Recap
An epic week for the pair as it burst from under 1.30 to touch 1.33 before settling the week around 1.3225 after Friday's semi-positive US NFP report. A lot of this move has been attributed to leveraged cover buying on an ECB non rate cut on Thursday as well as some firms forecasting no further ECB cuts at all. I personally would be late to this covering party as I was massively short EUR to start the week, so much so that I certainly would've lost my account had I not covered Thursday. In any event, I've taken massive losses from this position, but still would not touch the EUR on the long side.
Outlook
I expect the pair to drift until Wednesday when we see inflation numbers out of the EZ. I'm looking for a distinct deterioration in data to convince market participants that a rate cut is coming in July, and thus a resumption of downtrend into the mid 1.20s.
Economic Calendar
Mon
A light day for both EZ and US data. An Italian Q1 budget deficit reading at 5am EST should be interesting, but not too impactful on trading I wouldn't think. No notable US data releases.
Tue
Another light data day. US wholesale inventories at 10am EST. German court will begin 2 day case hearing legality of ECBs OMT programme. This could source volatility even though it is widely expected to be ratified. If it isn't prepare for pandemonium.
Wed
Inflation data for all major EZ countries. This will be interesting because forecasts are for slight increases in inflation, while last month's reading showed decreases. Any big misses here, especially in Germany will surely be processed as fuel for a further ECB rate cut. Also in the US note the MBA mortgage applications. These have fallen off a cliff since taper talk has been pushing mortgage rates up close to 4%. Any sign of a stabilization here could be good news for USD.
Thu
ECB Monthly report out at 4am EST, will provide insight into how ECB is viewing risks to price stability. Also, weekly jobs data should further shape market participants' views of Fed tapering.
Fri
Monday, June 10, 2013
Sunday, May 5, 2013
EURUSD, 5/5/2013 - Short Term Volatility
Recap
Last week saw the pair run up to 1.3242 pre central bankathon to subsequently gyrate wildly between there and 1.3032, closing about 20 pips below the midpoint at 1.3115. I'm not a charting guru, but it looks like a pretty bearish formation on the weekly bar. The key events in sequence were as follows:
Last week saw the pair run up to 1.3242 pre central bankathon to subsequently gyrate wildly between there and 1.3032, closing about 20 pips below the midpoint at 1.3115. I'm not a charting guru, but it looks like a pretty bearish formation on the weekly bar. The key events in sequence were as follows:
- new FOMC statement language explicitly stating QE could be ratcheted up (although this was mentioned by Ben previously in presser). Statement though generally unchanged, keeping market expectation of QE halting at end of 2013. EUR slowly slides to close around 1.3180.
- ECB announces HIGHLY anticipated rate cuts. EUR has a quick spike down to 1.3119, then up sharply in a matter of minutes to 1.3218
- Draghi reveals openness to negative deposit rates in Q&A session. EUR collapses to 1.3037.
- London open. Miraculous EUR recovery to 1.3128 in anticipation of US NFP.
- NFP beats bigtime. EUR crashes again to just past previous day's low at 1.3032.
- US Manufacturing data release suggests slight slowing in US industrial expansion. EUR recovers entire NFP loss and then some to trade up to 1.3160 before settling back and closing the week at 1.3115.
These moves were the biggest we've seen in a month since the onset of the Cyprus crisis. Another notable development last week was the continued compression of Italian and Spanish yields to pre-crisis levels.
Outlook
Clearly more is going on here than meets the eye, but it's anything but clear what that is. Is it possible that real money flows are now finding their way back into sovereign debt in the global search for anything with yield? The EUR.JPY action + plummeting sovereign yields last week would certainly suggest this. The EZ data this week should be pretty useless in guiding the pair unless it gets even more miserable, although this is pretty hard to imagine. There is also not much exciting data out of the USD either. The approach for this week will be to continue to fade rallies, taking some profit close to the bottom of the range. Ultimately, wait patiently for the inevitable break to the downside below 1.30.
Mon
Draghi speech at 9am EST. If anything, I'd expect him to talk the currency down.
Sunday, April 28, 2013
EURUSD, 4/28/2013 - Uncle Ben vs Super Mario
This week's EURUSD trade will be all about the Fed vs the ECB in a one-two punch on Wednesday and Thursday respectively. The pair seemed oddly directionless last week, given the chorus of rate cut telegraphs, trading mostly inside of about a 100 pip range and closing around 1.3030.
Recap
There were a number of news events that did little to move the pair around last week. As stated, every major FX analyst or firm predicted a rate cut by the ECB following dismal German PMIs, specifically the services PMI, slowing to a contraction vs an expected marginal expansion. Also, typically staunch German monetary hawks have been going public with dovish statements, specifically noting the recent disinflation in most PIs.
The other side of the pair had a similarly lackluster week. The US real estate market looks to be cooling, the QoQ GDP print was solidly below the predicted 3% figure and the volatile monthly durable goods orders missed, showing a decrease of 5.8% vs an expected decrease of 2.8%. This is an extension of the less than exciting macro data that's been printing in the last two weeks. Mix this with lower than expected inflation via lower CPIs, and it looks like some cloudiness is forming around the Fed's QE tapering/halting forecast.
Outlook
Mon-Tue
Monday will have price indices in both the EZ and the US. Tuesday will be German unemployment numbers. Incidentally, most of Europe is closed Tuesday for Labor Day. I'd expect the inflation indicators to continue show subdued inflation. That said, these events will only be minor blips - the main events are the central bank meetings on Wednesday and Thursday. I'd look to fade any move on reaction to these numbers unless there is a drastic miss. Keep positions relatively small and be mindful of dealers moving the market around outside of the London and NY sessions.
Wed
The Federal Reserve's interest rate decision will be posted at 2pm EST, with the press conference scheduled for shortly thereafter. We can be pretty assured that the interest rate target will not change. However, Ben will surely be providing lots of clues as to where the FOMC is on QE. Last month he talked up ratcheting down QE in light of the improving labor market . However, since then we've seen slow job growth and (according to "official" government price indices) inflation reversing and nearly heading into deflation. Since the Fed's dual mandate is on price stability and employment, I'm guessing this will be enough for Ben to give the green light on full $85 billion QE through the end of 2013.
Strategy (in order of probability):
Thur
ECB rate decision at 7:45am EST followed by Draghi presser at 8:45am EST. Assuming EURUSD is trading in the low 1.30s this is screaming for a short setup. I'm still not sure how to interpret last week's market non-reaction to all the rate cut telegraphing - could all market participants be missing the signal here? Will follow up on the strategy for this event as the week unfolds.
Fri
Go sailing! (weather permitting)
Recap
There were a number of news events that did little to move the pair around last week. As stated, every major FX analyst or firm predicted a rate cut by the ECB following dismal German PMIs, specifically the services PMI, slowing to a contraction vs an expected marginal expansion. Also, typically staunch German monetary hawks have been going public with dovish statements, specifically noting the recent disinflation in most PIs.
The other side of the pair had a similarly lackluster week. The US real estate market looks to be cooling, the QoQ GDP print was solidly below the predicted 3% figure and the volatile monthly durable goods orders missed, showing a decrease of 5.8% vs an expected decrease of 2.8%. This is an extension of the less than exciting macro data that's been printing in the last two weeks. Mix this with lower than expected inflation via lower CPIs, and it looks like some cloudiness is forming around the Fed's QE tapering/halting forecast.
Outlook
Mon-Tue
Monday will have price indices in both the EZ and the US. Tuesday will be German unemployment numbers. Incidentally, most of Europe is closed Tuesday for Labor Day. I'd expect the inflation indicators to continue show subdued inflation. That said, these events will only be minor blips - the main events are the central bank meetings on Wednesday and Thursday. I'd look to fade any move on reaction to these numbers unless there is a drastic miss. Keep positions relatively small and be mindful of dealers moving the market around outside of the London and NY sessions.
Wed
The Federal Reserve's interest rate decision will be posted at 2pm EST, with the press conference scheduled for shortly thereafter. We can be pretty assured that the interest rate target will not change. However, Ben will surely be providing lots of clues as to where the FOMC is on QE. Last month he talked up ratcheting down QE in light of the improving labor market . However, since then we've seen slow job growth and (according to "official" government price indices) inflation reversing and nearly heading into deflation. Since the Fed's dual mandate is on price stability and employment, I'm guessing this will be enough for Ben to give the green light on full $85 billion QE through the end of 2013.
Strategy (in order of probability):
- In lieu of any major talk of extending QE, load up on the EUR short trade towards the conclusion of the conference. Since everyone is expecting the ECB's rate cut on Thursday, an all clear on the USD will be the right time to sell EUR. Be wary of selling anything over 1.32.
- If Ben guides QE into 2014 with conviction, stay away from this trade and watch the market reaction post conference. This could be the beginning of increased volatility in the pair, so best to wait it out and see what levels the market establishes
- If Ben + committee commit to increasing QE and/or rule out any QE end dates, get ready to sell USD across the board. Stay away from EUR, but buy anything with a decent yield that is not massively overbought already - I personally favor RUB, MXN, SEK and CAD. Stay away from AUD as it is looking too risky given the marked slowdown in China and precious metals.
- If the Fed comes out gangbusters talking up the dollar citing the massive risks monetary easing proves to the real economy, short GBP, EUR aggressively and buy JPY in anticipation of a massive carry trade unwind. Also, short mid-long term US treasuries. Well, one can dream I suppose...
Thur
ECB rate decision at 7:45am EST followed by Draghi presser at 8:45am EST. Assuming EURUSD is trading in the low 1.30s this is screaming for a short setup. I'm still not sure how to interpret last week's market non-reaction to all the rate cut telegraphing - could all market participants be missing the signal here? Will follow up on the strategy for this event as the week unfolds.
Fri
Go sailing! (weather permitting)
Tuesday, April 9, 2013
German Exports
It seems to me the market discounted the German Export miss this morning at 2am EST. If anything could throw German support (albeit behind closed doors) behind perceived looser policy it would be a threat to their prized export economy. It seems this could open the door to more openness to "talking down" the currency.
The pair has come within 1 pip of 1.31, rallying strongly through the end of the London session. Being cautious of tomorrow's FOMC minutes, I'm starting to get short EURUSD again in anticipation of a sub 1.30 weekly close.
The pair has come within 1 pip of 1.31, rallying strongly through the end of the London session. Being cautious of tomorrow's FOMC minutes, I'm starting to get short EURUSD again in anticipation of a sub 1.30 weekly close.
Monday, April 8, 2013
BOJ Minutes Release
Feels like USDJPY will head up to 100 and bounce off that after the BOJ minutes release. The minutes can only show that there is some trepidation by some on the bank's committee to the grand plan (god I hope so!). Maybe back to 97.50 for a while. Pure technical conjecture at this point, but I think we'll hit 100 before tonight's minutes are released.
Sunday, April 7, 2013
EURUSD, 4/7/2013
Recap
The pair opened last week around 1.2800 and muddled around about a 50 pips north and south until the ECB meeting on Thursday. The initial reaction to Draghi's somewhat dovish prepared statement was a headfake to the week's low at about 1.2740, but it then slowly crept back as Draghi answered questions and eventually skyrocketed for an impressive 210 pip reversal to close the day close to 1.2950. Specific talking points that triggered upward movement:
Outlook
The market's QE ending and long dollar index sentiment looks to be under fire given last Friday's alarming NFP number. The market will be on edge for any signs of slowing economic news/data out of the US. I favor going long other pairs vs USD. I will however get long EURUSD on a short term basis.
Mon
The risks from Portugal's weekend repeal of austerity measures seems muted so far. There was a minor gap on the Asia open that has since been filled. Will have to continue to monitor this, but it again opens up the downside risk possibilities, so I want to keep any long positions on a short leash.
Light data day. EZ investor confidence and German industrial production. Expectations are already low. No US data releases. Bernanke will speak at 7:15pm EST. My feeling is that any of the EZ data coming in even slightly better than expected will push the pair higher toward 1.31, whereas inline data and slightly worse data shouldn't have much affect given the ECB's last meeting.
Tue
Another light data day. Trade balance data for Germany and France. US Redbook Index. Barring anything major out of Europe, we could see a continuation upwards of the EUR here. Continue to keep long positions tight.
Wed
One of the week's big USD events will be the relase of the FOMC minutes on Wednesday at 2:00pm EST.
<more details to come Monday>
The pair opened last week around 1.2800 and muddled around about a 50 pips north and south until the ECB meeting on Thursday. The initial reaction to Draghi's somewhat dovish prepared statement was a headfake to the week's low at about 1.2740, but it then slowly crept back as Draghi answered questions and eventually skyrocketed for an impressive 210 pip reversal to close the day close to 1.2950. Specific talking points that triggered upward movement:
- PIs show no risks to price stability
- discussion of the broken monetary transmission to peripheral SMEs and how further rate cuts would be ineffective at fixing this
- strong reaffirmation that the Cyprus bailout will not be a template
- strong reaffirmation that pundits/blogosphere underestimate the political capital invested in the EU and that a member exit is not considerable - "there is no plan B"
The upward movement continued to 1.3040 on Friday after the big US NFP miss, before settling to close the week slightly under 1.30. This close brings the pair back to 75 pips of where it was trading prior to the Cyprus debacle.
Other interesting developments during the were a somewhat softening of the contraction in EZ PMIs (speaking very broadly here) and the plunge in Italian debt yields. One cannot help but wonder about Draghi's role here given his tight-lippedness over his conversation with Italian PM Napolitano coupled with his continued efforts to keep OMT criteria vague (call me a conspiracy theorist I guess).
Outlook
The market's QE ending and long dollar index sentiment looks to be under fire given last Friday's alarming NFP number. The market will be on edge for any signs of slowing economic news/data out of the US. I favor going long other pairs vs USD. I will however get long EURUSD on a short term basis.
Mon
The risks from Portugal's weekend repeal of austerity measures seems muted so far. There was a minor gap on the Asia open that has since been filled. Will have to continue to monitor this, but it again opens up the downside risk possibilities, so I want to keep any long positions on a short leash.
Light data day. EZ investor confidence and German industrial production. Expectations are already low. No US data releases. Bernanke will speak at 7:15pm EST. My feeling is that any of the EZ data coming in even slightly better than expected will push the pair higher toward 1.31, whereas inline data and slightly worse data shouldn't have much affect given the ECB's last meeting.
Tue
Another light data day. Trade balance data for Germany and France. US Redbook Index. Barring anything major out of Europe, we could see a continuation upwards of the EUR here. Continue to keep long positions tight.
Wed
One of the week's big USD events will be the relase of the FOMC minutes on Wednesday at 2:00pm EST.
<more details to come Monday>
Sunday, March 24, 2013
EURUSD, Euro Saved Again
Recap
Cyprus's week of fame is over. The pair dipped down briefly to 1.2850 and closed the week by recovering about half of it's opening gap at 1.2988. It's currently quoting 1.3040 and has nearly touched 1.3050 on the Cyprus bailout package news, as of midnight Sunday EST.
Cyprus's week of fame is over. The pair dipped down briefly to 1.2850 and closed the week by recovering about half of it's opening gap at 1.2988. It's currently quoting 1.3040 and has nearly touched 1.3050 on the Cyprus bailout package news, as of midnight Sunday EST.
The week was dominated by Cyprus, but there was some key data points that should not be glossed over. The EZ service PMIs all came in well below estimates - France's economy continues it's stunning contraction, and even Germany's service PMI was barely expansionary. Manufacturing indicators across the EZ were also dismal and price indices continue to show less inflation than projected. Rate cut anyone...?
Where From Here
As we called the neutral positioning on Friday for a weekend gap/break to the upside on positive Cyprus news, we are sitting long and looking for a spot to close out and return to shorting the pair based on the poor fundamental situation and the likelihood of an ECB rate cut. I'm favoring 1.3125 as a reversal point, but I feel the relief rally risks running out of steam before then. This week is relatively light on EZ data, so watch USD data releases for possible catalysts. I will be looking to find a decent exit by Tuesday's USD durable goods release.
As we called the neutral positioning on Friday for a weekend gap/break to the upside on positive Cyprus news, we are sitting long and looking for a spot to close out and return to shorting the pair based on the poor fundamental situation and the likelihood of an ECB rate cut. I'm favoring 1.3125 as a reversal point, but I feel the relief rally risks running out of steam before then. This week is relatively light on EZ data, so watch USD data releases for possible catalysts. I will be looking to find a decent exit by Tuesday's USD durable goods release.
Mon
Everyone's favorite PhD economist, Benny Bernanke is on the docket for a speech on Monday at the London School of Economics at 13:15 EST. I can't see anything new happening here, except maybe more of a discussion of Benny's new QE Tool: the ratchet. In case anyone missed last week's Fed monetary policy event, the Fed will employ use of the ratchet to dial down QE as conditions improve (or dial up if they headfake... hmmm). I'd expect the EURUSD to close NY somewhere within 25 pips of the session high.
Everyone's favorite PhD economist, Benny Bernanke is on the docket for a speech on Monday at the London School of Economics at 13:15 EST. I can't see anything new happening here, except maybe more of a discussion of Benny's new QE Tool: the ratchet. In case anyone missed last week's Fed monetary policy event, the Fed will employ use of the ratchet to dial down QE as conditions improve (or dial up if they headfake... hmmm). I'd expect the EURUSD to close NY somewhere within 25 pips of the session high.
Tue
USD durable goods for Feb at 8:30 EST is the big USD data release for the week. Given the extreme recent volatility in this figure over the past 6 months, plus the sharp decline in Jan, it seems like this release has potential to create waves. Expectations are for a 2.5% increase. Given the govt spending reductions, the recent FedEx earnings miss and the Walmart February "disaster" situation, I would favor a miss here. But on the other hand, retail sales, which are more of a lagging indicator beat estimates soundly last week, so I remain cautious with my bearish sentiment. If these numbers come in line or better, I think this is a solid signal to short EURUSD.
USD durable goods for Feb at 8:30 EST is the big USD data release for the week. Given the extreme recent volatility in this figure over the past 6 months, plus the sharp decline in Jan, it seems like this release has potential to create waves. Expectations are for a 2.5% increase. Given the govt spending reductions, the recent FedEx earnings miss and the Walmart February "disaster" situation, I would favor a miss here. But on the other hand, retail sales, which are more of a lagging indicator beat estimates soundly last week, so I remain cautious with my bearish sentiment. If these numbers come in line or better, I think this is a solid signal to short EURUSD.
Wed
<too tired to finish right now>
Subscribe to:
Posts (Atom)