Last week’s events were entirely overshadowed by two events of critical importance. The first, the FOMC rate announcement, which was planned well in advance of its release, and whose outcome was known in advance. The second was the blistering salvo of antagonistic trade barbs lobbed by the US administration and principally its Chinese trading counterpart, but which brought in other counterparties to contribute their own. The outcome of this unfriendly series of events was hardly scripted or well understood by investors and the general public alike.
The matrix below contains the movements in the currency markets as well as the movements in the equity markets since the arrival of the current US administration and the current pullback in equities respectively.
We suggest that any active trader learn this matrix because it is likely to be the map and chart of the near future. The conscientious trader not only listens to and sees developments in the capital markets but accumulates this micro data into a composite picture of information and knowledge and less like raw data. In other words we want to see the pattern within the constant flow of seemingly random data and having a clear snapshot of the past (a map) allows our memory to be updated so that our map is accurate.
We see two distinct trends in the data. First, that since Trump was sworn in, currency markets have wanted to own the USD less than before.
This fall is despite the regular and steady increase in the USD interest rate, the latest installment of which took prominent place last week raising to 1.75% the Fed Funds rate. Ordinarily, a rise in the interest rate of a currency will strengthen the demand for that currency in world markets. Not so the case currently with the USD.
Second the indices. They have, one and all, taken very steep falls from the beginning of February. Before launching into the whys and wherefores of this phenomenon, let us understand that declines of these orders of magnitude are not “corrections” in the usual technical analysis use of the term “correction”. Approaching 10% all, the indexes have, and continue to, reach levels of decline associated with the word “crash”.