The Dollar Breaking Point

Lior Alkalay - INO.com Contributor - Forex


Last week, the Fed released its FOMC minutes, the protocol of the Fed's decision makers, and already it seems to have backfired. While the minutes thoroughly described how FOMC committee members have gradually shifted their projections on inflation and a lower Fed Funds Rate, comments that were supposed to gently assist in tilting the dollar lower have done the exact opposite.

FOMC Minutes Backfire

The Fed's statement contained two comments that were combined or written in such a way that investors immediately became wary of shorting the dollar. The first, was the remark on the fact that excess capacity and downward pressure in commodities was seen as winding down gradually thus keeping the Fed's long-term inflation target of 2% (or close to it) still intact. So far so good, yet the Fed also added a statement on what is holding back the possible rate hike and that is low energy prices and a strong dollar. In other words, the Fed outlined that a lower dollar would increase the chances of a rate Continue reading "The Dollar Breaking Point"

Is The Yen Facing Another Meltdown?

Lior Alkalay - INO.com Contributor - Forex


It’s spring, and the cherry blossoms are in full bloom in Japan, the “Land of the Rising Sun” and home to the Japanese Yen. While many view spring as a time for new beginnings, from a more practical and economical perspective, it’s also means a new fiscal year in Japan, thus this is an ideal time to review all the data and attempt to gauge the Yen’s next trajectory. Of course, many want to know if the Japanese currency is facing yet another meltdown. While it is a rather straightforward question, with a seemingly straightforward answer, the fact is we must delve deep into complex issues including the mechanics of Quantitative Easing, Japan’s public debt and inflation.

What QE Does?

The intention of Quantitative Easing, or QE as it’s popularly called in the mainstream, is simply to allocate funds to the private sector which, hopefully, will revive growth and inflation. QE is based on one of the key pillars of capitalism, namely that funds are better off in the hands of the private sector if the preservation of growth is the goal. That sounds reasonable, but there is a macroeconomic issue at play, as well. Most of the time, the government (naturally, depending on which government) is deemed a vastly superior borrower to any private company or Continue reading "Is The Yen Facing Another Meltdown?"

Chaos in Yemen Could Undermine Dollar

Lior Alkalay - INO.com Contributor - Forex


Yemen, a country south of Saudi Arabia, and with an economic output roughly the equivalent to that of say, San Antonio, Texas, is sinking deeper into chaos. Though in the grand scheme of things in the Middle East, that chaos stems from a relatively small country, it is likely to have widespread ripples that could affect market sentiment, in general, and specifically, in the FX market. One might ask how on earth Yemen, a small country that is primarily desert and which is categorized as among the world’s poorest, could affect trends in the Dollar, the Euro and other currencies?

Yes, it’s Oil Again

The answer, as you might have guessed, and the only way that trouble in a small Middle Eastern country could have repercussions on global markets, is through Oil. Despite the fact that Yemen produces less Oil than Denmark and its direct effect on Oil supply is marginal, its location is critical. Yemen is situated on the banks of the Gulf of Aden, the 4th largest passage for Oil in the world and a key passage for seaborne Oil and gas from the Middle East. Analysts point out that with the country deteriorating into chaos, the risk of Oil tankers being hijacked by pirates grows much higher and thus heightens Oil supply risks. Now, while this might be a plausible risk scenario, it is not the real Continue reading "Chaos in Yemen Could Undermine Dollar"

Dollar Volatility Coming Your Way

Lior Alkalay - INO.com Contributor - Forex


Would you say that Janet Yellen was some sort of silver tongued wizard? After this week’s rate decision the answer might be yes, because otherwise it’s close to impossible to explain how the Fed Chair was able to come across as sounding both hawkish and dovish in the same speech. On the one hand, Yellen dropped the word “patience,” suggesting that interest rates could rise within any future meeting, with most Fed members in favor of a rate hike in 2015. On the other hand, Yellen pointedly stressed that rates would rise slower than previously anticipated and outlined her concerns on low inflation and wage growth. This “impossible” combination of hawkishness and dovishness resulted in dazed and confused markets, and investors it seems are having difficulty deciding which way the wind is blowing at the Federal Reserve, with the hawks or with the doves. Given that, they’re collectively trying to gauge whether the dollar is now a buy or a sell?

Choppy Times Ahead

Soon after the Fed statement was made, it was a stampede of sellers, bulls running out of dollar positions, and the greenback in a nose dive, shedding more than 2% in less than 3 hours. Yet the following morning, as trade opened in London, everything flipped once again; the dollar was higher and ended up more or less where it is was prior to the Fed decision. Continue reading "Dollar Volatility Coming Your Way"

Sterling by the Charts

Lior Alkalay - INO.com Contributor - Forex


The UK economy, it seems, has been a study in opposites. It has swung from having been the fastest to the slowest, from experiencing high growth and then sluggishness, from moving from a high inflation environment to a low inflation environment. The UK economy is the great dichotomy, comprised of fading expectations and the bursting of optimistic sentiment that together carves the path of the Pound Sterling, a path that is as shaky now as it ever was and which, it seems, has been broken just this week.

Sterling Not Coming Back?

Looking at the chart below, we can tell much about the governing dynamics of Sterling buyers and sellers. Dips in the Sterling trade vs the Dollar were plentiful; back in 2009, when the crisis was at its climax, back in 2010, when UK growth was pegged as just “sluggish,” and then back in 2013, when it seemed the UK economy had finally lost all steam. Yet each and every time Sterling buyers emerged; in fact, not only did they emerge and crowd back into what they deemed an undervalued currency, but each time they emerged at a higher point, painting a picture of a fragile but steadily ascending path for the Pound vs the Dollar. Yet as the latest point on the chart shows, at this point in time the buyers have not re-emerged, letting the Pound break its ascending path. Why, this time in particular, are Sterling buyers not coming back? Continue reading "Sterling by the Charts"