Hi all, there won't be much blogging from today as I will be on National Service until 13 March 09.
Till then, happy trading.
Jeremy
Thursday, February 26, 2009
Tuesday, February 24, 2009
What's happening to the USDJPY?!
- I felt compelled to write something about the current huge huge surge in the USDJPY even though I already highlighted the rationale for an upward move in some of my previous posts - and forecasting a move to up to 97 this week
- and also because it seems this is the only major ccy pair making all the headlines today
- the current spot price now is 96.73. low of this week is about 92.8
- we're seeing very bad trade data (trade deficit) for Japan. the country's imports are likely to exceed exports by a big margin and has been widening at an astonishing pace since last quarter due to the exports crash
- the Japanese are actually pulling their money out of local assets to invest in foreign assets, deteriorating the portfolio account in the country's basic balance
- Japanese corporates were caught cold by the exports crash and will not buy JPY for hedging in anticipation that receipts will be severely affected. in fact they do not know how to forecast future earnings in this environment!
- these factors point to a drastic drop in demand for the JPY, hence the massive USDJPY upward move
- Goldman Sachs, as usual, rode on the bandwagon of a big market move and came out to say that USDJPY will hit 102 or something like that. (remember the oil forecast of UD200/barrel?)
- and also because it seems this is the only major ccy pair making all the headlines today
- the current spot price now is 96.73. low of this week is about 92.8
- we're seeing very bad trade data (trade deficit) for Japan. the country's imports are likely to exceed exports by a big margin and has been widening at an astonishing pace since last quarter due to the exports crash
- the Japanese are actually pulling their money out of local assets to invest in foreign assets, deteriorating the portfolio account in the country's basic balance
- Japanese corporates were caught cold by the exports crash and will not buy JPY for hedging in anticipation that receipts will be severely affected. in fact they do not know how to forecast future earnings in this environment!
- these factors point to a drastic drop in demand for the JPY, hence the massive USDJPY upward move
- Goldman Sachs, as usual, rode on the bandwagon of a big market move and came out to say that USDJPY will hit 102 or something like that. (remember the oil forecast of UD200/barrel?)
Snippets of the day - 23 Feb 09
- On the bank aid plan, which now is entitled 'Capital Assistance Program', US government officials will implement the stress tests starting from 25 Feb 09.
- In response to speculation on nationalization of Citi and BOA in the Wall Street Journal yesterday, government officials rejected that saying previous TARP injections into the banks will only be converted into common equity only as needed to keep banks well capitalized.
- CNBC reported yesterday that AIG is expected to post USD60bn in write downs on assets including commercial real estate - and that AIG will meet government officials this Sunday to request for aid, causing a sharp sell off in the stock markets.
** I think massive commercial real estate defaults is really going to be the next shoe to drop. The US government will have to pay close attention to this and support the CMBS market so as to ensure all their previous efforts to save the financial sector will be successful **
- The Dow and S&P500 both closed more than 3.4% lower on Mon 23 Feb, now trading at Oct '07 levels.
- USDJPY touched a high of 94.95 yesterday as Japanese non bank lender SCFG filed for bankruptcy as investors fled to safe haven USD.
- EURUSD's recovery to 1.29 in London trade was shortlived as ECB Barroso, in response to media speculation, says that there's 'no chance' of joint bond issues by richer nations to aid financially weaker states. Austria's AAA rating being scrutinized also compounded the EUR and the pair closed lower in the 1.26 handle.
- Meanwhile, GBPUSD was traded higher into the 1.44 handle on announcements that nationalized Northern Rock will resume mortgage lending in '09.
- In response to speculation on nationalization of Citi and BOA in the Wall Street Journal yesterday, government officials rejected that saying previous TARP injections into the banks will only be converted into common equity only as needed to keep banks well capitalized.
- CNBC reported yesterday that AIG is expected to post USD60bn in write downs on assets including commercial real estate - and that AIG will meet government officials this Sunday to request for aid, causing a sharp sell off in the stock markets.
** I think massive commercial real estate defaults is really going to be the next shoe to drop. The US government will have to pay close attention to this and support the CMBS market so as to ensure all their previous efforts to save the financial sector will be successful **
- The Dow and S&P500 both closed more than 3.4% lower on Mon 23 Feb, now trading at Oct '07 levels.
- USDJPY touched a high of 94.95 yesterday as Japanese non bank lender SCFG filed for bankruptcy as investors fled to safe haven USD.
- EURUSD's recovery to 1.29 in London trade was shortlived as ECB Barroso, in response to media speculation, says that there's 'no chance' of joint bond issues by richer nations to aid financially weaker states. Austria's AAA rating being scrutinized also compounded the EUR and the pair closed lower in the 1.26 handle.
- Meanwhile, GBPUSD was traded higher into the 1.44 handle on announcements that nationalized Northern Rock will resume mortgage lending in '09.
Monday, February 23, 2009
Snippets of the day - 20 Feb 09 Fri
- Announced today in asian trade -one of Japan's listed non bank lender FCSG filed for bankruptcy under the weight of USD 3 bn debt on bad loans to small and medium companies. This is the tenth listed co bankruptcy filing so far this year.
As we witness Japan's economy slamming into a wall, USDJPY shook up and rocketed to as high as 94.93 from 93 in asian trade as investors dumped the JPY for safe haven USD.
- today we also learnt of how terrified the stock market is of nationalisation - more specifically, the US government buying up all of and owning Citigroup and Bank of America. as news of state ownership surfaced on last Friday's NY trading, stocks were dumped like hot potatoes.
the Dow closed just 100 pts lower las Friday, after it had been trading more than 200 pts lower on the day - soothed by statements from the white house saying they think 'banks in private hands are the correct way to go'
- nationalisation is scary because it wipes out shareholder value and effectively only promises creditors residual ownership of the firm or any returns when and if it does happens. fortunately for the market, obama's officials later came out to say they do not believe in a permanent nationalisation - that breathed some hope into the market
nonetheless, senator Dodd announced; even if there were state ownership of banks, it would be temporary - hence he hinted that at this stage, it cannot be ruled out.
- then in asian trading today, wsj reported that the US government might convert the preferred shares of BoA and Citi into common equity, this piece of news lent the markets a boost.
why?
even though this dilutes common stock, it allows the common shareholders to continue to have ownership of the banks (resulting in better shareholder value, or whatever is left of it) as compared to total nationalisation.
to do this also will improve the banks' TCE - a more conservative measure of a bank's health compared with Tier 1 ratios - and that will put the banks in a better position for the stress tests for Geithner's bank aid plan in the days later.
- the forex market reacted strongly.
stocks traded a tad higher in asian-london trade.
EURUSD surged to a high of 1.299 in london trading (but was sold off to 1.2720 at the time of writing).
GBPUSD traded up to 1.466 (1.4532 at writing).
- however, the Dow is trading 90 pts lower right now as i write - i think there is still plenty of uncertainty in the market at the moment. and until we hear of more concrete steps by the US government to steady the financial ark in a big way, investors are sick of holding on to risky assets and hoping for the rain to stop.
Dow looks to drop through last Nov lows.
As we witness Japan's economy slamming into a wall, USDJPY shook up and rocketed to as high as 94.93 from 93 in asian trade as investors dumped the JPY for safe haven USD.
- today we also learnt of how terrified the stock market is of nationalisation - more specifically, the US government buying up all of and owning Citigroup and Bank of America. as news of state ownership surfaced on last Friday's NY trading, stocks were dumped like hot potatoes.
the Dow closed just 100 pts lower las Friday, after it had been trading more than 200 pts lower on the day - soothed by statements from the white house saying they think 'banks in private hands are the correct way to go'
- nationalisation is scary because it wipes out shareholder value and effectively only promises creditors residual ownership of the firm or any returns when and if it does happens. fortunately for the market, obama's officials later came out to say they do not believe in a permanent nationalisation - that breathed some hope into the market
nonetheless, senator Dodd announced; even if there were state ownership of banks, it would be temporary - hence he hinted that at this stage, it cannot be ruled out.
- then in asian trading today, wsj reported that the US government might convert the preferred shares of BoA and Citi into common equity, this piece of news lent the markets a boost.
why?
even though this dilutes common stock, it allows the common shareholders to continue to have ownership of the banks (resulting in better shareholder value, or whatever is left of it) as compared to total nationalisation.
to do this also will improve the banks' TCE - a more conservative measure of a bank's health compared with Tier 1 ratios - and that will put the banks in a better position for the stress tests for Geithner's bank aid plan in the days later.
- the forex market reacted strongly.
stocks traded a tad higher in asian-london trade.
EURUSD surged to a high of 1.299 in london trading (but was sold off to 1.2720 at the time of writing).
GBPUSD traded up to 1.466 (1.4532 at writing).
- however, the Dow is trading 90 pts lower right now as i write - i think there is still plenty of uncertainty in the market at the moment. and until we hear of more concrete steps by the US government to steady the financial ark in a big way, investors are sick of holding on to risky assets and hoping for the rain to stop.
Dow looks to drop through last Nov lows.
Friday, February 20, 2009
Weekly Forecast - USDJPY
- The major economic data that was out for Japan this week had been the '08 Q4 GDP which came in -12.7% (per annum basis), representing the worse decline since the '74 oil crisis.
- This week, we have seen broad USD strength as risk aversion came back into the market.
- And for the USDJPY, it had been a defining week too. The high was hit on Thur NY trade at 94.47. JPY is no longer the safe currency of choice. USD seems to be the only 'good' ccy left (by virtue of a lack of options).
- One interesting thing I have noted is that the stock correlation between USDJPY and stocks (Dow) have broken off. Traditionally, as stocks fell, the USDJPY would fall as well as investors flee to buy the safe haven ccy JPY. I ran a correlation test for the two from the first trading day of this year to 19 Feb '09 and found that the correlation is 0.026.
This is by no means a comprehensive statistical result as I have used a small sample size but a similar 1 year correlation test returned more than 0.8. The huge difference between the two results should tell you something as an indication.
- Furthermore, we're seeing more Japanese investors ditching Japanese stocks and bonds for foreign assets. Just last week (ending 13 Jan 09) there had been an outflow of JPY1.8 trn. This is USDJPY supportive as investors need to sell JPY to buy foreign currencies to purchase foreign assets.
And as long as local assets show no promise of returns, money will flow out of the country. Remember Japan is facing a serious deflationary scenario.
- On technical analysis, the USDJPY now trades at the critical neckline level (appr 93.75) of a double bottom reversal (see chart). A clear break of this level would mean further upside.
In my previous post I've highlighted a resistance line that goes all the way back from Q3 '07. Extrapolated to today, it is indeed very relevant in resisting upward moves. Notice that the price is resisted by the line in early Q4 '08 (see chart).
- This week, we have seen broad USD strength as risk aversion came back into the market.
- And for the USDJPY, it had been a defining week too. The high was hit on Thur NY trade at 94.47. JPY is no longer the safe currency of choice. USD seems to be the only 'good' ccy left (by virtue of a lack of options).
- One interesting thing I have noted is that the stock correlation between USDJPY and stocks (Dow) have broken off. Traditionally, as stocks fell, the USDJPY would fall as well as investors flee to buy the safe haven ccy JPY. I ran a correlation test for the two from the first trading day of this year to 19 Feb '09 and found that the correlation is 0.026.
This is by no means a comprehensive statistical result as I have used a small sample size but a similar 1 year correlation test returned more than 0.8. The huge difference between the two results should tell you something as an indication.
- Furthermore, we're seeing more Japanese investors ditching Japanese stocks and bonds for foreign assets. Just last week (ending 13 Jan 09) there had been an outflow of JPY1.8 trn. This is USDJPY supportive as investors need to sell JPY to buy foreign currencies to purchase foreign assets.
And as long as local assets show no promise of returns, money will flow out of the country. Remember Japan is facing a serious deflationary scenario.
- On technical analysis, the USDJPY now trades at the critical neckline level (appr 93.75) of a double bottom reversal (see chart). A clear break of this level would mean further upside.
In my previous post I've highlighted a resistance line that goes all the way back from Q3 '07. Extrapolated to today, it is indeed very relevant in resisting upward moves. Notice that the price is resisted by the line in early Q4 '08 (see chart).
Because of this week's huge surge, USDJPY is currently trading above the current resistance of 92.7 (93.75 at the point of writing). We should see a close above this line of 92.7 today at NY close.
Next week Friday’s closing will be critical to judge if usdjpy is going to break over clearly and go for the home run of 98 but that's another story altogether. Watch this space.
With that, my call for week ending 27 Feb 09 is
Buy from 92.40 (which is the resistance line extrapolated to next week)
Sell near 97 (congestion area of late nov 08)
Of Nationalization and Fear
- Both Citigroup's and Banc of America's share prices fell to under USD3 and USD4 respectively on early NY trade.
The market forced the massive sale of these two stocks on speculation they will be nationalized i.e. fully taken over by the state because no way the companies can sustain trading at such low levels.
That would mean that shareholders will be left with nothing as the firm will now belong the government and creditors instead. As a result, the sell off in the financials spread to other stocks, including consumer focused companies and tech firms. The Dow is currently trading at -150 around the 7330 level as the market tries to break the 2008 low.
I think we will do just that because there isn't really anything to console the market at the moment.
But wait... if the government doesn't step in to save these companies (in effect to try and stabilize the financial sector), who else can?
So is nationalization a good or a bad thing? this is a question my team had been discussing today.
I personally think we don't have a choice.
My economist brought up the notion that we're only halfway through the writedowns. USD 1 trn has been written off by banks but the final total might be USD 2 trn or USD 3 trn as highlighted by famous economists like Roubini and Krugman.
At this point, only the state can step in to stabilize things.
And at this point, only gold is true safe haven as an asset to hold. Gold has finally touched USD1,000 today.
The market forced the massive sale of these two stocks on speculation they will be nationalized i.e. fully taken over by the state because no way the companies can sustain trading at such low levels.
That would mean that shareholders will be left with nothing as the firm will now belong the government and creditors instead. As a result, the sell off in the financials spread to other stocks, including consumer focused companies and tech firms. The Dow is currently trading at -150 around the 7330 level as the market tries to break the 2008 low.
I think we will do just that because there isn't really anything to console the market at the moment.
But wait... if the government doesn't step in to save these companies (in effect to try and stabilize the financial sector), who else can?
So is nationalization a good or a bad thing? this is a question my team had been discussing today.
I personally think we don't have a choice.
My economist brought up the notion that we're only halfway through the writedowns. USD 1 trn has been written off by banks but the final total might be USD 2 trn or USD 3 trn as highlighted by famous economists like Roubini and Krugman.
At this point, only the state can step in to stabilize things.
And at this point, only gold is true safe haven as an asset to hold. Gold has finally touched USD1,000 today.
Thursday, February 19, 2009
Snippets of the day - 19 Feb 09
- On his homeowners' aid plan, Pres Obama announced an intention to spend up to USD 75 bn to reduce mortgage principles and payment amounts in order to stem foreclosures.
In addition, USD 200 bn will be committed to back stop Fannie Mae and Freddie Mac and improve liquidity in the housing market.
The market had already priced in the announcement though I am surprised they didn't see the brighter side of it considering the heavy recent sell off. Dow closed almost unchanged.
- A reality check came in the form of the US Housing Starts and Housing Permits data which both disappointed by some margin which highlighted that the US housing market is still in steep decline - maybe this is why they market carried a sense of pessimism.
- because of the heavy selling in the past days, stocks, currencies and commodities were relatively muted
- watch this space
In addition, USD 200 bn will be committed to back stop Fannie Mae and Freddie Mac and improve liquidity in the housing market.
The market had already priced in the announcement though I am surprised they didn't see the brighter side of it considering the heavy recent sell off. Dow closed almost unchanged.
- A reality check came in the form of the US Housing Starts and Housing Permits data which both disappointed by some margin which highlighted that the US housing market is still in steep decline - maybe this is why they market carried a sense of pessimism.
- because of the heavy selling in the past days, stocks, currencies and commodities were relatively muted
- watch this space
Wednesday, February 18, 2009
Profit taken off long USDJPY position
11 Feb 09
Entry: long USDJPY at 90.45
18 Feb 09
Took Profit: sold at 93.00 (255 pips)
Entry: long USDJPY at 90.45
18 Feb 09
Took Profit: sold at 93.00 (255 pips)
Snippets of the day - 18 Feb 09
Here are some events to consider before you make your trading decisions:
- Japan's Fin Min Nakagawa has finally caved in to pressure on his drunken debacle in the G7 news conference and resigned yesterday. He is known to be against printing more money as a form of monetary boost. With him now gone, and PM Aso's credibility being very weak (opinion polls of him came in 2nd lowest ever for a PM) the government now or the next might lean towards the populist route of printing more money to boost the economy. USDJPY surged higher a tad on the news.
- The BOE meeting minutes released today revealed that the board has officially decided to go the way of quantitative easing, the first in the developed world. The policy makers will submit a request to the government for it to purchase gilts (UK govt bonds) outright and pump money directly into the economy. The committee noted that cutting interest rates is a limited measure and hence is willing to take unconventional steps to boost liquidity.
The GBPUSD dropped markedly upon the news and traded just under 1.41 for a while before rebounding back up to trade at 1.4237 now (Spore time 9:39pm). I think the market may like that idea and is rewarding the move.
- GM and Chrysler asked for additional aid of up to USD 21.1 bn to tide it over until Mar 31 where they have to prove they can re-structure enough to become viable companies or face possible bankruptcy. Yes a White House spokesman said he does not rule that out, but added GM and Chrysler are 'tremendously important' to the manufacturing industry. UAW has agreed to some concessions... let's see what other positive developments might take place - successful asset sales maybe?
- Today Pres Obama will announce more details about his plan to stem foreclosures. A USD 50 bn package had been ear-marked for that. But the market should not expect too much tonight as Summers had said Obama will not go into the 'mortgage principles' of the package - whatever that means.
- Japan's Fin Min Nakagawa has finally caved in to pressure on his drunken debacle in the G7 news conference and resigned yesterday. He is known to be against printing more money as a form of monetary boost. With him now gone, and PM Aso's credibility being very weak (opinion polls of him came in 2nd lowest ever for a PM) the government now or the next might lean towards the populist route of printing more money to boost the economy. USDJPY surged higher a tad on the news.
- The BOE meeting minutes released today revealed that the board has officially decided to go the way of quantitative easing, the first in the developed world. The policy makers will submit a request to the government for it to purchase gilts (UK govt bonds) outright and pump money directly into the economy. The committee noted that cutting interest rates is a limited measure and hence is willing to take unconventional steps to boost liquidity.
The GBPUSD dropped markedly upon the news and traded just under 1.41 for a while before rebounding back up to trade at 1.4237 now (Spore time 9:39pm). I think the market may like that idea and is rewarding the move.
- GM and Chrysler asked for additional aid of up to USD 21.1 bn to tide it over until Mar 31 where they have to prove they can re-structure enough to become viable companies or face possible bankruptcy. Yes a White House spokesman said he does not rule that out, but added GM and Chrysler are 'tremendously important' to the manufacturing industry. UAW has agreed to some concessions... let's see what other positive developments might take place - successful asset sales maybe?
- Today Pres Obama will announce more details about his plan to stem foreclosures. A USD 50 bn package had been ear-marked for that. But the market should not expect too much tonight as Summers had said Obama will not go into the 'mortgage principles' of the package - whatever that means.
Tuesday, February 17, 2009
Risk aversion in double quick time
Just today, we witnessed risk aversion heading back into the markets. The high yielding currencies are being sold down massively against the safe haven USD -namely Aussie, Kiwi, Euro and even the Yen. The Dow is now down over 230 pts or 3 %.
See http://www.dbfx.com/ for the latest fx quotes.
More of this happening and it might feel like the July-Aug '08 selling off of the high yielders, leaving the world wondering what is going on behind the big moves, which we later came to know as big fund redemptions. But for now, we're still far from that. Furthermore, the high yielders are already at very low levels. Downside seems limited.
We're facing a very severe global economy saddled by financial disaster. Day by day, we're seeing more and more of the truth unravel and cans full of worms.
Let's hope the whole thing blows over quickly enough.
See http://www.dbfx.com/ for the latest fx quotes.
More of this happening and it might feel like the July-Aug '08 selling off of the high yielders, leaving the world wondering what is going on behind the big moves, which we later came to know as big fund redemptions. But for now, we're still far from that. Furthermore, the high yielders are already at very low levels. Downside seems limited.
We're facing a very severe global economy saddled by financial disaster. Day by day, we're seeing more and more of the truth unravel and cans full of worms.
Let's hope the whole thing blows over quickly enough.
EURUSD blown away
The EURUSD has crashed to 1.26 from 1.2794 at this point of writing (-1.44%) as this asian morning, Moody's Investor Service published a report to describe the danger of the exposure of western European banks to Eastern European countries.
The report detailed the how much some central & eastern european (CEE) and baltic countries have depended on western european banks' funds in their economic development in years past and that the economic crisis has caused these countries to implode in terms of their finance standing.
The CEE and Baltic economies may find it very hard to refinance their debt going forward, hence putting pressure on the european banks that financed them in the first place.
As a result, the western european banks are facing again, further writedowns and put under severe pressure for perhaps recapitalisation and even more government intervention.
EURUSD was sold off promptly, breaking below the resistance line in the small triangle formation - see chart below.
This means we're open to the way to last Nov low of 1.24.
Let's pray for Europe.
The report detailed the how much some central & eastern european (CEE) and baltic countries have depended on western european banks' funds in their economic development in years past and that the economic crisis has caused these countries to implode in terms of their finance standing.
The CEE and Baltic economies may find it very hard to refinance their debt going forward, hence putting pressure on the european banks that financed them in the first place.
As a result, the western european banks are facing again, further writedowns and put under severe pressure for perhaps recapitalisation and even more government intervention.
EURUSD was sold off promptly, breaking below the resistance line in the small triangle formation - see chart below.
This means we're open to the way to last Nov low of 1.24.
Let's pray for Europe.
Monday, February 16, 2009
Profit taken off USDSGD spinning top formation
Concluding previous post 'USDSGD Spinning Top Formation':
Profit taken at 1.5150 - 110 pips
Long position entered at 1.5040 - Wed, 11 Feb 09
Profit taken at 1.5150 - 110 pips
Long position entered at 1.5040 - Wed, 11 Feb 09
Developments on the horizon
1. Wed 18 Feb 09 - building on talks of a USD 50 bn plan, Pres Obama will announce his plans to stem foreclosures.
rumors of arranging for lower mortgage payments made their rounds last Friday. *could be stock market positive if that happens*
2. Tue 17 Feb 09 - US Automakers to report on their progress to become viable companies and may ask for more aid
3. G7's focus on FX markedly less, with ECB's Alumnia saying G7 currencies now closer to normal levels than a few months before.
'Yuan manipulation' talk was absent - China on Friday said they will continue to buy treasuries *where else can they park their reserves??* USD supportive nonetheless
4. Japan's Q4 GDP falls worse than expected - 12.7% per anuum basis. Exports crashed. USDJPY dropped on knee jerk reaction but recovered since. spot now = 91.66. opinion polls on PM Aso fallen to second all time low. hard for a lacklustre government to push ahead solid reforms and stimulus, let alone implement plans to save economy
rumors of arranging for lower mortgage payments made their rounds last Friday. *could be stock market positive if that happens*
2. Tue 17 Feb 09 - US Automakers to report on their progress to become viable companies and may ask for more aid
3. G7's focus on FX markedly less, with ECB's Alumnia saying G7 currencies now closer to normal levels than a few months before.
'Yuan manipulation' talk was absent - China on Friday said they will continue to buy treasuries *where else can they park their reserves??* USD supportive nonetheless
4. Japan's Q4 GDP falls worse than expected - 12.7% per anuum basis. Exports crashed. USDJPY dropped on knee jerk reaction but recovered since. spot now = 91.66. opinion polls on PM Aso fallen to second all time low. hard for a lacklustre government to push ahead solid reforms and stimulus, let alone implement plans to save economy
Saturday, February 14, 2009
Weekly Call - Upward trend in USDJPY
In agreement with my previous post 'JPY no longer safe', this week's price action of the USDJPY pair has proven very biddish. Of course, my call for the pair to stabilize at 94 might still be premature at this point when there are still uncertainties out there.
Here's a couple:
1. Automakers e.g. GM may request for more money from the US govt and disclose their plans to restructure and prove they can sustain as a going concern. A Reuters report even mentioned they might go down the road of filing for chp 11 to do that?!
2. Details of Geithner's Financial Stability Program does not seem to bring confidence back into stocks.
Bad worms from these areas may result in a knee-jerk buying of JPY, pushing down the USDJPY.
However, what we have seen is that momentum for USDJPY pair this week supports further upward movement.
According to the chart below, MACD's short dated line has stretched a little away from the long dated line and both lines have gone into territory.
Here's a couple:
1. Automakers e.g. GM may request for more money from the US govt and disclose their plans to restructure and prove they can sustain as a going concern. A Reuters report even mentioned they might go down the road of filing for chp 11 to do that?!
2. Details of Geithner's Financial Stability Program does not seem to bring confidence back into stocks.
Bad worms from these areas may result in a knee-jerk buying of JPY, pushing down the USDJPY.
However, what we have seen is that momentum for USDJPY pair this week supports further upward movement.
According to the chart below, MACD's short dated line has stretched a little away from the long dated line and both lines have gone into territory.
A clear support line is seen, stretching back to 23 Jan 09 so we'll set our stop loss a little lower than the resistance line.
On a longer timescale in the weekly chart below, we can also see that the price has closed above the 20 months old resistance line this week.
Next Friday's closing will be critical as to whether the USDJPY can close above the support line for 3 weeks running to confirm the breakout.
With that, here's my call for this week:
Buy from 91 - 91.60
Take profit 93.5 - 94
Stop loss 90 (upward trend support line since 23 Jan 09)
Spot price 91.93
Friday, February 13, 2009
What the market wants
Yesterday, stocks crashed almost 240 pts before recovering all of it to close almost unchanged on the day.
The market had been spooked by the US Jan Initial Jobless Claims which came in above expectations of 623k. As long as 600k or more people file for jobless benefits, Non Farm Payrolls (i.e. Unemployment Report) has the potential to look really ugly.
The drastic pace of jobs losses is what gives the market heart attacks. And this market is living from one bypass to the next.
Then the market recovered all but 6 points to its starting point, bolstered by Obama's plan to spend USD 50 bn to stem foreclosures and modify mortgages - aimed at keeping people in their homes.
This is exactly the medicine the market needs - support the mortgage market and stop home prices from crashing further. As one can observe from the market reaction (huge stock selloff) after Trsy Sec Geithner gave his speech on Tue, the market does not have the patience for plans that take a long time to firm up and be implemented.
The market is for more direct solutions right now.
The market had been spooked by the US Jan Initial Jobless Claims which came in above expectations of 623k. As long as 600k or more people file for jobless benefits, Non Farm Payrolls (i.e. Unemployment Report) has the potential to look really ugly.
The drastic pace of jobs losses is what gives the market heart attacks. And this market is living from one bypass to the next.
Then the market recovered all but 6 points to its starting point, bolstered by Obama's plan to spend USD 50 bn to stem foreclosures and modify mortgages - aimed at keeping people in their homes.
This is exactly the medicine the market needs - support the mortgage market and stop home prices from crashing further. As one can observe from the market reaction (huge stock selloff) after Trsy Sec Geithner gave his speech on Tue, the market does not have the patience for plans that take a long time to firm up and be implemented.
The market is for more direct solutions right now.
Thursday, February 12, 2009
JPY no longer so safe
This crisis has certainly changed quite a few things about the market. Actually, to put it bluntly, it has killed a few sacred cows.
The view that the JPY is super safe haven is, I'm afraid a notion that will lose credence going forward. I feel strongly that USDJPY will settle above 90 for the next 1-3 months.
The economic crisis has pushed exports-demand down the cliff for the export-dependent Japanese economy. The fundamentals of the economy won't be very supportive of the JPY - just by looking at the recent consensus release for Q4 GDP, the market expects a double digit contraction! This has not happened since the 1974 oil crisis.
The surge in JPY certainly hasn't helped exporters at all. Panasonic, Toyota, Sony and countless other exporters have announced huge job cuts and there isn't an end in sight.
We'll see how the market reacts when the final Q4 GDP figures are out next week.
Another thing that would put pressure on the JPY would be the deflation picture in Japan. The recent BOJ economic report indicated that core inflation would be negative for the next two years. This was corrobrated by the Jan wholesale inflation report which came in at -0.2%, the first since 2003. Remember the lost decade in the 90's? Asset prices are basically not going anywhere.
In any case, the above would mean the risk of deflation would last longer in Japan than in other developed economies and hence reinforcing the need for a really loose monetary policy for some time to come.
Till then, I fully expect JPY strength to adjust to the fundamental picture as it is already doing so now (The dow is crashing 200pts to 7747 but USDJPY is holding up well above 90 ?!)
I am going out on a limb here for a long horizon call (totally unorthodox for me)........ but this is building on my first post entitled 'First Salvo'.
My call for the next 1 month
Buy USDJPY from 89.40 - 90 (bottom of triangle formation in Jan)
Take profit at 93-94 (Jan 09 high)
The view that the JPY is super safe haven is, I'm afraid a notion that will lose credence going forward. I feel strongly that USDJPY will settle above 90 for the next 1-3 months.
The economic crisis has pushed exports-demand down the cliff for the export-dependent Japanese economy. The fundamentals of the economy won't be very supportive of the JPY - just by looking at the recent consensus release for Q4 GDP, the market expects a double digit contraction! This has not happened since the 1974 oil crisis.
The surge in JPY certainly hasn't helped exporters at all. Panasonic, Toyota, Sony and countless other exporters have announced huge job cuts and there isn't an end in sight.
We'll see how the market reacts when the final Q4 GDP figures are out next week.
Another thing that would put pressure on the JPY would be the deflation picture in Japan. The recent BOJ economic report indicated that core inflation would be negative for the next two years. This was corrobrated by the Jan wholesale inflation report which came in at -0.2%, the first since 2003. Remember the lost decade in the 90's? Asset prices are basically not going anywhere.
In any case, the above would mean the risk of deflation would last longer in Japan than in other developed economies and hence reinforcing the need for a really loose monetary policy for some time to come.
Till then, I fully expect JPY strength to adjust to the fundamental picture as it is already doing so now (The dow is crashing 200pts to 7747 but USDJPY is holding up well above 90 ?!)
I am going out on a limb here for a long horizon call (totally unorthodox for me)........ but this is building on my first post entitled 'First Salvo'.
My call for the next 1 month
Buy USDJPY from 89.40 - 90 (bottom of triangle formation in Jan)
Take profit at 93-94 (Jan 09 high)
Wednesday, February 11, 2009
USDSGD Spinning Top Formation
It seems a Spinning Top candlestick formation is formed on the USDSGD pair, judging from the last 3-4 candlestick bars - a reversal signal on the recent fall.
The last bar on the right shows that bulls have taken control of the pair - so I think USDSGD has potential to travel further up.
However, in the office today, I realise that the pair is topish at the 1.5110 level. Real selling was observed. The pair will probably try to top 1.5110 again soon. I don't expect it to go the other way to test 1.4900 in this market.
Spot now is 1.5060
My call:
Order to buy from 1.5030.
Take profit at 1.5150.
Stop loss: 1.4900 (9 Feb 09 strong support).
Love the GBPUSD
Don't you love the GBPUSD? This is one pair that tends to make really big moves, even intraday.
The bulls and bears have a good go at each other and the swings are terrific.
Sold GBPUSD at 1.4609 last night and just took profit at 1.4350 (259 pips).
Sweet.
The bulls and bears have a good go at each other and the swings are terrific.
Sold GBPUSD at 1.4609 last night and just took profit at 1.4350 (259 pips).
Sweet.
Tuesday, February 10, 2009
Geithner's bank plan
Its 12:37 am in Singapore but here I am blogging about the markets - I think I need self control.
The stock market is crashing as I write. EUR, GBP and AUD are selling off.
I think the market hates his plan.
And, this look like classic buy on the rumor and sell on the news move which never fails to surprise me.
Anyway Geithner just gave a speech, and in short, he is planning to put tons and tons of public money to buy up CPs, ABS to improve consumer and business credit flow. I think a trillion bucks was mentioned?!
Another more important part of Geithner's credit plan is the the Fed is planning a fund to mix private capital with public capital to buy up bad assets from banks. TARP 301.
Now I really do not know if there would be private demand for that at this time... and pricing of the bad assets? I think its going to be very hard to do and troublesome.
The market was probably expecting the government to just aggregate all bad assets and keeping in the Fed's attic until better times. Geithner's plan looks like its gonna delay economic recovery because as long as bad assets are lying around, banks (and businesses) will still suffer.
He left off with the impression that the program still has questions marks all over it, pending negotiations with private investors, pricing issues etc etc.
The market will remain confused for the next few days I feel.
We'll see if Geithner will recognised as a maverick at the end of it all.
The stock market is crashing as I write. EUR, GBP and AUD are selling off.
I think the market hates his plan.
And, this look like classic buy on the rumor and sell on the news move which never fails to surprise me.
Anyway Geithner just gave a speech, and in short, he is planning to put tons and tons of public money to buy up CPs, ABS to improve consumer and business credit flow. I think a trillion bucks was mentioned?!
Another more important part of Geithner's credit plan is the the Fed is planning a fund to mix private capital with public capital to buy up bad assets from banks. TARP 301.
Now I really do not know if there would be private demand for that at this time... and pricing of the bad assets? I think its going to be very hard to do and troublesome.
The market was probably expecting the government to just aggregate all bad assets and keeping in the Fed's attic until better times. Geithner's plan looks like its gonna delay economic recovery because as long as bad assets are lying around, banks (and businesses) will still suffer.
He left off with the impression that the program still has questions marks all over it, pending negotiations with private investors, pricing issues etc etc.
The market will remain confused for the next few days I feel.
We'll see if Geithner will recognised as a maverick at the end of it all.
Watch out for Quantitative Easing moves
The stock markets were flat overnight in the US trading session (9 Feb 09) as little specifics were given in Pres Obama's speech on the stimulus package - and also that it has not yet been passed by congress.
Nonetheless, in a pre-emptive move on a quick passage, currencies moved. Risk taking came back into the picture as the EUR and GBP surged. The EUR closed at 1.3 from 1.28 while the GBP touched 1.5 at its high before closing nearer to 1.49.
Its interesting to note for a while now that the market reacts much more to good news than bad news as we're already immune to the bad and the ugly. GBP was helped by Barclays announcing that Q4 earnings were much better than expectations. Even in the face of a possible Quant Easing (QE) program (mentioned by Chancellor Darling on BBC yesterday), the GBP surged. If the UK government indeed goes down than path, I would expect the GBPUSD to sell off strong. Supply will overrun demand.
The US however, though is sitting on the fence on QE. They know that QE might weaken the USD. If you notice the rhetoric from Obama's admin and Geithner, they seem to favor the strong dollar policy.
Furthermore, Bernanke has previously took pains to explain the difference between Quant Easing and Credit Easing (which is what the Feb has been trying to do).
Credit Easing involves the increase of credit to consumers and businesses via the route of CP, MBS, ABS etc. The business of securitising is now the government's - well, who's left to do it?
Quant Easing would mean the government using its own money to buy up treasuries in the market, hence pushing cash into the system directly, increasing money supply. This would also help to increase the velocity of money in the system, hence boosting economic growth.
The credit situation has improved, credit to the Fed, but.... I wouldn't rule out the possibility of QE in the US going forward, if the situation gets much worse. Watch this space..
Keep a lookout for hints of that in case you're thinking of going USD long.
Nonetheless, in a pre-emptive move on a quick passage, currencies moved. Risk taking came back into the picture as the EUR and GBP surged. The EUR closed at 1.3 from 1.28 while the GBP touched 1.5 at its high before closing nearer to 1.49.
Its interesting to note for a while now that the market reacts much more to good news than bad news as we're already immune to the bad and the ugly. GBP was helped by Barclays announcing that Q4 earnings were much better than expectations. Even in the face of a possible Quant Easing (QE) program (mentioned by Chancellor Darling on BBC yesterday), the GBP surged. If the UK government indeed goes down than path, I would expect the GBPUSD to sell off strong. Supply will overrun demand.
The US however, though is sitting on the fence on QE. They know that QE might weaken the USD. If you notice the rhetoric from Obama's admin and Geithner, they seem to favor the strong dollar policy.
Furthermore, Bernanke has previously took pains to explain the difference between Quant Easing and Credit Easing (which is what the Feb has been trying to do).
Credit Easing involves the increase of credit to consumers and businesses via the route of CP, MBS, ABS etc. The business of securitising is now the government's - well, who's left to do it?
Quant Easing would mean the government using its own money to buy up treasuries in the market, hence pushing cash into the system directly, increasing money supply. This would also help to increase the velocity of money in the system, hence boosting economic growth.
The credit situation has improved, credit to the Fed, but.... I wouldn't rule out the possibility of QE in the US going forward, if the situation gets much worse. Watch this space..
Keep a lookout for hints of that in case you're thinking of going USD long.
Monday, February 9, 2009
The Dow Jones 8,000 springboard
I read in an article in the Business Times last week that is rather interesting. The writer wrote about why the Dow seems to be unable to break the 8,000 level decisively in the last few months. Everytime the index closes below 8,000. it'll bounce right back up in the next few days.
So is this 8,000 level is bottom of the sea of crisis?
The writer goes on to point out that the reason for this is because the Dow is a price-weighted index - so therein lies the flaw. This means every dollar that a stock falls by will cause the Dow to fall 7.964 pts, regardless of the stock's capitalisation.
Now consider the big financial stock in the DJIA index - Citi (USD3.90), BOA (USD6.78), JP Morgan (USD25.43) - if all four financial stocks crash to nil, the index will lose only 300 pts, not much of a percentage loss in the Dow, but the consequences are unthinkable on the global economy.
The point is, big companies like the above mentioned and General Motors are already hitting rock bottom. Anymore bad news regarding these firms might not have that much of an impact on the DJIA and gives the impression stocks are holding up well.
Traditionally, when a Dow stock goes below USD 10, the stock will be taken out of the index to be replaced by another one. However, for some reason, this is not in the works, so we can conclude that the index is distorted in some sense.
My call for a small punt: buy DJIA futures from 7850 (Jan 09 congestion low). Take profit above 8,200
So is this 8,000 level is bottom of the sea of crisis?
The writer goes on to point out that the reason for this is because the Dow is a price-weighted index - so therein lies the flaw. This means every dollar that a stock falls by will cause the Dow to fall 7.964 pts, regardless of the stock's capitalisation.
Now consider the big financial stock in the DJIA index - Citi (USD3.90), BOA (USD6.78), JP Morgan (USD25.43) - if all four financial stocks crash to nil, the index will lose only 300 pts, not much of a percentage loss in the Dow, but the consequences are unthinkable on the global economy.
The point is, big companies like the above mentioned and General Motors are already hitting rock bottom. Anymore bad news regarding these firms might not have that much of an impact on the DJIA and gives the impression stocks are holding up well.
Traditionally, when a Dow stock goes below USD 10, the stock will be taken out of the index to be replaced by another one. However, for some reason, this is not in the works, so we can conclude that the index is distorted in some sense.
My call for a small punt: buy DJIA futures from 7850 (Jan 09 congestion low). Take profit above 8,200
Sunday, February 8, 2009
EURUSD will not get a stimulus boost from Obama
Out on Friday 6 Feb 09: The US non farm payrolls fell by close to 600k, resulting in an increase of unemployment in the US to 7.6% from 7.2%.
It is quite interesting how with the outflow of negative news like this, the stock markets reacted by rallying and the bulls got behind higher yielding currencies like the EUR, GBP and AUD.
The Dow closed over 200 pts up, the S&P 500 higher by 2.69 %.
EUR, GBP and AUD surged to close up 1.06%, 1.34% and a whopping 3.7% respectively on optimism related to the stimulus package to be announced next week by Obama's administration.
AUD was greatly helped by the increase in prices of base metals like copper.
Well, a guru once said 'the markets can stay irrational longer than you can stay solvent'. I think to trade in these markets, one have to go with the trend (however short) more than trading on economic data and long investment horizons.
Taking a closer look on the EURUSD though, I think this optimism is premature and would encourage traders to sell on strength (up to 1.33 - strong resistance level seen in late Jan 09).
Looking at the EURUSD chart, the pair is still trading in a downward channel which stretched as far back as mid Dec 09. I think EURUSD has potential to head further south in the weeks ahead.
It is quite interesting how with the outflow of negative news like this, the stock markets reacted by rallying and the bulls got behind higher yielding currencies like the EUR, GBP and AUD.
The Dow closed over 200 pts up, the S&P 500 higher by 2.69 %.
EUR, GBP and AUD surged to close up 1.06%, 1.34% and a whopping 3.7% respectively on optimism related to the stimulus package to be announced next week by Obama's administration.
AUD was greatly helped by the increase in prices of base metals like copper.
Well, a guru once said 'the markets can stay irrational longer than you can stay solvent'. I think to trade in these markets, one have to go with the trend (however short) more than trading on economic data and long investment horizons.
Taking a closer look on the EURUSD though, I think this optimism is premature and would encourage traders to sell on strength (up to 1.33 - strong resistance level seen in late Jan 09).
Looking at the EURUSD chart, the pair is still trading in a downward channel which stretched as far back as mid Dec 09. I think EURUSD has potential to head further south in the weeks ahead.
To me, the EUR is not a safe currency to go long in until because there will be more ugly news coming out of Euroland :
- The market sees that the ECB is behind the curve in cutting rates and lowering refinancing costs
- Fragmented policy making in the 16-nation group jeopardise coordinated (effective) efforts to boost growth
- Eastern European countries are running very high finance deficits and will prove to be a drag on the currency
- Credit downgrades for Spain, Greece, Ireland and maybe more to come (making financing more expensive)
I've also observed this week has been a case of selling out of the EUR and buying into GBP. I don't really think the GBP is a much better option but the lack of really bad news from the UK helped?!
Besides, in a technical move, the market seems to be trying to push the EURGBP to settle below 0.88. Last quoted price from Friday 6 Feb was 0.8753. This looks to me like the completion of a double top reversal pattern in the making.
MACD falling into negative territory also points to good momentum for the pair to fall further. Notice the short dated MACD line moving further away from the long dated line. The lower highs also point out that the bulls have lost a grip on the pair.
My call: sell into strengths up to 0.91 and take profit at 0.86 (nov-dec 08 congestion period).
I don't expect the pair to move down so strongly because the market would get spooked by bad news coming out of the UK eventually. I see another congestion coming.
Saturday, February 7, 2009
The first salvo
This week had been an eventful week whereby the forex market changed its sentiments like a chameleon change its colors. The early part of the week was defined by indecision with the Dow trading up and down the critical 8,000 mark. The market was basically just waiting for a firm word out of the US Senate for a quick and affirmative passage of Obama's USD 800 bn stimulus package but due to Republican objection to some terms of the package, the passage was delayed.
All else (other economic data) couldn't get their worth's share of the headlines.
USDJPY traded along with equities but stayed within the 88-89 region and accumulated a triangle formation that finally broked out upwards on Thursday. The pair went strong and touched high of 92 plus that day. The stubborn 21 day moving average is clearly broken for 2 days and MACD points to better momentum upwards.
However, is this move sustainable? The big question on many peoples' minds is will USDJPY stay above 90? I think there's a good chance it will.
With the Japanese government deterioriating their finance standing buying up stocks from Japanese banks and issuing debt to support stimulus efforts, not to mention the very poor exports market making JPY demand even lower going forward, USDJPY looks to be supported somewhat.
Afterall, the USD is still the world's reserve currency. My call for USDJPY for next week (week ending 13 Feb) is 90 - 94.
All else (other economic data) couldn't get their worth's share of the headlines.
USDJPY traded along with equities but stayed within the 88-89 region and accumulated a triangle formation that finally broked out upwards on Thursday. The pair went strong and touched high of 92 plus that day. The stubborn 21 day moving average is clearly broken for 2 days and MACD points to better momentum upwards.However, is this move sustainable? The big question on many peoples' minds is will USDJPY stay above 90? I think there's a good chance it will.
With the Japanese government deterioriating their finance standing buying up stocks from Japanese banks and issuing debt to support stimulus efforts, not to mention the very poor exports market making JPY demand even lower going forward, USDJPY looks to be supported somewhat.
Afterall, the USD is still the world's reserve currency. My call for USDJPY for next week (week ending 13 Feb) is 90 - 94.
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