U.S. Labor Market Seriously Injured

Note: Also posted on Seeking Alpha. It can be found here.

April FOMC Meeting Minutes: “It likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.”

Last Friday: 38K jobs created in May, the fewest since September 2010. Way way lower than 123K jobs gained (that number is revised….hold your breath) in April. Way way lower than 159K gain expected.


Labor market was seriously injured in May. The United States added only 38,000 new jobs, the fewest in almost six years. Things get worse. Prior two months reading were revised lower by 59,000. There were 123,000 jobs added in April down from initial estimate of 160,000. Nonfarm payroll for March was revised to 186,000 from 208,000.

Total Non-Farm Payrolls - Monthly Net Change (In Thousands)
Total Non-Farm Payrolls – Monthly Net Change (In Thousands)

Yet, unemployment rate surprisingly dropped by 0.3% to 4.7%, the lowest since November 2007. Hold on a second. How can unemployment rate drop so much if employment decreased so much? More people left the labor force, as confidence in the labor market is cooling down.

The labor force participation rate decreased by 0.2% to 62.6%, near 38-year low, unwinding about two-thirds of the rise between last September and March. A record 94,708,000 Americans were not in the labor force in May, 664,000 more than in April.

Unemployment Rate and Labor Force Participation Rate "Death Cross"
Unemployment Rate and Labor Force Participation Rate “Death Cross”

The report has evaporated the chance of a rate-hike this month from the Federal Reserve. Before the report, the federal funds futures were pricing in 55% chance of a rate-hike. Now, that is less than 5%.

Federal Funds Futures Source: @MktOutperform (Twitter)
Federal Funds Futures
Source: @MktOutperform (Twitter)

The next probable rate-hike prediction is December. As I mentioned in early January, the Federal Reserve will lower back rates this year. Let’s dig deep into the jobs report.

About 35,000 job losses can be connected to a 45-day Verizon strike, which began on April 13. The workers returned to work on Wednesday, June 1st, after unions reached a deal with the telecommunications company on compensation and job security.

Since they were not working and was on a strike, they were counted as unemployed. Without the “Verizon strike effect,” May nonfarm payroll would have shown 73,000 gain, still way below from the prior month and expectations.

Information services employment, which Verizon workers would fall under, declined by 34,000 jobs in May, the first decline since November 2015. The Bureau of Labor Statistics (BLS) even highlighted the impact of the strike, “employment in information decreased due to a strike.” “About 35,000 workers in the telecommunications industry were on strike and not on company payrolls during the survey reference period,” said BLS in the report.

This is not the first time Verizon workers went on a strike. In both 2000 and 2011, information services employment dropped as Verizon workers demanded more benefits. The month after the strikes, the sector’s employment numbers rebounded.

Verizon Strikes & Information Employment Source: @M_McDonough
Verizon Strikes & Information Employment
Source: @M_McDonough (Twitter)

These 35,000 Verizon workers will be added back to the June’s nonfarm payrolls.

The agreement between the unions and the company gives Verizon workers 10.9% increase in pay over four years (contract expired on August 3, 2019), as well as other benefits. That pay raise is way more than stagnant wages across the country.

Average hourly earnings rose by 5 cents (0.2%) to $25.59, following 9 cents (0.4%) increase in April. On a year-over-year (Y/Y) basis, the wage growth was flat for two months, growing by 2.5%.

Average Hourly Earnings and 12-Month Percentage Change "Death Cross"
Average Hourly Earnings and 12-Month Percentage Change “Death Cross”

Unemployment at 4.6% is within the range the Fed considers “full employment.” The average unemployment rate from 1948 (oldest data I could find) to last month is 5.8%. This leads me to believe the unemployment rate is below its natural rate, 5.8%. Then, why is not inflation higher?

According to Phillips curve, inflation should be higher. Inflation has been hovering around 0% and 1% since the end of 2014. So, why is the Phillips curve not really working?

Phillips Curve (Inflation and Unemployment Rate)
Phillips Curve (Inflation and Unemployment Rate)

If there’s a recession later this year or next year (as some people are forecasting) and the inflation rate is the same as now, we will have a deflationary problem. This time, the deflationary problem will be much worse than they were before. At this time, I am not forecasting anything on recession. If there is one, it will be very interesting how the central banks react to the deflationary pressures, considering the fact that they are running out of ammunition.

I believe Phillips curve is not really working today due to unemployment engineering (like companies do with non-GAAP) and globalization. Workers should not be counted as unemployed because they didn’t look for work in the past four weeks. Instead, it should be three months or more. It gives them more time to think and flush out their savings, if they even have one. Such discouraged workers should be included in the calculation process of unemployment.

Mostly important, globalization has played a big part in the crisis of Phillips curve. Since the financial crisis and light-speed innovation of technology, many companies found ways and more ways to reduce the costs. Since they are battling for customers, they are reducing their prices, keeping inflation low. The trade agreement, Trans-Pacific Partnership (TPP), will keep or even lower inflation further.

The countries included in TPP (China is excluded) account for 36.2% of global economic output and 25.6% for world trade. By eliminating taxes on exports, companies with intense competition, will reduce their prices further. For example, TPP eliminates import taxes up to 70% on U.S. automotive product exports to TPP countries.

The prices of drugs, on the hand other, will continue to increase. TPP increases the protection of drug patents and copyrights, reducing the availability of cheap generics.

Back to the jobs report. Private sector added only 25,000 jobs, the fewest since February 2010. April’s private sector gain was revised down to 130,000 from 171,000. March’s gain was slightly revised down to 167,000 from 184,000. Constructions payrolls dropped by 15,000, the most since December 2013 and the second consecutive month of decline.

The goods producing sector, which includes mining, manufacturing, and construction, shed 36,000 jobs, the most since February 2010. Mining employment continued its downward trend as plunging oil prices penetrated the operations of energy companies, shedding 10,000 jobs in May. Mining employment have dropped by 207,000 since peaking in September 2014, with three-quarters of the losses in support activities.

Temporary-help service jobs shrank by 21,000 and are down by 64,000 so far this year.

Employment and Earnings by Industrial Sector. Percentage of Labor Force sorted: From the highest to lowest. Green colors: Highest in the column Red colors: Lowest in the column
Employment and Earnings by Industrial Sector.
Percentage of Labor Force sorted: From the highest to lowest.
Green colors: Highest in the column
Red colors: Lowest in the column

Retail employment rose 11,400 (Shopping for summer?) after losing jobs in April for the first time since December 2014. Health care added the most jobs, with 45,700. Over the year, health care jobs jumped by 487,000 (Thanks, Obamacare?).

Diffusion index – which measures the breadth of employment across the private sector – collapsed to 51.3%, the lowest since February 2010. A reading of 50 represents that as many industries gained employment as lost employment. If it’s 0, employment of all industries decreased. If it’s 100, employment of all industries increased. That is down from 53.8% in April and 56.3% in March and from the recent peak of 71.2% in November 2014.

Total Private Employment: 1-Month Employment Change and 1-Month Diffusion Index
Further, the number of people employed for part time for economic reasons (involuntary part-time workers), climbed by 468,000 to 6.4 million, the highest since August and the largest jump since September 2012. This level, in addition to other numbers above, suggests slack still in the labor market. It is still high by historical standards.
Part-Time Employment Level for Economic Reasons
Part-Time Employment Level for Economic Reasons

These workers are included in the alternative measures of underutilization (U-6) that remained unchanged at 9.7% in May.

There are nearly 1.9 million workers who have been unemployed for more than 26 weeks, down from 2.1 million in April. It’s the lowest since July 2008, but is still high by historical standards.

Unemployed over 27 weeks
Unemployed over 27 weeks

Three-month average of total nonfarm is down to 116,000 from 181,000 in April. It’s the lowest since July 2012 and is down from 203,000 three-month average during he same period last year. The three-month average of total private is nosedived to 107,000 from 173,000 in April.

The Federal Open Market Committee will meet on June 14-15. They will keep rates on hold, unless they don’t listen to the market like in December. Again, I continue to believe the Fed will lower back rates this year.

The labor market remains in hospital with serious injuries. 

Reactions to the jobs report:

U.S. Dollar (greenback):

U.S. Dollar ("/DX" on thinkorswim)
U.S. Dollar (“/DX” on thinkorswim)

 Gold:

Gold ("/GC" on thinkorswim)
Gold (“/GC” on thinkorswim)

The Next Big Threat: Illiquidity

Liquidity is the investor’s ability to buy and sell a security without significantly impacting its price. Lack of liquidity in a security can have its consequences. Post financial crisis regulations, such as Volcker Rule (Dodd-Frank), and Basel 3, has made it more expensive and more difficult for banks to store bonds in their inventories and facilitate trades for investors. Regulations designed to make the system more safer have depressed the trading activity.

Lack of supply is one cause for diminishing liquidity. Banks, the dealers of corporate bonds, have reduced their inventories. According to Bank for International Settlements (BIS), “Market participants have raised concerns that regulatory reforms, by raising the costs of warehousing assets, have contributed to reducing market liquidity and could be keeping banks from acting as shock absorbers during periods of market stress.”

Primary Dealer Net Positions (2006 to 2016) Source: MarketAxess
Primary Dealer Net Positions (2006 to 2016)
Source: MarketAxess

According to BIS, “US primary dealers…have continued to reduce their corporate bond inventories over the past years. Since the beginning of the year 2013, they have cut back their net positions in U.S. Treasuries by nearly 80%.

Another big cause of decreasing in liquidity is technology. A technology that has changed the structure of markets, high-frequency trading (HFT), an algorithm computer trading in seconds and in fractions of seconds, account for much larger share of the trading transactions and it leads to low liquidity. Majority of HFTs, if not all, reduces liquidity by pairing selected (self-interest), leaving out others. According to BIS, 70% of U.S. Treasury trading is done electronically, up from 60% in 2012. For both high-yield bonds (not highly liquid asset), it accounts for more than 20%. About 90% of transactions on bond futures take place electronically. I have no doubt electronic trading will continue to increase.

“Greater use of electronic trading and enhanced transparency in fixed income markets typically comes at the cost of greater price impact from large trades.”, BIS said in the report. Bonds now trade in smaller transaction sizes than they did before, “… large trades seem less suitable for trading on electronic platforms because prices move quickly against participants who enter large orders due to the transparency of the market infrastructure.” “It “discourages market-makers from accommodating large trades if they fear that they cannot unwind their positions without risking a sizeable impact on prices.”

BIS in its quarterly review report (March 2015) stated (source: FINRA’s TRACE data), the average transaction size of large trades of U.S. investment grade corporate bonds (so-called “block trades”) declined from more than $25 million in 2006 to about $15 million in 2013.

This is a sign of illiquidity since “trading large amounts of corporate bonds has become more difficult.” Trades facing constrained liquidity puts investors, especially large investors, to a disadvantage.

Capacity to buy/sell without too much influence on the market prices are deteriorating. Lack of liquidity can causes wild swings in the bond prices, which then can affect the rest of the financial markets. Today’s financial markets are so connected just like the economic domino effects.

They are connected, but let me tell you why they are so important. The U.S Treasury securities market is the largest, the most liquid, and the most active debt market in the world. They are used to finance the government, and used by the Federal Reserve in implementing its monetary policy. I repeat, in implementing its monetary policy. Having a liquid market – in which having no problem buying and selling securities without affecting the market price – is very important to the market participants and policymakers alike.

Examples of high volatility in a low liquidity:

  • Flash Crash (May 2010)

In a matter of 30 minutes, major U.S. stock indices fell 10%, only to recover most of the losses before the end of the trading day. Some blue-chip shares briefly traded at pennies. WHAT A SALE! According to a U.S. Securities and Exchange Commission (SEC) report, before 2:32 p.m., volatility was unusually high and liquidity was thinning, a mutual-fund group entered a large sell order (valued at approximately $4.1 billion) in “E-mini” futures on the S&P 500 Index. The large trade was made by an algorithm. The “algo” was programmed to take account of trading volume, with little regard, or no regard at all, to the price nor time. Since the volatility was already high during that time and volume was increasing, this sell trade was executed in just 20 minutes, instead of several hours that would be typical for such an order, 75,000 E-mini contracts (again, valued at approximately $4.1 billion).

May 6, 2010 - SPY Volume and Price Source: SEC Report
May 6, 2010 – SPY Volume and Price
Source: SEC Report
May 6, 2010 - SPY Volume and Price Source: SEC Report
May 6, 2010 – SPY Volume and Price
Source: SEC Report

According to the report, this sell pressure was initially absorbed by HFTs, buying E-mini contracts. However, minutes after the execution of the sell order, HFTs “aggressively” reduced their long positions. The increase in the volume again led the mutual-fund group “algo” to increase “the rate at which it was feeding the orders into the markets”, creating what’s known as a negative feedback loop. That’s the power of HFTs.

This was nearly 6 years ago. Today, there’s no doubt the power of the secretive section of the financial markets, HFTs, are much stronger and powerful and can destroy the markets with “one finger”.

With low liquidity in the bond market and increasing HFT transactions in it, the threat is real. Automated trades can trigger extreme price swings and the communication in these automated trades can quickly erode liquidity before you even know it, even though there is a very high volume. While liquidity in the U.S. bond market is high, it’s not high enough to battle the power of the technological progress.

Let’s not forget. Fixed-income assets such as, corporate bonds, are often traded over the counter in illiquid markets, not in more liquid exchanges, as stocks are.

It’s all about profits. Some, if not all HFTs, act the way they do, to make profit. There’s nothing wrong with that. But, the creators of the algorithms have to be ethical and responsible. It’s not likely to happen anytime soon since profits are the main goal (mine too) in the financial markets. So why should HFT “be fair” to others? I know I wouldn’t.

  • Taper Tantrum (2013 Summer)

In the summer of 2013, the former Federal Reserve chairman, Ben Bernanke, hinted an end to the Fed’s monthly purchases of long-term securities (taper off, or slow down its Quantitative Easing), which sent the financial markets, including the bond market into a tailspin.

On June 19, 2013, Ben Bernanke during a press conference said, “the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year.” That sentence alone started the financial market roller coaster.

Yields skyrocketed. The gravity took down the value of greenback (U.S. Dollar). U.S. long-term interest rates shot up by 100 basis points (1%). Even short-term interest rate markets saw the rate-hike to come sooner than the Fed policymakers suggested. Borrowings costs increased so much, as the markets was expecting tightening of the monetary policy, it “locked up” the Fed from cutting the pace of bond buying that year.

Markets' Reaction To June 19, 2013, Ben Bernanke Press Conference Source: Federal Reserve Bank of St. Louis
Markets’ Reaction To June 19, 2013, Ben Bernanke Press Conference
Source: Federal Reserve Bank of St. Louis

This raises (or raised) whatever the market prices can handle orders that are executed in milliseconds. It points to a lack of supply (dealer inventories), A.K.A illiquidity. I feel bad for funds that have a lot of corporate-bonds in their portfolio. The struggle is real.

An open-ended funds that allow investors to exit overnight are more likely to experience a run, as market volatility increases. A run on funds will force the funds to sell illiquid assets, which can push down the prices lower and lower. Recently example of that is the Third Avenue (“investors’ money are being held hostage”).

Brace for a fire sale. Coming soon in your area.

Market makers, where are you? Come back. I need to sell the investments at a current price, before it goes much lower.

  • October 15, 2014

The financial markets experienced – as the U.S. Department of the Treasury puts it – “an unusually high level of volatility and a very rapid round-trip in prices. Although trading volumes were high and the market continued to function, liquidity conditions became significantly strained.”

On October 15, 2014, the markets went into a tailspin again. The Dow plummeted 460 points, only to recover most of the losses. The Nasdaq briefly fell into a correction territory, only to rebound sharply. The 10-year Treasury yield “experienced a 37-basis-point trading range, only to close 6 basis points below its opening level”, according the U.S. Treasury Department report.

According to Nanex, a firm that offers real-time streaming data on the markets, between 9:33 A.M and 9:45 A.M, “liquidity evaporated in Treasury futures and prices skyrocketed (causing yields to plummet). Five minutes later, prices returned to 9:33 levels.” “Treasury futures were so active, they pushed overall trade counts on the CME to a new record high.”, said the report.

“Note how liquidity just plummets.”

Liquidity in the 10 year as measured by total sizes of orders in 10 levels of depth of book. Source: Nanex
Liquidity in the 10 year as measured by total sizes of orders in 10 levels of depth of book.
Source: Nanex

Again, as I said, “Today’s financial markets are so connected just like the economic domino effects.” The mayhem in in the bond market can spread to the foreign exchange (forex) market.

October 15, 2014 - World Currencies Source: Nanex
October 15, 2014 – World Currencies
Source: Nanex

These types of occurrences are becoming common, or the “new normal”. As the Fed raises rates, the market participants will be adjusting their portfolio and/or will adjust them ahead of it (expectations), these adjustments will force another market volatility. But this time, I believe it will be much worse, as liquidity continues to dry up and technology progresses.

Recent market crashes and volatility, including the August 2015 ETF blackout, is just another example of increasing illiquidity in the markets. Hiccups in the markets will get bigger and will become common. Illiquidity is the New Normal.

Hello HFTs, how are you doing? Making $$$? Cool.

With interest rates around 0 (well, before the rate-hike in December), U.S. companies have rushed to issue debt. With the recent rate-hike by the Fed, U.S. corporate bond market will experience more volatility. Lower and diminishing liquidity will “manufacture” a volatility to a record levels that the financial markets and the economy won’t be able to cope with it.  As said, “Today’s financial markets are so connected just like the economic domino effects.”, the corporate bond market volatility will spread to the rest of the financial markets.

Oh wait, that already is happening. Reversal of monetary policy by the Fed this year, as I believe the Fed will lower back rates this year, will make things worse.

Liquidity: Peace out!

Ugly Jobs Report Is Just Temporary

Last Friday (April 3, 2015), March non-farm payrolls came out very negative. Non-farm payrolls slowed in March to a seasonally adjusted 126,000, slowest since December 2013. Unemployment rate held unchanged at 5.5%. The downturn in the jobs report could delay the Federal Reserve’s plan on raising the interest rates. Federal Open Market Committee (FOMC) have said in the past that continued improvement in labor would be a key factor on the timing of the rate-hike. I, now, believe there is a little chance of rate-hike in June.

What caused the downturn in the labor market? I believe it was because of the bad weather, plunging oil prices, and the strong dollar. The bad weather have caused businesses, especially in construction, to lose profits and to halt hiring. However, weather is a transitory factor. Plunging oil prices have left the oil industry in the dust. Oil companies are not being able to make revenue/profit. As a result, they had to layoff some of their employees. Strong Dollar is putting pressure on export-driven manufacturers, resulting in lower sales leading to layoffs. It’s also making it harder for U.S. businesses to sell goods aboard. I believe majority of U.S businesses’ revenue or earning per share (EPS) will less than expected, for the quarter.

Not only did we get to see March jobs report, but there were revisions to February and January jobs reports. January job creation was revised lower to 201,000 from 239,000 (-38,000). February job creation was revised lower to 264,000 from 295,000 (-31,000). I believe March jobs report will also be revised.

The labor-force participation rate was at 67.8%, lowest since February 1978. It shows that there’s less confidence in jobs market. Therefore, people have stopped looking for jobs. Average hourly earnings rose 7 cents or 0.3% to $24.86. The earnings can be a indicator for inflation. If it increases, inflation is more likely to increase too. Walmart and McDonald are increasing wages for majority of its employees, if not all of them.

Reactions to the report:

U.S Dollar (foreign exchange, or Forex) reacted negatively. U.S Equity markets were closed for Good Friday. We will get to see the reaction of equity market in the morning (Monday, April 7, 2015). I believe it will rise since negative jobs report could delay the rate-hike, since low interest-rate environment can very attractive to investors, including me.

 

If you have any questions, feel free to contact me anytime and/or leave comments. Thank you.

Fed removes “patient”, and adds twists

Last Wednesday (March 18, 2015), the Federal Reserve released its statement on the monetary policy and its economic projections. The The Fed dropped from its guidance “patient” in reference to its approach to raising the federal funds rate. It was largely to be expected to be removed, which would have send U.S Dollar higher and U.S market lower. However, the opposite happened because of two twists; they lowered their economic projections, and Chair of the Board of Governors of the Federal Reserve System, Janet Yellen’s words during the press conference.

According to the “dot plot”, the Fed lowered median “dot” for 2015 to 0.625% from 1.125% (December). What is “dot plot”? The Dot Plot is part of the Federal Open Market Committee (FOMC)’s economics projections and it shows what each member thinks the federal funds rate should be in the future. It is released quarterly. Sometimes, it might be released more than that, depending on economic circumstances. It gives you a perspective of what each member of FOMC thinks about economic and monetary conditions in the future.

Again, the Fed lowered median “dot” for the end of 2015 to 0.625% from 1.125% in December (-0.50%). The Fed also lowered the “dot” for end of 2016 and 2017. For the end of 2016, it is at 1.875% from 2.5% in December (-0.625%). For the end of 2017, it is at 3.125% from 3.625% in December (-0.50%). Besides, the “dot”, Yellen said one thing that took a toll on the U.S Dollar.

Even though the Fed removed “patient” from the statement, Yellen had “patient” tone during the press conference. Yellen said ““Just because we removed the word “patient” from the statement does not mean we are going to be impatient,”. This sentence alone halted US Dollar from rebounding after it dropped on the statement. There are other things that complicates the timing of the rate-hike.

It’s now more complicated to predict the Fed’s next move because of three reasons; very strong US Dollar, low inflation, and economic crisis in Europe and Japan, if not United Kingdom too. US Dollar is too strong, hurting U.S exports. Inflation has declined due to falling energy prices. The struggling foreign countries economically can also hurt U.S economy. I believe two majors factor of the Fed’s next move are the strong US Dollar, and the low inflation. When both of them are combined together, it makes imports cheaper and keeps inflation lower. I believe Europe will start to get better–as Quantitative Easing (QE) fully kicks in–money starts flowing in Europe. European stocks will probably hit new highs in the coming years because of QE program. Once, the Fed raises the rates, the money will probably flow into Europe from the U.S because of negative interest rates. Low rates have been a key driver of the bull markets in the U.S stock market the past six years. Lower rates makes stocks more attractive to the investors.

Since, the “dot” has dropped harshly, I believe this could be a sign of late delivery of rate hike. They might hike the interest rate in September, not June. However, if non-farm payrolls number continue to be strong, average wage (indicator for inflation) lifts and oil prices rebound, then the door for rate-hike for June might still be open. For now, there is no sign of oil rebounding since it has dropped sharply this week. We will get the next non-farm payroll, which also includes average wage, on April 3.

In the statement, FOMC stated “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”

The Fed want to be cautions before raising the interest rates. They want more time to be sure; “further improvement in the labor market” and “reasonably confident that inflation will move back to its 2 percent…” Although, non-farm payrolls have been strong lately, inflation is too low. The inflation is low because of the stronger dollar and the plunge in oil prices.

The Fed is in no hurry to increase the interest rate. The Fed said it would definitely not act on rates at “…April FOMC meeting.” and might wait until later in the year. I believe September has higher chance than June, from the rate-hike.

It looks to me that the Fed planned to send US Dollar lower. They probably wanted the US Dollar to be weaker before raising the rates, which could send the US Dollar a lot higher. Their plan worked. The US Dollar dropped so much that it sent EUR/USD (Euro against US Dollar) up 400 pips (above 1.10). U.S market rose after they were down ever since the release of non-farm payrolls for February. Dow gained over 200 points, as well as other indices.

 

Dow Jones (DJI) - 30 Mins
Dow Jones (DJI) – 30 Mins
US Dollar - 30 Mins
US Dollar – 30 Mins
EUR/USD - 30 Mins
EUR/USD – 30 Mins

 

Feel to contact me and/or to leave comments. Don’t forget to follow my twitter account @Khojinur30. At any moment, I might post my view on certain things. Thank you.

Update on Microsoft, RBNZ, and upcoming events to watch out.

Update on MSFT: I’m still watching MSFT (Microsoft stock ticker) for good entry. I will go long on it in the future at a good entry price. Microsoft stock and other blue chip stock fell after Intel slashed revenue outlook due to weak PC demand. The decrease in the price of MSFT is still a good buying opportunity.

Microsoft (MSFT) - Hourly
Microsoft (MSFT) – Hourly

Last Wednesday, Reserve Bank of New Zealand left the Official Cash Rate unchanged at 3.5%. NZD (Kiwi) quickly reacted by rising as it disappointed traders who were looking for rate cut. In a statement by the Reserve Bank Governor Graeme Wheeler, cited that the New Zealand dollar “…remains unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals.”  I still believe that RBNZ will intervene and send NZD down, if not by rate-cut. I would be short on NZD/USD, at this time.

NZD/USD - Hourly
NZD/USD – Hourly

Upcoming: Bank of Japan (BoJ, Late Monday/early Tuesday – March 16/March 17 EST), Federal Reserve (Wednesday – March 18 – 2 P.M EST) and Swiss National Bank (SNB, Thursday – March 19 – 4:30 A.M EST).

BoJ will either hold or increase the stimulus package. If they do, JPY (Yen) will be bearish–sending USD/JPY further up–after rising to over 121.00 this week. If they don’t, we have to watch for their tone. It will be either bearish or bulling on the Yen, depending on what BoJ say, or react.

USD/JPY - Hourly
USD/JPY – Hourly

Federal Reserve will be watched very closely after a very positive non-farm payrolls last week. This week, U.S stocks were a roller coaster. There was a hard sell-off in equities and a bullish USD (U.S Dollar), due to an increasing chance of rate-hike. On Thursday (March 12, 2015), Retail Sales came out very negative. Retail Sales fell 0.6% (-0.6%), worse than expected of 0.3%, following -0.8%. Core Retail Sales (excluding automobiles which accounts for 20% of Retail Sales) fell 0.1% (-0.1%), worse than expected of 0.6%, following -1.1%. However, it was little better than previous report in February. I believe people who are saving money from low oil-prices are probably paying off their debts, before they spend on “wants”. The U.S market reacted positively because some people thought that negative Retail Sales would hold-off the Federal Reserve from raising the interest rates. On Wednesday, the Fed might also drop “patient”, signaling that rate-hike is very close.

S&P 500 (SPX) - Hourly
S&P 500 (SPX) – Hourly
US Dollar - Hourly
US Dollar – Hourly

SNB might set a new floor to the exchange rate (EUR/CHF). I would not trade CHF (Swiss Franc) because of two reasons. One, it’s too violent and there is no clear direction yet. Second, SNB does not know what it’s doing after what they did in January. But, I would still watch out closely, as it might affect other pairs, such as EUR and USD.

EUR/CHF - Daily
EUR/CHF – Daily