Dollar Climbs From 4-Week Low Before Fed; Ruble Snaps 7-Day Drop

he dollar advanced from the weakest level in four weeks against the yen amid speculation Federal Reserve policy makers will remove their pledge to keep borrowing costs low for a considerable period in their statement today.

Russia’s ruble snapped a seven-day drop as the finance ministry said it was selling reserves to counter a plunge that sent the currency to the least on record yesterday. Norway’s krone weakened against all of its 16 major peers as oil traded near a five-year low. New Zealand’s dollar fell the most in more than a week after a report showed the current-account deficit widened.

“Pretty much everyone expects the ‘considerable time’ phrase to go,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “Our bias would be that we go into the meeting with the market still with a large overhang of long dollar positions and, if anything, the risk is therefore disappointment.” A long position is a bet an asset’s price will rise.

The dollar gained 0.6 percent to 117.14 yen at 7:02 a.m. New York time after depreciating to 115.57 yesterday, the weakest since Nov. 17. The U.S. currency strengthened 0.4 percent to $1.2456 per euro. The yen fell 0.2 percent to 145.89 per euro after gaining 1.6 percent in the previous two days.

Dollar Advance

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 trading partners, gained 0.4 percent to 1,114.74. It closed at 1,122.34 on Dec. 5, the highest level since March 2009.

JPMorgan Chase & Co.’s Global FX Volatility Index reached 10.06 percent, the highest level since September 2013. It has climbed from a record-low 5.28 percent set on July 4.

“The Fed is likely to get rid of the ‘considerable time’ phrase today,” said Shinji Kureda, head of foreign-exchange trading at Sumitomo Mitsui Banking Corp. in Tokyo. “But that could boost speculation of a rate hike in mid-2015, weighing on U.S. stocks and dollar-yen. There is no end in sight yet to declines in oil and commodity currencies.”

The ruble lost 4.7 percent yesterday after weakening more than 19 percent in the biggest one-day slump in 16 years after Russia’s central bank unexpectedly raised its key interest rate to 17 percent from 10.5 percent.

Ruble Panic

“It’s a panic,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy in New York, said by phone. While the currencies of other oil-producing nations have fallen, “it’s just the magnitude in rubles that’s stunning,” reflecting the illiquidity of the market, he said.

The ruble rose 2.3 percent today to 65.92 per dollar after depreciating to a record 80.10 yesterday.

“I certainly heard a level of 100 being spoken about yesterday,” Phyllis Papadavid, a senior foreign-exchange strategist at BNP Paribas SA in London, said in an interview on Bloomberg Television’s “Countdown” with Mark Barton and Anna Edwards. “If we see the currency weakening and we see oil prices continue at these levels, it will feed through to further instability in the ruble unfortunately.”

Crude oil futures fell as much as 2.4 percent after sliding below $54 a barrel yesterday for the first time since May 2009. The United Arab Emirates said the Organization of Petroleum Exporting Countries won’t cut production even if prices fall as low as $40 a barrel.

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Wordwide FX completes video production of Lex Van Dam’s Favourite Strategies course

In the last few weeks, Wordwide FX has completed a very challenging project: the Chinese voice-over for the five-step stocks trading course for worldwide famous Lex Van Dam trading academy. The process demanded careful integration of two voices, a male voice and a female one, which added difficulties to the production. But thanks to our audio engineering experts, we have achieved top-quality results. Wordwide FX also updated the video material accompanying the course, also with excellent results.

Wordwide FX started cooperating with Lex Van Dam Financial Education in February 2014, and we are very happy to say that we have achieved a wonderful rapport for all the parts involved. Working with Lex and his team is a real pleasure to us. We are really looking forward to our next project together.

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China struggles to support CNY & avoid exporting disinflation


By Ashraf Laidi, Chief Global Strategist at City Index

The People’s Bank of China is increasingly resisting traders’ weakening of the Chinese yuan, by announcing higher rate in its daily central reference rate. But as Chinese data continue to weaken across the board, FX traders have no choice but to bet against the yuan (pushing up the USD/CNY rate). 

The chart highlights the divergence between the PBOC’s falling reference rate, known as CNY fixing price as set by the China Foreign Exchange Trading System (red) and the spot rate in the interbank market, the fluctuations of which should not exceed +/- 2% of the average price.

Trade the Chinese yuan with City Index here 

Aside from signs of China’s slowdown shown in retail sales and consumer credit, last night’s release of Nov PPI contracting by 2.7% — below zero for the 13th consecutive months — and the 1.4% CPI being the lowest in five years underscores the threat that China’s hard landing story is at its most credible status since misplaced warnings have begun in 2009.

The adjacent chart highlights China’s deteriorating capital account balance, which tumbled to a negative $601 million in Q2 as a result of surging capital outflows. We patiently await the release of capital account breakdown for Q3.

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A Guaranteed Way To Control Stupid Trades

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By Boris Schlossberg @FXflow, CEO and founder BKForex

This is going to one of my shortest, but probably most important trading column ever. In all my years on Wall Street I have never, ever used this word before, but today I will. I can guarantee you a way to avoid every stupid, impulsive, account wrecking trade you have ever made from this point on.

Before I tell you how let me be clear. I am not saying I can stop you from losing money. I am just saying I can stop you from losing money in the stupid let-me-just-try-this-trade-because-I-am-bored-and-now-I-am-wrong-and-now-I-am-going-to-add-to-my-position-until-I-get-margined-out way that all retail traders lose their money.

How many times have you had great weeks, months, quarters only to squander it all away on an idiotic idea that made you fight the market in size too large until they carried you on stretcher? I’ve done that at least a dozen times in my career. And guess what? There is no way to prevent it.

But there is a way to control it.

Professionals on Wall Street always use a process when it comes to trading, which means that your entries, exits, sizing and any adjustments are all pre-planned and well established before you click the screen and place a trade. But as traders we are always going to be tempted by risk. Sometimes those ideas will pan out sometimes they won’t, but the unifying factor of all those trades is that they stand outside of your process and are therefore vulnerable to the possibility of ruin.

So here is my solution to controlling the non-process trade. One unit. The minimum trade. Yes for most of you on retail platforms that means .01 of a standard lot and 10 cents per pip. Here is the key point.

BKforex petit

Click here to read the full article on BKforex

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What should the Fed do? The case for opportunistic inflation

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Published on Dec 5 on The Economist.

Sometime next year, the Federal Reserve will likely face an unusual confluence of economic circumstances. One of its mandates, full employment, will call for monetary policy to tighten relatively quickly; the other, inflation, will suggest it should stay loose. How should the Fed weigh these competing goals? It may want to dust off a doctrine from the 1990s, “opportunistic disinflation” and rechristen it “opportunistic inflation.”

The impressive pace of job creation reported today underlined the approaching crunch point. The number of new non-farm jobs in November, at 321,000, was the most in nearly three years. Along with revisions of 44,000 to prior months, it shows this year’s already-solid pace is accelerating. The unemployment rate remained at 5.8%, but if this year’s combination of job and labour force growth continue, it will drop below 5% within a year, easily undershooting the Fed’s estimate of its natural rate. True, the current unemployment rate may overstate how strong the labuor market is, but other measures suggest slack is quickly disappearing: the broader U-6 measure of underemployment dropped to 11.4% in November, from 11.5%, long-term unemployment edged down to 1.8% from 1.9%, and involuntary part time work declined.

But even as the Fed hits its full-employment target, it will be badly missing on its 2% inflation target – from below. Headline inflation was 1.7% in October, and core inflation, according to the Fed’s preferred index, was just 1.5%. Petrol prices have plunged further since, so headline inflation is likely headed below 1%, and pass-through effects will likely push core further down as well.

The view inside the Fed is that this undershoot is temporary and over the next few years, a strengthening economy and inflation expectations will tug inflation back to target. They shouldn’t be so sure. The fall in the oil price is a mixed blessing. It will generate a powerful lift to consumption and employment in the next six months, and indeed may already have, given the strength of retail employment. But, along with the rise in the dollar and the fall in other commodity prices, it will keep inflation below target for several years. Inflation has already persisted below target longer than the Fed expected, and the latest data suggest that it is the public’s expectations of inflation that are converging towards actual inflation, rather than the other way around.

This makes it all the more likely that expectations, and thus actual inflation, will become entrenched below target. Against a backdrop of full employment, this may seem acceptable. It isn’t. Too-low inflation means that the next time the economy falls into recession, interest rates will once again probably fall to zero, which may be too high in real terms to adequately restore growth. The risk, then, is that inflation grinds even further below target.

While the circumstances facing the Fed may be novel, the tactical challenge is not. Two decades ago, inflation was above any reasonable definition of price stability. In contemplating how to get it lower, Fed officials came up with the moniker of “opportunistic disinflation.” The Fed would not deliberately push the economy into recession, but it would exploit the inevitable recessions and resulting output gaps that came along to nudge inflation closer to target. In 1996 then governor Laurence Meyer defined it thus:

Under this strategy, once inflation becomes modest, as today, Federal Reserve policy in the near term focuses on sustaining trend growth at full employment at the prevailing inflation rate. At this point the short-run priorities are twofold: sustaining the expansion and preventing an acceleration of inflation. This is, nevertheless, a strategy for disinflation because it takes advantage of the opportunity of inevitable recessions and potential positive supply shocks to ratchet down inflation over time.

The strategy succeeded: after the recession of 2001, inflation fell to 2% and stayed there.

Today’s mirror image would be “opportunistic inflation”: exploit any overheating in the economy as an opportunity to push inflation higher. If unemployment does fall to 5% next year, that should have two beneficial effects for the labour market. First, it should push up wages. Hourly earnings rose 0.4% in November, an unexpectedly brisk and long overdue increase. But they are still up just 2.1% from a year earlier. Since profit margins are so wide, it will take several years of stronger wage growth to generate cost-push inflation. Second, some of the long-term unemployed who have quit the labour force should be drawn back in, reversing some of the loss of potential output brought about by the prolonged period the economy spent depressed.

To get inflation higher requires a negative output gap by allowing unemployment to fall below its natural rate for a time. That may happen even on the current plan in which interest rates start to rise slowly from zero in 2015. If so, the Fed should simply let it happen. It may want to encourage the process by delaying the normalization of rates, or stretching it out over more months. This is not without pitfalls; inflation could take off more quickly than expected, or financial imbalances could worsen. On the other hand, inflation may stay dormant for longer, and the Fed will then conclude the natural rate of unemployment is actually lower than 5%; and it will have been glad not to have tightened too soon.

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