I can't seem to find good trading opportunities in the FX market at this point. But I will post something as soon as news are out dictating the week's flavour.
It seems that the majors have been trading in a range against the dollar, capped by previous highs set in the past weeks as the market is bidding its time to assess latest econ data to see if the greenshoots are ever going to lead to more certain recovery in the global economy.
There are certainly headwinds against this, e.g. rising unemployment in most parts of the industrialized world, potential write downs for european banks, continuing de-leveraging within the US economy etc.
But econ data are showing slower contraction on all fronts - the question is, which investors will bite (and grab risk assets)?
Or are we in for a moderate correction in risk assets?
Next week we loads of econ data that can confuse the mind, but my tendency to lean towards better sentiments.
Because China's data, which tends to give the weary stock markets a good boost, may turn in a good result for the PMI reading (out on Wed 1 Jul), helping commodity prices, (and commodity) currencies, related stocks - spilling over into the europe/US markets, and so on.
Still, we are prone to plenty of event risks considering the various cenbank meetings/statements and econ data surprises.
e.g. hear what more China has to say about diversifying away from the dollar as a reserve currency, SNB's further involvement in the fx markets, a shocking NFP of course.
Nonetheless, I hope you will have a good week ahead!
Sunday, June 28, 2009
Wednesday, June 24, 2009
Euro-easy day
Econ data from the US out today:
1) new home sales poorer than expected as foreclosures keeps supply of homes elevated and prices suppressed, making resale homes more attractive
2) durable goods orders better than expected, turning in a positive number vs a negative one expected - lending hope that the economy will see better capital investments and business spending going forward as the economic decline continues to ease
Stocks initially fell on the release of the first piece of news but recovered to trade about 1% in the positive territory after the release of the second.
I guess the stock market needed a reason to be bought and so 2) was the boost.
In FX however, we have seen some choppiness with the movement of the majors. EURUSD traded higher earlier in the day, touching a high of 1.4139 before retreating back into the 1.40 handle as the ECB manages to lend out a higher than expected amount of funds - to the tune of just Eur 442 bn for one year at the rate of 1%.
This program is unprecendented and is aimed at flooding the banking system with cash so as to improve liquidity and encourage lending. The last time the ECB did this was in Dec 08, the midst of the crisis. Note that the cenbank also said they would not lend at such good terms again.
And the response by the financial sector was better than expected. Eur 300 bn was the initial estimate for the take up. As a bank, I'd say, why not? Its cheap money and I might as well borrow whatever I can first, then think of ways to make a return on it.
However, even as the system is flooded with supply of Euros, it does not mean that the value of the Eur will necessarily fall, as banks are still reluctant to lend to businesses. M3 money supply growth is in fact still decelerating.
Yes forward looking data in the EZ are good, but we will monitor the hard economic data when they are out in the coming weeks, as well as private sector lending to see how much more Euros got into the system.
In Dec when the ECB launched this program, the Eur didn't suffer, and there's no reason for it to now either!
I'd be looking to buy EURUSD on dips as a medium term strategy, playing with the economic growth story and the fed's easy monetary policy.
1) new home sales poorer than expected as foreclosures keeps supply of homes elevated and prices suppressed, making resale homes more attractive
2) durable goods orders better than expected, turning in a positive number vs a negative one expected - lending hope that the economy will see better capital investments and business spending going forward as the economic decline continues to ease
Stocks initially fell on the release of the first piece of news but recovered to trade about 1% in the positive territory after the release of the second.
I guess the stock market needed a reason to be bought and so 2) was the boost.
In FX however, we have seen some choppiness with the movement of the majors. EURUSD traded higher earlier in the day, touching a high of 1.4139 before retreating back into the 1.40 handle as the ECB manages to lend out a higher than expected amount of funds - to the tune of just Eur 442 bn for one year at the rate of 1%.
This program is unprecendented and is aimed at flooding the banking system with cash so as to improve liquidity and encourage lending. The last time the ECB did this was in Dec 08, the midst of the crisis. Note that the cenbank also said they would not lend at such good terms again.
And the response by the financial sector was better than expected. Eur 300 bn was the initial estimate for the take up. As a bank, I'd say, why not? Its cheap money and I might as well borrow whatever I can first, then think of ways to make a return on it.
However, even as the system is flooded with supply of Euros, it does not mean that the value of the Eur will necessarily fall, as banks are still reluctant to lend to businesses. M3 money supply growth is in fact still decelerating.
Yes forward looking data in the EZ are good, but we will monitor the hard economic data when they are out in the coming weeks, as well as private sector lending to see how much more Euros got into the system.
In Dec when the ECB launched this program, the Eur didn't suffer, and there's no reason for it to now either!
I'd be looking to buy EURUSD on dips as a medium term strategy, playing with the economic growth story and the fed's easy monetary policy.
Tuesday, June 23, 2009
The spin around in FX
The early hours in europe trading saw the major currencies trading lower against the dollar as the 'greenshoot' theory of global economic growth was continually thrown into doubt.
FX traded along with tepid movements in risk assets like stocks as the Eur, Gbp and Aud were on the defensive.
However, following the release of the Jun EZ PMI data, which saw a weaker than expected result, the EURUSD surged from just under 1.39 to 1.4088 at print (a whopping 188 pips higher), or 1.64% higher on the day.
Along with it, the other majors are trading positive against the dollar as well.
Funny how the Eurusd turned out because from the PMI data, the services sector in europe is still in the doldrums and Q2 growth is expected to still be poor. Why did Eurusd jump?
I feel today's move is less dependent on the econ data released. Rather, the cenbanks and key option levels could be very well at play here.
The Swiss cenbank SNB may be in the market to keep EURCHF above the psychologically important 1.50 mark so as to keep the swissie more competitive (Spot - 1.5020). This is very much in line with the SNB's recent rhetoric to stay the strength of the safe haven swissie.
Yes no doubt the USDCHF has declined but as all other currencies have gone up against the dollar, the SNB will have to put its attention unto capping the CHF strength against the currencies of other nations it trades much with, namely the Eurozone.
And when the cenbank like the SNB moves, they can usually be quite effective.
With this out of the picture, it feels like another almost directionless day as stocks (the dow) bounce between the positive and negative territories.
Tomorrow is the FOMC announcement. All eyes will be on that.
Right now it also feels that the market is positioning itself for a statement by the fed that they will continue with the loose monetary policy, keeping the dollar under pressure. Hence, the majors are higher. We'll see.
FX traded along with tepid movements in risk assets like stocks as the Eur, Gbp and Aud were on the defensive.
However, following the release of the Jun EZ PMI data, which saw a weaker than expected result, the EURUSD surged from just under 1.39 to 1.4088 at print (a whopping 188 pips higher), or 1.64% higher on the day.
Along with it, the other majors are trading positive against the dollar as well.
Funny how the Eurusd turned out because from the PMI data, the services sector in europe is still in the doldrums and Q2 growth is expected to still be poor. Why did Eurusd jump?
I feel today's move is less dependent on the econ data released. Rather, the cenbanks and key option levels could be very well at play here.
The Swiss cenbank SNB may be in the market to keep EURCHF above the psychologically important 1.50 mark so as to keep the swissie more competitive (Spot - 1.5020). This is very much in line with the SNB's recent rhetoric to stay the strength of the safe haven swissie.
Yes no doubt the USDCHF has declined but as all other currencies have gone up against the dollar, the SNB will have to put its attention unto capping the CHF strength against the currencies of other nations it trades much with, namely the Eurozone.
And when the cenbank like the SNB moves, they can usually be quite effective.
With this out of the picture, it feels like another almost directionless day as stocks (the dow) bounce between the positive and negative territories.
Tomorrow is the FOMC announcement. All eyes will be on that.
Right now it also feels that the market is positioning itself for a statement by the fed that they will continue with the loose monetary policy, keeping the dollar under pressure. Hence, the majors are higher. We'll see.
Monday, June 22, 2009
Gone missing / A healthy correction
In the blink of an eye almost 3 weeks have past since my last post.
I've been really busy at work and occupied with other things in my life that I can hardly sit down to watch the markets as closely as before.
But now, I should be able to get my old routine back and blog more. This should be helpful for me to keep track of my trading and put into words my thoughts. It helps me not be too fickle about my strategies.
Today, the sense of nonchanlance was palpable in the markets while I was in the office. There did not seem to be anything that could lift sentiments and give stocks another boost.
Yes asian stocks rose but it didn't feel like the euphoria of the recent weeks as investors start looking around them to see what could be the next springboard. But there's none right now.
The reality of the world economy still being in deep recession is starting to bite again as it seems increasingly likely we are not in a V shaped recovery.
In FX, safe haven dollar buying dominated the screens. At print (12 am Spore time/12pm est), both the GBPUSD and the EURUSD are already losing 1% and 0.73%.
Lead by the spectacular fall in commodities today (oil -4%), commodity currencies are digging holes in the ground. AUDUSD and NZDUSD are down a huge 2.11% and 1.8% respectively.
The Aud move however, I feel is partly because the market is pricing another rate cut by the RBA following a hold in the last meeting.
Altogether I feel that the selling of the major currencies against the greenback have been a long time coming. Prices don't rise in a straight line and these moves in FX only present better buying opportunities.
My rationale for a weak dollar over the medium term is because the FOMC has to show a willingness to keep a loose monetary policy until the economy has cleared much of its slack and leverage, before there's a good chance of sure recovery. Afterall, u/e rate in the US is fast approaching 10% and rising still.
For now, we've been seeing better than expected economic data, but to solid growth takes 'better than better than expected' data.
This Wed, the FOMC will release their highly anticipated interest rate announcement at 2:15pm est (2:15am spore) and the market awaits to read the accompanying statement. Of course, rates are expected to remain at 0 - 0.25%.
If the FOMC did not mention raising rates and says to keep rates close to zero for an extended period of time, then over the medium term, I'd be a dollar bear. *this is my assumed likely scenario*
If they do announce more details into the exit strategies they might employ to soak up the massive injected liquidity, including increasing fed funds rate before the end of the year, then the dollar might jump against most currencies.
But it all depends on the wording the FOMC uses and how the market perceive to what extent the FOMC is thinking of tightening, if they are at all.
Man, I never did pay this much attention to my school teacher's words in the past.
I've been really busy at work and occupied with other things in my life that I can hardly sit down to watch the markets as closely as before.
But now, I should be able to get my old routine back and blog more. This should be helpful for me to keep track of my trading and put into words my thoughts. It helps me not be too fickle about my strategies.
Today, the sense of nonchanlance was palpable in the markets while I was in the office. There did not seem to be anything that could lift sentiments and give stocks another boost.
Yes asian stocks rose but it didn't feel like the euphoria of the recent weeks as investors start looking around them to see what could be the next springboard. But there's none right now.
The reality of the world economy still being in deep recession is starting to bite again as it seems increasingly likely we are not in a V shaped recovery.
In FX, safe haven dollar buying dominated the screens. At print (12 am Spore time/12pm est), both the GBPUSD and the EURUSD are already losing 1% and 0.73%.
Lead by the spectacular fall in commodities today (oil -4%), commodity currencies are digging holes in the ground. AUDUSD and NZDUSD are down a huge 2.11% and 1.8% respectively.
The Aud move however, I feel is partly because the market is pricing another rate cut by the RBA following a hold in the last meeting.
Altogether I feel that the selling of the major currencies against the greenback have been a long time coming. Prices don't rise in a straight line and these moves in FX only present better buying opportunities.
My rationale for a weak dollar over the medium term is because the FOMC has to show a willingness to keep a loose monetary policy until the economy has cleared much of its slack and leverage, before there's a good chance of sure recovery. Afterall, u/e rate in the US is fast approaching 10% and rising still.
For now, we've been seeing better than expected economic data, but to solid growth takes 'better than better than expected' data.
This Wed, the FOMC will release their highly anticipated interest rate announcement at 2:15pm est (2:15am spore) and the market awaits to read the accompanying statement. Of course, rates are expected to remain at 0 - 0.25%.
If the FOMC did not mention raising rates and says to keep rates close to zero for an extended period of time, then over the medium term, I'd be a dollar bear. *this is my assumed likely scenario*
If they do announce more details into the exit strategies they might employ to soak up the massive injected liquidity, including increasing fed funds rate before the end of the year, then the dollar might jump against most currencies.
But it all depends on the wording the FOMC uses and how the market perceive to what extent the FOMC is thinking of tightening, if they are at all.
Man, I never did pay this much attention to my school teacher's words in the past.
Monday, June 1, 2009
The rally just doesn't end.
What could have built up to a day of non-event, the market re-wrote the script the moment Europe and London came into the office.
This might have got to do with China's Apr PMI reading which came in better than expected. Also, exports have turned positive for the first time since mid 2008, which means global demand has started to pick up.
The green shoots are taking root. And stocks love that story. Who cares if GM has filed for bankruptcy? The Dow is trading +180 points at print.
The USD was dumped across the board yet again. I can't say which currencies because there are just too many of them. Basically, normalcy is really being priced into the fx market AND the market is expressing concern for inflation for the longer term.
Gold, silver, oil - alternatives of store of value agst the USD have seen really good bids recently. Gold's high today is 988, just USD 12 shy of the 1,000 target.
Next week, we will have the 10 and 30 yr US treasury auctions and success of this is important to the ability of the US government to fund its massive stimulus plans.
If the market cannot absorb the increased supply of treasuries as well as wished, then, expect the dollar to be further pressured on an expectedly weaker US economic recovery. Stocks would have reason to be capped for the moment as well.
For fx this week, we are seeing an increase in non-commercial short dollar contracts, which means more players are riding on the upward trend of the higher yielding currencies against the dollar.
It'll be really interesting to see how far this can go. And it'll take a really brave man to bet against the tide.
This might have got to do with China's Apr PMI reading which came in better than expected. Also, exports have turned positive for the first time since mid 2008, which means global demand has started to pick up.
The green shoots are taking root. And stocks love that story. Who cares if GM has filed for bankruptcy? The Dow is trading +180 points at print.
The USD was dumped across the board yet again. I can't say which currencies because there are just too many of them. Basically, normalcy is really being priced into the fx market AND the market is expressing concern for inflation for the longer term.
Gold, silver, oil - alternatives of store of value agst the USD have seen really good bids recently. Gold's high today is 988, just USD 12 shy of the 1,000 target.
Next week, we will have the 10 and 30 yr US treasury auctions and success of this is important to the ability of the US government to fund its massive stimulus plans.
If the market cannot absorb the increased supply of treasuries as well as wished, then, expect the dollar to be further pressured on an expectedly weaker US economic recovery. Stocks would have reason to be capped for the moment as well.
For fx this week, we are seeing an increase in non-commercial short dollar contracts, which means more players are riding on the upward trend of the higher yielding currencies against the dollar.
It'll be really interesting to see how far this can go. And it'll take a really brave man to bet against the tide.
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