Daily Briefing 110522

1.  Review.

No DB last week. Most assets (gold, silver and oil) and risk currencies consolidates around recent lows followed the sell-off in beginning of May. Basically a choppy week with JPY crosses that gained last week highs, but failed to hold them, now back in the middle of the week range. EURUSD sold off late on Friday on ECB comments about Greece.
Trades
No trades this week.

2.  Analysis.

"Fundamental analysis data"
German ZEW 3.1 4.8 7.6
EZ ZEW 13.6 17.9 19.7
US housing starts 0.52M 0.58M 0.57M

Unemployment Claims 409k 421k 438k
Phil Index 3.9 20.2 18.5
JPY GDP Q1 -0.9% -0.5% -0.8%
CAD retail sales 0.0% 0.9% 0.5%
"Fundamental analysis"
Data show an increasing sluggishness in the major economies growth pace:
- EZ austerity measures that curbs consumptions, low ZEW index
- decelerating Asia growth, Japan in recession
- US poor house data end low sentiment.
German growth would moderate after the strong surge at the beginning of the year
JPY GDP Q1 declined more than expected.
FED confirmed policy is on hold, with some comments about.
EURUSD sovereign debt issues are regaining strength, spreads and CDs are at higher values this week too, and EUR weakened on ECB comments about Greece loan collaterals. FX traders treats Greece crisis as manageable, but Spain crisis could be trigger further EUR downside. We will look closely to Spain bonds yield spreads.
Silver and Gold stable this week, they should begin to sell off again after they have reached a pause.
I maintain this big picture view, where there is:
- commodities and risk asset less positive; but we should consider this sell off as assets repositioning and therefore a short term negative
- US growth is slowing; then I believe that the USD will relief in the coming weeks but it will be on pressure in the next months.
Long term outlook has USD bearish, JPY bearish and definitely CHF bullish (until CHF bubble will burst).
The actual extreme in the bearish USD sentiment can be a reversal sign, and it is starting to apply now.

Driver	Comments	Immanency
On-going global recovery	EZ slowing, US less positive, China slowing: moderating pace	Yes, causing risk aversion
Divergence in FED and BCE monetary policy	QE2 is ongoing and the FED will be on hold for this year	Moderate
EZ break up	France and Germany still determined to hold on	No
PIIGS	Greece bailout, Spain adding	Yes
QE2/QE3	QE2 priced in	Mid June
Commodity rise	Settled in this week	No

Long term view	Short term view	Long term view
USD	Bullish, extreme short and repositioning from risk aversion	Bearish (QE3, fiscal problems)
JPY	Bearish	Bearish, 80 is line in the sand, but capped at 84
CHF	Bullish	Bullish (until bubble burst)
EUR	Bearish to 1.37	Neutral (around 1.37 mean)

"Technical analysis"
EURUSD is holding the 1.40 support.
USDJPY after testing the 80 support reached the 82.00.
AUDJPY has 85 as support to the 90 resistance. Next support is 83.
EURJPY stopped at 122; mid support at 116 is regained, a solid base is 114, 116 is now under test.
The Dollar index still at the rebound level 75.78 from historical low versus AUD, Gold and CHF.
COT data suggest that is time for a reversal for the dollar. This can take many weeks and should be considered a medium term view. We have to wait for a clear sign of rebound and commercial go again to negative.
COT AUD up 50k (-10k), OI 115k (-8k)
COT USD up to -1.0k (+3k), OI 55.7k (+3k)
COT EUR at 41k (-20k), OI 250k (+8k)
COT JPY up at 15k (+3k), OI 103k (+1k)
COT CHF up 15k (-3k), OI 68k (-4k)
German/Greece up to 13.5% (+1.1%)
German/Spain up to 2.4% (-0.0%)
Bunds at 3.00%. (-0.0%)
JGB at 1.13% (+0.01%)
TYN to 3.14% (-0.03%)
VIX to 17.4 (+0.3)
Gold/Oil to 15.1 (+0.0)

"Market dynamics”
Long term view:
- EUR staying up (EZ and global economic growth and interest rate hikes), and then back to medium levels. All anti dollar will stay strong or increase in the next couple of months; I agree with UBS view, that sees 1.48 at one month view and 1.4 at three month (after QE2 ends)
- USD is definitely going down. Our view that sooner than later US has changed. This will affect the USDJPY long. USD can have a short term pullback due a excessive short squeeze
- CHF, is going exponentially up because of picking up the JPY lost safe heaven status (new all times high versus the USD this week too); if risk on buy CHF, if risk off buy more CHF. But a certain point the CHF bubble will burst
- JPY, is going to go down (bad economic slump and lost safe heaven status); US bond bubble is not yet coming and this does not will favor this play; but a non hike policy can slow down the play.
Next week view:
Because of this we think that there will be a tendency towards risk aversion; then commodities, stocks and JPY crosses would resume their decline, propelling the USD higher in this process. No enough data in the week ahead to provoke a surge in risk aversion and probably we will have another choppy trading week.
I will use high range values to exit JPY short positions, in anticipation of the coming risk aversion.
Dips in USDJPY are a buying opportunity only for range bound trading; I will watch closely is 80.00 is probably the line in the sand (even if BoJ will not defend it if it is crossed smoothly) . No BoJ intervention is expected in this environment. I expect a range bound trading here (80-84)
Silver (like the canary in a coal mine) and now is telling that we are like at the end of this risk on period.
Key events:
Tuesday: German ifo, US new home sales
Wednesday: USD Core durable good orders
Thursday: US preliminary GDP q/q, Unemployment claims
Friday: US pending home sales

Median grid
EURUSD GRID 1.410 - 1.460, up bias, grid change
USDJPY GRID 80.00-84.00, up bias
AUDJPY GRID 82.00-90.00, up bias
USDCHF GRID 0.8725-0.925, neutral bias

Prices
US at 1327, (-5, Q4),
GOLD to at 1512, (+16, Q4+)
Crude 99.6 (+0.2$)
EURUSD 1.4158 (-0.04, Q1)
USDJPY 81.71 (+1.00, Q2)
AUDJPY 87.09 (+2.1 Q2)
EURJPY 115.6 (+1.5 Q4)

3.  Plan
Exit long AUDJPY, CADJPY, EURJPY and USDJPY long with even a small profit, trying to avoid losses.

EURUSD
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USDJPY
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AUDJPY
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EURJPY
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USDCHF
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4.  Trades

Positions
USDJPY +3
EURUSD 0
USDCHF 0
AUDJPY +1
EURJPY +1
CADJPY +1