For the Gbp especially, it is hard to see much further upside from where we are at now (GBPUSD spot 1.5887) when policy makers appear to lean towards a weaker sterling. (King saying that a weak Gbp is beneficial - Thur 24 Sep 09)
To be sure, the UK economy is running huge public debts - to the tune of a level which rating agencies like Moody's usually flashes red lights for a possible downgrade.
But at the moment, the UK will keep their AAA status.
Right now though, PM Brown has said he will not unwind quickly the levels of debts until he sees the recovery becoming firmer and more sustainable.
My thinking is.. with the poor fiscal outlook and debt levels as the UK's, it will probably take some years to deleverage and finally achieve a more prudent balance sheet.
Even if the economy does pick up, the currency is likely to underperform the Eur and the dollar. For the latter, the reason being the US is expected to push itself out of recession faster than the UK. For the former, well, at least no central banker wants to talk down the currency in such a direct way.
The pound used to be one of the highest yielding currencies in the developed world and has been a big favourite for the carry trade.
But we might be seeing a permanent change occuring right now. The Gbp may not return to as strong as it was before, given it needs time to sort out its public debt and groom other parts of the economy to replace the sputtering financial industry and contribute to taxes.
So I'm out on a limb here, saying that in the medium term, we might see parity in the EURGBP (spot now is 0.9216).
My forecast for GBPUSD anyway, is 1.5600 (Dec '08 congestion high) to 1.6230 ( near neckline of double top reversal).
Monday, September 28, 2009
My EURUSD forecast this week
The focus of last week had been on the relentless move to the year's high for the currency majors like Eur, Nzd, Aud and of course, the stock markets.
And then came the correction following the FOMC statement on Wed 23 Sep 09 and the pound led decline on Thur. Recall: BOE chairman Mervyn King said a weaker Gbp will help the UK rebalance its economy towards one more dependant on exports. **GBPUSD fell 1.6% (a massive 200 plus pips down move) following that.
The feeling of euphoria that drove the markets higher for several weeks now is seemingly checked and can only be boosted by the occasional M&A activity like today - we hear Abbott and Xerox making multi billion dollar offers for Solvay and Affiliated Computers Systems respectively. The Dow now trades +137 pts and the S&P 500 +1.7% at print. Other than that, we will be in limbo until Q3 earnings are out from next week onwards.
Compared to the previous FOMC's statement, Wednesday's statement highlighted further recovery in the housing market and the fed deemed fit to slow down mortgage securities purchases until end Q1 '10. This effectively leaves the US unemployment rate as the main factor for the USD outlook.
This Friday, the Non Farm Payroll will be released and judging from the trend of better Jobless Claims in the past month or so, there might be a chance for a surprise. The U/E rate is expected to increase to 9.8% from 9.7%.
So I think, together with the slight rise in the dollar index recently, we'll see a firmer comeback in the dollar this week - confirming that a better than expected NFP will boost the dollar.
My expected range for EURUSD this week is 1.4500 (early Sep support) to 1.4850 (shouldn't break last week's all year high)
And then came the correction following the FOMC statement on Wed 23 Sep 09 and the pound led decline on Thur. Recall: BOE chairman Mervyn King said a weaker Gbp will help the UK rebalance its economy towards one more dependant on exports. **GBPUSD fell 1.6% (a massive 200 plus pips down move) following that.
The feeling of euphoria that drove the markets higher for several weeks now is seemingly checked and can only be boosted by the occasional M&A activity like today - we hear Abbott and Xerox making multi billion dollar offers for Solvay and Affiliated Computers Systems respectively. The Dow now trades +137 pts and the S&P 500 +1.7% at print. Other than that, we will be in limbo until Q3 earnings are out from next week onwards.
Compared to the previous FOMC's statement, Wednesday's statement highlighted further recovery in the housing market and the fed deemed fit to slow down mortgage securities purchases until end Q1 '10. This effectively leaves the US unemployment rate as the main factor for the USD outlook.
This Friday, the Non Farm Payroll will be released and judging from the trend of better Jobless Claims in the past month or so, there might be a chance for a surprise. The U/E rate is expected to increase to 9.8% from 9.7%.
So I think, together with the slight rise in the dollar index recently, we'll see a firmer comeback in the dollar this week - confirming that a better than expected NFP will boost the dollar.
My expected range for EURUSD this week is 1.4500 (early Sep support) to 1.4850 (shouldn't break last week's all year high)
Saturday, September 5, 2009
Aug 09 Non Farm Payrolls
The marquee event of the week is of course the non farm payrolls release. Coming in at -216k, it represents the slowest decline in the layoff rate in several months. However, the official unemployment rate rose to 9.7% from 9.5%.
My initial reaction was of a bearish one as I thought, ok, so even if the NFP fell less than expected but the labor force could not build on its improvement in the last release, so the market will have to bear the brunt of what even the fed feels is the biggest headwind facing the US economy today.
My feeling was proven right in the first hour and half after the release. The FX majors sold off against the safe havens of the USD and the JPY. Futures traded lower. I rode on a little bit of gains but of course, in hindsight, my view was wrong.
The market decided to see the brighter side of the NFP release and risk taking came back, pushing stocks and higher yielding currencies higher against the dollar. By the end of the night, the dow added about 100 pts.
I guess the market, taking a forward looking view, felt that the slowing job losses is a good sign - that the worse of the US consumer is a passing phase and that now that the overall unemployment rate is closer to it's peak, things might get better from here.
In FX, my bias-ly favoured market, the dollar index lost ground. Looking at price action in the past week, I failed to analyze one thing. The fact that the majors were decidedly rangey was because traders were wary of a more firmly better than expected NFP which will cause a sell off in this currencies against the dollar.
This was what happened in the last NFP release in July. The thinking goes: if the US u/e improves faster than expected then the fed might hike rates earlier, making the dollar a lot more attractive to investors at current price levels. Especially against the yen, as yields on JPY assets are and will be kept low for a longer time.
And now that the thinking has to be shelved for the time being, I am biased to think that the major currencies would build on friday's momentum and advance against the dollar. Especially the Aussie, the only currency whose central bank has given hints interest rate might be hiked going forward.
What do you think?
My initial reaction was of a bearish one as I thought, ok, so even if the NFP fell less than expected but the labor force could not build on its improvement in the last release, so the market will have to bear the brunt of what even the fed feels is the biggest headwind facing the US economy today.
My feeling was proven right in the first hour and half after the release. The FX majors sold off against the safe havens of the USD and the JPY. Futures traded lower. I rode on a little bit of gains but of course, in hindsight, my view was wrong.
The market decided to see the brighter side of the NFP release and risk taking came back, pushing stocks and higher yielding currencies higher against the dollar. By the end of the night, the dow added about 100 pts.
I guess the market, taking a forward looking view, felt that the slowing job losses is a good sign - that the worse of the US consumer is a passing phase and that now that the overall unemployment rate is closer to it's peak, things might get better from here.
In FX, my bias-ly favoured market, the dollar index lost ground. Looking at price action in the past week, I failed to analyze one thing. The fact that the majors were decidedly rangey was because traders were wary of a more firmly better than expected NFP which will cause a sell off in this currencies against the dollar.
This was what happened in the last NFP release in July. The thinking goes: if the US u/e improves faster than expected then the fed might hike rates earlier, making the dollar a lot more attractive to investors at current price levels. Especially against the yen, as yields on JPY assets are and will be kept low for a longer time.
And now that the thinking has to be shelved for the time being, I am biased to think that the major currencies would build on friday's momentum and advance against the dollar. Especially the Aussie, the only currency whose central bank has given hints interest rate might be hiked going forward.
What do you think?
Trading is a discipline
On hindsight, we are all geniuses. The investor who predicts market behavior correctly after the releases of big news stand to make the money. But, its probably very hard to do that.
The market, being the brain of thousands of investors making decisions to buy / sell at the same time can be very unpredictable, fickle and often both. But, the market is still the most efficient machine to determine what prices of assets should be.
This is the giant machine that I have come to respect and behold.
I used to be a hit and hope, impatient, emotional investor. And hence I have lost a lot of money. And more than what I've planned for.
But I guess this experience in losing has taught me valuable lessons, which I guess I wouldn't internalize as much as if the money was not mine or it was a substantially smaller sum.
Number 1: Be happy to cut losses while they are small. Ironic but I guess this is the most important to me. Its all about the maths, if I can keep my losses contained, I will have a chance of making an net profit at the end of the day. I try to keep my losses limited to 50-100 pips per FX trade.
Number 2: Perceiving the right risk-reward positions gives me a competitive edge. I strive to determine where supply and demand imbalances are and then leave orders at levels which I think are reversal points or, a floor/ceiling in the case of a continuing trend. Technical Analysis is very useful for this. If you ask me, circa 200 pips of an FX profit is pretty decent, or 2-4x your loss limit. You can see a few of these moves within a week in the FX market.
Number 3: Be very patient for the right opportunities. In the market, opportunities will present themselves often. I won't want to chase a price after it has gone higher because I think I've missed out on a good entry. As I said, trading is a discipline, literally.
Number 4: Take profits. 'Nobody ever loses by taking a profit'. Greed is probably the only thing which makes an investor think the price will always continue to go in his favor. In volatile markets like now, I take profits unless there is a good fundamental reason for me to not do so.
The market, being the brain of thousands of investors making decisions to buy / sell at the same time can be very unpredictable, fickle and often both. But, the market is still the most efficient machine to determine what prices of assets should be.
This is the giant machine that I have come to respect and behold.
I used to be a hit and hope, impatient, emotional investor. And hence I have lost a lot of money. And more than what I've planned for.
But I guess this experience in losing has taught me valuable lessons, which I guess I wouldn't internalize as much as if the money was not mine or it was a substantially smaller sum.
Number 1: Be happy to cut losses while they are small. Ironic but I guess this is the most important to me. Its all about the maths, if I can keep my losses contained, I will have a chance of making an net profit at the end of the day. I try to keep my losses limited to 50-100 pips per FX trade.
Number 2: Perceiving the right risk-reward positions gives me a competitive edge. I strive to determine where supply and demand imbalances are and then leave orders at levels which I think are reversal points or, a floor/ceiling in the case of a continuing trend. Technical Analysis is very useful for this. If you ask me, circa 200 pips of an FX profit is pretty decent, or 2-4x your loss limit. You can see a few of these moves within a week in the FX market.
Number 3: Be very patient for the right opportunities. In the market, opportunities will present themselves often. I won't want to chase a price after it has gone higher because I think I've missed out on a good entry. As I said, trading is a discipline, literally.
Number 4: Take profits. 'Nobody ever loses by taking a profit'. Greed is probably the only thing which makes an investor think the price will always continue to go in his favor. In volatile markets like now, I take profits unless there is a good fundamental reason for me to not do so.
Tuesday, September 1, 2009
Sentiments have changed
The market sentiment has turned for the worst. Dow now trades -160 points or -1.61%. I guess the illiquid situation isn't helping. And also some players (hedge funds story in bloomberg today?) are really putting expressing their bearish views. Dang! On hindight, my sell order at 9460 that wasn't hit really hurt now.
Buy on the rumor, sell on the news.
Just as I have expected, US stocks were well bidded before and just after the release of the ISM manufacturing and New Home Sales data. The Dow traded as high as +60 following getting stuck in the negative zone (-80 at its lowest) as European stock indices were in a dour mood earlier today.
However, it retraced all gains and went back into the red (-20) at the point of writing, as I expected. But my order to sell at 9660 wasn't touched because it just fell out of the offer price. D*mn the huge spread. I got a feeling we won't close too much in the red today anyways (> -40 pts Dow), as buyers will eventually come into the market on bargain hunting, pushing up prices in this still illiquid market.
Well, its true that with these data, the US appears to be well on the cusp of emergence of recession. But then, so is the Eurozone.
So why the massive stock sell off today? Its because of the suspicion that stock valuations are getting ahead of themselves and that we may not recover as promptly as once thought, given the high unemployment in the US and the EZ. To recover quickly, consumption needs to recover at a good pace but that remains to be seen and u/e and credit flow are the bigger headwinds.
Still, the market is trading on news day after day while waiting for more volume/liquidity to return to the market to push us out of the current trading ranges we're seeing (in FX and stocks).
Have a good day ahead!
However, it retraced all gains and went back into the red (-20) at the point of writing, as I expected. But my order to sell at 9660 wasn't touched because it just fell out of the offer price. D*mn the huge spread. I got a feeling we won't close too much in the red today anyways (> -40 pts Dow), as buyers will eventually come into the market on bargain hunting, pushing up prices in this still illiquid market.
Well, its true that with these data, the US appears to be well on the cusp of emergence of recession. But then, so is the Eurozone.
So why the massive stock sell off today? Its because of the suspicion that stock valuations are getting ahead of themselves and that we may not recover as promptly as once thought, given the high unemployment in the US and the EZ. To recover quickly, consumption needs to recover at a good pace but that remains to be seen and u/e and credit flow are the bigger headwinds.
Still, the market is trading on news day after day while waiting for more volume/liquidity to return to the market to push us out of the current trading ranges we're seeing (in FX and stocks).
Have a good day ahead!
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