While making the normal rounds through my sources of news, part of an article written by Kathy Lien at BK Asset Management stood out to me.
""Meanwhile 2 key developments for the FX market have been lost in the shuffle. First the U.S. dollar has returned to its pre-QE3 levels against the euro. This is important as it helps to explain why currencies are beginning to consolidate after falling sharply last week – QE3 is providing a base for currencies. As we have seen in the first and second round of Quantitative Easing, flooding the markets with more dollars has not always been negative for the greenbak. This is especially true when larger forces are at play and right now, that is the market’s concern about how the situation in Spain will play out. Lost in the shuffle has been a deal for Greece. Based on the comments made by French President Hollande this morning and German Chancellor Merkel on Tuesday, Greece is getting very close to receiving its next aid payment. They are still in negotiations with the Troika but everyone is committed to unlocking the funds before the country runs out of money next month. Merkel took a special trip to Athens yesterday to show her sign of support for the nation and her commitment to keeping the country in the euro. Hollande echoed these comments this morning and spoke for Spain as well when he said both nations have a shared vision for the EU in the coming weeks that include keeping Greece in the euro. They expect to make a decision on unlocking Greek aid at the EU Summit next week. With Germany and France now behind Greece, there’s a good chance a deal will happen soon, which would remove a key uncertainty for Europe and help the EUR/USD recover.""
http://www.bkassetmanagement.com/featured/eurusd-whats-been-lost-in-the-shuffle_2858/
I think this is a possible Euro rally in the making that could occur before the Spanish bailout rumors start flying. (They are due out sometime around the October 21st elections.)
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Wednesday, October 10, 2012
Market Update
As we correctly predicted in our last post equity markets in Asia closed in the red: Nikkei: -1.98%, Topix: -1.49%, and Hang Sang: -0.08%. EUR/USD, GBP/USD, and AUD/USD moved sideways in the Asia session and picked up momentum in the European session. We are now flat and waiting for another opportunity.
I have a bearish outlook for the rest of the week due to U.S. earnings, the debt crisis in Europe, the slowdown in China, and the Chinese/Japanese conflict over a group of small desolate islands. In terms of the U.S. earnings, companies have been underestimating their earnings so that they can outperform. This may seem smart, but the market has caught on, and now companies' results are being examined much more carefully. In terms of the debt crisis in Europe, negative developments within the Eurozone should cause the Euro to fall as there is nothing for market participants to look forward to in the short term. (Think Spanish bailout, additional stimulus from the ECB, etc.) The Chinese/Japanese conflict does not look like it will be resolved soon, as the PBOC governor recently canceled a trip to Japanese. The Chinese economy continues to slow and PBOC continues to stimulate via reverse repos. If we see an increase in risk appetite, I think it will most likely come via rumors of Chinese stimulus.
I have a bearish outlook for the rest of the week due to U.S. earnings, the debt crisis in Europe, the slowdown in China, and the Chinese/Japanese conflict over a group of small desolate islands. In terms of the U.S. earnings, companies have been underestimating their earnings so that they can outperform. This may seem smart, but the market has caught on, and now companies' results are being examined much more carefully. In terms of the debt crisis in Europe, negative developments within the Eurozone should cause the Euro to fall as there is nothing for market participants to look forward to in the short term. (Think Spanish bailout, additional stimulus from the ECB, etc.) The Chinese/Japanese conflict does not look like it will be resolved soon, as the PBOC governor recently canceled a trip to Japanese. The Chinese economy continues to slow and PBOC continues to stimulate via reverse repos. If we see an increase in risk appetite, I think it will most likely come via rumors of Chinese stimulus.
Tuesday, October 9, 2012
Forex Trading - Market Update
Market Update
As we predicted, the social unrest in Greece was splashed across media headlines today and appeared to be the main driver behind the fall in equity markets and the Euro weakness observed. I think the Asian equity indices will close in the red as the negative sentiment from today's U.S. and Europe sessions spills over into the Asia session. However, that does not necessarily mean that currencies will sell off against the dollar. (Sideways price action in EUR/USD & GBP/USD is a good possibility.)
Looking Forward
I'm currently long EUR/USD at 1.2890, GBP/USD at 1.5990, and AUD/USD at 1.0205
I initiated these positions because I consider the Euro and Pound to be oversold at these levels and expect them to bounce. Also, the kickoff to earnings season appears to be positive. The Aussie has been propped up since Monday's Asia session - in part due to rumors of more Chinese stimulus.
Note: These are short term trades and I will reevaluate when I get back to my desk before the Europe session begins. I'm aiming for 50 pips; but I'll have to see how price action develops.
I'm still bearish on USD/JPY for now as I think the U.S. 10 year treasury note yield change will continue to slide (risk off) prior to the Spanish bailout rumors due out shortly before the October 21st Spanish elections.You can track bond yields at Bloomberg's website.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room 9:00 A.M. Monday - Friday.
As we predicted, the social unrest in Greece was splashed across media headlines today and appeared to be the main driver behind the fall in equity markets and the Euro weakness observed. I think the Asian equity indices will close in the red as the negative sentiment from today's U.S. and Europe sessions spills over into the Asia session. However, that does not necessarily mean that currencies will sell off against the dollar. (Sideways price action in EUR/USD & GBP/USD is a good possibility.)
Looking Forward
I'm currently long EUR/USD at 1.2890, GBP/USD at 1.5990, and AUD/USD at 1.0205
I initiated these positions because I consider the Euro and Pound to be oversold at these levels and expect them to bounce. Also, the kickoff to earnings season appears to be positive. The Aussie has been propped up since Monday's Asia session - in part due to rumors of more Chinese stimulus.
Note: These are short term trades and I will reevaluate when I get back to my desk before the Europe session begins. I'm aiming for 50 pips; but I'll have to see how price action develops.
I'm still bearish on USD/JPY for now as I think the U.S. 10 year treasury note yield change will continue to slide (risk off) prior to the Spanish bailout rumors due out shortly before the October 21st Spanish elections.You can track bond yields at Bloomberg's website.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room 9:00 A.M. Monday - Friday.
Monday, October 8, 2012
Forex Trading - Market Update
Equity Markets
Going into the today's market open, S&P futures indicated a -6 to -7 point opening (it bottomed at roughly -7 points today) and the markets had sold off substantially since the pop higher after the NFPs on Friday. It appeared to me to be a bear trap (it was) and the S&P closed at -5.05 pts today. Mondays have tended to be more negative than positive over the last couple of months. Even when they aren't, they are usually fairly predictable. Now we head into earnings season where things are a bit more unpredictable. Companies tend to underestimate their earnings so they can "beat" their estimates. While I think the earnings aren't going to be good, I'm not sure what the market reaction will be.
EUR/USD
Angela Merkel arrives in Greece tomorrow, so I expect the media to focus on the situation there. Separate from the actual negotiations, there should be a significant amount of social unrest which should attract attention from the media. The social unrest in and of itself may cause the Euro to depreciate and European Equity indices to drop. How much impact the social unrest will have on the markets depends on how much attention it gets from the media. If European equity indices and the Euro are already falling, the media is likely to take those declines and try to find a reason for them (cue heavy coverage of protests and additional declines in equities). Keep in mind that Draghi speaks early in the day (3:30 AM EST) and that he is excellent at jawboning.
- Spanish Bailout: Is this a "buy the rumor sell the news" scenerio? I think so. Though the trick to playing this situation correctly is buying the rumor at the correct point. Rajoy will try and hold out on asking for a bailout until after the Spanish elections on October 21st. Requesting a sovereign bailout from the ECB is not a popular move with the people. So because everyone knows that Rajoy will most likely hold off on requesting a bailout until the 21st, the EUR/USD has plenty of scope to the downside until then. I'll be looking to buy into major weakness 2-3 days before the Spanish elections (as market conditions allow) in anticipation of bailout rumors.
GBP/USD
The Pound has been really weak since the post-NFP sell off. The main driver appears to be weak PMI numbers from last week and rumors of additional monetary easing. In terms of economic data releases this week, there is very little except for tomorrow at 4:30 AM EST. (Manufacturing & industrial production and trade balance) These are fairly important items that will affect expectations about more stimulus. It's important to note that the possibility of these numbers being bad and leading to an increase in stimulus expectations may already be priced in. There's a possibility that bad numbers may cause a spike down followed by a move sideways/up.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
Going into the today's market open, S&P futures indicated a -6 to -7 point opening (it bottomed at roughly -7 points today) and the markets had sold off substantially since the pop higher after the NFPs on Friday. It appeared to me to be a bear trap (it was) and the S&P closed at -5.05 pts today. Mondays have tended to be more negative than positive over the last couple of months. Even when they aren't, they are usually fairly predictable. Now we head into earnings season where things are a bit more unpredictable. Companies tend to underestimate their earnings so they can "beat" their estimates. While I think the earnings aren't going to be good, I'm not sure what the market reaction will be.
EUR/USD
Angela Merkel arrives in Greece tomorrow, so I expect the media to focus on the situation there. Separate from the actual negotiations, there should be a significant amount of social unrest which should attract attention from the media. The social unrest in and of itself may cause the Euro to depreciate and European Equity indices to drop. How much impact the social unrest will have on the markets depends on how much attention it gets from the media. If European equity indices and the Euro are already falling, the media is likely to take those declines and try to find a reason for them (cue heavy coverage of protests and additional declines in equities). Keep in mind that Draghi speaks early in the day (3:30 AM EST) and that he is excellent at jawboning.
- Spanish Bailout: Is this a "buy the rumor sell the news" scenerio? I think so. Though the trick to playing this situation correctly is buying the rumor at the correct point. Rajoy will try and hold out on asking for a bailout until after the Spanish elections on October 21st. Requesting a sovereign bailout from the ECB is not a popular move with the people. So because everyone knows that Rajoy will most likely hold off on requesting a bailout until the 21st, the EUR/USD has plenty of scope to the downside until then. I'll be looking to buy into major weakness 2-3 days before the Spanish elections (as market conditions allow) in anticipation of bailout rumors.
GBP/USD
The Pound has been really weak since the post-NFP sell off. The main driver appears to be weak PMI numbers from last week and rumors of additional monetary easing. In terms of economic data releases this week, there is very little except for tomorrow at 4:30 AM EST. (Manufacturing & industrial production and trade balance) These are fairly important items that will affect expectations about more stimulus. It's important to note that the possibility of these numbers being bad and leading to an increase in stimulus expectations may already be priced in. There's a possibility that bad numbers may cause a spike down followed by a move sideways/up.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
Thursday, October 4, 2012
Forex Trading - EUR/USD Update
Yesterday I wrote "I'm being especially careful of shorting the Euro, as any comments that Draghi may make at the press conference tomorrow may give the Euro a boost. It has exhibited unusual strength over the past 3 days against the dollar."
If you look back through price action, the Euro usually strengthens substantially the days/sessions prior to Draghi speaking. I hypothesize that these bouts of Euro strength are mostly due to expectations of Draghi speaking, and it tends to play out as a self fulfilling prophecy. It helps that Draghi is an incredibly intelligent person and that he understands the expectations of market participants. He knows what he needs to say in order not to disappoint institutional traders & investors.
That brings me to my next point. When will I feel confident in shorting the Euro again? I've often pondered this question, as I am of the opinion that the current level of optimism regarding the Eurozone is not warranted given the market fundamentals. I believe the best approach is to view the situation in the Eurozone from a medium to long term investor's point of view. It all comes down to the stability of the Eurozone. Is it safe to invest there? Are the policy makers tackling the problems?
For a die-hard bear like myself, I view the debt crisis in the Eurozone with extreme pessimism. However, that pessimism isn't going to make me any money. I need to be able to predict where price is going next. It's healthy to understand the fundamentals and develop a bias, but I need to be able to think objectively and trade the price action in front of me. As much as I despise the level that the Euro is trading at, I think there needs to be real questions about the stability of the Eurozone (from the bulls) in order to see a good sized correction or a reversal of the uptrend starting on July 25th. Just because market fundamentals in the Eurozone continue to deteriorate, it does not necessarily mean that the perceived level of stability will change much. If Spain bond yields climb to 8%, then the Spanish government can simply request a bailout. In addition, I'm fairly certain that Draghi will not hold back from giving the markets more stimulus if he considers it necessary.
Note: Any bad economic news or data prints that cause dollar strength can be counteracted by central banks stimulating the economy, or the threat thereof (causing dollar weakness.)
Wednesday, October 3, 2012
Forex Trading - Market Update
Market Update
GBP/USD came under pressure in yesterday's U.S. session, and is currently down 50 pips against the dollar on the day. I remain short GBP/USD at 1.6163 and am looking to hold the position into the GBP event risk tomorrow. (An asset purchasing decision, bank rate decision, and MPC rate statement.) You can keep tabs on all of tomorrow's event risk at Forex Factory. EUR/USD is currently trading at -15 pips on the day and AUD/USD is trading at -50 pips on the day. (Although the move largely happened in the Asian session). I thought the moves today stemming from the ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI data releases would be larger; but the market appears to be on hold ahead of the major event risk tomorrow.
Although I favor shorting into strength, I'm being extremely careful not to become mentally locked into any position. I'm being especially careful of shorting the Euro, as any comments that Draghi may make at the press conference tomorrow may give the Euro a boost. It has exhibited unusual strength over the past 3 days against the dollar (Currently +50 pips on a 3 day basis) while AUD/USD & GBP/USD have come off of their highs. If there's a rate cut tomorrow at 07:45 EST, the resulting move down has the potential to be quickly retraced at the 08:30 ECB press conference. Again, my bias is to the downside, but I'm being very nimble when it comes to short term trades. Our live trade room will be open tomorrow from 7:45 - 10:45 AM EST. We answer questions and provide live commentary on breaking news & price action.
GBP/USD came under pressure in yesterday's U.S. session, and is currently down 50 pips against the dollar on the day. I remain short GBP/USD at 1.6163 and am looking to hold the position into the GBP event risk tomorrow. (An asset purchasing decision, bank rate decision, and MPC rate statement.) You can keep tabs on all of tomorrow's event risk at Forex Factory. EUR/USD is currently trading at -15 pips on the day and AUD/USD is trading at -50 pips on the day. (Although the move largely happened in the Asian session). I thought the moves today stemming from the ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI data releases would be larger; but the market appears to be on hold ahead of the major event risk tomorrow.
Although I favor shorting into strength, I'm being extremely careful not to become mentally locked into any position. I'm being especially careful of shorting the Euro, as any comments that Draghi may make at the press conference tomorrow may give the Euro a boost. It has exhibited unusual strength over the past 3 days against the dollar (Currently +50 pips on a 3 day basis) while AUD/USD & GBP/USD have come off of their highs. If there's a rate cut tomorrow at 07:45 EST, the resulting move down has the potential to be quickly retraced at the 08:30 ECB press conference. Again, my bias is to the downside, but I'm being very nimble when it comes to short term trades. Our live trade room will be open tomorrow from 7:45 - 10:45 AM EST. We answer questions and provide live commentary on breaking news & price action.
Tuesday, October 2, 2012
Forex Trading - Market Update
Market Update
The Aussie sold off today with the daily candle closing roughly 100 pips lower. The Euro strengthened across the board, and GBP/USD closed almost flat on the day - (Check EUR/GBP.) The S&P 500 and Nasdaq closed slightly up on the day and the DJIA closed slightly lower.
EUR/USD
Rajoy (the prime minister of Spain) announced that Spain would not be seeking a bailout soon. He will ultimately be forced to ask for a bailout from the ECB when Spanish bond yields rise to unsustainable levels. For now, the 10 year Spanish government bond is trading at 5.748% (8.0% is the level considered unsustainable.) It appears that Rajoy is attempting to hold off on requesting a bailout until after the Spanish elections scheduled for Oct. 21st. (Spain being bailed out is not a popular notion among the people.) I think this comment from Rajoy was a mistake as it gives Spanish bond yields scope to the upside and the Euro scope to the downside. It intensifies Euro derived "risk off" moves. Right now, the Euro is trading at 1.2910. I think it's very possible that we could see a sell-off down to 1.2740 this week. (high of June 18th)
AUD/USD
The move lower in the Aussie was mainly triggered by the RBA cutting rates by 25 basis points. As I discussed in the previous post, market participants were pricing in a 25 bps rate cut at about 60%-65%. As consensus estimates by economists was for no rate cut, a significant amount of people were surprised by the rate cut, leading to a bigger sell-off. I think the Aussie has a long way to fall due to a slowdown in China and a future 10% drop in the S&P 500 (I think it's coming soon), but I will be extremely careful about trading it. If the Chinese announce a large stimulus package it could cause the Aussie to rally and provide it with underlying support. Also, the country of Australia is actually in fairly good shape compared to most debt-burdened western countries. You can check out economic statistics of the Australian economy here. (Their Debt to GDP ratio is less than 23%)
Looking Forward
I currently favor shorting AUD/USD, EUR/USD, and GBP/USD on any moves up.Wednesday, Thursday, and Friday are packed full of high level event risk that could spark major moves in either direction. While my bias is to the downside, one of the main things that I'll be watching is the U.S. equity indices. I'll be very skeptical about any significant move down in the currency markets if U.S. equity indices don't follow suit. If the stock market does start to fall, I'll be a lot more willing to let my short positions run.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
The Aussie sold off today with the daily candle closing roughly 100 pips lower. The Euro strengthened across the board, and GBP/USD closed almost flat on the day - (Check EUR/GBP.) The S&P 500 and Nasdaq closed slightly up on the day and the DJIA closed slightly lower.
EUR/USD
Rajoy (the prime minister of Spain) announced that Spain would not be seeking a bailout soon. He will ultimately be forced to ask for a bailout from the ECB when Spanish bond yields rise to unsustainable levels. For now, the 10 year Spanish government bond is trading at 5.748% (8.0% is the level considered unsustainable.) It appears that Rajoy is attempting to hold off on requesting a bailout until after the Spanish elections scheduled for Oct. 21st. (Spain being bailed out is not a popular notion among the people.) I think this comment from Rajoy was a mistake as it gives Spanish bond yields scope to the upside and the Euro scope to the downside. It intensifies Euro derived "risk off" moves. Right now, the Euro is trading at 1.2910. I think it's very possible that we could see a sell-off down to 1.2740 this week. (high of June 18th)
AUD/USD
The move lower in the Aussie was mainly triggered by the RBA cutting rates by 25 basis points. As I discussed in the previous post, market participants were pricing in a 25 bps rate cut at about 60%-65%. As consensus estimates by economists was for no rate cut, a significant amount of people were surprised by the rate cut, leading to a bigger sell-off. I think the Aussie has a long way to fall due to a slowdown in China and a future 10% drop in the S&P 500 (I think it's coming soon), but I will be extremely careful about trading it. If the Chinese announce a large stimulus package it could cause the Aussie to rally and provide it with underlying support. Also, the country of Australia is actually in fairly good shape compared to most debt-burdened western countries. You can check out economic statistics of the Australian economy here. (Their Debt to GDP ratio is less than 23%)
Looking Forward
I currently favor shorting AUD/USD, EUR/USD, and GBP/USD on any moves up.Wednesday, Thursday, and Friday are packed full of high level event risk that could spark major moves in either direction. While my bias is to the downside, one of the main things that I'll be watching is the U.S. equity indices. I'll be very skeptical about any significant move down in the currency markets if U.S. equity indices don't follow suit. If the stock market does start to fall, I'll be a lot more willing to let my short positions run.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
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