Daily Briefing 101025

1.  Review.

I said “QE2 (bond buy program to push interest rates low) effects: we will have more USD unwinding and USD strength if we will have a QE2 large or medium, stepped in. This because QE2 will move FED away from any interest rate hiking. US rates low and for longer will stay and put pressure on USD”. After a USD sell off, USD recovered pre-QE2 levels after good NFP data “ If QE2 is that small than big initial numbers, after a short rally and closer to the grid low is the announcement, we will see EUR back to the top side of the grid to the 1.41-2 levels” .We didn’t get it. “PIMCO comments that this could be the end of the bond bull market; QE2 is like to pay your debt not getting the money from new creditors (i.e. banks) but writing a new check from your own (worst than a Ponzi’s scheme…). Then hedge funds and Wall Street are seeking alpha returns in EM and commodities, selling USD for that, until they will be hurt so much.” TYN did not move that much, but we have to monitor the next week. “BoJ is still expected to intervene to use measures to get the market out from these levels. The market is positioned for the BoJ to do something but the BoJ would wait the FCOM decisions.” BoJ waited but didn’t acted.
Trades
Short EURUSD //TODO.

2.  Analysis.

"Fundamental analysis data"
Monday CNY manufacturing PMI accelerated in October, up for the third consecutive month in back of new stronger orders and productions. US ISM on Wednesday and Friday NFP payroll surprised at the upside.
Good CNY data where supportive for the surprising RBA interest rate hike. RBA concern of China sharp slowdown are receded.
"Fundamental analysis"
Some fundamental comments by Jack Crooks, to underlay a very broad perspective:
US$↓ = ∫(GC)≈ + QE2↑=+ EM ∞↑

GC = Global Cooperation, QE = Quantitative Easing, EM = Emerging Markets

It says that dollars goes lower if global cooperation does not go any better, QE2 is greater than expected and emerging markets continues to grow without bubble burst risk.

US$↑ = ∫(GC)↑or↓ » QE2 ≤+ EM∞ ↓global cooperation improves (between US and China), low QE2; If cooperation goes bad or emerging markets starts to burst the dollar will go high on risk off sentiment.

Bottom line: If the US continues to fuel risky asset prices the dollar will stay low. But this could be also an extreme sentiment of dollar bearishness that can finish as soon as someone is hurt on risky assets.
Good CNY data, RBA interest rate hike, QE2 free money are supportive for risk on.
Risk about EZ peripherals countries is rising again (spreads and CDS rising again) is capping potential EUR move over the 1.42 area.
BoJ is not intervening

"Technical analysis"
USD recovered at same pre-QE2 levels after QE2 release losses. EURUSD spiked at the 1.4280 level after QE2, but retraced to 1.4030 on good NFP data; I think current trading range is broken. Support at 1.3950 and resistance at 1.42. COT data are below. USD still trading 76-78 range, after a plunge at 75.5; USDJPY traded in a strict 81 area, making a fresh low at 80.35 and some stop hunting up and down. Again at this level BoJ would intervene if the 80 level will be broken. Gold all time highs at 1.3060; US futures stable again in to the 1180. GOLD/Oil ratio stable, little rising; VIX stable to low levels.
COT JPY up at 44.7k (+2.2k)
COT USD up to 8.4k (+3k)
COT EUR down to 35.1k (-3k)
COT AUD down 49.5k (- 6k)
TYN up to 2.51% (+0.5%)
JGB at 0.93% (-0.1%)
Bunds at 2.41%. (-0.1%)

German/Greece up to 9.1% (+1%)
VIX down to 18.2 (-3)
Gold/Oil down to 15.4 (-1.4)

"Market dynamics”
FED announcement, dollar pumps and good far east data are basically set a risk on environment. This is also good for US stocks. But with late of week USD recovery and good data releases (ISM orders, NFP) I will go into next week with a USD cautiously optimistic view. Recent QE2 may lead to further rise in commodities prices and then lead to higher inflation, especially in AUD. Further rate hikes are expected and the some AUD upside.
Anyway there is a risk that G-20 meeting will give US a free pass to weaken further USD. I will monitor US official statements. EUR peripheral concerns are likely to come back in this year end. ECB confirmed exit strategy and FED dollar pumps in the market are strengthening the EURUSD, but I see difficult to maintain gains above 1.45. Anyway after QE2 even with good US data, I don’t expect that USD will be strong at the height of the PIIGS story (EURUSD 1.200). I think that BoJ will wait G-20 to apply a coordinate intervention.
Th basic medium term view is a risk on through the end of the year, that can be stopped maybe for:
1. A unknown developing crisis (any of sort)
2. China will dip prices to reenter commodities at lower levels
3. The PIIGS story back if EURUSD will rise at uncomfortable levels of 1.5

Median grid
EURUSD GRID 1.340 - 1.42, up bias
USDJPY GRID 80.00-84.00, neutral bias
AUDJPY GRID 73.00-81.00, long bias

Prices
US up at 1222, (+40, Q4)
GOLD up to at 139 (+45$, Q4),
Crude 87.8 (+7$)
EURUSD 1.4031 (-0. 10, Q4)
USDJPY 81.26 (+0.9, Q2)
AUDJPY 82.5 (+2, Q4+)

3.  Plan
I will reverse the EURUSD -1 in +1 at these levels. I see risk on mode to leave roomfor the EUSUSD to go to 1.45. Still long USDJPY expecting BoJ intervention, but add stops.

EURUSD
I will exit the short if support 1.3950 holds and enter a long B&B on the yob level (1.3982) I will hedge on a couple of level down (-100 pips). I will take profit at 50-100 pips. I will hedge on a couple of level down (-100 pips), before FCOM if reached.
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USDJPY
No more positions to add
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AUDJPY
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EURNOK
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4.  Trades
4.1 open trades, their type & their value:
1 Open 05-set-10 USDJPY L 84.2600 83.2600 Q1 0.2 B&B 81.3 -297.0000 -21.9000
2 Open 07-ott-10 USDJPY L 82.3600 83.2600 Q1 0.2 B&B 81.3 -107.0000-7.9000
5 Open 31-ott-10 EURUS S 1.3968 1.3818 Q4 0.2 Contra 1.4031 -63.0000 -6.3000 -4.49
4.2 Leverage

Aggregate position size expressed as a gearing ratio (Ex = 3:1)

Total positions per currency:
USDJPY +2
EURUSD 0
AUDJPY 0
Position
USDJPY -27.0, -13
EURUSD 0
AUDJPY 0

4.3  Effect of planned trades

Account summary:
Saxo live account
Starting capital: 1000
Line in the sand level:  7500

1.  Account balance (Settled trades) and growth as a percentage.  (9979=-0.15%)
2.  Account equity (Including open positions) .  (9938= -0.6%)
3.  Account equity if planned trades go wrong: 9939
4.  Pip distance to line in the sand level.  6200, with gear (0.2) 12000