1. Review.
I said “I will use this rally to enter short EURUSD at 1.4450/50 area; a daily close above. 1.4710/20 will invalidate this bearish view.” Nothing of this happened. “Closely watching CRB index to confirm risk aversion on positive EZ news. I will look at recent lows in stocks, commodities and JPY crosses to trigger further weakness.” I didn’t watched that closely, but further weakness is confirmed.”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. That means short AUD, CAD and NZD against USD and JPY, from just above currents levels that offer attractive opportunities.” They remained closer to the previous lows and then no selling opportunities. “No buying for USDJPY, I think that 80.00 support holds.” It did. “Reverse CADJPY at 83, sell AUDJPY at 86” No chances for doing that.
Trades
None.
2. Analysis.
"Fundamental analysis data"
German ZEW -9, -1.7 -3.1
EZ ZEW -6 9.5 13.6
German PMI 55 57 57.7
CNY HSBC 50.1 * 51.6
US New Homes sales 319k 311k 326k
Unemployment Claims 429k 414k 420k
German Ifo 114.5 113.6 114.2
US Core Orders 0.6% 1.0% 1.0%
"Fundamental analysis"
Incoming data and forecast continues to point to a weaker 2H 2011. Weak than expected EZ ZEW and PMI.
FCOM lowered 2011 GDP forecast down 0.3 to 2.7%-2.9%. UK reported weaker numbers.
Debate is the slowdown is temporary or not, we are inclined to a more substantial slowdown and the incapability of central bank to provide fresh stimulus.
QE3 wan not discussed, but I think it will come in autumn (and it will be announced end of August); FED will remain ho hold for an extended period (three meetings).
ECB is insisting on austerity measures and this poised further rate hikes.
RBA is on hold due to recent EZ concerns.
Approval of new cut by Greek Parliament the 30 will allow IMF to release the founding ; it seems that:
- people Is preparing to add funds to these bailout EU
- China is willing to support EZ
- IMF new chief will give markets some comfort
- PIG issues will move out of the spotlight but they will cap EUR rallies
- Money will flow to settle down Greece issue if necessary.
Anyway long term outlook is that Greece, with debt load increasing and negative growth, will be not able to repay its debt. Moody’s has placed Italy under review.
With EZ growth peaked before, EZ debt will burden EUR.
Worth to repeat this:
“Big money is shifting from Greece concerns and focusing on worrying about global growth slowing. This is O’Neil, Goldman Sachs chairman:
1. Asset manager are seriously negative on global growth
2. Japan is rebuilding after tsunami
3. The market underestimate the slowdown in China, to a 7% growth to contain inflation issues
4. Greece risk, including the problem for the banks, is small.”
Risk assets (stock and commodities) continue to slide lower this week.
Falling commodities prices could increase consumer demand, but high unemployment, austerity measures and exit of fiscal stimulus point to a major slowdown. This will bias risk assets further to the downside.
This week action confirmed that risk aversion remains.
Silver and Gold falling this week.
My big picture view is:
- commodities and risk asset are turning negative
- US growth is slowing
- global growth is slowing
Long term outlook:
The actual extreme in the bearish USD sentiment can be a reversal sign, and it is starting to apply now.
| Id | Driver | Comments | Immanency |
| 1 | On-going global recovery | EZ slowing, US slowing, China slowing (risk aversion) | Next driver |
| 2 | Divergence in FED and BCE monetary policy | FED will be on hold for this year; | No, wait for July |
| 3 | EZ break up | France and Germany supporting EUR | No |
| 4 | PIIGS | Greece bailout not done | Yes |
| 5 | QE3 | Requires: | No |
| 6 | Commodity rise | Falling prices confirming slowdown | Moderate |
| 7 | US debt | Debt ceiling | August |
| Currency | Short term view | Long term view |
| USD | Bullish, extreme short and risk aversion | Bearish (2, 5, 7) |
| JPY | Bearish | Bearish |
| CHF | Bullish | Bullish (until bubble burst) |
| EUR | Bearish | (4) |
"Technical analysis"
EURUSD hold the 1.41/0 the strong support at 1.40; if broken is a clear downtrend, if holds a range 1.40-1.46 A daily close above 1.4710/20 will signal a uptrend (unlikely event). Now 1.4180
USDJPY failed to break above 80.50 and tested again the 80 support, now at 80.42
AUDJPY capped in a 85.3-84.3 range, now at 84.34; 90 resistance looks very far at the moment. Next support is 83. EURJPY tested the solid base is 114, now 114.1
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. Commercials are again short.
COT AUD up 54k (-11k), OI 100k (-15k)
COT USD at 4.9k (-1k), OI 46k (-8k)
COT EUR at 29k (-31k), OI 190k (-0k)
COT JPY at 32k (+8k), OI 99k (+5k)
COT CHF at 11k (-2k), OI 51k (-3k)
German/Greece at 13.9% (-0.5%)
German/Spain at to 2.85% (+0.15%)
Bunds at 2.82%. (-0.1%)
JGB at 1.11% (-0.01%)
"Market dynamics”
The Greek saga is closed to a critical phase: the 30 will vote the 78 billion austerity package; if pass, it will probably trigger a EURUSD rally to 1.4450/45 area. I will use this rally to enter short EURUSD at 1.4450/50 area; a daily close above. 1.4710/20 will invalidate this bearish view. Key level to watch is the 1.41
Closely watching CRB index to confirm risk aversion on positive EZ news.
I will look at recent lows in stocks, commodities and JPY crosses to trigger further weakness.
I will use this USD weakness as a buying opportunity, looking if technical levels hold. That means short AUD, CAD and NZD against USD and JPY, from just above currents levels that offer attractive opportunities.
USDJPY flat; I think that 80.00 support holds.
Reverse CADJPY at 83, sell AUDJPY at 86
Key events:
Tuesday: US CB Consumer confidence
Wednesday: CAD Core CPI, US existing homes sales
Thursday: German retail sales, Unemployment claims, CAD GDP
Friday: JPY Tankan, CNY Manufacturing PMI, US ISM Manufacturing PMI
Median grid
EURUSD GRID 1.400 - 1.460, down bias
USDJPY GRID 80.00-84.00, neutral bias
AUDJPY GRID 82.00-90.00, neutral bias
USDCHF GRID 0.8225-0.8725, down bias
Prices and Risk on/off view
| Risk Indicator(+/-) | Status | Comments |
| AUDJPY (off) EURJPY | 84.3 (-0.7) | Q2 |
| US TYN (off) | 2.86% (-0.10%) | Recent highs |
| Dollar Index (off) | 76.21 (-0.01$) | Near May 76.44 top |
| US futures | 1263 (-2$) | Q2 |
| Gold | 1501 (-38$) | Q4 |
| VIX | 21.1 (+2.1) | |
Risk view is off:
- US 10YN at higher levels
- US index at 76
- Gold /Silver ratio strong
- most JPY crosses again around recent lows
- CHF close to historical highs versus EUR and USD
3. Plan
Exit long CADJPY and USDJPY long with even a small profit.
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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CADJPY
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4. Trades
Positions
USDJPY +2
EURUSD 0
USDCHF 0
AUDJPY +0
EURJPY 0
CADJPY +1
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