in his speech scheduled for 2:00 pm GMT. And we might get more valuable insights from the FOMC meeting minutes, which are set to come out at 6:00 pm GMT.

    Some say the fate of the dollar could very well depend on Bernanke's speech. Other Fed officials have given mixed feedback on monetary policy, so Bernanke's words might determine whether the dollar index will make a run towards 85.00 or retrace its footsteps.

    But let's face it. At this point in time, everyone and his mother expects the Fed to withdraw stimulus. What the markets seem to be unsure about is the timing of its exit strategy.

    If the central bank signals that it's ready to taper off its asset purchases later in the year, it could lead to an extended dollar rally. On the other hand, if they show that they're not quite ready to pull the plug on QE, they could end up crippling the dollar and sending it back down the charts.

    Can you really handle all the volatility?

    Being able to catch the big moves in the market is awesome. However, you have to remember that it's more important for you to protect your account and live to trade another day, rather than betting the farm on a market that you are not comfortable trading.

    As I always say, trading the news is not for everyone. If you're not sure that you can handle the pick-up in volatility, you might be better off sitting on the sidelines.

    May 30 1:32 AM | Link | Comment!
  • Is The Weak Yen Already Becoming A Problem For Japan?

    It seems that the Japanese really do love giving out surprises! Earlier today, Japan's Economy Minister Akira Amari shocked the markets with some unusual comments on exchange rates.

    According to him, much of the yen's strength that we saw last year has been corrected. However, further weakness in the currency could soon become a threat to the economy!

    His remarks follow USD/JPY's surge to 4-year highs, after the release of better-than-expected U.S. data and rising bond yields. What makes the statement even more odd is that in the week prior, G-7 Finance Officials actually indirectly affirmed the BOJ's ultra-loose monetary policy.

    (click to enlarge)

    Since BOJ Governor Haruhiko Kuroda was appointed into office by Japanese Prime Minister Shinzo Abe, the BOJ has become keen on boosting the economy and weakening the yen. The bank has launched aggressive measures to ease monetary policy. This has then led the yen to drop to multi-year lows against some of its counterparts.

    Now that USD/JPY has risen above the major 100.00 psychological level, could Japan really have had enough?

    Some companies would wish against that! Export-dependent businesses are now reaping the benefits of a weaker yen as their products become cheaper relative to those of their counterparts. For instance, Sony reported its first annual profit in five years. Toyota also booked massive earnings for the fiscal year ending in March, which translates to more than triple its profits in the year prior.

    Not only that! Analysts also attribute around half of the 3.5% growth rate that Japan posted for the first quarter of the year to the weaker yen.

    So why is Minister Amari so worried?

    Remember young padawan, there are always two sides to every coin. Japanese Economy Minister Amari's concern reflects the consequences of the massive yen weakness to other sectors of the economy. While a cheap yen is beneficial to export-oriented businesses, it takes its toll on those that have to import their materials as they would need more yen to acquire their materials outside of the country.

    Steel-makers have been particularly hit hard by the decline in the currency's value. They suffered a 62% drop in profits as importing iron ore and coal became more costly. Japan's 10 major power companies, which depend on importing fuel in order to operate their thermal plants, reported a 13 trillion JPY drop in their current account from the previous business year.

    Consequently, the ripple effect of the weaker yen is already being seen in the rising gasoline, flour, and paper prices in Japan. Some analysts are worried that it won't take long until the cheap yen would lead to a significant decline in consumer spending and employment in sectors outside of exports. Yikes!

    What do you think? Has the BOJ seen enough yen weakness or will we see the yen sell off further in the coming months?

    May 30 1:31 AM | Link | Comment!
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