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Monday, January 19, 2015

Currency Wars Come Alive as Central Banks Worldwide Make their Decisions Pressing Bond Yields

Currency Wars Come Alive as Central Banks Worldwide Make their Decisions Pressing Bond Yields


Mon, 19 Jan 2015 06:37:00 +0400

Last week, international investors didn’t expected any major news or decisions. However, despite their expectations, the Swiss National Bank (SNB) shocked the entire financial world by unexpectedly deciding to unpeg the Swiss Franc from the common European currency as well as to cut the Libor rates.

On top of causing unprecedented volatility across the Forex market, which resulted in many traders going seeing negative balances and some Forex brokers experiencing major financial difficulties and even announcing insolvency, such a move by the SNB stimulated respective reactions from other central banks, thereby promoting a new wave of international currency wars.

At the same time, this situation triggered a decline on bond yields as investors keep on fleeing risky assets like stocks for safe-have assets like bonds. In other words, stocks have been sold in favor of bonds since the SNB’s unexpected decision. As a result, safe haven currencies gained some strength while the prices of U.S. bonds appreciated, thereby pressing down their yields.

Still, U.S. bond yields are not the only ones to decline. Japanese, French, German and many other bonds have already send their yields go down since then.

Moreover, the Japanese short-term bond yields entered the negative zone in 2014 amid the Bank of Japan’s big-scale asset purchase program. Last week, even the 5-year bond yield came close to zero. At the same time, the 10-year and 30-year bond yield curves have been in a steady downtrend for a while. Investors say this is abnormal. Amid inflation slowdown and unexpected central bank decisions, investors are more likely to cash out and keep their funds safe and secure under the mattress rather than paying governments for backing the safety of their savings.

At the same time, Masterforex-V Academy experts do not deny the possibility that that Denmark ’s central bank may well be the next EU central bank after the SNB to make an «unexpected» monetary decision. With that said, Masterforex-V Academy predict that most traders and investors are going to be focused on central bank decisions this week. It is quite logical if to consider the aftershock of the SNB’s decision since wise traders and investors are expecting other banks to respond. While they are waiting for reports from the central banks of Japan and Canada, the major focus is obviously the European Central Bank’s decisions, which is scheduled for January, 22nd. Some market participants expect the ECB to implement quantitative easing.

At the same time, Greece is to conduct parliamentary elections on January, 25th. The possibility of a Greek exit from the Eurozone (Grexit) is currently the biggest political risk for the Eurozone.

According to the experts from the Options Trading Department of Masterforex-V Academy, the expected interest rate hike in the USA (expected in mid 2015) may reverse the bear tendency seen with the bond yields, especially in Japan and the Eurozone. From the latest 2008 crisis and up until recently, central banks coordinated their efforts to avoid other global aftershocks. Still, after the Fed tapered its QE to the end, the era of coordinated efforts was over, which is confirmed by the SNB’s recent move unleashing another wave of currency wars worldwide.

If the ECB does launch another big-scale asset purchase program, chances are that this effort may well stop bond yields from going down. Or the Bank of Japan may well react to the declining bond yields and improve the durability against further monetary easing. Still, experts still believe in the BOJ’s decision to continue its monetary easing in April 2015 after an unexpected decision to start the easing on October, 31st, 2014.

Meanwhile, lower oil prices may contribute to reaching a Japanese budget surplus. 95% of the holders of Japanese bonds are Japanese investors. Still, if the current conditions are still there in the near future, the Japanese Yen is probably going to fall further down in against the U.S. Dollar.

The same story may hold true for the Eurozone. Amid a weaker euro amid differences in the economic situations and the monetary policies in Europe and the USA, we are likely going to see are flight of investment capital from the Eurozone while low energy prices are going to make it possible to stimulate consumer spending. Regardless of the ECB’s decision, the common European currency is likely to see a sellout in the short run, Masterforex-V Academy experts assume.

http://www.profi-forex.us/news/entry4000006841.html
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