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April 7, 2015

The day after

Filed under: Forex Strategies — Tags: — admin @ 4:43 pm

Sometimes, being left to ones own devices isn’t such a bad thing, as Macro Man found yesterday.   He started with a nice 55 mile bike ride, soaking up the sun and scenery of a glorious New England spring day (while avoiding the myriad of potholes littering the roads.)  He then made delivery on a Christmas present to Mrs. Macro, taking her into New York to see a great show from one of their favourite bands.  Oh, and while they were there, his alma mater managed to reel in some sporting hardware (the replay of which he plans to watch after finishing this post.)

Superstitious/dovish/equity bullish readers may wish to recall that the Fed has never raised rates in years in which Duke has won the NCAA basketball tournament (1991, 1992, 2001, 2010, and of course thus far this year.)  Of course, over the past 30 years, there haven’t actually been that many in which the Fed has hiked rates, so the correlation is as spurious as they come.

Nevertheless, the will they/won’t they debate has evolved from “foregone conclusion” to “well, I could envisage a scenario where they don’t.”  To be sure, June is almost certainly off the table, as there are just not enough datapoints between now and that meeting to meaningfully confirm that the recent bout of weak activity is indeed ephemeral.

Macro Man remains of the view that lift-off will occur later this year, and suspects that the bar for raising rates is probably lower than many think.  A hospital patient suffering from critical injuries or a virulent illness is placed into intensive care; once the acute phase of the threat to the patient’s health has passed, he is moved to a normal treatment protocol without the bells and whistles of the ICU.

After six years in intensive care, the time has surely come for Dr. Yellen and co. to shift the patient down the hall.   After all, you never know when you’ll need space in the ICU.  Macro Man speaks as someone who got off the Oxycontins within 24 hours of each of his ACL surgeries; obviously, some patients do not find it so easy to wean themselves from opiate-based painkillers, ironically developing new health problems from the treatment of old ones.

Similarly, over the last quarter-century, easy Fed monetary policy has been a sort of gateway drug for misallocations of capital, sowing the seeds for each successive iteration of financial crisis.  As some commenters have pointed out recently, corporate debt issuance has been roaring thus far this year in what looks to be largely an exercise in balance sheet leveraging to goose EPS.  That’s not necessarily a bad thing, a priori, if conducted within reason and from a healthy starting point.   Unfortunately, economic actors are not known for acting within reason when the tantalizing allure of financial leverage rears its head.

Sometimes you need to be challenged to ultimately succeed.  If you have too easy a ride for too long, as the Kentucky basketball team did, you can run the risk of failure when faced with the novelty of being under pressure.

March 14, 2015

Four thoughts after payrolls

Filed under: Forex Strategies — Tags: , , , — admin @ 4:44 pm

* It’s getting increasingly difficult for anyone to say that the US labour market (with the exception of that for friendly macro punters) is anything but robust.   Year on year growth in nonfarm payrolls is now 2.4%, the highest since Internet bubble was just past its zenith- and looks to be accelerating.  True, wage growth remains fairly tepid, but as Macro Man noted nearly a year ago, that looks to be as much of a global issue as a domestic one.

*  Macro Man believes that there is something of a false dichotomy being drawn in some of the will they/won’t they debates on Fed tightening.   By any reasonable measure, financial conditions are very, very easy in the United States and throughout much of the world.  It seems to your author that many of the arguments as to why the Fed shouldn’t or will not raise interest rates this year seem to involve hand-waving prophecies of doom about the fragility of the recovery, undesirably low inflation, etc.   Macro Man has covered inflation previously and has nothing to add on that front.

However, how fragile is the economy, really?  Economic growth is not being driven by the classic interest rate sensitive sectors, for the simple reason that non-security credit is not being allocated or demanded on the basis of price.  Rather, regulatory and balance sheet concerns are informing many of the lending and borrowing decisions of would-be creditors and debtors.  It stands to reason, therefore, that the deleterious impact of higher rates on the economy should be more modest than normal, insofar as the economy has not relied upon borrowing for growth.   (Yes, corporates have been borrowing in the bond market, and not always for good reasons.  But as observed previously, that appears to be less of a concern than previously thought.)

The only way that some of the hand-waving can reasonably be justified is if the hand-wavers believe that rates will go to neutral quite swiftly, taking financial conditions with them.  Frankly, Macro Man doesn’t know anyone who believes that.

Therein lies the false dichotomy: monetary policy is not a choice between stupid ZIRP-world and neutrality; it’s a choice between stupid ZIRP-world and still-accommodative policy for quite some time.  Given the state of the equity, bond, and labour markets, that looks like an easy choice from Macro Man’s perch.

* The DXY is the gift that keeps on giving.   Macro Man noted that the current policy settings in Europe represent the perfect mix for euro weakness, and the single currency duly obliged by falling out of bed on the strong NFP figure.  Amidst the popping of champagne corks (French, of course- these days it’s cheaper than California!) , your author thought it would be interesting to put the current dollar rally into context.   He took monthly data from the Fed’s broad TWI, which goes back to 1973, and plotted each winning or losing streak as a cumulative columns chart.  Imagine his surprise when he found that the current 8-month winning streak (including March) is the longest in history!

Obviously, there have been four different 8-month losing streaks, so we are not quite in uncharted territory here.  Macro Man had two reactions to seeing this result.   The first, visceral reaction was to conclude that we are indeed probably overdue for a little correction to take some of the steam out of the market.

His second reaction, on the other hand, was to observe that there looks to be quite a bit of clustering and serial correlation of streaks.  Long losing streaks seem to group together, as do long winning streaks.  The secular dollar rally from 1995 to 2002, for example, had 8 different streaks lasting at least 4 months.   If, as seems likely, we are embarking on a new secular dollar bull, then even the most ardent longs should hope for a pullback.    There’s a phrase that describes a correction after the onset of a strong rally.   That phrase is “buying opportunity.”

* It was great to see daylight savings roll around again.  The sunshine seemed to last forever today, and the weather even obliged by rising comfortably above freezing for the first time in recent memory.   The sun was shining, the kids were gamboling in the back garden, and you could almost taste the onset of spring:

OK, maybe not quite yet.  But with temperatures slated to rise further this week, perhaps our long national nightmare is finally over….

March 9, 2015

Four thoughts after payrools

Filed under: Forex Strategies — Tags: , , , — admin @ 4:44 pm

* It’s getting increasingly difficult for anyone to say that the US labour market (with the exception of that for friendly macro punters) is anything but robust.   Year on year growth in nonfarm payrolls is now 2.4%, the highest since Internet bubble was just past its zenith- and looks to be accelerating.  True, wage growth remains fairly tepid, but as Macro Man noted nearly a year ago, that looks to be as much of a global issue as a domestic one.

*  Macro Man believes that there is something of a false dichotomy being drawn in some of the will they/won’t they debates on Fed tightening.   By any reasonable measure, financial conditions are very, very easy in the United States and throughout much of the world.  It seems to your author that many of the arguments as to why the Fed shouldn’t or will not raise interest rates this year seem to involve hand-waving prophecies of doom about the fragility of the recovery, undesirably low inflation, etc.   Macro Man has covered inflation previously and has nothing to add on that front.

However, how fragile is the economy, really?  Economic growth is not being driven by the classic interest rate sensitive sectors, for the simple reason that non-security credit is not being allocated or demanded on the basis of price.  Rather, regulatory and balance sheet concerns are informing many of the lending and borrowing decisions of would-be creditors and debtors.  It stands to reason, therefore, that the deleterious impact of higher rates on the economy should be more modest than normal, insofar as the economy has not relied upon borrowing for growth.   (Yes, corporates have been borrowing in the bond market, and not always for good reasons.  But as observed previously, that appears to be less of a concern than previously thought.)

The only way that some of the hand-waving can reasonably be justified is if the hand-wavers believe that rates will go to neutral quite swiftly, taking financial conditions with them.  Frankly, Macro Man doesn’t know anyone who believes that.

Therein lies the false dichotomy: monetary policy is not a choice between stupid ZIRP-world and neutrality; it’s a choice between stupid ZIRP-world and still-accommodative policy for quite some time.  Given the state of the equity, bond, and labour markets, that looks like an easy choice from Macro Man’s perch.

* The DXY is the gift that keeps on giving.   Macro Man noted that the current policy settings in Europe represent the perfect mix for euro weakness, and the single currency duly obliged by falling out of bed on the strong NFP figure.  Amidst the popping of champagne corks (French, of course- these days it’s cheaper than California!) , your author thought it would be interesting to put the current dollar rally into context.   He took monthly data from the Fed’s broad TWI, which goes back to 1973, and plotted each winning or losing streak as a cumulative columns chart.  Imagine his surprise when he found that the current 8-month winning streak (including March) is the longest in history!

Obviously, there have been four different 8-month losing streaks, so we are not quite in uncharted territory here.  Macro Man had two reactions to seeing this result.   The first, visceral reaction was to conclude that we are indeed probably overdue for a little correction to take some of the steam out of the market.

His second reaction, on the other hand, was to observe that there looks to be quite a bit of clustering and serial correlation of streaks.  Long losing streaks seem to group together, as do long winning streaks.  The secular dollar rally from 1995 to 2002, for example, had 8 different streaks lasting at least 4 months.   If, as seems likely, we are embarking on a new secular dollar bull, then even the most ardent longs should hope for a pullback.    There’s a phrase that describes a correction after the onset of a strong rally.   That phrase is “buying opportunity.”

* It was great to see daylight savings roll around again.  The sunshine seemed to last forever today, and the weather even obliged by rising comfortably above freezing for the first time in recent memory.   The sun was shining, the kids were gamboling in the back garden, and you could almost taste the onset of spring:

OK, maybe not quite yet.  But with temperatures slated to rise further this week, perhaps our long national nightmare is finally over….

May 4, 2014

What More Can Be Made After Making 2,037 Pips (in 1 Trade)??

Filed under: Forex General — Tags: , , , , , , — admin @ 5:32 pm

You’ll recall last year the famous channel breakout of the GBPCAD. I entered this trade and ended up making a nice profit from it (2,037.1 pips to be exact), however, this doesn’t mean that’s all folks.

While we certainly have to caution ourselves against the emotion of greed, we should continue to trade as we have been and hope that potentially more can be made.

So what do we see in our current analysis?

GBPCAD consolidating and forming higher troughs during it's consolidation - a sign of renewed strength building?

GBPCAD consolidating and forming higher troughs during it’s consolidation – a sign of renewed strength building?

Currently the GBPCAD has been consolidating after a nice long trend throughout the majority of 2013. Now the currency is beginning to find some “real” resistance and as a result hasn’t really progressed as aggressively in 2014 as it had last year. However, with this winding-up pattern it could be possible that the GBPCAD is just taking a breather while it renews itself for another solid move.

It’s highest peaks over the last few months have happened at 1.86601 (week of 21/02/14), 1.86515 (week of 28/02/2014) and 1.86495 (week of 20/03/14). What do you notice about these numbers?

1. They’re ever so slightly declining; and
2. They’re all around the same price.

Therefore, I’d like to see a break of all three preferably in the same day before seeing another LONG entry. Another idea could (just as we discussed with our previous chart on the AUDNZD) to look for any powerful BULLISH reversal signals. However, I’d only be looking for such reversals ABOVE ~1.82000 as any movement BELOW this zone would denote weakness in bullish strength and therefore may be a sign that resistance at 1.86000 is in for a little while longer yet.

Anyway, I’ll be keeping an eye on the GBPCAD and who knows it may break and make another nice return, or fail! Stay balanced.

The post What More Can Be Made After Making 2,037 Pips (in 1 Trade)?? appeared first on Currency Secrets.

June 27, 2013

Pound Vs. Euro: Tie Game for Now? After a BoE rate hike, the Pound could move ahead.

Filed under: British Pound — Tags: , , , , , , , , — admin @ 2:22 pm

While I’m fondest of analyzing all currencies relative to the Dollar (after all, it’s what I’m most familiar with and is involved in almost half of all forex trades), sometimes its interesting to look at cross rates.

Take the Pound/Euro, for example, arguably one of the most important crosses, and one of a handful that often moves independently of the Dollar. If you chart the performance of this pair over the last two years, however, you can see the distinct lack of volatility. It has fluctuated around an axis of 1.15 GBP/EUR, never straying more than 5% in either direction. In fact, it’s sitting right at this level as I compose this post.

Yesterday, I read some commentary by Boris Schlossberg (whom I interviewed in 2010), Director of Currency Research at GFT. In the title (“Euro and Pound Go Their Separate Ways”), he seemed to suggest that a big move was imminent. Aside from noting that both currencies stand at crossroads, he declined to offer more concrete guidance on the direction of the potential breakout.

At the moment, the markets are gripped by risk aversion, caused by the Mid East political turmoil and the Japanese natural disasters. Once these events run their course and the accompanying market tension subsides, investors will need something else to latch on to. Perhaps the Bank of England (BoE) and European Central Bank (ECB) can fulfill this function, since both are on the verge of hiking their respective benchmark interest rates . Absent any other developments, the timing and speed of such hikes will probably dictate not only how these currencies perform against each other, but also how they perform against the Dollar.

Despite the numerous indications that both have given to the contrary, I don’t think either Central Bank is in a hurry to raise interest rates. Economic growth remains poor, unemployment is high, and inflation is still moderate. Neither is yet at the stage where it can unwind the monetary easing that it put in place at the height of the financial crisis. Moreover, both are wary about the potential impact of rate hikes on their respective currencies (a concern that I am ironically fomenting with this post).

It looks like the BoE will be the first to act. Combined with high energy prices, the bank’s easy monetary policy is putting extraordinary pressure on prices, and it now appears that inflation could reach 5% in 2011. In addition, the BoE voted 6-3 at its last meeting in favor of tightening, which means that a hike probably isn’t too far off. On the other hand, the ECB is talking tough, but it still doesn’t have much of an impetus to act. Inflation is moderate, and besides, the region’s banks remain too dependent on ECB cash for it to serious contemplate being aggressive.

Either way, the interest rate differential probably won’t be great enough to encourage any short-term speculation between the two currencies. In addition, I think investors will continue to look to the Yen and the Dollar for guidance, and we won’t see any significant movement in either direction. [The chart below is based on benchmark lending rates and isn’t necessarily applicable for retail forex trading].


This would create two opportunities for investors: Options traders should consider a long straddle, which involves selling a put and call at the same strike price (perhaps 1.15), pocketing the premiums, and praying that the rate doesn’t fluctuate much (since they would be exposed to unlimited risk). In the future, carry traders can also profit from the lack of volatility through a carry trading strategy, perhaps amplified by a little leverage. Be careful, however. Since interest rate differentials are currently so small (The current LIBOR rate disparity is a mere .05%!) and probably won’t widen to more than 1% over the next twelve months, any profits from interest could easily be wiped out by even the smallest adverse exchange rate movements.

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August 3, 2012

Dollar Up After Fed; Market Awaiting ECB

Filed under: Technical Analysis — Tags: , , , — admin @ 3:05 am

Good morning. The dollar recovered yesterday after the Fed said yesterday that the economy is weakening. The Fed left unchanged the statement that they would likely hold the rate unchanged, near zero, at least through late 2014 – and left the door open for fresh stimulus. It seems there’s a good chance we won’t see Read More

The post Dollar Up After Fed; Market Awaiting ECB appeared first on innerfx.com.


© 2012 FX Trading Blog

July 22, 2012

Waiting After the Open

Filed under: Forex General — Tags: , , — admin @ 5:32 pm

I have this love-hate tango relationship with the opening and closing times of the currency markets. There are days when the opening is just perfect and it presents as one of the best trading opportunities of the week and then there are other weeks when it does what it tends to do: fake the market in and quickly reverse.

Last week I chose to hold off on entering into the USDJPY knowing that the beast was likely to reverse. However, the market continued to fall and by the end of my day when I reviewed the price it was reversing! A-HA!

I was right. Kinda.

The market had pierced through the support level and had reached a low of 78.95 before rallying. If the breakout was going to be a “true” one from the opening bell it should continue to fall below this rallying price. So I set my entry short stop level there. Within an hour my entry was hit.

And it was good.

The market fell and I was able to move my initial trailing stop to the high of my 4-hour entry candle.

But, that was all the market had. Over the next couple of days price rallied back and soon a slight profit was a slight breakeven and eventually turned into a slight loss.

Oh well.

At least I was sucked into the Monday morning activity. I may have lost the battle on this one, but it felt like a little internal win inside.

The other trade this week was the AUDCAD – something I truly wasn’t expecting. It was pretty much a textbook entry and textbook exit. Only made a small amount, but at least it help to offset the losses from the USDJPY trade.

In this weekend’s video there looks to be a few looming trades this week, keep your eyes peeled and as mentioned I have set up my MyFXBook account to automatically feed my trades to my Twitter account. So if you’re curious keep an eye on my Twitter feed.

Anyway, hope you all had a good week and look forward to see what the market throws us this week:

May 23, 2012

Dollar Pulls Back After Strong Rally, Euro Recovers but Remains Under Pressure

Filed under: Technical Analysis — Tags: , , , , , , , , , , — admin @ 3:06 am

Differences challenge assumptions. ~ Anne Wilson Schaef Good morning folks. Not much is changed since yesterday across the charts, as EUR maintains a bid tone for now – but there’s a good change that current recovery is only a (much needed) correction. Hourly charts already show signs of exhaustion, but more notable resistance is a bit Read More


© 2012 FX Trading Blog

April 27, 2012

Japanese Yen Rebounds Sharply as US Dollar Slides after FOMC

Filed under: Business — Tags: , , , , , , — admin @ 12:27 am

USDJPY 5-min Chart: April 26, 2012

Overall, the Japanese Yen was the best performing major currency against the US Dollar, climbing by 0.67 percent. The Canadian Dollar was the worst performing major currency, shedding a mere 0.04 percent thus far on Thursday. Overall, the majors traded in narrow ranges versus the world’s reserve currency, with the Australian Dollar, the second best performer, only gaining 0.16 percent.

April 3, 2012

Euro Might Fall After the EU Finance Ministers Meeting

Filed under: Forex News — Tags: , , , , , , — admin @ 3:09 am
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By TraderVox.com

Tradervox (Dublin) – The Euro has been on a bearish run against major currencies this week due to the eurozone finance ministers meeting today which is expected to endorse a plan to combine the European Stability Mechanism kitty with that of European Financial Stability Facility. This will be done in a bid to strengthen the region’s financial firewall safeguarding the region’s economy against any crisis like the one for Greece. The idea of combining these two facilities had been vehemently contested by Germany and Ireland; however, these two countries have softened their stand and now they are willing to comprise in order to secure the currency bloc.

Currently the EFSF has 248 billion Euros out of its total capacity of 440 billion Euros. The ESM is set to have 500 billion Euros lending capacity and it is expected to take over from the EFSF completely. Therefore, it is expected that the Final ESM would have 500 billion-Euro capacity which include the amount that has already been utilized by the EFSF leaving only 308 billion Euros at the disposal of the newly created entity. Analysts are warning that this would lead to a less favored outcome that is likely to exert downward pressure on the euro.

Since this option is less favorable for the region, another version, which is a bit optimistic and opposed by Germany is letting EFSF and ESM to run concurrently, meaning that the kitty would amount to 748 billion Euros now, as 192 billion Euros have already be used from the EFSF kitty. The third scenario which might be acceptable is to let the EFSF and ESM to run concurrently up to then end of June when the EFSF expires and thereafter to continue with the ESM which has a capacity of 500 billion Euros.

Since the third option has been agree upon across the market, this might be the likely scenario outcome which will be against the traders’ expectation precipitating a scenario of “buy the rumor, sell facts.” It should also be noted that the high inflation rate, which despite lowering to 2.6 percent still remains above the ECB target, will affect the demand for the euro after the meeting.

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