A measure that seldom fails to determine a bottom during noise is that if you get data / event that should support the noise based short term price action, but then the price action reverse directly after the data / event. I.e typical buy the rumour, sell the fact price action
Tuesday, May 15, 2012
Sunday, May 13, 2012
Weekly Briefing 110926
1. Review.
A risk off week with USD and JPY gaining and AUD and EUR loosing.
Trades
Short AUDUSD, AUDCAD, NZDUSD
2. Analysis.
"Fundamental analysis"
For a big EUR south move you need EU trouble and US economic growth and normality. If you don't have both, no big euro south side and potential for euro upside due to the structural improvements and the long term USD diversification
Unless there is something substantially and tragically new it is wholly unlikely that EURUSD will move below the January lows (1.26)
Things are going to stay risk off until the Greeks decide on a unity government
Demand for safety as European politics raises uncertainty has resulted in lower US Treasury yields and a stronger buck. Despite softer U.S. data, Fed officials have indicated their reluctance to engage in further QE.
GBP: we believe the focus will be on the downward revision to growth, however we expect the report to reaffirm the sticky inflation problem in the UK, which may stop the Bank from re-starting its QE program.
| Id | Driver | Comments | Immanency |
| 1 | On-going global recovery | Germany is in good economic shape. EZ growth low. US growth uncertain | Yes |
| 2 | Divergence in FED and BCE monetary policy | FED will be on hold for until 2015; | No |
| 3 | EZ break up | EU dynamic is a longer term dynamic of "putting the structures in place” | Yes |
| 4 | PIIGS | Greece government and Spain banks in focus | Yes |
| 5 | QE3 | Not off the table; PIMCO says yes | Yes |
| 6 | Commodity rise | Falling prices are confirming slowdown | Yes |
"Technical analysis"
Morgan Stanley says, at least 1.2700 for now, but in case its EURO to HERO eat your losses at 1.3100 (as reported by fxlive.)
EURUSD broke the key support level of 1.300
Constructive for the dollar as the dollar index is trading above the 80.00 level
Median grid
EURUSD GRID 1.2800-1.3400, neutral bias (grid change)
USDJPY GRID 76.00-80.00, neutral bias
AUDJPY GRID 76.00-80.00, down bias (grid change)
USDCHF GRID 0.9250-0.8750, up bias (grid change)
| Currency | Short term view(technical) | Long term view (fundamentals) |
| USD | ||
| JPY | ||
| CHF | ||
| EUR |
"Market dynamics”
At this stage the USD reacts positive / negative in the very short term (intraday to intra week) mainly versus JPY on US based events / data.
We expect the yen to be range bound.
GBPUSD looks well supported above 1.6060, however we are more wary of potential strength in this pair due to 1, the sharp rejection of 1.6300 – a key resistance level , - last month, and 2, the safe haven status of the dollar.
We continue to see EURUSD move lower, but we think it will be an incremental decline rather than a prolonged downtrend
Key events:
Monday: US pending home sales
Tuesday: US CB Consumer Confidence
Wednesday: US ADP, CAD GDP m/m
Thursday: US Unemployment Claims, ISM PMI
Friday: US NFP, Unemployment rate
Prices and Risk on/off view
RORO (30): -1.05
3. Plan
4. Trades
Positions
USDJPY +2
EURUSD 0
USDCHF 0
AUDJPY +0
EURJPY 0
CADJPY 0
EURAUD 0
4.1 open trades, their type & their value:
Leverage
4.3 Effect of planned trades
Account summary:
Starting capital: 1000
Line in the sand level: 7500
1. Account balance (Settled trades) and growth as a percentage. (10186=+2%)
2. Account equity (Including open positions) . (9951=-1%)
3. Account equity if planned trades go wrong: 0
4. Pip distance to line in the sand level.
Wednesday, May 9, 2012
100509 Euro move
For a big EUR south move you need
1. EU trouble and
2. US economic growth and normality.
If you don't have both, no big euro south side and potential for euro upside due to the structural improvements and the long term USD diversification
People like PIMCO's Bill Gross and Jan Hatzius at Goldman Sachs are telling their customers to prepare for QE3, to combat a slowing U.S. economy
The Chinese are buying all this Gold so that when they finally allow their currency to be backed by Gold, in some percentage. It may not be 100%, but a 25% backing of Gold, would the renminbi the most attractive currency in the world.
Tuesday, April 24, 2012
120424 Range-bound trading in the currency markets could be ending
"Looking back over the last 12 years, there have only been five episodes where a lack of trend across all 42 G-10 crosses has persisted for more than the current period,"
So how do you play this potential shift?
The strategists are bearish on the euro, [EUR=X 1.3196 
That means:
- Short EUR, USD, YEN
- Long GBP, CAD, SEK
Monday, April 23, 2012
120423 Base Case Review
Indicators supported our base case:
* Spanish bond auctions auction on Thursday was well supported.
* Bank of Canada begins to sound bullish.
* IMF upgrades global growth expectation.
* Bundesbank says German economy is in good shape.
* some bullishness out of the UK.
Strong US data May - July may change things enough to keep USD from weakening on the election season turmoil.
It is our view that it is essentially short term speculation and noise flow that is pressuring EURO currently.
It is also our view that commentators are too positive in spinning US data and too negative in spinning China and other data.
Since the real bigger drivers are solid in neutral mode, the shorter term drivers will dominate.
Bottom line: Will the Fed cause an imminent material change in the direction of EURUSD in favour of the USD?
Thursday, April 19, 2012
120419 Base Case
#1. Our base case is that "fear" noise levels mask a more bullish (relative to the expected outcome of "fear noise levels" for risk in general and anti-dollars in particular).
Potential crises:
- #1.1 EU sovereign debt --> Spain --> EURO to ZERO (taking anti dollars along on the ride down)
- #1.2 China economic slowdown --> hard landing --> AUD to ZERO (taking anti dollars along on the ride down)
- #1.3 Global economic slowdown --> crisis for EU --> EURO to ZERO (taking anti dollars along on the ride down)
#2. The other aspect of our base case is that instead of a "fear driven" USD rally we can expect a USD rally in response to "positive economic growth indicators from the US".
- #2.1 The big question is: Will the US economy beat the Fed in terms of its sustainable out performance and return to a real normal growth speed sooner than what the Fed said ("2014, maybe"). (In order to return to the normal ('good') growth speed it will have to over shoot on the upside. The whole point then is that short term data that overshoots will in typical "dumb down" market style be extrapolated to mean, this is a trend and they will run away with this idea.)
- #2.2 We think the process will be as follows:
- Convincing data --> USD UP --> Indications no further QE --> USD UP --> Interest rate hike expectations UP --> USD UP followed by the actual happening of these expectations (sustained good data --> definitely not further QE --> actual tightening of interest rate conditions (this will lead hikes with a few months).
Monday, July 4, 2011
Daily Briefing 110704
1. Review.
I said “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” The austerity package passed and EURUSD rallied to 1.4550 with all other risky assets
“Closely watching CRB index to confirm risk aversion on positive EZ news.” CRB index did not posted gains at the end of the week; as proxy of global recovery is signaling that the risk rally should be something short related to Greek saga conclusion.
“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.” I did not, but it should be next week. ” USDJPY flat; I think that 80.00 support holds.” Yes. “Reverse CADJPY at 83, sell AUDJPY at 86” I will do next week at current levels (84, 87)
Trades
Exited long CADJPY at -90 pips.
2. Analysis.
"Fundamental analysis data"
US CB Consumer confidence 50.5 60.8 61.7
CAD Core CPI 0.5% 0.2% 0.2%
US pending homes sales 8.2% 2.4% -11.5%
German retail sales -2.8% 0.6% 0.0%
Unemployment claims 428k 219k 429k
CAD GDP m/m 0.0% -0.1% 0.3%
JPY Tankan -9 -7 6
CNY Manufacturing PMI 50.9% 51.6% 52%
US ISM Manufacturing PMI 55.3 51.9 55.3
"Fundamental analysis"
Incoming data and forecast continues to point to a moderate growth. CNY and EZ PMI weaker than expected. US ISM PMI is rebounded because of the resumption of JPY supplies. We think that major economies remains in a soft patch at least and we don’t see any sign of increase of growth expectation anytime soon.
US debt debate hit an impasse; the 22nd of July is the date when we will see if it will be avoided a shutdown the 2nd of August.
Trichet send signals for a new rate hike the at the next 7 July ECB meeting. For him the underlying growth is positive and medium term outlook for prices is on the upside. This does not mean a clear hike path. Anyway latest EZ PMI data show a contraction path (bat the ECB sole mandate is price stability). EZ CPI is at 2.7% (above the 2% ECB target); PPI and retail sales are due next week.
Approval of new cut by Greek Parliament the 30 allowed IMF to release the founding . 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 and peripheral debt continues to rumble on; Spain and Italy had a poor auction in the week.
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) | Yes |
| 2 | Divergence in FED and BCE monetary policy | FED will be on hold for this year; | Yes |
| 3 | EZ break up | France and Germany supporting EUR | No |
| 4 | PIIGS | More PIIGS related then only Greece | No |
| 5 | QE3 | Requires: | No |
| 6 | Commodity rise | Falling prices confirming slowdown | No |
| 7 | US debt | Debt ceiling | Moderate, 22 July |
| Currency | Short term view | Long term view |
| USD | Bullish, extreme short and risk aversion | Bearish (2, 5, 7) |
| JPY | Bearish | Bearish |
| CHF | Bullish | Bullish |
| EUR | Bullish | (2) |
"Technical analysis"
EURUSD rallied to 1.45 without any dip. Still in the range 1.40-1.46/7. A daily close above 1.4710/20 will signal a uptrend (unlikely event).
USDJPY failed to break above the 81.50 barrier and still ranging in the 80/1, now at 80.82
AUDJPY break the 85.3-84.3 range, now at 87; 90 resistance looks still far at the moment. Next resistance is 87.5. EURJPY break the 116 resistance, now 117.4, still in the 114/8 range
COT data suggest that is time for a reversal for the dollar.
COT AUD up 46k (-8k), OI 93k (-7k)
COT USD at 4.9k (-1k), OI 46k (-8k)
COT EUR at 32k (+3k), OI 183k (-7k)
COT JPY at 13k (-20k), OI 95k (-5k)
COT CHF at 9k (-2k), OI 51k (-0k)
German/Greece at 13.3% (-0.5%)
German/Spain at to 2.5% (-0.5%)
Bunds at 3.03%. (+0.2%)
JGB at 1.14% (+0.03%)
"Market dynamics”
The risk rally may have more room to go in the short run (FX Live sees EURUSD to 1.47 in the next week). We remain in high alert for failure and reversal. Risky pairs have rebounded to recent range highs and it would need a clear break to become more bullish. Given the risk ahead (US debt, EZ debt, SNP) I think recent bounds can be hard to broken, if any unexpected good news.
I will use this USD weakness as a buying opportunity.
I will enter short EURUSD at 1.4450/50 area after further gains in the 1.46 area; not 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.
If technical levels (range highs) hold I will:
Reverse CADJPY at 84.0/5, resistance at 85.0
Sell AUDJPY at 86.5/87.0, resistance at 87.5
USDJPY flat in the 80/1 area; I think that 80.00 support holds.
Key events:
Tuesday: RBA cash rate
Wednesday: US ISM PMI, CAD building permits m/m
Thursday: German Production, ECB bid rate, US Unemployment claims
Friday: US Unemployment rate, NFP
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 (on) EURJPY | 87.0 (+2.7) | Q3 |
| US TYN (on) | 3.18% (+0.30%) | Recent highs |
| Dollar Index (on) | 74.6 (-1.6$) | Near May 76.44 top |
| US futures | 1263 (-2$) | Q2 |
| Gold | 1486 (-15$) | Q3 |
| VIX | 15.8 (-4.8) | |
Risk view is on:
- US 10YN at higher levels
- US index at 74.6
- Gold /Silver ratio strong
- JPY rebound to recent trading range highs
- CHF weak versus EUR and USD
3. Plan
Exit long 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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CADJPY
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4. Trades
Positions
USDJPY +2
EURUSD 0
USDCHF 0
AUDJPY +0
EURJPY 0
CADJPY 0
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