With the World Cup ending last Sunday, many people were in search of exciting programming to entertain them. I’m sure many fed their hunger for audio-visual stimulation by tuning in to Federal Reserve Chair Yellen’s two-day testimony before the Senate Banking Committee and House Financial Services Committee. I’m sure many of you were hoping for “extra time” as Chair Yellen answered questions before both houses of congress. In reality a greater number of people may have found that watching the testimony helped to cure their insomnia.
Fed Direction
Fed Reserve Chair Yellen reminded everyone that there is not a mathematical formula on how to conduct monetary policy, and unemployment and inflation will be the big influencers on any actions the Fed may take. As Yellen addressed the House of Representatives on Wednesday, our neighbor to the North also gave us some international monetary policy to tune into.
Bank Of Canada
The Bank of Canada confirmed that it would keep interest rates at historic lows (1%), signaling its approval of a weaker currency. This decision should not be a surprise to anyone, but the statement “The bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks,” gives observers a hint that they are in no hurry to raise rates. This would be a concern for many economies that aren’t in “recovery mode,” but as a large exporter of commodities many view a weaker currency as beneficial to Canada. The weaker the Loonie (Canadian dollar) is against the U.S. dollar, the more appealing Canadian goods are to foreign buyers.
Forex Trade
The latest rate decision combined with last week’s soft job numbers in Canada, has me bearish on the Canadian dollar. I like buying the Sep Canadian dollar 9200-9000 put spread at 30 points ($300.00) or better. We are long premium in this trade so risk is limited to cost of entry plus fees and commissions. Full value of the spread at expiration (09/05/14) is $2000.00. I am setting an early target exit at 80 points. If the Canadian dollar shows some strength and holds steady, I would look to get out for a 15 point loss.
Grains Webinar
For those interested Walsh Trading is holding our weekly grain webinar today Thursday July 17 at 3 pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
