US Fundamental

i’m learning fundamental analysis . this is value analysis. we can get great profit wit market.

rear looking data for December and the 4th quarter has been weak, but with underlying strength in jobs and the consumer. It is time no to look forward to this weeks data which is the first major reads on January, preliminary reads are already strong and show that economic trends which stalled in December are picking back up in January. ADP, NFP and unemployment are my top data points for the coming week.

Mrs. Yellen said something, so this means there is something to read:

Janet L Yellen: Economic inequality and mobility

I see this thread quite abandoned, and it is a bit disappointing considering what I’m about to talk about. Let me contribute with my 2 cents.

I’m quite a rookie with fundamentals but this is how I see it (a bit of a mix of technicals and fundamentals). USA inflation is at 0% (United States Inflation Rate | 1914-2015 | Data | Chart | Calendar) which is far from 2%, value considered by many economies as the ideal to contribute to an stable growth. Therefore any increase in the Interest Rate should be postpone. I’m not saying the Fed will go for a QE move but at least any hike in interest rate should be discarded. For that reason it makes little sense that the USD will get stronger due to a interest rate hike.

Last NF Payroll report was a bit disappointing, however it is to early to consider that as a sign, without waiting for at least another one. But if that is the case it would mean that the US could have reached a peak in employment.

Hedge funds might be aware of this and could start unwinding their USD positions. For example, last COT report shows that the number of shorts in EURUSD has decreased in regards the the previous week and if you have a look at the COT chart for that pair it seems to be forming a bottom.

At the same time values like Gold and Oil, that have negative correlation with the USD, seem to be changing trend, call it accumulation area, call it frying pan pattern, but there is a potential and noticeable at first glance change of direction.

Tying all the ends together it looks to me that USD is going to get weaker gradually. From the technical point of view, one key value to give more strength to all this theory is to break above 1.1050-1.11 level, as that would make a higher high after the higher low made on the 13th of this month (provided that the pair doesn’t turn down below that level).

It is not that I want USD to get weaker. I’m a trend follower and not a counter trend trader, but that is what all these points are telling me. Of course I might be wrong, like any other.

Hi alfonsomg,

I agree with everything you said, but as you said you follow trends, just like I do. So at the moment if USD is getting stronger then that is the trend :slight_smile:

One thing to add, the only one I think you might have forgotten. USD can also get stronger even if the US economy is not so strong. How can that happen? Well they are still doing better than many other economies so it is not a who is stronger game in my eyes, but more like a “who is not so weak” setup.

Good luck to you,
FE

In the end no one has a crystal ball, there is no right or wrong beforehand. I’m just pointing signs. If the trend resumes we keep following, but I think it is a moment to pay extra attention :slight_smile:

Don’t get too complacent about the US economy or the dollar just because the winter was a little weak. It was the winter, its always a weak time of the year but you must remember that labor trends are improving, the NFP is only one month, subject to revision and massive margins for error. Unemployment remains low and falling, unemployment claims are near their long term lows, continuing claims just reached a 15 year low. Job openings remain high, layoffs are low (Ex-energy are well below last years levels… the energy loss is less than 0.05% of the entire US workforce), hours worked are edging up and so are wages. The outlook for the spring and summer is very positive despite the anticipated FOMC rate hike, which will just make the banks earn more on what they lend and want to lend more and stimulate more. Every forward looking survey or gauge of the economy is positive for the next 6 months.

And there’s earnings. Earnings are much better than expected and projected to rise into the end of the year and next year. Full year 2015 s&P earnings growth is projected at 2.5%, will probably go up by at least a full % by end of year. Full year 2016 s&p eps growth is projected at 10% and will likely go up. Looking at energy, the end of the year is supposed to remain steady with a projected 45% growth in earnings for next year.

I for one don’t see any reason to get bearish. There could be a correction but I will use it to build a bullish position and use it to sell options… just like I always do.

I agree (or I can’t disagree) with what you said as your words have sense.

However I don’t see any point in an interest rate hike as the US economy is not overheated. It would only make sense if they want to make the USD weaker in favor of, for instance, exports, but the US is an importer country rather than an exporter country, so I have to discard that too. My view is that as long as inflation stays where it is then any interest rate hike will be postponed. However the FOMC has other ways to produce a similar effect. If the Fed keeps interest rates as they are, inflation will rise in the long term as long as employment numbers get closer to full employment.

I agree with you that we could bee a correction, however if we have a look at the recent past corrections are long and take their time.

I’m not bullish or bearish. I just want to see if I can get an understanding of the signals I see in order to be able to decide my moves in the medium term.

the thing about the rate hike is that the FOMC has been indicating one, the market has been expecting one and we haven’t had one for a really really long time. The monetary policy is way dovish and needs to be put into a normal environment, ie there needs to be some interest charged to the banks… its one of the last steps in the economic recovery and will start a lot of cash flowing through the economy. … and if they dash expectations they will completely disrupt earnings outlook for the entire market, and I don’t think in a good way, going out to the end of 2016… that will surely cause a correction… this meeting I’m not sure what’s going to happen but I don’t expect any dovishness and perhaps an every so slightly firmer indication of when the hike is going to be.

I don’t get your point. It is the lack of interest rates or having low level ones what makes the cash flowing through the economy. A rise will make the access to money more expensive to everyone, therefore less money in circulation.

Correct me if I’m wrong but having 0 interest rate doesn’t mean that banks don’t make money. Of course they charge for loans, and they charge their percentage above the interest rate level that the Fed puts there. The Fed is no there to make money. It is there to control the amount of money available.

A key point to me is the price of OIL. It has been very cheap for a while, therefore the low inflation. As OIL prices are recovering so it’s doing the price of most of goods in the market, and services.

If I remember right, one of the Fed goals is price stability and I think paying close attention to inflation will give us the hint for the interest rate hike.

the point is that over the past years with the fed policy the way it is money hasn’t been flowing. The banks have had to hoard cash to meet capital requirements as well as not making very much on the loans. When rates go up the banks will be able to charge more, make more and will want to lend more… and that is why cash will flow more freely. It won’t be free cash, but it will flow.

Money wasn’t flowing because we came from a global financial crisis. Interest rate close to 0 was what kept the money flowing. It is how the Fed decided how to manage this financial crisis and keep alive the economy.

Interest Rates are a way to control the economy expansion-contraction cycles, not a way to control the bank’s profits.

USD has gone through a strong swing against the rest of the currencies. One reason could be China’s slowdown. Big players might have foreseen that and run to the USD as a safe haven currency pushing it up.

The Fed has to rise the rates, but it is because it has to cool down this “cheap credit” driven economy. But the problem is that rising rates now will affect many people and businesses, as it will reduce the money flow.

I can’t see if making the USD even stronger can have its toll in the economy, as cheap imports could affect the GDP. It is cheaper to buy from overseas than to produce at home.

The Fed has to rise the interest rates carefully managing the proper timing. As the USD seems to be giving back part of its gains one possible way would be to wait for the USD to be weaker and then drop the bomb. Properly timed it can happen with a weaker USD and at the same time that inflation is picking up, because a weaker USD will push OIL prices up and therefore rise inflation. Two birds killed with one shot.

That might be the reason why the Fed is delaying and delaying the decision. It was going to be at early 2015, then in June and now talks are about September.

as yellen put it, as long as US’s economy improve, fed will hike the interest rate but the rest of the world are slowing. how is that possible that only they stand big and tall.

Mrs. Yellen shared some wisdom again:

Janet L Yellen: The outlook for the economy

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Rate hike or not? A little reading might bring you closer to the current US economic developments:

In case you missed the last NFP Report, here is the official document with all the important numbers:

Employment Situation News Release

During the whole year the world has been waiting for a rate hike. Most likely we have not been closer to it than now. Check out another US speech and the wording in it, maybe you get a little closer if that interest rate hike will occur or not in December:

William C Dudley: The US economic outlook and monetary policy

If you missed Yellen´s speech and do not understand why some USD selloff happened during the week, you might find some answers here:

FRB: Speech–The Outlook, Uncertainty, and Monetary Policy–March 29, 2016

Interesting reading…

The Case For Gold: Shorting The Federal Reserve | See It Market

And the graphs just show how astronomically in debt the world’s central banks are…

Debt , debt, debt…

Is that not what threw us all into the last financial crisis?