If I could be the fly on a broker’s wall … – Alton Drew

Europe is closed for the day and the EUR/USD is, as of 11:01 am, priced at 1.0382. I am still confident that it will trade above 1.0288 by the end of this week.

As usual, I am interested in trader sentiment within the gardened walls of the interbank market. Unless you are sitting on the Federal Reserve Bank of New York’s trading desk or the desks of the primary dealers contracted to act as a counterparty to the Federal Reserve, then we regla-degla retail traders are stuck with reading market sentiment and price movement from the secondhand information we receive from our brokers or trading platforms.

Speaking of trader sentiment, Reuters reports that market analysts see artificial intelligence, fed rate cuts, and the Trump administrations expected reduction of regulations and taxes should spur growth in the United States’ currency union.

I do not see it.

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Artificial intelligence at this point is, in my opinion, still more hype than actuality. Yes, I can see a venture capital, private equity, or law firm reducing its administrative and research staffs using AI agents to crawl its private data bases as well as public ones to gather information and fill in a forward contract template. A growing number of firms that derive their bread and butter from relationships and information can benefit from cutting out middleman waste.

Until I see more concrete policy for how to manage human resources disposed by AI implementation, then I am not sold on its positive impact on economic growth. Right now, AI is looking more like economic drag.

The Board of Governors of the Federal Reserve System via its prime administered rate, the fed funds rate, regulates the overnight exchange of excess reserves between banks. Banks are on top of the food chain when it comes to gathering data on business investment and consumer spending. If a bank sees an opportunity to lend money into existence based on a business plan that can generate revenues for the business while increasing the bank’s net interest income, then I don’t see why a bank would focus so much on shoring up excess reserves.

I believe banks would only focus on interbank lending where their depositors are experiencing stress and entrepreneurs are increasingly short on money making ideas. If banks are seeing stress, there should be less lending, thus, a decrease in the fed funds rate. But even if the economy is resilient as Fed chair Jerome Powell says repeatedly, then demand for fed funds should be low as reflected in lowered rates offered in the interbank market.

Lastly, the Trump Effect is something I never fell for in 2017 and sure as hell will not be falling for in 2025. I spent over 15 years in various regulatory capacities. Not once did I hear a staffer, commissioner, or fellow board member say that we gotta regulate revenues and profits to sub-optimal. The public policy of government is to incentivize the creation of taxable revenues. While less regulation may improve the speed in getting products and services to market, it is good marketing and product development that creates revenues and profits.

A firm can pay zero taxes and have its paperwork reduced to a four-sentence paragraph, but if it can’t produce, market, and sell, it will still go out of business.

Trader sentiment should be devoid of AI, fed rate cuts, and the Trump Bump, Effect, etc., whatever.

Alton Drew

31 December 2024

Show notes:

https://trilliumfinancialbroker.com/the-role-of-candlestick-charts-in-trading/?form=MG0AV3

https://www.investopedia.com/trading/candlestick-charting-what-is-it/