Order Flow Habits for Week of November 17, 2013 – November 22, 2013
November 22 – AUD sold off another 70-160 pips into NY open
The Aussie fell for the third day against the dollar after Reserve Bank of Australia GovernorGlenn Stevens said in a speech in Sydney yesterday that foreign-exchange intervention can be effective as long as it’s “judiciously used in the right circumstances.”
Australia’s dollar dropped, poised to match its longest run of weekly declines in seven years, amid speculation the nation’s central bank will take steps to curb currency strength.
I don’t think the RBA will intervene, but the shock value of verbal rhetoric was enough for the recent sell off.
Barrier at 0.9150 in AUD/USD
AUD is trying to talk down their currency
NZD is trying to talk down their currency
Will EUR try to talk down their currency?
November 21 – AUD sold off 100-200 pips across the board
AUD/USD sold off -100 pips from yesterday on bad worse China PMI
GBP/AUD to fresh highs
November 20 – AUD fell today into NY open. Fell by 40-70 pips or so
AUD rallied yesterday, which was a fade able opportunity as it fell today.
The Aussie fell for the first time in four days versus the dollar as the IMF said the overvalued Aussie combined with a mining-investment slowdown are dragging on economic growth.Reserve Bank of Australia Assistant Governor Guy Debelle earlier said that policy makers would prefer the nation’s currency to be weaker.
If there is a global glut in commodities, then that would put pressure on the AUD to go lower as the mining slowdown weighs on AUD growth.
Australia’s central bank should maintain easy policy settings as a mining-investment slowdown and a local currency about 10 percent overvalued drag on economic growth, the International Monetary Fund said.
“With growth currently on the soft side, the real exchange rate still overvalued and weighing on the non-mining sector, and inflation within the target range, monetary policy should remain accommodative,” the IMF said in a preliminary statement after reviewing the nation’s economy.
While the Reserve Bank of Australia “has done a lot” with 225 basis points of rate cuts since late 2011, it can’t engineer a depreciation of the currency, Brian Aitken, IMF mission chief, Asiaand the Pacific Department, said in response to questions in Sydney yesterday. With the benchmark interest rate at a record-low 2.5 percent, the RBA still has room to respond if the growth outlook worsens, he said.
The “key external factor” that may help the Australian dollar weaken would be a Federal Reserve decision to begin tapering its bond purchase program, Aitken said.
CNY HSBC Flash Manufacturing PMI at 50.4 / 50.9 / 50.9
AUD/USD: -24 pips FM, helped set down sent shift for -100 pips
EUR/AUD: +35 pips FM, up sent shift, For +100 pips
AUD/JPY: -26 pips FM, ret full then small down sent shift for -30 pips rest of day
AUD/CAD: -23 pips FM, ret full, then – 30 pips in small down sent shift
GBP/AUD: +41 pips FM, ret full, then up sent shift for +100 pips
AUD/NZD: -10 pips FM, -30 pips rest of day in down sent shift
RBA Gov Stevens Speaks
– The Australian dollar is falling across the board after Reserve Bank Of Australia Governor Stevens’ speech, which highlighted currency intervention as a tool to lower the currency’s value.
– RBA governor Stevens has doubts about intervention. But he appears to have few doubt about when to raise the subject. AUD/USD traders are already bearish, but selling has been tempered by the pair’s proximity to key supports. The governor’s mention of intervention
– Stevens mooted intervention
AUD falls 30-40 pips over a few min, reinforces down sent shift for the day leading to triple digit pip losses for the AUD
Reserve Bank of Australia Governor Glenn Stevens said that while the central bank has been unconvinced about the effectiveness of trying to drive down the exchange rate, he remains “open-minded” on currency intervention.
“That doesn’t mean we will always eschew intervention,” Stevens said in a speech in Sydney late yesterday. “We remain open-minded on the issue. Our position has long been, and remains, that foreign exchange intervention can, judiciously used in the right circumstances, be effective.”
Stevens just gave the market some verbal rhetoric. They haven’t heard internention talk in many months, so his comments today caused some AUD weakness. I highly doubt they would intervene to sell the AUD at these levels. The would only seriously consider intervention if the AUD/USD rose above 1.00 or so. It doesn’t make much sense to sell the AUD on a downswing. It only makes sense to intervene when it is rising in value.
November 19 – AUD/USD rallied 60 pips, tripping stops above 0.9425
AUD rallied by 30-60 pips or so.
EUR/AUD and GBP/AUD tripped downside stops, then bounced
DO NOT SHORT THE LOWS
Oz caught a bid on news in early London that China planned to end regular FX interventions, allowing the yuan to trade more freely in an extended band.
Additionally, they said they would cut the ratio of US Treasuries that it holds to maturity, leading to speculation that the ultimate goal is reserve diversification out of the USD.
I don’t see how allows the yuan to trade more freely would be AUD bullish.
If they allow the yuan to be more free, that would cause the yuan to strengthen, which could restrain China growth, which would restrain AUD bid. So that doesn’t make sense to me.
Although the reverse diversification out of USD is one potential reason for AUD being bid.
MI Leading Index m/m at 0.1% / -0.1%
CNY CB Leading Index m/m at 0.6% / 1.1%
November 18 – AUD rallied 30-90 pips into NY open.
No sense trying to fade this move yet. I don’t have any catalysts to go on and no good other currency I can buy.
China’s leaders vowed to allow more private investment in state-controlled industries and expand farmers’ land rights as part of the ruling Communist Party’s biggest package of economic reforms since the 1990s.
“We believe China is on the cusp of a massive multiyear bull run,” Christie Ju, managing director at Jefferies Group LLC in Hong Kong, wrote in a note to clients.
Well, if China is on the cusp of a bull run from the current moment, then I should not be trying to short AUD. But we shall see how it develops. That is just one person’s comments and views. Lets see how the data develops and how the market responds to it.
I would rather focus on the data, rather than on various rhetoric and promises from the politicians.
Last month, the International Monetary Fund reduced its 2013 growth forecast for emerging markets to 4.5 percent, which would be the slowest since 2009. In July, the Washington-based fund predicted 5 percent growth.
China’s economy will increase by 7.6 percent this year, the least since 1999, IMF data show. India, which last year had its worst current account deficit as a percentage of its economy since at least 1996, will grow less than 4 percent for a second straight year, which hasn’t happened in at least three decades, the data show.
Deepening concern over a slowdown in the region’s export-led growth has caused Asia’s financial health to deteriorate, leaving investors in the region’s currencies with the biggest losses on record versus the dollar over the past two quarters, data compiled by Bloomberg show.
AUD/USD tripped stops above 0.9400, then fell
DO NOT BUY TOP TICK
CB Leading Index m/m at 0.3% / -0.2%
Monetary Policy Meeting Minutes
– growth in Australia’s major trading partners remained around the average of the past decade
– information that became available over the past month was consistent with the Australian economy continuing to expand at a below-trend pace in the September quarter. At the same time, forward-looking indicators had generally improved.
– Growth in household spending looked to have remained below average in the September quarter, consistent with softness in the labour market weighing on income growth.
– Members noted that conditions in the housing market continued to strengthen.
– In discussion, members observed that developments in the established housing market and the increase in new dwelling activity seen to date were among the expected effects of the low level of interest rates.
– Labour market conditions remained soft. There had been little growth in employment since earlier in the year, although the unemployment rate had been relatively stable over recent months with the participation rate declining.
– The exchange rate had appreciated somewhat over the past three months and the fall in mining investment was expected to be larger than previously expected
– GDP growth was expected to remain below trend, at close to 2½ per cent, through the next year.
– The outlook for the labour market over the next two years was slightly weaker than at the time of the AugustStatement on Monetary Policy, consistent with revisions to the GDP forecast.
– The subdued outlook for the labour market implied that domestically generated inflationary pressures were likely to remain contained.
– In year-ended terms, the central forecast was for underlying inflation to remain consistent with the inflation target over the forecast period.
– Recent indicators suggested that the Australian economy had been expanding at a below-trend pace.
– The revised staff forecasts suggested that growth in the near term would be constrained by the decline in mining investment, the high level of the exchange rate and weak public demand.
– A range of indicators showed that dwelling investment was picking up and this was likely to continue.
– Members noted that while the timing of investment upturns was very difficult to predict, it appeared likely that growth of the economy over the coming year would be below trend
– At recent meetings, the Board had judged that it was appropriate to leave the cash rate unchanged while continuing to gauge the effects, including in the housing market, of the substantial degree of monetary policy stimulus that had been put in place over the past two years.
– the Australian dollar, while below its level earlier in the year, remained uncomfortably high. Members noted that a lower level of the exchange rate would likely be needed to achieve balanced growth in the economy.
– The Board’s judgement was that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target. The Board would continue to examine the data over the months ahead to assess whether monetary policy remained appropriate.
AUD sold off by 10-20 pips FM, then NS and rebounded
The bullish forces were:
– housing market and interest sensitive parts of the economy are responding well to rate cuts
– outlook for labor market slightly weaker
– inflationary pressure well contained
– growth of economy over next year may be below trend
– decline in mining investment
– weak public demand
Policy makers are balancing rising home prices against a high currency that’s weighing on industries such as manufacturing.
“They’ve still got that gentle easing bias in there,” said Tom Kennedy, an economist in Sydney at JPMorgan Chase & Co. “The dollar is very influential for the RBA as a lower dollar would assist rebalancing away from resource-led growth towards the more traditional sectors of the economy.”
CNY Foreign Direct Investment ytd/y at 5.8% / 6.2%
November 22 – CAD sold off another 30-100 pips into NY open
Core CPI m/m at 0.2% / 0.0% / 0.2%
CPI m/m at -0.2% / 0.2% / 0.2%
Core Retail Sales m/m at 0.0% / 0.2% / 0.5%
Retail Sales m/m at 1.0% / 0.3% / 0.1%
CPI y/y at 0.7% / 0.8% / 1.1%
USD/CAD: -20 pips FM, then NS
EUR/CAD: -25 pips FM, then NS
The CAD gained str on combination of profit taking from previous hours CAD depreciation, and also the market seemed to focus on the higher retail sales numbers. Although, I would say that the low inflation numbers are more dovish than the retail sales numbers are bullish for the CAD.
Again, the inflation number for regular CPI, which includes food and energy is falling. Same thing with the U.S. number. Taking into account food and energy, the CPI is lower for both countries than the Core CPI
The CPI y/y is at 0.7% for Canada, which is the same as the Eurozone inflation. Will CAD consider some more monetary easing?
“It does look like just a general rotation out of the commodity currencies dragged CAD through the key technical levels,” said Greg Anderson, head of global foreign exchange strategy at Bank of Montreal, by phone from New York. If the report this morning shows inflations slowed, “it’s just a bad headline to add to what’s already not constructive price action.”
Barrier at 1.0600 for USD/CAD
The next dovish shift in BoC policy is either to do a rate cut, or to implement forward guidance, where they say rates will stay low for an extended period of time.
November 21 – All the commodity currencies got hit today by 100 pips today
AUD, NZD and CAD all down into NY open
“You’re always interested in CPI, given that it’s the most direct impact on central-bank policy,” said Don Mikolich, executive director of foreign-exchange sales at Canadian Imperial Bank of Commerce, by phone from Toronto. “Certainly a 0.8 or 0.9 is bottom-end and normally the time when banks start to ease conditions.”
November 20 – Wholesale Sales m/m at 0.2% / 0.4% / 0.4%
Yesterday CAD went down for some weird reason.
Today, CAD is going up reversing yesterdays move.
It is possible the CAD gained today on the outlook for the Fed continuing stimulus, which would help support CAD growth, while the BoC will not need to go dovish, if the Fed is going dovish for them.
BoC Poloz: Improving U.S. growth will underpin Canada economy
– We are on track to a healed global economy
– It’s inevitable that interest rates will eventually rise
– expects exports to pick up, households to pay down debt
– maintains neutral policy stance
– outlook for Canada, global economies hasn’t changed substantially
– Higher rates will be in the context of a stronger recovery
November 19 – CAD flat into NY open, even with low crude prices
CAD starting to weaken further into Ny session, by 40-80 pips or so
“It could be that the fall in commodities prices lately hasn’t been fully priced in the currency yet,” Greg T. Moore, a currency strategist at Toronto-Dominion Bank, said of the loonie in a phone interview from Toronto. “I still do think commodities prices will pull most of the weight in dollar-Canada.”
November 18 – Foreign Securities Purchases at 8.36B / 6.71B / 2.08B
November 21 – Trade Balance at 2.43B / 2.45B / 2.40B
The Swiss National Bank (SNBN) will maintain the cap on the franc as the global economic recovery proceeds sluggishly, board member Fritz Zurbruegg said.
The EUR/CHF is not attacking the floor, because it is still a risk appetite environment and there is no risk aversion from EZ sovereign debt crisis. The ECB cut in interest rates doesn’t seem to be enough to cause EUR/CHF to attack the 1.20 floor.
And the economic situation in Switzerland doesn’t seem to have any big changes, with still low inflation.
The SNB would still like the Swiss Franc to fall by 10% or so to help with economic rebalancing.
Because of extremely loose monetary policy, the Swiss real-estate market is in the throes of its biggest property market boom in two decades. The SNB has repeatedly warned of overheating.
“Since low interest rates can be expected to persist in Switzerland for some time yet, we are keeping a very close watch on developments in the mortgage and real-estate markets,” Zurbruegg said.
SNB Zurbruegg: EUR/CHF floor still a necessary policy tool
– Value of Swiss Franc remains high
– EUR/CHF floor necessary for foreseeable future
– low Swiss interest rates to persist for some time
November 20 – ZEW Economic Expectations at 31.6 / 24.9
November 18 – EUR/CHF dropped 20 pips on some JPY str
Risk appetite is very high as S&P at all time highs, but EUR/CHF cannot get moved to breakout to the topside yet as EUR econ is still weak and no hawkish ECB. So nothing to do here.
The franc, popular at times of high aversion to risk, has depreciated 2.1 percent against the euro this year, as the risk of a break up on the currency union recedes. Less turbulence on foreign-exchange markets has meant the SNB hasn’t intervened on the franc in more than a year.
The SNB would be well advised to lift the ceiling on the franc only once major central banks normalize policy, according to Ernst Baltensperger, professor emeritus of economics at the University of Bern.
The euro area’s nascent economic recovery lost momentum in the third quarter and inflation slowed to the lowest level in four years, leading the European Central Bank to cut its benchmark rate to a record low earlier this month.
Even so, price pressure remain weak and the central bank sees no breach of its 2 percent price stability threshold in coming years.
SNB Vice President Jean-Pierre Danthine said on Nov. 14 that the cap remained an “essential instrument.” The SNB predicts consumer prices will fall 0.2 percent this year, and then rise 0.3 percent in 2014.
November 22 – German Final GDP q/q at 0.3% / 0.3% / 0.3%
German Ifo Business Climate at 109.3 / 107.9 / 107.4
Italian Retail Sales m/m at -0.3% / 0.4% / 0.0%
EUR/USD: +30 pips FM, then NS
EUR/GBP: +12 pips FM, then NS
EUR/JPY: +34 pips FM, then NS
EUR/CHF: +2 pips FM, then NS
EUR/AUD: +36 pips FM, then NS
EUR shrugged off yesterdays weak French data and today it is rebounding losses as the market believes ECB action is not going to come yet. And the cross buying of EUR/AUD and EUR/NZD is propping.
The euro was also supported by comments from European Central Bank President Mario Draghi, who played down the possibility of the bank implementing negative deposit rates.
ECB Nowotny: Sees no perspective of deflation in Euro Zone
ECB Draghi: Low interest rates overtime threaten financial stability, but no evidence of this at present
– interest rates are low because economy weak
A lot of the macro sellers from earlier in the week are short covering now.
Overall, EUR gained by around 40 pips today
I am not chasing EUR/USD nor GBP/USD higher. That doesn’t seem like a good idea to me.
November 21 – French Flash Manufacturing PMI at 47.8 / 49.6 / 49.1
French Flash Services PMI at 48.8 / 51.3 / 50.9
EUR/USD: -23 pips FM, -6 pips over next few min, then NS
EUR/GBP: -10 pips FM, then NS
EUR/JPY: -30 pips FM, -4 pips over next few min, then NS
EUR/CHF: -7 pips FM, -4 pips over next few min, then NS
EUR/AUD: -21 pips FM, then NS
EUR/CAD: -21 pips FM, then NS
S&P: -2 pts
German Flash Manufacturing PMI at 52.5 / 52.3 / 51.7
German Flash Services PMI at 54.5 / 53.1 / 52.9
Either NMI, or EUR rose +20 pips if it was released 2 min early
Flash Manufacturing PMI at 51.5 / 51.6 / 51.3
Flash Services PMI at 50.9 / 51.9 / 51.6
ECB President Draghi Speaks
– Unemployment levels unacceptably high
– Europe on road to recovery
– Need safety margin against deflationary risk
– Recent rate cut due to sustained downward drift in inflation
– Discussions about negative deposit rates not new
– Don’t expect deflation risks to materialize
EUR/USD: +50 pips over five min
EUR/GBP: +25 pips over five min
EUR/JPY: +40 pips over five min
The EUR spiked higher because Draghi said that the discussions about negative deposit rate were not new and that he doesn’t expect deflation risks to materialize, which means less likelihood they would enact negative deposit rates.
Consumer Confidence at -15 / -14 / -15
If Draghi believes unemployment levels are unacceptably high, then will the ECB consider QE or some other big action to help boost growth?
EUR/USD tripped light stops below 1.3412, then bounced
It looks like it is better to try to short the EUR on a retracements rather than the fresh lows of the day.
EUR is getting propped up a bit by all the cross buying. All the EUR/AUD, EUR/NZD buying
The EUR seems to be a bit high for the EZ inflation and recovery. It needs to drop 200-500 pips for economic rebalancing purposes given the current data I see. Let’s see if any catalysts can do that.
After Draghi remarks, it seems the ECB is not going to act on the deposit rate cut just yet. They are just laying the groundwork for if it is necessary. Draghi said that he doesn’t expect deflation to materialize. So the EUR may not fall much just yet.
The EUR will need fresh catalysts from more ECB action or rhetoric, or weaker growth, lower inflation numbers, sovereign debt crisis, etc.
The euro rebounded after the head of the European Central Bank moved to quell growing talk that the ECB was considering an unprecedented policy of making banks pay to deposit cash overnight in a bid to boost economic activity
ECB Asmussen: see no risks of deflation in the medium term
– Inflation expectations firmly anchored
Some of the French data has been bearish over the past month or so. I don’t know if it is just a blip or a trend.
I remember Bridgewater saying this year that the French debt buildup was a problem. Perhaps France is going to be a weak link in 2014?
November 20 – German PPI m/m at -0.2% / 0.1% / 0.3%
German PPI is negative, so perhaps inflation in Germany is still low. This puts pressure on the ECB to do something more. Although it is still in the early stages. EUR should be a few hundred pips lower at least in my opinion.
EURUSD hit 1.3579 yesterday, then pulled back
DO NOT BUY TOP TICK
Rumor that ECB looking at -0.1% deposit rate causing EUR weakness:
EUR/USD: -47 pips FM, -49 pips next hour
EUR/GBP: -20 pips FM, -25 pips next hour
EUR/JPY: -40 pips FM, -45 pips over next hour
EUR/CHF: -11 pips over twenty min
EUR/AUD: -45 pips FM, -53 pips over next twenty min
EUR/CAD: -46 pips FM, -34 pips next hour
That would cause commercial lenders to take their cash out of the ECB and invest it in something. Either in making more loans, or in bonds, or in equities, etc. They are pushing money out of the safe haven ECB deposits and into more riskier assets like loans, bonds, equities, etc.
Not only is there a chance for deposit rate cut, but I believe there is also a small chance of some risk aversion from Greece or France, or some small flare up of sovereign debt crisis. Just a small chance over the next 2-4 months or so.
The deposit rate cut has been discussed, but does not have a consensus, so I am not sure if there will be more EUR weakness. They may hold off for a few more months, etc. They just seem to be laying the groundwork.
But there is most certainly no reason to be bidding for EUR
The European Central Bank is considering a smaller-than-normal cut in the deposit rate if officials decide to take it negative for the first time, according to two people with knowledge of the debate.
Policy makers would reduce the rate for commercial lenders who park excess cash at the ECB to minus 0.1 percent from zero, said the people who declined to be identified because the talks aren’t public. It would be the first time the central bank has adjusted interest rates by less than a quarter of a percentage point. The concept, which has been discussed by Governing Council members, doesn’t yet have a consensus, the people said.
Members of the council, which is holding a mid-month meeting in Frankfurt this week, have said that a negative deposit rate is a potential tool for warding off deflation. They’ve also cautioned that the consequences of such an unprecedented measure aren’t clear. The central bank this month refrained from cutting the deposit rate even as it reduced its benchmark lending rate to a record low of 0.25 percent, and Governing Council member Jens Weidmann has warned against further loosening of monetary policy.
ECB President Mario Draghi said on Nov. 7 that the central bank is “technically ready” for a negative deposit rate if the economic outlook warrants it. Executive Board member Peter Praetsaid in Hong Kong a week later that a rate below zero is possible.
Policy makers hope that the measure, obliging banks to pay to hold a liquidity cushion, would prompt them to lend cash to companies and households instead, the people said. At the same time, a negative deposit rate also risks curbing banks’ profit as loan rates fall while the institutions may be unable to pass negative rates onto depositors.
By cutting by less than a quarter-point, the central bank could test the policy while minimizing disruption to the financial system, one of the people said. The ECB’s next interest-rate decision will be announced on Dec. 5. Denmark currently has a deposit rate of minus 0.1 percent.
Any moves to ease monetary policy further will probably face resistance from Germany, the euro area’s biggest economy. Bundesbank President Weidmann said in an interview with Die Zeit to be published tomorrow that it is not “sensible” to consider further monetary loosening. That would distract from the roots of the financial crisis, he said.
“Taking the deposit rate negative that will have negative implications on the euro,” Eric Viloria, senior currency strategist at Gain Capital Group in New York, said in a phone interview. “If banks have to pay money in order to park cash with the ECB, it’s going to make them reluctant to do so, and make investors reluctant to hold euros.”
November 19 – EUR/USD tripped stops above 1.3540 then fell back
DO NOT BUY TOP TICK
German ZEW Economic Sentiment at 54.6 / 54.6 / 52.8
ZEW Economic Sentiment at 60.2 / 63.1 / 59.1
Confidence is at a multi year high
ECB Asmussen: Wouldn’t fundamentally exclude negative deposite rate
– would be very careful with negative deposit rate
– one possibility is negative deposit rate
– could act again if inflation data require it
– we haven’t exhausted our monetary policy possibilities
ECB Praet: rate cut timing was main dispute at least meeting
ECB Constancio: QE a possibility for ECB
– ECB has not discussed how to conduct QE on a technical level
– ECB concerned about trade-offs of negative rates
- In case any doubt, ECB’s Constancio makes clear QE is possible
- Not been discussed in detail yet, so one for next ECB meeting
- “Everything is possible” and “all instruments are on the table”
EUR may have fallen by 20-30 pips, then rebounded
EUR is resilient to small rumblings of very slight chance of QE.
So it can keep grinding higher, but I am not buying top tick
Any Troika trouble with Greece going into the new year?
The European Central Bank could use asset purchases to pull the euro-zone economy out of stagnation, but the central bank has not discussed how such measure would technically work, the ECB’s vice president said Tuesday
“This was referred only as a possibility and nothing else. Everything is possible,” Vitor Constancio, vice president of the ECB told reporters on the sidelines of the 16th annual Euro Finance Week in Frankfurt, when asked about quantitative easing.
“As always, our decisions depend on our views about inflation and the prospects for inflation,” Mr. Constancio added.
The ECB has so far resisted this as a means to boost growth, but Peter Praet, the central bank’s top economist, opened the door for such purchases in an interview with The Wall Street Journal last week. “The balance-sheet capacity of the central bank can also be used,” he said.
EUR/USD hit 1.3547
I am not buying top tick
EUR/USD tripped stops above 1.3550 on USD weakness from Bernanke remarks in Asian session
EUR being very resilient and operating with bullish sensitivity, which is why it is grinding higher. But there are all sorts of risks to the downside, so I do not want to be chasing EUR higher, although I do have to acknowledge that the EUR is shrugging off bearish news so far.
But the more it rises, the worse the reward risk ratio becomes for long EUR trades in my opinion.
November 18 – Current Account at 13.7B / 18.3B / 17.9B
NMI, as EUR actually rose for some reason. Maybe some EUR specific flows hit the market at that moment in time.
Trade Balance at 14.3B / 14.3B / 12.3B
Bundesbank: ECB accommodative monetary policy justified given low eurozone inflation
EUR rose above 1.3500 and rose +20 pips or so into NY session on some USD weakness, EUR weakness
EUR/GBP rose 30 pips or so on some EUR str or GBP weak
EUR/USD is in a similar situation with AUD/USD. They are grinding higher, but I do not want to chase them higher. I would rather look for catalysts and reasons to try to short EUR and AUD.
If the Fed does delay taper, then the EUR and AUD can be propped up without sufficient bearish catalysts of their own.
EUR/USD tripped stops above 1.3525
DO NOT BUY TOP TICK
ECB Nowotny: No need to immediately react if inflation not at target level
– ECB still has measures to fight low inflation if needed
Mario Draghi won’t follow his unexpected interest-rate cut with new liquidity injections into the financial system next month, economists say.
“The ECB wants to understand the effect the rate cut has had on liquidity, on credit growth and on monetary aggregates,” said Matteo Cominetta, European economist at HSBC Holdings Plc in London. “If the effects are not significant, they will go for a new LTRO. I think they will have to act again.”
In the Bloomberg survey of 37 economists, 60 percent forecast that the ECB’s next move will be a liquidity injection. A further 8 percent see a liquidity measure coupled with a rate cut. Eight percent also predict a cut in the main rate alone, with the same percentage seeing a negative deposit rate. Two economists said the ECB would implement quantitative easing.
Policy makers left the deposit rate, the rate for commercial lenders who park excess cash at the central bank, at zero after they signaled that the effects of taking it into negative territory can’t be adequately predicted.
November 22 – GBP/USD took out stops above 1.6200
I am not chasing this
The market seems to be inclined to weaken the USD by a little bit, up until the Fed gives more concrete signals of a taper.
November 21 – GBP/USD up about 40 pips into NY open, on some USD weakness, even though some good data came out
Public Sector Net Borrowing at 6.4B / 4.8B / 8.6B
CBI Industrial Order Expectations at 11 / 0 / -4
NMI FM, but possible that it led to +20-30 pips of GBP buying over the course of one hour
November 20 – MPC Meeting Minutes
– All 9 voted to keep rates steady
– All 9 voted to keep the Asset Purchase Facility unchanged
– But impediments to a normal recovery were still evident, particularly in the euro area.
– Business survey indicators suggested continuing momentum in the recovery and growth strengthening over the second half of 2013.
– Housing market transactions had risen further above 90,000 in September, having averaged around 75,000 per month from 2010 to 2012
– The Nationwide and Halifax house price indices were rising at close to 1% per month for the United Kingdom as a whole, although there remained significant variation across regions.
– Nonetheless, the underlying conditions for business investment appeared to have improved
– The lower oil price meant that inflation would probably fall a little further in the very near term, although there was likely to be volatility from month to month.
– The LFS headline unemployment rate had fallen to 7.7% in the three months to August. This was down from 7.8% in Q2 and a touch lower than the central expectation at the time of the August Inflation Report.
– The claimant count, a more timely indicator of labour market conditions, had fallen to 4% in September, its lowest rate since January 2009. Bank staff’s central projection for headline unemployment was 7.7% for Q3 and 7.6% for Q4, although the recent decline in the claimant count indicated that sharper declines were possible.
– In the Committee’s central view, four-quarter GDP growth was expected to pick up further in the near term as the lifting of uncertainty and the thawing of credit conditions continued to bolster demand growth.
– As the recovery in demand growth was expected to be accompanied by a gradual rise in productivity growth, only a gentle decline in the unemployment rate was in prospect.
– The news on the month had continued to suggest a sustained recovery in activity in the United Kingdom
– The fall in CPI inflation to 2.2% in October was welcome, and, although the announced increases in utility prices would raise inflation in the coming months, the near-term outlook for inflation was materially closer to target than envisaged three months ago
– Nonetheless, the probability of CPI inflation being at or above 2.5% 18 to 24 months ahead was judged to be lower than in August, at around one third when conditioned on market expectations for the path of Bank Rate
– All Committee members agreed that neither of the price stability knockout conditions that would override the forward guidance provided in August had been breached. The FPC had continued to judge that the financial stability knockout had not been breached. With unemployment remaining above the 7% threshold, the Committee’s policy guidance therefore remained in place.
– But, with the proviso that medium-term inflation expectations remained sufficiently well anchored, the projections for growth and inflation under constant Bank Rate underlined that there could be a case for not raising Bank Rate immediately when the 7% unemployment threshold was reached.
GBP/USD: -34 pips FM, then NS
EUR/GBP: +15 pips FM, then NS
GBP/JPY: -30 pips FM, then NS
GBP/CHF: -25 pips FM, then NS
GBP/CAD: -33 pips FM, then NS
GBP/AUD: -35 pips FM, then NS
It as overall a no impact event. No game change situation. They said that the recovery was strengthening, and that unemployment may fall faster, but that there is scope for not raising the Bank Rate immediately when the 7% threshold was reached.
So overall, nothing to do, although the market is bidding up GBP by +30 pips or so going into NY open.
If you want to go long the EUR or the GBP, better to pick the GBP. If you want to short EUR or GBP, better to pick short EUR.
I am not going to chase GBP/USD higher. Similar situation with EUR/USD and AUD/USD. I don’t want to chase AUD/USD, or EUR/USD, or GBP/USD higher. Preferable to short EUR/USD, then next opportunity to short AUD/USD.
“Once unemployment had reached 7 percent, the committee would reassess what it had learned about the nature of the recovery,” the MPC said. “In the meantime, the committee would continue to judge the appropriate stance for policy each month in line with the guidance given in August.”
Will GBP sell off in sympathy with the EUR selling?
That is what happened previously when EUR inflation was low. EUR sold off first day. Then GBP sold off the next day.
November 19 – GBP/USD tripped stops below 1.6087, then bounced
November 18 – GBP/USD tripped stops above 1.6135, then fell
DO NOT BUY TOP TICK
November 17 – Rightmove HPI m/m at -2.4% / 2.8%
November 22 – GBP/JPY hit 164.00 then profit taking
The yen isn’t “excessively weak,” Bank of Japan Governor Kuroda said in parliament today inTokyo.
USD/JPY flat on the day. It would have gone higher, but USD weakness restraining topside
Overall, JPY weakened by 40 pips or so today
November 21 – JPY weakening during Asian session by 40 pips or so
USD/JPY rallied from 100.00 to 100.50
Took out 100.50 barriers.
USD/JPY rallied +100 pips to break 101 barriers.
S&P stabilizing and moving slight higher also helped it rally.
That is what USD/JPY needs. Good US data to fuel expectations of Fed taper, and the S&P to remain flat or go higher along with that data. Any JPY bearish catalysts are just a bonus.
JPY down big today
I don’t know there was so much JPY selling today. Perhaps it was just a continuation and sent shift from the upside Nikkei breakout and USD/JPY hunting of topside barriers. Also perhaps USD/JPY is being caught short vol and any option players want to buy it to hedge their option positions.
Kuroda has made clear that if the reflation effort were to falter, the BOJ would step up their already gigantic balance sheet expansion.
It is possible that the BoJ steps up its asset purchases next year. Fed did three rounds of QE, spaced many years apart.
So it is possible for the BoJ did act one this year, and may do the second act next year.
November 20 – All Industries Activity m/m at 0.4% / 0.5% / 0.3%
If USD/JPY wants to rally slightly on dovish Fed comments or stay slightly elevated, then I am not going to try to short the lows of the day. Maybe the big upside breakout won’t come so soon, but it may stay slightly elevated by a few hundred pips and consolidate near the top of the range on that bullish sensitivity.
USD/JPY is acting bullish. It seems to be pricing in a higher chance of a Dec taper, than some other financial instruments. It seems to be more bullish on the US econ than other FX pairs.
Also, USD/JPY was resilient to Bernanke comments yesterday. It only dropped 10 pips FM.
If the Fed taper comes in December, then it will be interesting to see how USD/JPY responds. There will be macro buyers from the Fed taper, but also potentially macro sellers from S&P risk aversion drop.
USD/JPY is roughly flat on the conflicting forces of FOMC minutes and S&P drop. Topside is definitely being restrained. Maybe there won’t be a big drop because there isn’t any concentrated long positions in USD/JPY like there was back in May 2013. A big drop may require some form of risk aversion outside of a Fed taper, like EZ sovereign debt crisis, etc.
The yen strengthened from a four-year low against the euro as an official said proposed reforms of Japan’s government-run pension fund that risk pushing down the currency may take years to implement.
“Expectations for the pension announcement were quite big,” said Manuel Oliveri, a foreign-exchange strategist at Credit Agricole Corporate & Investment Bank in London. “What has been said is less detail than expected.”
The panel advising Japan’s leaders on how to overhaul the 121 trillion-yen Government Pension Investment Fund said the world’s biggest manager of retirement savings should review its holdings of domestic bonds and diversify its investments into overseas assets.
Some changes in pension funds may take months or years to implement, advisory group chairman Takatoshi Ito said while presenting the recommendations today in Tokyo.
So the market expected that Japan would overhaul its pension fund to allow for more overseas holdings, which would mean JPY selling and other currency buying. So the JPY weakened for expectations of that.
So if they don’t deliver, or it is too far away, then the JPY can strengthen by 50-200 pips or so.
Monetary Policy Statement:
November 19 – USD/JPY bounced from 99.760 to 100.00 into Ny open
JPY weakened by 20-50 pips or so
- Widespread yen selling after BB story on Japan’s NISA plan to launch Jan 1
- Plan allows individual investors to buy stocks/mutual funds w/o tax on profits
The only rationale for JPY weakeness over the past week is if it came from JPY specific policies, etc.
There were some Aso comments, but those weren’t any big shift.
DNT in EUR/JPY at 135.75 for Tokyo expiry today
If USD/JPY wants to stay elevated, even on the recent slightly dovish Yellen and Bernanke comments, then I can’t fight it. That is bullish market sensitivity. I think it is weird, but I can’t fight it, unless I want to fade topside stops.
November 18 – Well, USD/JPY fell 40 pips or so from 100.30 down to 99.90 on some USD weakness and some JPY str.
The divergence that I saw last week is correcting itself with the JPY strengthening and the Nikkei having some profit taking.
USD/JPY shouldn’t be breaking out higher on dovish Fed comments. That is weird. The more natural rally is if it breaks out on hawkish Fed comments, and there isn’t much risk aversion and only gentle correction in S&P and risk appetite, where the Fed taper macro selling is met with macro buyers from improving economic fundamentals in the S&P to hold up risk appetite.
The divergence is correcting further. USD/JPY dropping down to 99.80. Nikkei falling down to 15,050
November 17 – Something weird is going on with USD/JPY and the Nikkei. They seemed irrationally bid up last Thursday and Friday. There was a divergence there. I don’t feel comfortable trying to go long them from these levels.
I would try to fade them, but I just don’t have much to go on besides the weird divergence in sensitivity.
Maybe I am thinking too much about it and I should just go with the breakout, since I have been doing the analysis for a long time for USD/JPY.
November 22 –
Fed Lockhart: Sees economy picking up in 2014
– Tapering will happen when economyr eady, market prepared
– Expect to discuss tapering at upcoming meetings
– Sees accommodation likely for number of years, but change in policy tools
JOLTS Job Openings at 3.91M / 3.89M / 3.84M
World shares were set to end a volatile week firmer on Friday and the dollar hovered near a 4-month high against the yen as worry dissipated about an early Fed move to start winding down its stimulus policy.
“People have got the message,” said Laurent Fransolet, head of European fixed-income strategy at Barclays. “Everyone is starting to differentiate between tapering and tightening.”
November 21 – There seems to be around 40 pips of USD weakness into the NY open, even though some decent US data came out
That is slight USD bearish sensitivity.
The Fed is still probably not going to taper in December, given current data. The next NFP seems like it will be very important to see if they will taper in December or not. If the NFP can show a strong reading of say, +250k, and a simultaneous drop in the unemployment rate, that can definitely cause a December Fed taper of -10bln or -20bln from the QE.
PPI m/m at -0.2% / -0.2% / -0.1%
Core PPI m/m at 0.2% / 0.1% / 0.1%
Unemployment Claims at 323k / 333k / 344k
Maybe 5-10 pips of USD bullishness
Bonds: -6 ticks FM, -10 ticks next two hours
Flash Manufacturing PMI at 54.3 / 52.6 / 51.8
Philly Fed Manufacturing Index at 6.5 / 15.8 / 19.8
EUR/USD: +13 pips FM, then perhaps +10 pips
GBP/USD: +13 pips FM, then perhaps +10 pips
USD/JPY: -8 pips FM, -3 pips, then NS
Bonds: +4 ticks FM, +6 ticks over next few min
Gold: +2 pts FM, +2 pts over next few min, then NS
The number of Americans who owe more on their mortgages than their homes are worth fell at the fastest pace on record in the third quarter as prices rose, a sign supply shortages may ease as more owners are able to sell.
The percentage of homes with mortgages that had negative equity dropped to 21 percent from 23.8 percent in the second quarter
“The Fed minutes hinted that tapering could come soon, which spooked us yesterday, but that this missed expectations so much adds to the idea that the Fed will continue to be accommodative,” said Adam Sarhan, chief executive of Sarhan Capital in New York.
Fed Bullard: Fed has room to add to balance sheet
– Recent claims data good, but further upside limited
– won’t pre-judge what FOMC does in December
– Good November jobs report boosts chance of December taper
– Is optimistic about US economy in 2014
– Much of deleveraging process is completed
November 20 – Core CPI m/m at 0.1% / 0.1% / 0.1%
CPI m/m at -0.1% / 0.0% / 0.2%
Core Retail Sales m/m at 0.2% / 0.1% / 0.3%
Retail Sales m/m at 0.4% / 0.1% / 0.0%
CPI y/y (excluding food and energy) at 1.7% / 1.7% / 1.7%
CPI y/y (including food and energy) at 1.0% / 1.0% / 1.2%
EUR/USD: -15 pips FM, then NS
GBP/USD: -16 pips FM, then NS
USD/JPY: +14 pips FM, then NS
AUD/USD: -19 pip FM, then NS
USD/CAD: +6 pips FM, then NS
S&P: +3 pts over a few min
Bonds: -5 ticks FM, -5 ticks over next five min
Gold: -2 pts FM, then NS
So you have this interesting case where the food and energy inclusion, inflation would be lower. I remember back in 2007 where the food and energy inflation would cause the CPI to be higher than the Core CPI. But in today’s environment, with more restrained grain and energy prices, the CPI is lower than the Core CPI.
S&P responding to the higher retail sales I would think. Bonds dropped slightly on higher retail sales increasing chance of Fed taper, etc.
I don’t think the market is responding to the low inflation numbers. I don’t think the market believes the current inflation numbers will cause any change in Fed policy.
Also, NFP was great during the October debt battle. And now retail sales were great during the October debt battle. So does that mean that November’s numbers will show economic improvement as well?
The increase in retail sales during October is a sign that consumer spending was resilient even during the government shutdown.
Existing Home Sales at 5.12M / 5.17M / 5.29M
Business Inventories m/m at 0.6% / 0.3% / 0.4%
EUR/USD: +5 pips FM
GBP/USD: +7 pips FM
USD/JPY: -5 pips FM
Fed Bullard: strong Nov Jobs report would increase chances of Dec taper
– Cumulative progress argument most powerful for tapering
– Economy looking better
Fed Dudley: Missing ingredient for Taper has been confidence in Payrolls Acceleration
– Significant part of jobless rate decline reflects lower labor participation
– Sees signs that private sector has largely completed healing process
– Nascent signs that the economy is doing better
FOMC Meeting Minutes
– economic activity continued to rise at a moderate pace
– In the labor market, total payroll employment increased further in September, but the unemployment rate was still high.
– Consumer price inflation continued to be modest, and measures of longer-run inflation expectations remained stable.
– broader indicators of manufacturing production, such as the readings on new orders from the national and regional manufacturing surveys, pointed to further gains in factory output in the near term.
– Households’ net worth likely expanded further as both equity values and home prices rose in recent months, and real disposable incomes increased solidly in August,
– On balance over the intermeeting period, longer-term interest rates declined and equity prices rose, largely in response to expectations for more-accommodative monetary policy.
– the staff’s medium-term forecast for real GDP was revised up slightly, mostly reflecting lower projected paths for the foreign exchange value of the dollar and longer-term interest rates, along with somewhat higher projected paths for equity prices and home values.
– supported by an easing in the effects of fiscal policy restraint on economic growth, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy
– inflation was projected to run somewhat below the FOMC’s longer-run inflation objective of 2 percent through 2016.
– The downside risks to economic activity included the uncertain effects and future course of fiscal policy,
– With regard to inflation, the staff saw risks both to the downside, that the low rates of core consumer price inflation posted earlier this year could be more persistent than anticipated, and to the upside, that unanticipated increases in energy or other commodity prices could emerge.
– While downside risks to the outlook for the economy and the labor market were generally viewed as having diminished, on balance, since last fall, several significant risks remained, including the uncertain effects of ongoing fiscal drag and of the continuing fiscal debate.
– Nonetheless, it was noted that the stance of fiscal policy was likely to remain one of the most important headwinds restraining growth over the medium term
– Although a number of participants indicated that the September employment report was somewhat disappointing, they judged that the labor market continued to improve, albeit slowly
– The drop in the unemployment rate over the past year, while welcome and significant, could overstate the degree of improvement in labor market conditions, in part because of the decline in the labor force participation rate.
– participants reviewed issues specific to the Committee’s asset purchase program. They generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.
– Nonetheless, some participants noted that, if the Committee were going to contemplate cutting purchases in the future based on criteria other than improvement in the labor market outlook, such as concerns about the efficacy or costs of further asset purchases, it would need to communicate effectively about those other criteria. In those circumstances, it might well be appropriate to offset the effects of reduced purchases by undertaking alternative actions to provide accommodation at the same time.
– For example, most participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions.
– Many members stressed the data-dependent nature of the current asset purchase program, and some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings.
EUR/USD: -27 pips FM, then NS
GBP/USD: -30 pips FM, then NS
USD/JPY: +14 pips FM, then NS
AUD/USD: -25 pips FM, then NS
USD/CAD: +9 pips FM, then NS
EUR/JPY: whipsaw FM, then gradual lower -30 pips on some risk aversion
S&P: -5 pts FM, ret full, then -8 pts next two hours
Bonds: -8 ticks FM, ret full, then -21 ticks rest of day
Crude: -10 cents FM, ret full, then -20 cents next twenty min
Gold: -15 pts FM, ret full, then -5 pts next hour
The market thought that the FOMC minutes were a bit hawkish and traded like that. The FOMC did say that they would like to taper at one of its next few meetings. That means either December, January or March.
The market, especially bonds and equities was all positioned and propped up by expectations for a delay taper around March due to Yellen comments and Bernanke comments. But it seems that with the FOMC Minutes some people think a taper can happen in December or January, and the market repriced for that higher probability due to market positioning elements.
Minneapolis Fed President Narayana Kocherlakota has proposed lowering the unemployment rate threshold, saying that the Fed should hold rates low while joblessness remains above 5.5 percent. That view was endorsed yesterday by Charles Evans, the Chicago Fed’s president.
Bullard has instead proposed adding new guidance that the Fed wouldn’t raise its benchmark interest rate if inflation were below 1.5 percent, an idea he repeated today. Because the level would supplement rather than alter an existing threshold, the Fed’s credibility wouldn’t be sacrificed, he said.
Federal Reserve Chairman Ben S. Bernanke said the Fed will probably hold down its target interest rate long after ending $85 billion in monthly bond buying, and possibly after unemployment falls below 6.5 percent.
“The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after” the jobless rate breaches the Fed’s 6.5 percent threshold, Bernanke said yesterday in a speech to economists in Washington. A “preponderance of data” will be needed to begin removing accommodation, he said.
In deciding when to wind down open-ended purchases of bonds, Fed officials are weighing both the “cumulative progress” since they began the program in September 2012 as well as “the prospect for continued gains,” Bernanke said. The labor market has shown “meaningful improvement” since the start of the program.
Policy makers are debating how to slow the pace of asset purchases without causing a surge in interest rates that could jeopardize the more than four-year economic expansion. Central bankers have sought to convince investors that tapering bond purchases wouldn’t signal that an increase in the benchmark interest rate is any closer.
When the Fed does slow asset purchases, “it will likely be because the economy has progressed sufficiently” for central bankers to rely more on guidance about the outlook for the main interest rate, Bernanke said in his speech.
“He’s saying that they achieved improvement in labor market conditions, but they’re still uncertain whether that progress will be sustained without all their support,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former researcher at the Federal Reserve Bank of New York.
November 19 – Employment Cost Index q/q at 0.4% / 0.5% / 0.5%
Is the Fed concerned about the ever expanding balance sheet or will the low inflation and mediocre data cause them to hold off on the taper?
Policy makers will probably pare that pace to $70 billion at their March 18-19 meeting, according to the median estimate in a Bloomberg survey.
Fed Evans: Government shut down probably didn’t have as much negative effect as expected
– Benefits of continuing current Fed policy greatly outweigh cost
– Fed will continue highly accommodative policy until economy recovers
– Inflation is low, expected to remain low
USD dropped by 10-30 pips or so for the day
Bernanke: May be some time before policy returns to more normal settings
– asset purchases depend on economic outlook, not on preset course
– Fed likely to slow bond buys if labor market, inflation aligning with projections
– Fall in rates since Sept Meeting consistent with Fed guidance
– Fed can be patient with rates after unemployment crosses 6.5% threshold
– Fed funds rate near zero perhaps well after unemployment threshold crossed.
EUR/USD: +40 pips over five min
GBP/USD: +30 pips over five min
USD/JPY: -10 pips
AUD/USD: +15 pips
EUR/GBP: +10 pips
EUR/CHF: -8 pips
S&P: +5 pts
Bonds: +4 ticks FM
S&P responded more bullish than bonds, but neither able to sustain
November 18 – USD weakened by 40 pips or so into NY open
Dudley said Oct. 15 that the Fed is missing “by much more” on the employment side of its mandate than on the inflation side.
Fed Dudley: I am getting more hopeful about US economy
– US improvement still a forecast, not yet a reality
– outlook of Fed policy to be driven by incoming data
– economic data improving as fiscal drag subsiding
– US economic growth poised to improve in 2014
– Further cooling inflation appear unlikely
USD may have rallied 10 pips over five min
– Fed doesn’t see any major asset bubbles
– There’s been a lot of job market improvement
– Could be large gap between end of QE and rate rise
– Taper will come when the time is right
The U.S. central bank buys $85 billion of Treasuries and mortgage-backed securities each month to put downward pressure on borrowing costs. Officials will decide to pare the purchases to $70 billion a month at their March 18-19 meeting, according to the median of 32 economist estimates in a Bloomberg survey on Nov. 8.
NAHB Housing Market Index at 54 / 56 / 54
November 22 – NZD fell alongside AUD and CAD another 60-150 pips into NY open
NZD has been falling in sympathy with the AUD and the RBA rhetoric against the high currency.
Whether NZD rebounds will partially depend on whether the RBNZ stays hawkish or pare back their hawkishness potentially due to weaker China, slower home price growth, or lower inflation, or some combination of them.
NZD/USD tripped stops below 0.8150 daily lows, then bounced
DO NOT SHORT BOTTOM TICK
November 21 –
Visitor Arrivals m/m at -2.1% / -1.1%
RBNZ McDermott: NZ Exchange Rate overvalued
– Suggests FX intervention unlikely to have sustained impact
NZD fell -15 pips FM, then NS and bounced back
RBNZ would like to see the NZ depreciate by 5% or 10%
November 20 – NZD went down today by 100 pips or so
It was flat yesterday, but today NZD went down
Credit Card Spending y/y at 3.2% / 5.1%
November 19 – Inflation Expectations q/q at 2.3% / 2.4%
November 18 – NZD rallied 30-90 pips as well exactly in line with the AUD.
I don’t want to chase this. I only want to consider buying NZD if it dips down a few hundred pips.
November 22 – Crude oil fell from 95.50 to 94.05
DO NOT BUY TOP TICK
Crude is just in a consolidating between 93.00 and 95.60, but I still think it can trip downside stops again. It depends on the evolution for China growth, EZ growth, and U.S. economic growth and U.S. Crude oil production.
November 21 – Crude oil rallied from 93.50 to take out stops above 94.50
Crude is breaking above 95.00
Crude above 95.50
It seems like the stronger US econ growth may be causing some Crude Oil buyers. Although I still don’t want to be buying this market.
“Any improvement in the jobs picture is good for demand,” said Michael Wittner, head of oil market research at Societe Generale SA in New York.
Prices also rose after Saudi Arabia, the world’s biggest crude exporter, said six mortar shells fell in an uninhabited area where the kingdom’s border meets with those of Iraq and Kuwait.
“At the moment I don’t think it’s too much to worry about, but obviously if it is repeated and/or retaliations take place, it would directly spill over into oil prices,” Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark, said of the mortar attacks.
November 20 – Crude oil rose to take out light stops above 94.30, then fell
DO NOT BUY TOP TICK
Crude didn’t rise at all on slightly better US retail sales. Looks like Crude still has slight bearish sensitivity.
Eventually if the U.S. economy is growing at a good rate, then I would expect the glut of Crude production to be consumed and for prices to rise. But it may be too soon for that. It can make a few stabs lower.
Crude Oil Inventories at 0.4M / -0.2M / 2.6M
Crude Oil: +20 cents FM, +50 cents next half hour
The market was sold down by -75 cents going into the report, so the report spurred some short covering, even though inventories were higher.
November 19 – Crude tripped stops below 93.50, then bounced
DO NOT SHORT BOTTOM TICK
“There’s the expectation of higher supply and no big increase in demand. There is still uncertainty over economic development in the next six months and that’s a factor that’s keeping prices down.”
November 18 – Crude oil grinded lower from 94.40 to 94.10 (Jan contract)
Crude then bounced from 94.00 to 94.60
DO NOT SHORT BOTTOM TICK
Crude hit 94.94, then fell
DO NOT BUY TOP TICK
Crude tripped stops below 93.90 lows
Brent crude declined for a second day amid signs global markets are adequately supplied after Saudi Arabia exported the most oil in eight years.
“In the longer run the market is still bearish, with plentiful supplies,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “The market was a tad overbought from a fundamental perspective.”
November 22 – Even though sentiment on Gold is bearish, and the analysts are most bearish since June, etc, the bias is still for lower prices.
There is just no good reason to buy gold, if the Fed will gradually taper, inflation is low, and there is no safe haven bid, etc.
The Fed is going to try to use rhetoric and other policy tools to keep interest rates from spiking too high, so the bonds may go down, but not as much as Gold may drop.
There is some potential for a mini crash in Gold if it breaks support below 1180. There can be a stop cascade, or sent/psych shift lower.
Or it may just be a gradual decline, if the U.S. economy only grows gradually and the Fed tapers gradually.
Gold analysts are the most bearish since June as the Federal Reserve signaled it may ease stimulus “in coming months” as the economy expands, cooling demand for an investment haven.
“For safe-haven assets, there’s no point because the economy is recovering,”
Bonds are trying to rise +0.50%, while Gold is flat
That is bearish sensitivity for gold.
The gold miners ETD GDX, is already close to the fresh lows.
If Gold is going to go down, then bonds are probably going to get dragged lower, or their topside is capped. So no sense trying to bid up bonds.
Gold looks like a better short than bonds do.
The only thing that can cause gold prices to rise are:
safe haven bid from EZ sovereign debt crisis or some other war or risk aversion event
economic activity in U.S. stagnates and the Fed expands bond buying
November 21 – Gold broke the lows below 1240 into NY open
Gold didn’t benefit much from today’s dollar weakness. It still has bearish sensitivity.
I still think Gold has more downside potential than bonds. There is potential for more capitulation in gold as people suffer capital losses and want to rotate out of gold and into other assets that are appreciating in value in a low inflation environment.
November 20 – Gold did not bounce higher on Bernanke remarks. Which is bearish sensitivity.
Gold broke lower from 1275 down to 1258 into NY open
Gold is acting more bearish than bonds today. It was acting bearish sensitivity yesterday, and today same thing. As gold is near the lows of the day, while bonds are trying to bounce.
Gold continuing to go down, while bonds moving higher. Divergence here
Gold hit 1255.30, then bounced off the lows
DO NOT SHORT BOTTOM TICK
“We are seeing continued liquidation in gold,” Adam Klopfenstein, a senior market strategist at Archer Financial Services Inc. in Chicago, said in a telephone interview. “Any sudden drop in prices makes people nervous.”
Gold tripped stops below 1250 on FOMC meeting minutes
November 19 – Gold flat into NY open
Silver broke through key lows, but Gold is yet to follow
Traders are “still clueless on the exact timing to the looming quantitative easing
If the ECB does QE, that could be a potential bullish Gold catalyst. However, it is still much too early to consider that. And it would have to be balanced against any gold buyers from ECB QE, vs any gold sellers from USD strength. So that battle of scenarios would have to be analyzed.
The problem with gold for the past year, is that it only partially benefits from a Fed QE. It doesn’t have any extra benefits from it. While on the other hand, equities benefit from both QE and from improving economic fundamentals and corporate earnings. So that is the key reason why equities have been performing much better than gold.
Gold has no dividends, so it only benefits from capital appreciation. And the only capital appreciation and bounces it got was from Fed QE, etc. Once that was gone, thats it.
Equities can benefit from QE, improving corporate earnings, increase in dividends, share buybacks, etc, which all can add bullish catalysts to provide both income and capital gains to equity holders.
November 18 – Gold fell from 1287 to 1277, as it tripped stops below 1280.
Gold tripped light downside stops, while bonds are flat
So gold is acting weaker in that regard.
Gold languishing near the lows of the day, while bonds broke out higher.
Gold and Silver are acting weak.
Breakout lower coming due to disappointed bulls shifting money out of gold/silver and into assets that can benefit from risk appetite?
If gold cannot sustain a rally on weaker USD, then it has bearish sensitivity.
Gold fell and tripped stops below 1276
Gold was neutral on Friday. But today it is acting bearish.
Bonds are at the highs, but gold is at the lows of the day.
Gold is heading for the first annual loss since 2000 after some investors lost their faith in the metal as a store of value. Global equities advanced to the highest in almost six years last week and U.S. inflation is running at 1.2 percent, half the rate of the past decade.
“People were feeling very bearish before Yellen’s statement,” said Donald Selkin, who helps manage about $3 billion as the New York-based chief market strategist at National Securities Corp. “Her comments were dovish and can be seen as a postponement to tapering, which is definitely helpful for gold. But, the main reasons why gold has fallen are intact. Inflation is low, and equity markets continue to march ahead.”
“The danger for gold is it’s in the middle of a significant bear market move, rather than having completed one,” said Michael Shaoul, chairman and chief executive officer of Marketfield Asset Management LLC, which manages $17 billion. “I don’t think Yellen has said anything of any consequence. We all knew she was dovish, and the market had worked out what she would say.”
November 22 – S&P flat into NY open
S&P then rose in gradual move from 1792 to make fresh all time highs above 1,803.25.
DO NOT BUY TOP TICK
Lower bond yields relative to the past few months are helping support equity prices. There is still a lot of Fed QE and liquidity in the system and that is pushing up equity prices.
Any profit takers and pension fund sellers, etc they don’t seem to be enough to stop the bullish juggernaut yet.
The market will need to see more clear evidence for a hard and fast Fed taper for it to sell off, or some other exogenous risk aversion event.
Still don’t go buy top tick. Reward risk is horrible even in the current bull environment.
Better reward risk in individual equities.
“I don’t see any reason why the market shouldn’t go up,” Karyn Cavanaugh, a vice president and market strategist at ING U.S. Investment Management in New York, said in a phone interview. Her firm oversees $196 billion. “There’s not really any bad news. We have a little bit of a pullback and then people jump in and say, ’Hey, I want a piece of this.’”
“For the first time in a while, good macroeconomic figures have been welcomed positively,” Louis de Fels, a Paris-based fund manager at Raymond James Financial Inc., which oversees about $53 billion, said by telephone. “The market is more healthy now, and it’s not just because of QE.”
“It’s hard to ignore all the tailwinds to this market,” Chris Bouffard, chief investment officer of the Mutual Fund Store in Overland Park, Kansas, which oversees $8.5 billion, said in a phone interview. “We’ve got low oil, that’s definitely helping consumers, especially going into the key holiday spending period. Buybacks and dividends are doing very well.”
Nikkei flat into NY open
November 21 –
The bull market looks intact. Even a Fed taper cannot seem to keep the market down for long. It seems to want to go up on bullish U.S. econ data eventually.
S&P tripped light stops above 1794
It looks like the fear of Fed taper is not concrete enough to cause sustained S&P selling. The market is not fully convinced the Fed is going to taper in Dec hard and fast. So some of yesterdays moves were reversed. S&P bounced, bonds flat, USD down a bit, etc.
The macro sellers are looking for more concrete Fed taper comments to really take profit.
U.S. stocks rose, halting a three-day drop in the Standard & Poor’s 500 Index, after data showed improvement in the job market and companies including Union Pacific Corp., Johnson Controls Inc. and Ace Ltd. said they would repurchase shares.
Investors are pouring more money into stock mutual funds in the U.S. than they have in 13 years, attracted by a market near record highs and stung by bond losses that would deepen ifinterest rates keep rising.
“People are rotating into stocks because they opened up their statements and saw losses in their bond funds for the first time in god knows how long,” Michael Mullaney, who oversees $10.7 billion as Boston-based chief investment officer for Fiduciary Trust Co., said in a telephone interview.
U.S. stocks rose on Thursday as the latest economic data suggested the Federal Reserve would not begin to slow its stimulus soon, although conflicting views over the issue limited gains globally.
Nikkei rallied during Asian session on JPY weakness
Nikkei tripped topside stops above 15,390
Nikkei hit 15,400
Nikkei climbing above 15,500
November 20 – S&P hit 1782, then bounced to 1788
DO NOT SHORT BOTTOM TICK
Bond are rising and Crude is going lower. That should help support equities.
S&P rising higher from 1788 to 1794
S&P tripped light stops above 1793, then profit taking
DO NOT BUY TOP TICK
It seems some pension funds may be taking profits, but the macro buyers from the improving econ outlook, Fed QE, etc are still supporting the market.
The announcement that ECB may consider a cut to deposit rate caused S&P to rally +4 pts, then it fell off.
Sort of like when the ECB cut the bank rate, the S&P popped as well. The market believes that some of that money that will come out of the bank deposits at the ECB will find their way into equities.
S&P getting hit with a small wave of selling again around 2pm EST, for what third day in a row?
Bond market getting hit on FOMC minutes
Will S&P follow lower on profit taking?
S&P is dropping on fear of Fed taper and with higher bond yields, stronger dollar
Maybe it is time to lighten up some of my equity positions.
S&P tripped light stops below 1782, then bounced
DO NOT SHORT BOTTOM TICK
S&P fell to 1775, then bounced
DO NOT SHORT BOTTOM TICK
The higher yields are more important to equity prices rather than the lower crude oil. Up until the Fed believes the higher yields and/or low inflation is going to cause delayed Fed taper.
U.S. stocks dropped, sending the Standard & Poor’s 500 Index to a third day of losses, after minutes from the Federal Reserve signaled the central bank may reduce bond purchases in the coming months.
The S&P is more resilient to a Fed taper than it was back in May. Although it looks like it can still drop a little.
Nikkei overall flat going into Ny open
Japan’s biggest banks are projecting the lowest bad-loan charges in eight years as bankruptcies drop, reducing their bond risk by a third in the past year.
“Credit costs and bad-loan ratios are likely to remain at low levels, which is a trend that we’ve never seen before,” said Toyoki Sameshima, a Tokyo-based analyst at BNP Paribas SA. “What banks are expected do now is lend to riskier companies.”
November 19 – NQ and S&P drifted lower to trip light downside stops
DO NOT SHORT THE LOWS
S&P tripped light stops below 1784, then bounced
DO NOT SHORT THE LOWS
Another sell off and profit taking occurring after Noon EST. It happened yesterday as well.
S&P tripped light stops below 1783.50, then bounced
DO NOT SHORT BOTTOM TICK
November 18 – S&P retraced from 1796 to 1791, then tripped topside stops above 1796
DO NOT BUY TOP TICK
U.S. stocks rose, sending the Standard & Poor’s 500 Index above 1,800 for the first time, as global equities rallied after China pledged to expand economic freedoms.
There is another debt battle potentially looming in January of next year. So that is one event risk. The other risk is if the Fed tapers in December and/or tapers hard and fast, silencing the QE engine of the bull market.
NQ tripped stops above 3422, then fell
DO NOT BUY TOP TICK
The cash S&P hit 1,800, but the futures did not hit 1,800. They only hit 1799.75
A wave of profit taking hitting the market near 1,800 psychological level as well as the market getting bid up last week from some Fed delay taper expectations, and some participants using it as an opportune time to book profits.
NQ hit light 3405 support and bounced.
“U.S. growth has been tough but steady,” Robert Tipp, the chief investment strategist at Prudential Financial’s fixed-income division, which oversees $395 billion in bonds, said in a telephone interview on Nov. 13. “Now the U.S. is one of the few bright lights out there globally.”
It seems Japan was the hottest market for the first 3-5 months of the year.
Now the market belies the US is the hottest market in the world. Japan was hot due to massive QE, etc. US is hot partially due to the QE, but more from the improving macro fundamental outlook.
Lower crude oil and lower bond yields today helping to prop up the S&P.
S&P, NQ got hit on more profit taking
S&P got hit first, then Nikkei followed.
S&P trying to hold on, while Nikkei falling to fresh intraday lows
Nikkei retraced from 15,300 to 15,100 on some JPY str, then bouncing on general risk appetite.
DO NOT BUY TOP TICK
November 17 – Since the market was bid up in expectation for no December taper, if the market gets a whiff that the Fed has a decent chance to Taper in December, then the S&P will fall a few percent.
Nikkei got hit on profit taking at the Tokyo open.
November 22 – Bonds are trying to rise +0.50%, while Gold is flat
Bonds rose +20 ticks for the day.
Lower yields and lack of higher yields helping to support equities so far.
The Fed has done a decent job of communicating to the market that even after they end QE, rates will still be low, etc. So the market is kind of reluctant to sell off bonds too much.
November 21 – Bonds retraced from 13024 – to 131-10, then fell into NY open along with Gold
Short term bonds seem to be bouncing more than longer term bonds.
Comparing the 5 and 30 yr bond bounces at the NY open, the 30yrd didn’t bounce as much as the 5 yr on a volatility basis.
Which means people are looking to get out of 30 yr bonds and rotate into shorter maturities. So there is more a bid and propping up of the 5 yr and 10 yr bonds rather than the 30 yr bonds.
In an appetite of risk appetite, people are getting out of 30 yr bonds, and going into equities, but if they don’t want equities they can choose the shorter end of the bond curve – the 5yr and 10 yr maturities, etc.
So If I want to be bullish and buy bonds, it may be better to play it going long the 5yr or 10 yr bonds, rather than the 30 yr bonds.
DO NOT SHOR BOTTOM TICK
Bonds dropped to the lows of the day on slightly better jobless claims, then rose on weaker Philly Fed manuf data
“There’s still some speculation they could move by the end of the year, but it’s more likely the Fed needs to see more strength in the data over a period of time to be comfortable tapering,” said David Coard, head of fixed-income trading in New York at Williams Capital Group LP, a brokerage for institutional investors.
November 20 – Bonds grinded lower along with Gold.
Then bonds sold off 10 ticks on slightly higher retail sales, taking out stops below 132. Then bounced
DO NOT SHORT BOTTOM TICK
I think bonds can benefit from low inflation much more than gold can. There can still be some bargain hunters that buy bonds and prop up the price due to low inflation. But I don’t think those bargain hunters are present in the gold market.
So gold can have bigger downside than bonds.
“It’s a combination of CPI being somewhat lower, so expectations for a December tapering is diminished,”
Bonds rallied to 132-25, then fell
DO NOT BUY TOP TICK
The bond-gold divergence corrected as bonds fell to make new lows for the day
Just like bonds fell on yesterday to correct the divergence with gold.
Bonds falling along with gold
Both bonds and gold getting slammed today.
November 19 – Bonds hit 133-10, then fell
DO NOT BUY TOP TICK
Bonds were a bit irrationally bid up yesterday. If Gold and S&P was going down on Fed taper fears, then bonds should not have gone up.
So there was a divergence.
Today bonds are falling and correcting the divergence with gold from yesterday.
November 18 – Bonds flat into NY open
Bonds breaking higher above 133
Bonds rose to 133-4, but Gold is languishing near the lows of the day.
Bonds hit 133-06 then fell
DO NOT BUY TOP TICK
Bonds rose again to close at the highs
Correlation / Sensitivity Sheet for Friday, November 22, 2013
Still bearish bias for the AUD as China may weaken slightly, and commodity prices may stay subdued and inflation contained in AUD at 2.2%
CAD y/y inflation hit low of 0.7%, which is the same rate as Eurozone. So there is small possibility of slightly bearish shift for the BoC if they either signal a cut in rates, or introduce forward guidance. But there needs more evidence and catalyst.
NZD sold off in sympathy with AUD. Whether NZD bounces back will depend on whether the RBNZ stays hawkish, or pares back their hawkishness due to some combo of weaker China, slower home price growth, lower inflation, or high NZD.
Growth and inflation to pick up in NZ? Home prices to stall or not?
EUR recovering losses as Draghi said negative deposit rate discussions are nothing new. I am not going to chase EUR higher. Eurozone probably needs a weaker EUR for economic rebalancing. I will reconsider shorting EUR on a rally.
Game changers for EUR weakness include: If ECB QE’s due to high unemployment or some periphery sovereign debt issues, or if France debt problems balloon. EZ unemployment at around 11-12%, while unemployment in UK and U.S. is around 7-8%. So there is a disparity and there is a small chance the ECB finds they are behind the QE curve and start to QE to boost growth. But still can be a ways away.
Not doing anything with the GBP
S&P grinding higher. There may be some slight upside potential left. But do not buy top tick because going long S&P at the all time highs is a poor reward risk ratio. Much better reward risk ratio in individual stocks. When the Fed does gt around to tapering, the market may correct 3-10%
JPY weakened again. No sense trying to fight the breakout. JPY weakening on risk appetite. BoJ may consider QE 2.0 in Japan next year if they think it is necessary. They are still wrapping up year one of at least a two year experiment. So another wave of JPY weakness would be in accordance with their wishes.
Crude is just consolidating. I think it still can trip downside stops. Better reward risk in individual equities.
Bonds rose, while Gold flat. Bond upside limited. Gold has bearish sensitivity. Gold downside seems to be more open ended than bond downside. So looking to short Gold.
U.S. econ to strengthen or weaken?
How fast and how much will Fed taper?
Will the U.S. econ be able to absorb the Fed taper or not? Growth drop if they taper?
Mediocre U.S. data, low inflation to cause Fed to delay taper?
Mediocre U.S. data, low inflation to cause Fed to expand bond buying?
Fed to taper fast, despite mediocre data?
Any risk aversion scenarios on the horizon?