Rather Dreary

While FX remains rather dreary

The market for Bitcoin’s quite cheery

With futures now started

One can’t be fainthearted

When trading, though I’d still be leery


Undoubtedly the biggest news over the weekend was the inauguration of futures trading on Bitcoin by the CBOE. It has received all the press and all the hype although actual trading volumes have not been very large. It will be interesting to see how it progresses through the day, and of course, the CME begins trading in their own contract next Sunday. My one observation is that regardless of how one would value Bitcoin fundamentally, in a market environment the ability of the price of an asset to climb exponentially for any extended length of time is extremely limited. In other words, while it may eventually be worth much more than today’s value, my gut tells me that we are due for a very significant correction at some point, something on the order of 60% or more if history is any guide. Just beware if you own any.

But away from the excitement there, FX remains in the doldrums. In the G10 space there have been two movers of note, NOK and NZD. The former fell 1.0% as CPI data released this morning was softer than expected and traders took the news as a sign that Norway will be lagging the global move toward higher rates. Inflation there continues at around 1.1%, nowhere near the targeted 2.0% and it seems that the Norges Bank has been having only limited success turning things around. On the opposite side of the spectrum, NZD rallied 1.0% as the RBNZ had a new governor named. Adrian Orr, previously the CEO of the country’s sovereign wealth fund, was a mild surprise and is seen as somewhat more hawkish than the outgoing governor, Grant Spencer. Year to date, kiwi has been the worst performing currency in the G10 and the only one to actually decline vs. the dollar. This has seen quite a buildup of short positions, and with the prospect of a more hawkish RBNZ, last night saw a great deal of short covering. It is not clear to me this will last, but another day or two of a squeeze doesn’t seem improbable.

But boy, away from those two, it is hard to get excited about anything. Perhaps the most interesting situation is that of the British pound, which continues to drift slowly lower despite the ‘breakthrough’ in the Brexit negotiations a week ago. If you recall, when the news was announced the pound jumped up as high as 1.3520. But here we are this morning, as more sober views have been incorporated, with the pound trading more than 1.2% lower and continuing to drift in that direction. As I have written repeatedly in the past, it is difficult to see a medium term positive framework for the pound.

Turning to the emerging markets, it has also been an extremely dull session. While there are more currency gainers than losers, the biggest winner has been BRL, which opened higher by just 0.35%. And if that is all you can get out of an EMG currency, it tells you that interest continues to be elsewhere rather than in FX markets.

Looking ahead to the rest of the week, we have some important data, notably CPI, but of even greater interest we hear from both the Fed on Wednesday and the ECB on Thursday. While I don’t anticipate any surprises on the rate front (Fed +25bps, ECB unchanged) all eyes will be on their respective forecasts for how 2018 will play out on the rate front. But ahead of that, here is the week’s data:


Today JOLTS Job Openings 6.1M
Tuesday NFIB Small Biz Confidence 104.0
  PPI 0.3%
  -ex food & energy 0.2%
  Monthly Budget Statement -$134.5B
Wednesday CPI 0.4% (2.2% Y/Y)
  -ex food & energy 0.2%
  FOMC Rate Decision 1.50% (+0.25%)
Thursday ECB Rate Decision -0.4% (unchanged)
  Initial Claims 239K
  Retail Sales 0.3%
  -ex autos 0.7%
Friday Empire Manufacturing 18.3
  IP 0.3%
  Capacity Utilization 77.2%

Certainly, an unexpected CPI print right before the FOMC announcement will lead to questions about how next year plays out, especially if it is stronger than expected. I would argue that market concerns are the Fed may move faster than their current rhetoric, and certainly faster than the market is pricing rather than slower. In the end, the dollar is going to find itself beholden to the changing trajectories of the FOMC and the ECB. It seems to me that the dollar’s weakness this year has been a result of the improvements in GDP growth elsewhere in the world and the idea that other central banks will be adjusting policy more rapidly than previously expected. This week’s meetings will help us all understand if that narrative remains appropriate, or if a new one is in the making.


Good luck