Forex Trading Analysis – Problems with the Banking Sector

July 16, 2016

The banking sector crisis in Europe moves forward. A large-scale bailout looks inevitable. In the meantime, BOJ (Bank of Japan) gets closer to stepping up efforts to boost growth and inflation. Any Forex trading analysis these days considers “helicopter money”.

BOJ starts to run out of new measures to implement. And, of course, Brexit happened. The United Kingdom and the European Union must get used to this reality, In short, there are plenty of signs that we should be ready for further easing. BOJ, BOE (Bank of England) and, possibly, the ECB (European Central Bank) too.

“One day the AIs are going to look back on us the same way we look at fossil skeletons on the plains of Africa. An upright ape living in the dust with crude language and tools, all set for extinction.”
Nathan (Oscar Isaac), Ex Machina (2015)

Fundamental Particularities in Any Forex Trading Analysis

However, things do not go always as planned. Especially in trading.

The majority of market participants expected a rate cut from BOE last Thursday. But, the official bank rate surprisingly remained unchanged.

The unexpected outcome caused a vicious spike to the upside in GBP related pairs. It gave a lot of headache to the bears. However, the fight is far from over.

While BOE’s move was a bit odd, it doesn’t mean that they will not cut – quite the opposite. According to the minutes, BOE is just warming up. And, it’s possible that we’ll see a double-move in August, meaning a rate cut and a QE (Quantitative Easing) announcement.

What Next for the British Pound?

Though it all sounds super-bearish for the British pound there’s one thing we should keep in mind. Mr. Carney expressed his worries regarding the possible Brexit well before it actually happened. Hence, there’s a strong possibility the market has priced in potential easing measures into the GBPUSD exchange rate.

It means that, whatever the BOE will do, the reaction that follows might not be as aggressive as bears hope.

On the other side of the world, Japan struggles with its own demons. At the beginning of the week, the big news was that Mr. Ben Bernanke met with Mr. Kuroda and Mr. Abe.

They discussed Japanese economy's problems. Quickly rumors regarding the possible use of the “helicopter money” started to spread. Helicopter money will be part of any Forex trading analysis from now on.

And, later on, they were more or less confirmed. The subject did come up during the meetings.

Yet, it’s way too early to start speculating on that idea. As one Japan’s official said, “adopting helicopter money in the strict sense is impossible as it’s prohibited by law”.

Furthermore, “it’s an illusion to think that a country can spend as much money as it wants, without having to pay it back”.

Both arguments make perfect sense. And, most likely, introducing such a monetary policy tool without a fair amount of damage to one’s own credibility, it's impossible.

Competitive devaluation is already a problem. And, if some should bring in the “big guns”, chances are that the other central banks will do the same. Hence, hyperinflation appears.

Last but not least, the ECB has a problem. The non-performing loans in the Euro area won't shrink.

Forex Trading Analysis

Conclusion

One thing is more than clear – the issue of bad loans won't go away by itself. And, given the total amount of debt, (e.g. $360 billion in Italy ), it’s hard to believe that the ECB won't step in.

Most likely, tax payer’s money once again will come to the rescue. After all, the can needs to be kicked down the road!

Capital Properties FX
July 16,.2016

Capital Properties FX