Modern Central Bank Mandate: Keep Assets Propped Up.

On my social media, and on my blog, I speak about the new western central bank mandate. Historically, when PRIVATE central banks were created, their mandate was the be the lender of last resort. This mandate morphed when central banks began having a more influential part in economics due to a shift from classical economics, to mercantile/keynesian economics. This new mandate was to maximize employment, and to handle inflation through monetary policy. I argue that the new mandate is now to keep assets propped. Central banks are now wording their rhetoric and actions in a way to keep stocks and real estate up.

I am going to make an uber contrarian call…but Larry Kudlow confirms this now. I believe that the Federal Reserve will actually CUT interest rates next month (April). At the beginning of this year, I stated that if some sort of action is taken on interest rates, it will most likely be a cut rather than a hike.

Larry Kudlow said that the Fed should cut rates 50 basis points immediately. Also, if you look at bond yields, people are front running lower interest rates. These equity markets have been shaky (more on Brexit later), and I believe if the Federal Reserve does NOT cut rates next month, these markets will take quite the hit. Very contrarian yes, but I truly believe the Fed is now doing what they can to keep stocks propped, not necessarily the real economy.

Brexit. I have spoken about Brexit a lot, and my opinions have been that Brexit will not allow to happen due to two things. Firstly, the British politicians who are apart of the European Parliament lose out on income. Secondly, I believe the European elites want Britian to remain because they know a European bail out will be required (maybe Italy, France, Spain etc) and the German taxpayer cannot do this alone. They will require the British taxpayer.

Now, there is a third reason. They cannot allow the world equity markets to fall. If Brexit does happen, it would be negative to equity markets. PM Theresa May has had 3 bids failed in British Parliament and is now considering a 4th. London has until April 12th to present a deal to Brussels otherwise we get a “hard” Brexit. I have spoken about European votes and democracy being ignored four times in the past. Brexit looks like it will be the fifth. They will try to force a second referendum. Again folks, this is the world we are living in today. The system is very fragile with financial, geopolitical, political, and social problems on a knifes edge. What is coming up will be a confidence crisis.

I have spoken much about this confidence crisis, and I will speak more about it. When Central Banks begin cutting interest rates, and it looks like we will go negative, and back to QE, or even bail outs for banks…people will begin to question central bank policies. On the question of bail outs, governments will be broke this time around, so do we do a bail in or some other new type of policy ushered in by the left?(MMT etc). This is the confidence crisis looming.

The economic calendar is interesting:

  • Monday: Caixin Chinese Manufacturing PMI (March), US Retail Sales (Feb), ISM Manufacturing PMI (March).
  • Tuesday: RBA Interes Rate Decision (Very important, as New Zealand admitted they will likely have to cut rates…I believe Australia will follow, as well as Canada). US Non-Defense Capital Goods Orders ex Aircraft (Feb).
  • Wednesday: ISM Non-manufacturing PMI (March).
  • Friday: US Non-Farm Payrolls (March), CAD employment data (March).

A lot more US data this week, will we continue to get negative data prints? Prompting stocks to go higher in this environment…due to investors and traders believing the Fed will cut rates. Stocks will go higher.

To some set ups this week. A lot of Canadian set ups, so let us start with oil.

Both Oil (WTIC and Brent) are charts to watch for this week. First, on the daily chart, we are still in an uptrend, so beware of this. This trend has multiple waves, but has some room still on the upside. We have made a triple top on the 4 hour chart, again, does not mean anything but perhaps the beginning of momentum running out. The trend is still intact until we take out the swing (higher low) I am watching 58.30 and 66.50 respectively.

Really like CADCHF here. We have had a nice trend downwards with multiple waves, a bottoming pattern (double/triple bottom) and broke above the swing (0.7440 zone). Watching the current zone it is test, obviously a break higher confirms a higher low. Targets at 0.7550 zone.

NZDCAD is maybe not the most ideal chart, but as you can see there is a head and shoulders that is apparent, although the shoulders are quite far from the head. If we do break below 0.9070, I may consider entering. Although, the daily chart set up looks even better but requires a break below 0.89, so still long ways to go.

Much more beautiful. I mentioned AUDCAD in last weeks setups. Hit our first target to the upside, and now we have created a textbook head and shoulders pattern. Again, this shows a classical shift of trends. Unfortunately, the lower low break was on a Friday. Will look at how this opens this week before entering.

Another set up I mentioned in last weeks charts, the GBPAUD. Again, unfortunately we had the break on Friday, and so I will watch the next few candles before entering. Would like to see a retest, or a break lower.

Looking at EURCHF on the daily chart, but there is a possibility of an upside play on the 4 hour or 2 hour with a break of the lower high swing. But for the downside, we closed below an important support zone and there is some downside below. 1.000 zone is a good target.

NZDJPY was a setup triggered last week on the 2 hour chart. Nice bottoming pattern, and a break higher. Would like to see a higher low which gives us the first wave in this move. Targets up at the 76.00 zone.

Another Canadian dollar pair, the CADJPY. We have had our break, and you can see we have formed our first higher low. The 84.00 zone is a good target.

USDCAD had a break on a Friday candle. We have broken below a swing and are now transitioning to a downtrend wave. Again, will like to see how the market opens and make my decision then.

USDCHF is another textbook chart. Nice downtrend wave, a bottoming pattern (double top) and now am expecting a break for an uptrend wave. You can see based on price action that this is a crucial zone. Looking for a candle close above 0.9975.

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