David Rodríguez is a quantitative analyst for DailyFX.com, specializing in statistical studies in currency trading markets and algorithmic trading systems for the Managed Accounts Programs offered by parent company, FXCM.
He holds a degree in Economics from Williams College with heavy emphasis on quantitative methods and began trading financial markets in the tech boom and bust of 1999-2001. Since then, David's primary focus has shifted from equities to currency markets, but he continues to trade futures and futures options on a broad range of asset classes as well as currencies.
Is the so impatiently awaited third round of the QE program really the right tool to fend off recession in the US, despite evidence of its diminishing effectiveness since it was first introduced in 2008?
I don’t think anyone is under the impression that the third wave of Quantitative Easing (QE3) will be the ‘silver bullet’ needed to fix the US economy. Given that long-term interest rates are already near record-lows, it stands to reason that even-lower rates might not fix the problem. The much bigger issue is the so-called “Fiscal Cliff” currently on the ledger for 2013, which will put serious pressure on the US economy unless the government acts to stop it. It will feel like 2011 all over again as it seems certain to get scrappy in the US legislature as the highly partisan atmosphere makes any real compromise especially unlikely.
Do you believe that the ECB would be disposed to introduce negative deposit rates in order to discourage banks from hoarding funds at its deposit facility?
Many speculate that the ECB might actually go to Negative Interest Rate Policy (or NIRP, as I like to call it), but I don’t think it makes sense and it seems unlikely. The thinking goes that it would encourage banks to lend to real economies instead of hoarding cash. Yet price action shows that many investors are willing to accept negative yields on German Bunds in favor of safety; yields on German government borrowing at 3 and 6-month maturities are at -0.07%.
Would an ECB move to NIRP make a difference? Maybe. But it could also further constrain at-risk banks that already find themselves in need of recapitalization. It feels like a move that would cut off the nose to spite the face.
Do you expect the German Constitutional Court to back the ESM and the EU fiscal compact when it releases its decision on September 12?
I think it’s going to be a close call and will truly put the independence of the judiciary branch to the test. Political pressure on the court to rubber stamp the ESM and fiscal compact is immense, as a rejection could in effect undo the measures intended to stabilize the Euro Zone. We expect significant Euro volatility surrounding the decision, as it could truly prove pivotal to the future of the EMU.
Do you see the EUR/USD continuing its long-term down trend and falling below fresh 2-year low at 1.2160 or do you see this level as sustainable dinamic downtrend support?
I think we’re at substantial risk of a short-term exhaustion low, but the overall trend remains clear. Why? Looking at a broad range of markets you see a significant divergence between price and trader positioning. FX Options show that traders are their least bearish EURUSD in two years despite the fact that the pair trades near multi-year lows. Timing a reversal is always extremely difficult, but I feel that complacency could force a significant short-covering rally in the coming weeks and catch many traders off-guard.
Do you think the SNB will be able to maintain peg on EUR/CHF for along after the latest violations below 1.20 that could be taken as evidences of a possible failure?
I have to commend the SNB for their resolve so far, and realistically they’ve proven that they can stand firm despite tremendous downward pressure on the Euro. Do minor violations of SFr 1.20 signal the end of the peg? I don’t think so—especially because I think the EURUSD could see a substantial bounce through the coming weeks and month of trade. Let’s revisit the theme when the EURUSD breaks to fresh 5-year lows.