1. Review.
I said “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.
Very confused on; sell EURUSD at 1.445, if the double top there holds.” Good hint, but I was not able to do it. “No buying for USDJPY, I think that 80.00 support holds.” It did. “Reverse CADJPY at 83,” CADJPY was at 83 and I again did not respect my plan. Now is 81.66… “sell AUDJPY at 86” Shit, the same: AUDJPY was at 86 and I again did not respect my plan. Now is 85.00…
Trades
None. But I should have done…
2. Analysis.
"Fundamental analysis data"
CNY CPI y/y 5.5% 5.5% 5.3%
US PPI m/m 0.2% 0.1% 0.8%
US CPI m/m 0.2% 0.2% 0.4%
US Capacity Utilization Rate 76.7% 77.1% 76.7%
US Industrial Production m/m 0.1% 0.3% 0.0%
Unemployment Claims 414k 421k 430k
Philly Fed -7.7 7.1 3.9
"Fundamental analysis"
The expected resolution of the Greek sage over the weekend with the approval of new cut by Greek Parliament will allow IMF to release the founding . German would not push for a voluntary 7-year debt extensions, that would have triggered a default. Wen Jiabao next week visit to EZ could give some support to EUR, pushing towards 1.4500 area.
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.
Data show again slowdown in the US economy with US and all the developed economies. Political stalemate are also weight on the buck.
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.
Rising commodities prices could have slowed down the demand, suggesting that the slowdown is only temporary, but high unemployment, austerity measures and exit of fiscal stimulus point to a major slowdown.
Commodities weakness at the end of the week, even with positive Greece news, is another indicator about concerns over global growth. Next week action will be exceptionally telling about risk aversion and downside ahead if commodities will not rise on positive news out of Greece and Europe.
Silver and Gold were mixed 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:
There could be a shift in the classical paradigm “risk-off: buy USD” if the US remains decoupled from global growth (assuming that global growth will regain pace)
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 Germany divergence with ECB | 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 1.40 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)
USDJPY failed to break above 81.00 and tested again the 80 support, now at 80.04
AUDJPY hold the 84.6 support, now at 85; 90 resistance looks very far at the moment. Next support is 83. EURJPY tested the solid base is 114, now 114.5
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 62k (+2k), OI 45k (+27k)
COT USD at 5.9k (+3k), OI 54k (-8k)
COT EUR at 50k (-1k), OI 190k (-100k)
COT JPY at 24k (+20k), OI 94k (+0k)
COT CHF at 13k (-3k), OI 54k (-20k)
German/Greece at 14.4% (+0.5%)
German/Spain at to 2.7% (+0.1%)
Bunds at 2.92%. (-0.04%)
JGB at 1.12% (-0.00%)
"Market dynamics”
Long term view:
- EUR staying up, depends how Greece will end up plus the stress test for banks. If nothing worse, I see 1.40
- USD is going down. We will have a rebound for risk off appetite (until the summer end)
- 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:
The expected resolution of the Greek saga will probably trigger a EURUSD rally. I will use this rally to enter short EURUSD at 1.4450/60 area; a daily close above 1.4710/20 will invalidate this bearish view.
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.
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.
No buying for USDJPY, I think that 80.00 support holds.
Reverse CADJPY at 83, sell AUDJPY at 86
Key events:
Tuesday: German and EZ ZEW
Wednesday: FCOM
Thursday: EZ PMI
Friday: German Ifo
Median grid
EURUSD GRID 1.400 - 1.460, up bias, grid change
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 | 85.0 (-1.4) | Q2 |
| US TYN (off) | 2.96% (-0.02%) | Recent highs |
| Dollar Index (off) | 76.22 (+1.0$) | Near May 76.44 top |
| US futures | 1265 (-3$) | Q2 |
| Gold | 1539.1 (+8$) | Q4 |
| VIX | 18.85 (+1.0) | |
Risk view is off:
- US 10YN at higher levels
- US index rebounded at 76
- Gold /Silver ratio strong
- most JPY crosses again around recent lows
- CHF at new fresh historical highs versus EUR and USD
3. Plan
Exit long CADJPY and USDJPY long with possible with a small profit or small losses.
Enter short EURUSD at 1.45 level
Enter short AUDJPY at 86.00
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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