 So, welcome everyone. So, welcome to this week's group call, the 23rd of August 2023. And before we get into some of the currency summary report, I wanted to talk a bit about how future interest rate expectations affect today's exchange rates. And it's really important to keep this in mind when obviously trading currencies and looking at forecasts, etc. And speaking of forecasts, so when you look at forecasts, right, so we typically go to, you know, many banks forecast and see what, you know, they're looking at in terms of exchange rates for the third quarter, fourth quarter, first quarter, etc. And, you know, looking at the consensus, right, because not all banks are going to agree that, you know, the euro should be worth 112 in the future, right, or 115 in the fourth quarter, or 118 in the first quarter, right, different banks are going to have different forecasts based on the information that they're processing and their models, etc. But what we want, what we're looking to do is get as much forecasts as possible and then go with the consensus. So, let's say, for example, we have 10, you know, forecasts, and, you know, maybe seven of those are saying that they're all their long euro dollar, then you typically want to go with the consensus. There is a slight caveat to that also as well as obviously looking at when that the forecast has been updated, but also as well as does the data support the current forecasts. Yeah, so economists make these forecasts, but it's important that the data has to support those forecasts, otherwise without the, you know, the right data and the supportive data, you know, for things like GDP and interest rates and interest rate hikes or holds or cuts or, you know, GDP growth, then it's just not the forecast is just not going to happen, right. So as much as these are the some of the smartest people in the world, and they've gone to stuff that, you know, the brightest schools, etc. You know, these are forecasts based on, of course, mainly the data supporting that narrative. So going to here, let me just get my pen tool one second, right. And it's, it's really important to to understand the expectation, first of all, the effect of, of, of interest rates on, you know, currencies. And so we're going to have, let's say, for example, this to let's do that for. So let's call this one second. Let's call this, you know, let's say this is the first year, the second year, the third year, and the fourth year. And this is based off of, you know, interest rates, right. Interest rates. And this is going to be the, you know, the chart. And this is also one year, one year, two year, three and year four. Now, imagine you've got currency a and currency b, right. So currency a, let's say currency a look to in the first year, they're looking the central bank is hiking rates. And let's say central bank b are looking to hold rates. What you should see on a price chart is, is what exactly you should see something like this where you have, if, you know, let's say, for example, bank a is the base currency and bank b is the quote currency. Yeah. You should see something like this on the price chart where, you know, prices, if you're looking out on the daily timeframe, the weekly timeframe, you should see a trending market, right. There's going to be periods in that trending market where you're going to get pullbacks, etc. But overall, you should really see, you know, prices trend to the upside over the space, you know, of the, of the, of the first year. If the data supports that narrative and central banks continue to hike, you know, every announcement and and in bank with bank b, they hold every announcement. What you should see is something like this. Of course, there are other factors involved, you know, risk sentiment, etc. But ultimately, if we're just looking at interest rates, yeah, this is what should happen. Interest rates hikes typically appreciate the currency. And so, you know, against some another bank that's holding rates, you should have an interest rate or a bank that is holding rates where they're happy with interest rates are, you should have this on a price chart if you zoom out to a daily or a weekly over the year. Right. So that's what should happen now. Let's say, for example, now that bank a then decide to hold rates in year two. And at the same time, you have bank b also holding rates. Yeah. What should you see on a price chart? What you should see on a price chart is something like this. And prices come into a range of what is known as an auction, right? Where, you know, prices being accepted in terms of the value of the exchange rate, right? So, you know, banks and institutions are saying that, you know, we think that the exchange rate should be worth, you know, between this high and this low, whatever that exchange rate is. And, you know, there's no reason for price to really, you know, trend to the upside because both central banks are holding rates. That's what we should see on a price chart in year two. Now, let's say, for example, in year three, we have central bank are looking to, for example, hold rates. Yeah. And bank b are looking to high rates. Yeah. What should we see on a price chart? Second, what should we see on a price chart? And what we should see on a price chart is a trend to the downside, right? Where the quote currency is getting stronger. Yeah. They're looking to appreciate their currency and bank a are not looking to do anything. They're looking to hold rates. And so, what you should see is a trend to the downside, right? Again, over the space of, you know, that time period. Now, what happens when you have a central bank that is, again, looking to bank a might look to cut rates. And let's say we have a situation where, you know, bank, you know, b is also looking to potentially cut rates. Again, what should happen is you should see a situation where if both central banks are looking to appreciate their currencies, what should happen is you should see, again, similar to where if both central banks are holding rates, if both central banks are hiking or cutting rates, what you should see ultimately is a bit of an auction or a range where prices, sorry, one second. Yeah. Sorry, where prices are in agreement, right? Because both central banks are looking to devalue their currency. And so, the market will, again, you know, can't see the difference between the divergences between the two central banks, you know, you've got a divergence here, for example, you've got a divergence or convergence here between central banks, right? And that is what causes price to go higher or lower. Whereas when you have banks doing the same thing in terms of interest rates and their monetary policies, what you typically have is what is known as an auction, right? So that's what you're likely to see on a price chart. You zoom out during, you know, zoom out on the daily or the weekly. Now, one of the things, you know, when we look at, you know, future expectations, it's important to note. And especially when we see something like the dollar almost happening with the dollar, you know, today. Yeah, there's been this narrative that hikes are going to remain higher for longer. And also the fact that there is going to be likely to be a soft landing. What does a soft landing mean? Soft landing means that less of a chance of a recession, right? So a hard landing was a recession, you know, and the soft landing is hopefully the economy, although it will contract, it won't contract into a recession. Now, the expectation at the beginning of, you know, the year was that the, towards the second half of the year, so quarters three and four, let's say, turn these to quarters now. So rather than doing these years, you know, it's just Q1, Q2, right? So I'm talking about the dollar right now. So Q1, Q2, Q3, and Q4, you know, was that in Q3 and Q4 was that the expectation was that the dollar was supposed to enter into a recession. So there's going to be some sort of hard landing. Those were the fears, yeah, because the beginning of the year, you had interest rates being hyped, yeah, which should then contract the economy so that there was likely to be either, you know, a hold coming and then some sort of contraction by the end of the year. And if we look into, you know, the first quarter of 2024 next year, because of the contraction in the economy and the hard landing that was supposedly forecasted. What comes with contractions and recessions comes rate cuts, right? And so this was what was supposedly supposed to happen at the beginning of the year. Lots of banks were forecasting this, but now what's happened is it's something different. So what we've had is, and we just change the color of this to, right? But what we've had with the dollar is, yes, we've had rate hikes because of high inflation, yeah. But now what we've had is instead of the forecast at the beginning of the year expecting a rate cut by the end of, you know, the fourth quarter into the first quarter, now what we're seeing is potentially the fact that they may look to cut rates maybe into the second and third quarters of 2024. So rate cuts are being pushed out, pushed further into the year, into next year. All right. And so as I said at the beginning, what you need, even though we, you know, banks are forecasting, you know, prices going forward, you need the data to support the narrative. And what's been taken against economists by surprise is the fact that the U.S. economy has been a lot more robust and jobs, you know, have been, employment has been high, unemployment has remained low. And so that is supporting the dollar. And so, again, just to kind of go over this on a price chart, let's go to, let's go here, right? So just so that we can visualize this, I'll just try and keep this uniform. So that's that. Two, three, four. So what we've seen is, is that on a price chart, let's say, for example, we go to the dollar index, we saw we would see a rising, in fact, let me just delete that, we would see a rising or what you should have seen beginning of the year is a rising dollar. Yeah, the dollar trending higher, trending higher. And then towards the third quarter and fourth quarter of the year, what we should have seen is prices do something like this. Yeah, but what in fact we are seeing because of the now rate, the market is pricing in rate holds in the third and fourth quarter, right, as well as into the, you know, the first quarter of next year, what we've seen is something like this, where you get the prices go higher of trending higher. And now we're getting more of a stable price. So this was, you know, the forecast analysis, the reality. And it's because the market has to now price out what it was pricing in and forecasting at the beginning of the year. Yeah. And so that is what is supporting the dollar and will end up supporting all currencies, right? It's whether the market forecast, yes, you know, come true based off of data supporting those forecasts. But if data doesn't support those forecasts, of course, you know, data can change no one has a crystal ball. Then what we have to do as traders is recognize when narrative is shifting or shifted. And when that data, although we're obviously trying to buy the rumor and sell the fact, there has to come a point where we have to say to ourselves, well, you know, is, you know, a Euro one 15, right, still achievable based off of, you know, and we'll get into the currency summary report in a sec, you know, the, the, the Euro contracting in terms of having economic issues and the US dollar on the other hand, in fact, surprising to the upside. And, you know, GDP remaining, you know, very strong jobs remaining strong unemployment remaining low. And now, you know, bond yields, two year yields are saying that, you know, indicating that interest rates, in fact, rather than being cut by the end of the year, they're still remaining high and saying, well, in fact, we expect rate rates to remain higher for longer, which is against supportive and cutting rates into, you know, the third, fourth quarter or first quarter of 2024. There are supporting factors for the dollar, whereas the Euro on the other hand, it's not supportive in terms of, you know, their economy contracting and a contracting economy brings on what exactly a contracting economy, right, will end up bringing on rate cuts. Right. That's pretty much what happens. And so yes, there is obviously inflationary problems, inflation is coming down. And if inflation does come down, but so inflation comes down, yeah, it's coming down, but GDP growth, yeah, is moderating or, you know, continuing to, you know, be okay as far as, you know, there's still some growth in there. Then that actually is more supportive than inflation coming down, but for example, a GDP going into a potential recession, yeah. And that's where we find the divergences between, you know, the Euro and the dollar. And so that at the moment is what is supporting the dollar, you know, markets pricing out rate cuts and potentially pricing in more rate cuts for the Euro. Of course, we still have to keep our eye on that. But the data at the moment is not supporting a stronger Euro, especially against something like the dollar might be stronger against, the Euro might be stronger against maybe a worse currency, like for example, the New Zealand dollar, you know, as bad as maybe the Euro and I would say the euros, it's bad in terms of, you know, terrible because they're not in a recession and the New Zealand dollar are, right, but it's all all about the dock with the lease fees. So you can trade, still trade by the Euro, but it's about choosing which currency you're trading the Euro against. And so, yeah, it's really important to understand, you know, future economic events, obviously, you know, forecasts, the data supporting those forecasts and if the data doesn't support those forecasts, then it's very difficult to, you know, to take those forecasts as, you know, a guiding light, right? You should really always look towards what the data is actually saying, the actuals, because those forecasts will change, yeah, according to what the data, you know, as the data starts to come out and it's either going to support the forecast or it's not, and if it doesn't support the forecast, then it's, you know, then you have to either, you know, stay out of the market, you don't necessarily have to always buy. Also, you can stay out the market where you put a dust to settle or you can change, you know, your bias. So, yeah, that's, I thought that was really important to go over. And so, let's, let's, let's, let's, let's go to, yes, covering obviously future, how future interest rates, expectations affect today's exchange rates, you know, basically, just again, just to reiterate, it's always important to look to the future, obviously, but the data today has to support those future forecasts is what I'm saying.