Us Dollar Outlook
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Transcript of Us Dollar Outlook
US Dollar Outlook
Kathy Lien and Boris Schlossberg
Directors of Currency Research
DisclaimerGFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading, GFT Global
Markets Asia Pte. Ltd. and GFT Global Markets UK Limited. In the United Kingdom, GFT Global Markets UK Limited is authorized and regulated
by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale
are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can
carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means
Global Futures & Forex, Ltd. ARBN 103 508 461, AFS License 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au.
You should read and consider the PDS before making any decision to deal in GFT products. This [advertisement] is published by GFT Global
Markets Asia Pte. Ltd. (Company Registration Number 200717665N) in Singapore for informational purposes only and is not an offer or a
solicitation to deal in any investment product or to enter into any legal relations, nor an advice or a recommendation with respect to such
investment product. © 2009 Global Futures & Forex, Ltd. All rights reserved.
DISCLAIMER: This presentation and the information provided here should not be relied upon as a substitute for extensive independent research
before making your investment decisions. Global Forex Trading is merely providing this presentation for your general information. This
presentation and its information does not take into account any particular individual’s investment objectives, financial situation, or needs. All
investors should obtain advice based on their unique situation before making any investment decision based upon this presentation or any
information contained within. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global
Forex Trading, Boris Schlossberg, and Kathy Lien will not be responsible for any losses incurred on investments made by readers and clients as
a result of any information contained in this presentation. Global Forex Trading, Boris Schlossberg, and Kathy Lien do not render investment,
legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent
professional should be sought. CD08BKU.004.021809
BK
Agenda
Big Moves in the FX Market
Headed to ZIRP
Outlook for the US Economy
China: Obama’s New Strategy
Eurozone Stress
UK Mess
No Yen for Japan
Who will bounce back first?
Outlook for EUR/USD, GBP/USD, USD/JPY
BK
The US Dollar
Skyrocketing since July 2008
K
EUR/USD
KSource: Dealbook
GBP/USD
KSource: Dealbook
EUR/JPY
KSource: Dealbook
GBP/JPY
KSource: Dealbook
USD/JPY
KSource: Dealbook
Relative Performance - USD
K
Source: Bloomberg
Relative Performance - JPY
K
Revenge of the Low Yielders
Source: Bloomberg
Volatility Has Surged
K
Source: Bloomberg
PPP - CPI
K
Source: Bloomberg
What happened?
B
ZIRP
The Path Towards Global ZIRP
BSource: GFT
ZIRP
Why?
B
Because price levels are collapsing.
Oil vs. CPI
BSource: GFT
What are the Drivers?
CPI Case-Shiller Used Instead of Owners Equivalent Rent source http://globaleconomicanalysis.blogspot.com/
BSource: GFT
What are the Drivers?
What are the Drivers?
Yield No Longer Matters
B
The only question for FX:who will rebound first?
Recession vs. Depression
Recession: When your neighbor loses his job
Depression: When you lose your job
B
Recession vs. Depression
B
Great Depression of 1929
1. Unemployment at 25% (now 7.5%)
2. GDP at $7.5 trillion (now $13T)
3. Deflation - CPI at -10% (now +0.1%)
4. House prices dropped 25% (now -10%)
5. World trade declined 65%
6. Stocks dropped 40% from Sept to Oct and down 90% by 1932
(down 43% since 2007)
US Economy
Recession vs. Depression
B
Recession
1. Defined as when GDP growth slows, businesses stop expanding, unemployment rises and house prices decline.
2. Managed contraction in GDP.
3. Brought on by tight interest rates, ends when CB eases
4. Lower rates help boost liquidity
Depression
1. Defined as a downturn that lasts several years
2. Unmanaged economic contraction where monetary policy ceases to work as rates hit zero
3. Further rate cuts impossible
4. Prices drop as demand falls
5. Deflationary expectations set in
6. Cannot self-correct since they are structural problems
US Economy
How long do recessions last?
B
Protectionism
Buy American Bill:Allows companies to buy only
US-manufactured steel and iron
Source: berklube.com
US Economy
Can we spend our way out of a recession?
• $900B Stimulus Package - Keynesian Economics
• Focused on energy, education and health care
• How will we pay for it? > Raise taxes and/or print money
• Raise Taxes – Robbing Peter to pay Paul
• Print Money – Rob Paul to Pay Paul back with devalued $
• What we need is INNOVATION
US Economy
US Economy
Can we spend our way out of a recession?
Source: Bianco Research / East Coast Economics
• Consequences of branding China as a currency manipulator
• China has $1.94 Trillion in FX Reserves- $900 B estimated to be in US Treasuries
Agencies Have
Government
Backing
Source: Brad Setser
China
China
Growth
• Q4 growth was 6.8%,
• 2008 growth was 9% (7-year low)
• Can China make its 8% growth target?
• Minimum that China needs to create enough jobs
Source: National Bureau of Statistics of China
Ramifications for the US Dollar
• In past recessions, $ tends to fall in first six months, rises in next six months
• No pattern beyond 12 months
• 1980s recession
Source: Bloomberg
Euro Stress
Is Trichet too slow?
Source: DealBook
Euro Stress
Part of dollar’s strength is due to the fact that Euro is losing viability.
Can a currency without a country survive a steep economic
downturn?
UK Mess
The hedge fund economy blows up…
Source: Bloomberg
UK Mess
…but maybe it’s hit bottom.
Source: Bloomberg
UK Mess
Has EUR/GBP topped?
Source: Dealbook
No Yen For Japan
No Yen For Japan
Industrial Production Falls at Fastest Pace Since Great Depression
Source: Bloomberg
No Yen For Japan
Toxic combination of strong Yen and collapsing global demand.
Will BOJ Intervene?Will it Work?
No Yen For Japan
Source: Dealbook
Carry Trades
Is Mrs. Watanabe turning short?
Source: Tokyo Financial Exchange
Key question: Who will bounce back first?
Recovery
Outlook for the Majors
EUR/USD Up-Down?
UP DOWN
EZ economy stabilizes as North/South nations create a coordinated plan of action and faith in the currency is restored.
US economy responds to stimulus, first to rebound from
global recession.
US Treasury Auction fails as investors refuse to absorb any more US Sovereign debt capital flight ensues.
EZ union nears collapse as economic stress creates
political backlash, member sovereign credits come under
assault.
Global capita markets rally, risk assumption returns as doomsday fears dissipate.
Dollar remains repository of safe haven funds as global
economy remains mired in a protracted recession.
GBP/USD Up-Down?
UP DOWN
UK economy stabilizes – PMI’s a clue? Quick monetary and fiscal response, lower pound yield positive results.
UK economy remains stuck at very low production rates as demand is curbed due to persistently high jobless rate and growing debt burdens.
Global capital markets stage a rally. London resumes its role as the financial intermediary to the world.
Global capital markets remain bearish – BOTH equities and fixed income continue to fall.
Capital leaves the dollar on US financial concerns.
High leverage of UK consumers and massive
issuance of sovereign debt trigger capital flight.
USD/JPY Up-Down?
UP DOWN
US economy bounces, Dow rises, US 2-year rates increase to 3.5% reviving demand for carry and yield.
Risk Aversion reigns supreme, Dow dives to 6000
or lower.
Japanese economy recovers slightly prompting return of risk appetite.
US economic fortunes do not improve, credit contraction
creates massive deflation of US assets.
BOJ intervenes as strong yen hurts exporters.
Repatriation of Japanese funds continues unabated as
world sits at ZIRP.
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DisclaimerGFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading, GFT Global
Markets Asia Pte. Ltd. and GFT Global Markets UK Limited. In the United Kingdom, GFT Global Markets UK Limited is authorized and regulated
by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale
are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can
carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means
Global Futures & Forex, Ltd. ARBN 103 508 461, AFS License 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au.
You should read and consider the PDS before making any decision to deal in GFT products. This [advertisement] is published by GFT Global
Markets Asia Pte. Ltd. (Company Registration Number 200717665N) in Singapore for informational purposes only and is not an offer or a
solicitation to deal in any investment product or to enter into any legal relations, nor an advice or a recommendation with respect to such
investment product. © 2009 Global Futures & Forex, Ltd. All rights reserved.
DISCLAIMER: This presentation and the information provided here should not be relied upon as a substitute for extensive independent research
before making your investment decisions. Global Forex Trading is merely providing this presentation for your general information. This
presentation and its information does not take into account any particular individual’s investment objectives, financial situation, or needs. All
investors should obtain advice based on their unique situation before making any investment decision based upon this presentation or any
information contained within. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global
Forex Trading, Boris Schlossberg, and Kathy Lien will not be responsible for any losses incurred on investments made by readers and clients as
a result of any information contained in this presentation. Global Forex Trading, Boris Schlossberg, and Kathy Lien do not render investment,
legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent
professional should be sought. CD08BKU.004.021809
BK