Daily Briefing 110529

1.  Review.

I said “…we think that there will be a tendency towards risk aversion;” It was an exhausting week, risk on, off, on, off... “ then commodities, stocks and JPY crosses would resume their decline, propelling the USD higher in this process. “ Wrong call: USD lose ground toward all pairs and commodities rebounded.” No enough data in the week ahead to provoke a surge in risk aversion and probably we will have another choppy trading week.” US disappointing data (GDP, unemployment, orders, home sales) “I will use high range values to exit JPY short positions, in anticipation of the coming risk aversion.” Done. “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)” JPY back to 80.80 from 82.10 “Silver (like the canary in a coal mine) and now is telling that we are like at the end of this risk on period.“ Quite volatile, back to 38$
Trades
No trades this week.

2.  Analysis.

"Fundamental analysis data"
German PMI 58 61 62
German ifo 114.2 113.9 114.2
US New home sales 323k 305k 301k
US pending home sales -11% -1% 3.5%
Core durable orders m/m -1.5% 0.7% 2.5%
US GDP q/q 1.8% 2.2% 1.8%
Unemployment Claims 424k 403k 414k
"Fundamental analysis"
Data show again an increasing sluggishness in the major economies growth pace with US poor house data. Next week watch employment data release.
EURUSD sovereign debt issues is continuing and there is not yet a solution on the IMF loan extension to Greece. We will look closely to Spain bonds yield spreads.
Silver and Gold rallied this week.
All indicator, expect the USD weakness, are showing a risk off view:
- US 10YN at higher levels
- Gold and Silver strong
- most JPY crosses consolidating around recent lows
- CHF at historical highs
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; I believe that the USD will relief in the coming weeks because of the QE2 end, but it will be on pressure in the next months, because of a QE3 announcement.
Long term outlook has USD bearish, JPY bearish and definitely CHF bullish.
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	Moderate
PIIGS	Greece bailout, Spain adding	Yes
QE2/QE3	QE2 priced in	Mid June
Commodity rise	No	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
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, regaining to 1.43. Resistance is 1.44 area
USDJPY after testing the 80 support reached the 82.00, back to 80.8
AUDJPY has 85 as support to the 90 resistance. Next support is 83.
EURJPY has a solid base is 114, 116 test failed, basically flat week to week.
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 53k (+3k), OI 110k (-5k)
COT USD up to 2.4k (+3k), OI 61k (+6k)
COT EUR at 19k (-20k), OI 258k (+8k)
COT JPY up at 8k (-6k), OI 100k (-4k)
COT CHF up 15k (0k), OI 66k (-2k)
German/Greece up to 13.4% (-0.1%)
German/Spain up to 2.3% (-0.1%)
Bunds at 2.94%. (-0.4%)
JGB at 1.13% (+0.00%)
TYN to 3.0% (-0.13%)
VIX to 16.0 (+-1.3)
Gold/Oil to 15.1 (+0.0)

"Market dynamics”
Long term view:
- EUR staying up (EZ and global economic growth and interest rate hikes), depends how Greece will end up plus the stress test for banks. If nothing worse, I see 1.4 at three month (after QE2 ends)
- USD is going down. We can have a short term rebound for risk off appetite
- 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. CHF bubble will burst not immediate
- 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; a non hike policy can slow down the play.
Next week view:
Because of the risk off sentiment, where the dollar is late to get stronger, I will use this USD weakness as a buying opportunity, looking if technical levels hold.
EURUSD at 1.433, if the double top there holds.
USDJPY at 80.30, if 80.00 support holds.

CADJPY should be a buy at these level because of expected rate increase, if 82.35 support holds
Key events:
Tuesday: Chicago Consumer confidence
Wednesday: CNY manufacturing, US ADP
Thursday: CAD interest rate statement, US unemployment claims
Friday: NF Employment change, unemployment rate

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 1329, (+2, Q4),
GOLD to at 1526, (+24, Q4+)
Silver to at 38, (+3, Q4+)
Crude 100.6 (+1.0$)
EURUSD 1.431 (+0.015, Q1)
USDJPY 80.71 (-1.00, Q2)
AUDJPY 86.4 -0.6 Q2)
EURJPY 115.6 (+0.0 Q4)

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

EURUSD
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USDJPY
Add a long at 80
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AUDJPY
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EURJPY
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USDCHF
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CADJPY
Add long at 82.25
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4.  Trades

Positions
USDJPY +2
EURUSD 0
USDCHF 0
AUDJPY +0
EURJPY +1
CADJPY +1