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EOW SUMMARY: RISK THE OVERALL WINNER - US30 & SPX @ 2% NEW HIGHSEnd of Week Summary: 1. On the week we saw risk outperform safe havens for the first time since the brexit vote and the SPX and DJ30 set new all time highs by 2% and 1.2% respectively - somewhat encouraging given this was the longest period post-crisis that equity indexes have had since new highs, with a total time of apprx 1 year. 2. Given the articles attached, this week was also the first week where risk-on/ risk-off positive correlations broke down and went back to some degree of normalcy, with Gold, Yen and bonds ending the week down some 5 - although the TRY Military Coup did cause some risk anxiety late on friday and caused safe havens to par some of their losses by 1% to close down apprx 4%. 3. Drivers of the risk-on rally i must say did come as a surprise, given the relatively subdued economic climate post brexit, with little planned risk-on drivers in sight. However, it was JPY's surprise talk from PM Abe/ BOJ Kuroda easing/ stimulus speculations at the start of the week (speculations around y10-20trn) that gave risk markets some legs - despite the reliability of the claims being denied by much of the JPY Govt though there certainly is no smoke without fire. 4. The other winner of the week was USD , much of which was safe haven demand on Friday (TRY Coup) but $ strength had built through the week on the back of hawkish FOMC speak sentiment (see attached) and risk markets rallying, causing rates to also rally (UST 10y averaging +4-5%) where all have contributed to increased market confidence which has translated into higher projected rate hike probabilities for their Sept/ Nov/ Dec meetings - currently at 12.9%/14.4%/38%, which is pretty much a 100% increase in expectations on the week. - Once risk got going, given the severe depression, it was unsurprising that it did manage to run away higher - as safe havens needed a correction higher, if only in the short term. Next week Projections: 1. Given last week, and most of friday, the obvious expectation would be to expect risk to continue on the offer and making new highs - however, late on friday afternoon we saw risk-on/risk-off balance tip in favour of safe havens as the TRY Coup uncertainty increased risk-off demand. - Friday traditionally is a weak day for risk anyway as 1) end of week sellers/ weekend flat risk books cause a natural selling of risk, and a natural buying of safe havens as portfolios look to hedge weekend event risk over the two days that the markets are closed (especially as the session ended i the middle of the TRY coup). - That in mind, i was surprised to see risk even trading better than safe havens on mid afternoon Friday at all (until TRY) - with Yen falling to 106.3 and goldd down 0.9%, i was confident that we would enter Monday with a risk-on tone.
TVC:DXYShort
by QuantumLogicTrading
2
LONG DXY/ USD VS GBP: HAWKISH FOMC LOCKHART SPEECH HIGHLIGHTSFOMC Lockhart was the 4th Fed this week to imo be relatively Hawkish with his words, most notably reinforcing with the others brexits near-term stability saying "Doesn't Expect 'Brexit' to Have Near Term Impact on Economy" and " So Far 'Brexit' Reaction Largely Orderly". Most interestingly though was Lockharts view on the FOMC's positioning for future rate increases, saying "Won't Rule Out Two Rate Rises This Year" - which is extremely hawkish given most expect 1 at the most.. Back up this sentiment by insisting that the Fed is "Fed Not Behind Curve, Has Time to Decide on Next Rate Move". Nonethless Lockhart did somewhat contradict his "rate expectations" by saying "Time for 'Cautious and Patient Approach' to Rate Policy" which surely shouldn't be the case if 2 hikes are coming - that would be on the aggressive side. All in all, Lockharts comments go hand in hand with my Bullish medium term USD/ DXY view (see previous articles) - I like the USD vs EUR, JPY, GBP, AUD, NZD in the medium term so long DXY/ USD is favoured, even more so if 2 rate hikes were to be realised this year. At current levels short GBPUSD is my favourite expression FOMC RATE HIKE IMPLIED PROBABILITIES - On the likelihood of rate increases, in the past 24 hours, from the Federal Funds Rate implied probability curve we have seen rates/ probabilities firm after yesterdays "risk-break" recovery, with a 25bps September/ Nov hike steepening to 17.2% from 11.7%(Wed), and Dec setting new highs at 35.9% from 29.5% (Wed) - Dec also went on to double the probability of a 50bps hike to 5.1% vs 2.8%(Wed), giving Lockharts comments some weight. FOMC Lockhart Speech Highlights: -Fed's Lockhart: Fed Not Behind Curve, Has Time to Decide on Next Rate Move -Lockhart: Time for 'Cautious and Patient Approach' to Rate Policy -Lockhart: So Far 'Brexit' Reaction Largely Orderly -Lockhart: 'Brexit' Will Increase Long Term Uncertainty -Lockhart: Doesn't Expect 'Brexit' to Have Near Term Impact on Economy -Lockhart: Bond Market Yields Largely Reflect Flight-To-Quality Buying -Lockhart: Too Soon to Say 'All Clear' for Financial Markets -Lockhart: 'Brexit' Not a 'Leman Moment' -Lockhart: Still Expects U.S. to Grow by 2%, Expects More Job Gains -Lockhart: Economy is 'Performing Adequately' -Lockhart Says Fed Has Time to Decide on Next Rate Move -Fed's Lockhart: Presidential Election May Be Boosting Economic Uncertainty -Fed's Lockhart: Won't Rule Out Two Rate Rises This Year
TVC:DXYLong
by QuantumLogicTrading
SELL NZDUSD - RECONFIRMED BY 12M HIGHS? CPI PRINT EYED CLOSELYAlso as additional technicals to support the short NZD$ view: 1. On the daily and NU currently Trades close/ at to its +2 standard deviation lines, these are highly resistive. - Assuming NU trades mean reverting +2SD means there is a 95% chance of a price reversal/ 95% of all prices should be below the +2SD channel lines (e.g. NU highly likely lower from here). -- And as you can see by the Yellow circle highlights NU has held this +/- 2SD discipline in the past so is highly likely to maintain these levels in the future. 2. Also NU trades significantly above its 60, 120, and 250 Moving Averages on 1h, 4h, 1D, 1wk - this also signals strong overbought prices, where selling has a higher probability of success. 3. NZD$ looks to have confirmed the 0.73 12 month high level as resistance - strong pivot point. 4. The strong 100k+ print beat from NFP last week imo didnt price much into NZD$ downside at the time, however given the reaction in the Fed Funds rates market, it may be pricing now as the market now implies a 25bps hike at 5.9% Sept/ Nov vs 0% prev, 22.5% Dec vs 18.5% prev - 50bps hike 1.1% vs 0% - also the probabilities of cuts all fell significantly across the curve. 5. Risks to the view continue to be a hawkish RBNZ - as we saw last week the short played well but was undermined at 0.70 when RBNZ speaker highlighted the HPI issue and inferred the cut may not happen in Aug as a result (Hence the recovery back to 0.73). - The rate cut went from 80% to 50% on the back of these comments imo - now NZD CPI inflation and employment readings in the coming 30 days serve as the determinant of their Aug decision, a flat or miss CPI print will likely mean the RBNZ will cut 25bps (CPI is the no.1 target), so beyond the 0.73 level resistance we look for certain confirmation in the CPI reading, though it will be difficult to know what the market is thinking/ to get ahead of the market in the lead up, where the short was a giveaway before the RBNZ's new comments were on the table. - Also on this point it is worth noting that given many of the worlds CBs have shifted to a dovish tone in light of the brexit vote (e.g. RBA BOE BOJ FOMC) this indirectly puts pressure on RBNZ to cut as Kiwi/ NZD will continue to appreciate causing disinflationairy pressures/ brakes to continue on the nzd economy, thus we also carry positive upside given the worlds policy positioning at the moment. Trading Strategy 1. Sell @0.726 TP 0.702 SL 0.732 - More aggressive shorts may be added if confidence in a cut is higher - a cut will send NU down to 0.67 at least for example. *Be sure to check the attached post "SELL NZDUSD @0.73 - TP 700PIPS: BREXIT, RBNZ, FED & USDJPY HEDGE" for NZDUSD short fundamentals*
Short
by QuantumLogicTrading
1
LONG USD VS JPY, EUR, GBP: HAWISK FED BULLARD - FED FUNDS RALLYBullard is the lone Fed official forecasting just one additional rate increase, and expects modest growth over the next two and a half years. But he reiterated Tuesday he's not expecting the economy to head south. However, did go out of his way to mention a relatively dovish point "We Have Some Ammunition if We Need it During Next Recession". Nonetheless he remained hawkish net on the margin, reiterating FED Georges hawkish comments regarding the labour market "About as Good as It's Ever Been", whilst using the June NFP print to flatten any questions regarding the low May print saying "Strong June Jobs Gains Showed May Report Was 'An Anomaly'". Similarly Bullard continued with Georges sentiment of the US's post-brexit robustness stating that the "Market Reaction to Brexit Shock Was 'Satisfactory,' 'Orderly'" - and infact surprisingly pushed this hawkish brexit sentiment on to new levels of "Ultimately the Brexit Impact on U.S. Economy Will be 'Close to Zero'". This is perhaps the most hawkish/ upbeat statement i have heard form a key Fed member since the decision which is positive given Bullard's naturally dovish stance. Bullard also stressed the need for a solid US Fiscal package to boost demand, where i have to say fiscal stimulus has almost gone forgotten about in the last 7-years post crash, given the dominance of the central banks, quoting "U.S. Badly Needs Fiscal Agenda for Boosting Economic Growth". Once again todays "FED speaker tracker" continues to add to my long $ view in the medium term. Today already we have seen front end rates continue their aggressive recovery this week, with the fed funds rate implied 25bps hike probability now trading for Sept/ Nov at a whopping 18% vs 11.7%Mon, with Dec trading at 36.3% vs 29.2%Mon . 10y UST (TNX) rates trade up another 4% today after a 5% gain yesterday, whilst 30yrs trade 3% up on the day (TNY) - as global risk rallies. Whilst USD is trading a little weaker in the immediate term as it readjusts lower for risk-on USD selling, long USD/ DXY is my medium term view as we continue to see the US FOMC Rate curve aggressively steepen, which is likely to continue for the next week at least - steeper implied curve means hike is more likely - more likely or realised hikes = increased (in the medium-term) dollar strength. Further, we expect dovish/ easing BOJ BOE ECB over the same period, this monetary policy divergence compounds the long $ view against its 3 biggest crosses (hence the long DXY expression) Medium term trading strategy: 1. The best expression of this medium term USD view is long DXY - as above I hold 8/10 conviction views for a number of the heavily weighted USD basket crosses based largely on likely monetary policy divergence in the medium term (FOMC Hiking whilst BOE, BOJ & ECB ease/ cut) e.g. LONG USDJPY @104 - 106.3TP1 109.5TP2; SHORT EURUSD @1.11 - 109.3TP1 107.5TP2; GBPUSD @1.34 - 131.2TP1 128.5TP2
Long
by QuantumLogicTrading
8
BUY USDJPY @104 & SELL GBPUSD @1.33: RISK-ON, POLITICS, BOJ, BOEThe Federal Reserve's regulatory point man said work to address the lessons of the 2008 financial crisis won't be complete without better regulation of short-term funding both inside and outside the banking system. St Louis Fed President Jim Bullard may be the Fed's new super dove, but he's no pessimist, he says. Bullard is the lone Fed official forecasting just one additional rate increase, and expects modest growth over the next two and a half years. But he reiterated Tuesday he's not expecting the economy to head south. Trading Strategy 1. Given this I remain bullish on the $ in the medium term, despite this spike in risk-on which IMO is unlikely to last more than 2wks. In the immediate term I like long $yen as the best play ATM vs other expressions - with a target of 109, entry at 104 as 1) the markets have finally signalled they are ready for a recovery bull run, post the brexit risk-off/ safe haven rally - largley on the back of CB stimulus. I believe USDJPY has been the most sold risk-on asset, thus it is now ripe for buying; 2) JPY fiscal stimulus is likely to come; 3) BOJ is likely to deliver 10-20bps of cuts to its interest rate 4) we have broken the 104 "brexit seller resistance level" which has held since the vote - this break imo means we can now move to 109+ as the recovery leg before resuming lower; 5) the Fed Funds Rate curve continues to steepen across the curve but particularly aggressively in the front end (yesterday 10ys adding 5%) and as a result implied probabilities of hikes continue to rally across the 2016/17 tenors (Dec hike now 33.7% vs 29.2%Mon); 5) check the attached posts for long $jpy support 2. Secondly, short GBP$ is a trade i am closely eyeing.. I am a 70% seller at 1.32 (90% at 1.35) - short GBP rallies is the preferred trade as the BOE is likely to deliver easing in Aug that will drive us down to the 1.25 terminal rate that I have predicted - thus i am hoping we get some "poor information money" flows into GBP up to 1.34/5 going into Friday as 1) UK Political Uncertainty is eased - as Theresa May is the New PM starting Wednesday; 2) GBP buying on Thursday if the BOE doesn't cut rates, whilst I (and the market) believes an august cut is the likelihood instead, given the aggressive GBP selling these past weeks it is prudent to assume quite a large amount of money may/was be betting on a July Cut thus if this "disappoints" some of the market we could see cable trade higher to 1.34+; 3) Long GBP is the risk-on trade, so if risk holds up/ carries on rallying we could see GBP$ take us to 1.34+ - CB and Fiscal stimulus + the fact risk has been depressed for so long, i believe risk has the momentum to rally until the end of the week at least (next risk-rally then looks to 28th July for BOJ stimulus?) 3. The long $Yen and short GBP$ also acts as a dynamic hedge as the long UJ is the risk-on coverage, with the short cable the risk-off half - combining both semi-hedges your exposure, something i like to do when trading. FED Tarullo Speech Highlights - "the conditions for destructive runs that threaten financial stability could exist even where no institutions that might be perceived as too-big-to-fail are immediately involved" FED Bullard Speech Highlights - Bullard: An unemployment rate around 4.7%, gross domestic product growth of 2% and the Fed' preferred inflation gauge, the personal consumption expenditures index, at 2%. - "If there are no major shocks to the economy, this situation could be sustained over a forecasting horizon of two and a half years" - "we have no reason to forecast a recession given the current state of the US economy"
Long
by QuantumLogicTrading
RISK-ON RISK-OFF POSITIVE CORRELATION? SPX VS GOLD, JPY & UST P1The Paradoxical Risk-on/ Risk-off Asset positive correlation: 1. Risk off assets have outperformed to date, with Gold leading the gains at 28%, JPY following at 18% and US 10y treasuries Trading 16% up in 2016 - average at 20.5%. 2. Meanwhile, SPX trades 5% up since 4.1.2016 but more importantly, since 20th January lows SPX is up 15%. 3. this is significantly paradoxical, as fundamentally, Risk-on assets shouldnt trade well when safe havens do and the reverse can be said about Risk-off bull markets - Equities shouldn't trade higher. - the reason this positive correlation of both risk and safe haven assets rallying at the same is problematic is that in the long-run it is not sustainable - one MUST adjust to the downside as markets in the short-run trade as a zero sum game, liquidity is inelastic and non-infinite i.e. they cannot both keep gaining capital as there is a limit when all available liquidity is allocated. Consequently, at this point investors then have to forgo investing in one asset, if they want to speculate on another, as they dont have any new cash to invest - this is why we normally see safe havens and risk assets trade negatively correlated and price action is "seesaw" like most of the time as investors take money out of risk, for example, so they can allocate it to risk-off, as perceptions and market environment changes. Cause of the paradox: 1. An Unusual even split in investor risk sentiment e.g. in the immediate term, some believe the environment is stable enough to offer risk higher (CB easing/ support driven views), whilst others believe global risks are heightened enough to offer safe havens higher (Brexit, US election, China). Hence we see both SPX and Risk-off grow. Normally, the markets trade like herds e.g. behaviours skew to risk on or off, grouping with a strong bias to one side at the same time. This more "evenly distributed" sentiment we are experiencing rarely materialises as usually there is consensus on market risk e.g. all investors rationally agree that "now" is a highly uncertain time or the other way, given the same information is available. 2. Most likely imo , however, is that there is a short-term imbalance/ artificial risk inflation, where risk assets yet again are buoyed by central bank impetus. Following the brexit result a cascade of global CB dovishness/ support was injected into the markets providing the perfect artificial rise in equities - whilst the underlying market sentiment continues to follow the 2016 risk-off trend (as is shown by the 2016 outperformance of off (+21%) vs on (+5%), CBs have provided sufficient support to mask the risk-off bias - however it is unlikely to continue for long.
TVC:SPXShort
by QuantumLogicTrading
2
RISK ON/ OFF PARADOX CORRECTION - SHORT SPX/ FTSE & USDJPY P2 Post Brexit SPX vs USDJPY 1. One had expected risk to sell off post brexit as global uncertainty increases, given the amount of volatility in the FX markets in the lead up, this was the rational expectation (whilst VIX traded subdued). However, instead, SPX recovered 6% whilst Yen also rallied 7% higher in the days following the vote. 2. This risk-on risk-off positive correlation rally is almost unseen in markets (especially not at the 75% correlation level) as JPY and SPX positively correlate for the first time in 4 years (as below). 3. As discussed previously this is either 1) because markets are unusually evenly split on sentiment, going against herd behaviour with the marco outlook trading as a non-consensus between participants; 2) CBs have given risk an artificial boost based on supportive statements/ measures. Trade the paradox 1. Short FTSE100 @6600-6800 resistance with a 5700TP (January lows) - once artificial BOE easing rally is finished, likely near 66-800 FTSE will plummet in the medium term as 1) This underlying risk-off bias which has gone un-priced as yet (safe havens up 21% in 2016) prices - not to mention reaching near ATHs, with 10y resistance.; 2) brexit (still not priced in equities)/ Political uncertainty drags on economy and stocks - especially financials, which has a knock-on effect of corp credit tightening; 3) this structural CNH deval prices and hits UK export stocks as it did in Jan 2. Short SPX @2100 with a 1985TP - SPX at these levels looks an attractive short 1) as discussed CNH depreciation which is a macro issue for all stock Exporters to China (biggest market/ growth market) hasnt priced any revenue downside yet like they did in January (-8-13% previously). 2) underlying risk-off bias is still yet to reprice risk lower (2016 safe havens up 21% av. Gold 28%) + only 2% away from ATH - favourable short lvls; 3) Earnings sell-off likely around the corner as investors derisk/ hedge against "shocks"; 4) Brexit induced CB easing/ dovish rally likely to fade soon as it isnt structural growth and FOMC rates are recovering in the back-end (Dec Hike looms). SPX has a more conservative target vs FTSE as less brexit downside & its a structurally stronger index with growth stocks 3. Id also suggest dynamically hedging these positions with 1) Long high growth and low China revenue individual stocks e.g. Goog, FB and/ or 2) shorting GBP index or a GBP cross , lower GBP hedges any potential BOE easing rallies that the FTSE short may negative experience, and also short GBP is a solid trade to have regardless of any FTSE risk you have on the table. *See part 1 for more information "RISK-ON RISK-OFF POSITIVE CORRELATION? SPX VS GOLD, JPY & UST P1"
TVC:SPXShort
by QuantumLogicTrading
BREXIT YUAN DEVALU: USDCNH - SNEAKY FX FIXING? SELL SPX & FTSEAt the start of 2016 the PBOC began aggressively devaluing the off-shore Yuan against the USD, imo in an attempt to start the year with a competitive export:import advantage - with the aim of making 2016 a headline "come back" year for China amid the growing GDP growth and Credit bubble worries. As a result Equities across the board sold-off (-8.5% in a few days) as non-chinese Exporters globally feared that their biggest market/ growth market was coming under pressure, as the relative value of their USD exports soared, as Chinese import demand would fall significantly and as a function of the depreciation relative to the USD. Whilst the initial highly correlated move hit equities by -8.5% (7 days), however when fully priced, the CNH devaluation fears took the SPX down 13% to 1808 lows in just 12 trading days. The PBOC Deval intervention took CNH to lows of 6.7550 and low-closes of 6.6900. Brexit - Under the radar and sneaky PBOC FX Intervention? 1. Fast forward 6 months - the Days going into Brexit USDCNH traded at almost exactly the same fix as the pre-deval January level at 6.58 (blue line), then on the most volatile brexit days, the 24th and 29th, PBOC fixed the Yuan 1000pips lower to 6.6850, just above the extreme January lows at 6.6900 - Since then CNH has continued drifting lower, and now has eclipsed the shock January low closes of 6.6900, currently at 6.6960, which is now a new 6 year low. - This begs the question, did the PBOC plan this as a way to get their goal of competitive depreciation achieved WITHOUT the negative press/ market impacts that were seen in January? The answer is unknown but by looking at the Yuan prices on brexit day and the day after, it certainly looks like it - 1000pip devaluation in 2 days, thats bigger than any deval in CNH's previous history (even from January). How to trade it? 1. Imo this trade is a no brainer, given the PBOC seem happy to keep fixing CNH higher and have shown no signs of stabilising/ appreciating - with the last 6 daily candles in the green, my bets are that the PBOC in the near-term think they have gotten away with the deval, in the midst of all of the brexit effects e.g. Central Bank information flows are high, the brexit news itself and general market volatility are all acting as distractions - thus the SPX hasnt priced any of this deval YET despite it being more extreme than what caused the 8-13% equities sell off in January? - I have to admit, it has taken even me until now to realise this sly depreciation, nonetheless this trade (short Equities) is a one up on the market currently as most still havent noticed and continue to focus on central bank action.
Short
by QuantumLogicTrading
SHORT EURUSD: DOVISH ECB MONETARY POLICY MINUTES - FRESH EASING?IMO the ECB minutes were the most dovish/ clearly directed statements out of the ECB for several months. Before this, and in the past several speakers comments, sentiment has been towards the hawkish/ stale side, citing "ECB has done enough" as the main rhetoric. The June Minutes however show a renewed positioning of the ECB, where they clearly imply they are willing to take further action if needed be with quotes such as "ECB Ready to Act, Using All Its Policy Tools if Needed", and unlike BOJ Kuroda, the ECB clearly seem to have taken ownership of their poor economic ownership finally by saying " Underlying Inflation Has Yet To Show Clear Signs of Upward Trend" and "To Monitor Inflation Outlook Closely" - given that inflation is their headline goal, such comments, when combined with the above readiness to "act", makes the idea of further easing a much higher probability, especially of late where key members almost have refused to mention further action. IMO, this shift in rhetoric to the dovish/ directive side is in an aim to try and put some negative pressure on the EUR since it has managed to par losses vs the USD, whilst bleeding 12% appreciation vs the GBP. The ECB are likely trying to talk down the currency with such rhetoric, especially in light of brexit, where their currency has failed to revalue/ adjust for the negative economic impact that is coming. I see a very bearish outlook for the EUR over the coming weeks/ months given this new dovish ECB stance, much like the GBP, when a central bank wants the currency lower, that is usually the path it follows. Potential dampeners however are the fact that Draghi has before failed to deliver market expectations (Dec 2015 most notable), so unlike the GBP, the acertive nature of these dovish monutes likely have a diminished impact relatively to say the GBP. Nonetheless, i expect the ECB to continue with the rhetoric and given the appreciation/ stability with their biggest trading partners (USD/ GBP) i expect the ECB to take further action in the near term as as it stands, the EUR exchange rate mechanism will/ is failing to transmit the inflationairy pressure they need (infact the opposite) and further easing is the only way to solve this. Thus, I am short EUR from here, especially against the USD where i think it could be up to 500pips overvalued as it is, given its inability to price previous ECB stimulus (March) and Fed Hike in Dec - this short view is especially the case on the back of likely more easing + brexit uncertainties trade seemingly underpriced (vs EJ) and the new EU export inefficiency to the UK one of its biggest markets (given 12% appreciation) - Clear 4-8wk targets are the 1.082 handle in the near term, with 1.052 lows from dec last year the next aim on the back of any fresh easing/ brexit uncertainties still need to be priced. ECB Monetary Policy Minutes -ECB Minutes: ECB Ready to Act, Using All Its Policy Tools if Needed -ECB Minutes: Brexit Vote Seen As 'Important Source of Uncertainty' for Euro Area Outlook -ECB Minutes: To Monitor Inflation Outlook Closely -ECB Minutes: Brexit Could Cause Significant Negative Economic Spillovers to Euro Area -ECB Minutes: Brexit Impact Could Be Transmitted to Euro Area Through Trade, Financial Markets -ECB Minutes: Underlying Inflation Has Yet To Show Clear Signs of Upward Trend -ECB Minutes: Investors Expect Future Challenges for ECB in Sourcing Enough Bonds Under QE Program -ECB Minutes: It Shouldn't Matter Much Which Precise Assets Are Purchased Under QE -ECB Minutes: What Matters is Overall Purchase Volume, Associated Money Creation -ECB Minutes: Composition of Bond Purchases Still Matters to Investors -ECB Minutes: Health of Euro Area Banks is Key for Effective Transmission of ECB Policy
Short
by QuantumLogicTrading
1
USD/ DXY: FOMC DUDLEY & WILLIAMS - BREXIT & US ECONOMY SPILLOVER1. IMO Dudley tipped to the dovish side, especially on key inflation highlighting that it is " rising again, but still low". Other rhetoric reaffirmed much of what has been said post the brexit vote e.g. Uncertainty being the biggest factor. 2. Meanwhile, Williams was notably more upbeat/ optimistic, shrugging off the US's shock miss NFP report to instead point out that the underlying trend remains upward. He also relatively underplayed Brexit by saying his baseline view is that it will have a "modest impact" vs Dudleys sitting on the fence of "too soon to say". Further, Williams went on to underplay Brexit as a "normal global economic uncertainty". 3. Nonetheless, both found common ground regarding the "Uncertainty" surrounding the Brexit US spillover effects and "data dependency" being key for FOMC decisions. This has been the case not only between the two today but also for several members in the past few weeks/ months. 4. USD now looks to FOMC Minutes from the June Meeting for any further hints of net member direction and NFP on Friday. I expect much of the same, with bias to Dudley's more cautious/ dovish approach likely to underlie the Minutes but hopefully an outstanding NFP report to spur the USD. 5. The 30-day Federal Funds Rate futures market sold-off Fridays Hawkish gains today, with the Implied Probability of a 25bps FOMC rate hike significantly flattened across the curve, with a Sept/ Nov Hike now at 0% vs 5.9%, Dec at 13.7% vs 22.3% and Feb 2017 at 13.4% vs 21.8%. We also saw a dovish skew across the tenors in favour of a 25bps cut, with Sept/Nov probabilities increasing to 2.4% vs 2.2% Sept and 4.4% vs 2.2% Nov. July expectations traded flat at 97.6% no change. 6. Nonetheless, it was William's bias that won the day as DXY Traded well offered, up 66pips at 96.21, much of which driven by the risk-off turn markets have taken, sending USD higher across the board, most notably against the antipodeans (RBA driven), CAD (oil 4% lower) and GBP (down 2%) as BOE Gov Carney continued to provide dovish sentiment. Also imo earnings season $ demand may have started to price the index higher. 7. Going forward I expect to see continued USD strength across the board as GBP, the Antipodeans, CAD and JPY are likely to realise weakness on the back of poor economic fundamentals, brexit, and further oil falling (global growth worries - brexit/ china linked). Also I expect BOJ easing to price UJ higher in the near future which, all in all, should provide the perfect environment for a higher DXY and USD especially against JPY, NZD and GBP over the next 4-6wks for the attached reasons. End of week DXY should close up 3%+ if NFP comes in firm/ strong - 98.5 target Dudley on US Economy: - Dudley: Brexit Main Uncertainty, Too Soon to Say Impact Yet - Dudley: Investment in U.S. Also an Uncertainty - Dudley: Inflation Is Rising Again, But Still Low - Dudley: Fed Policy Remains Data Dependent - Dudley: Uncertain Outlook Means Can't Predict Fed's Next Move Williams on Brexit: - "I think the economic effects, on the baseline scenario, are relatively modest, but there still is the uncertainty about how things are actually going to play out," - "I would say that what's happened with Brexit has been just one of the normal uncertainties that always occur in the global economy and things that we just have to take into account," - On the poor US Jobs Report - "the underlying trend continues to be good, continues to be above trend and continues to show that the economy is strengthening and not weakening,"
TVC:DXYLong
by QuantumLogicTrading
USDJPY: 4h viewUSDJPY has tested the Brexit key level, and is currently fighting the monthly uptrend mode, which if it is broken down, could lead to an extended decline in this pair, a very dramatic one at that. I'm short from yesterday's high give or take, you may enter here if you didn't short at resistance, and use stops at least above yesterday's high, if conservative, over the 104 handle. Refer to the related idea for more information on the big picture in this pair. With the BOJ already at the rope's end, when it comes to easing, JGB's at record low yields, into negative territory, and a risk off rally strengthening the Yen and Gold, I don't think we have much risk in long Yen positions for the time being. At the very least, it'd be a good addition to a balanced portfolio here. Check out my updated track record here: pastebin.com If interested in my trading signals, or in personal tuition, contact me privately. I'm offering a considerable discount on a packaged course which includes access to my private trading signals list for a year. Cheers! Ivan Labrie Link to Tim West's chatroom: www.tradingview.com We discuss setups like this often there. Feel free to stop by and subscribe to his indicator pack. If you have any questions ask. Risk disclaimer: My analysis is provided as general market commentary and does not constitute investment advice. I will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Short
by IvanLabrie
2
USDJPY - Long term Long IdeaThis is a Monthly chart of USDJPY, this one has caught our eye the most as it has broken out of a major long term downtrend back in 2014 and since hasn't looked back until now, this lines up perfectly as a potential value zone where big money may look to step in. Technical Reasons: 1. Break and retest of a monthly trend line as support. 2. Key area support of 102.000 3. Fibonacci retracement 0.5 4. Bullish trend from 2012. 5. RSI is in Oversold territory. Some potential positive Fundamentals for this trade are: 1. YEN - BOJ may want to cut their rates or introduce more stimulus as a strong YEN (Due to potential safe haven status) is totally against what the Bank wants. 2. DOLLAR - FED 'May' hike their interest rate but its unknown as to how likely this is.
Long
by ZenTrader108
$GBP v $JPY Unfolds Into Geo; Eyes 66.9 | #BOE #BOJ #brexit $EURSYNOPSIS : 1 - Fundamentals turn against $GBP; BOJ can't control strengthening $JPY: Net Bearish for $GBPJPY, expecting the strengthening #yen to carry a longer shaping effect in the overall geometry, as opposed to a weaker #pound 2 - Predictive/Forecasting Model is net bearish with TG-Lo = 87.772, TG-Lox = 66.900, WL = 38.992 in decreasing probability 3 - Background geometry develops internal pathognomonic of the Geo with reciprocal ab = cd symmetry in line with "Model" lowest qualitative target, TG-Lox 4 - Point-3 of Geo may represent Point-5' in current construction; Favors Point-5' - If so, apply Rule #2 of Geo's compesatory rule, making Point-4 the higher probable reversal target, itself a firm historical R/S level 5 - Invalidation occurs if price BACA > 163.895 handle Best, David Alcindor, CMT Affiliate #227974 - Alias: 4xForecaster (Twitter)
Short
by 4xForecaster
BREXIT AND GEO-POLITICAL AFTERMATH: BUY USDJPY - HOW TO TRADENow that the Brexit risk has been realised the mentioned pairs above will share some correlation this week as the market changes between risk-on and risk-off as MANY on the events continually drive the sentiment shifts. My Plan & Expectations USDJPY 1. My conviction for UJ is long 8/10. -UJ traded to lows of 98.9 in the midst of the brexit hype, as the market hunted for risk off. Further, as with GBP it seems entities over the weekend have increased their JPY exposure to account for the increased percieved risk within the market causing UJ to open lower at 101.6 - However, over the weekend the BOJ had a meeting with other Japanese officials to discuss their plan (an easing plan likely) to combat 1. their inflation problem and now 2. the JPY's safe haven demand strength - both of which are cured by 8/10 aggressive easing policies by the BOJ - Thus I expect the BOJ to hold and emergency meeting this week announcing these changes to have immediate affect as UJ at 100 severely puts the brakes on their inflation growth target. - Further, as previously mentioned the BOE, SNB, FOMC and ECB (among others) have all said since the brexit vote that they are prepared to provide liquidity to markets and their rhetoric has been very dovish. - Thus the BOJ's new easing package which is likely to be aggressive e.g. 20bps rate cute and a large increase QE, will help depreciate the currency through increasing supply and reducing jpy demand. Further, the supportive/ dovish stance of the worlds central banks (particularly BOE and FOMC) will help ease risk aversion which in turn SHOULD reduce JPY demand therefore helping UJ trade better to the upside. So my trading plan for UJ is to buy at levels <102 - 101/2 is ideal (we are unlikely see 99 or 100 again as the risk-off impetuses have died). UJ should hold this range between 101.2 and 103 until CB meetings are in place - I will be holding UJ in the long term through to 110-115 at least. I have 8/10 long conviction for UJ Volatility update: Current UJ ATM 50 delta vols trade at 37.5%, which is surprisingly 3-4x higher than it was last week (the risk and volatility may not be over). 1wk UJ ATM 50 delta vols trade at 20%, significantly lower than current at 37.5% - I think this is a function of the central bank meetings expected this week which are inflating current volatility, with 1wk far vols lower as the events will have elapsed already. 1m UJ ATM 50 delta vols trade up on the week at 15.5% though the time curve is flattening meaning UJ vol is falling over time - lower vols = better conditions for UJ buying. Current UJ Option demand is skewed significantly to the downside, with Puts 40% vs calls 36% thus puts are in demand by about 10% more than calls - this supports nearterm risk-off views (RR -4). USDJPY as a measure of market risk. I still suggest using UJ as a measure of GBPUSD market risk - the volatility seemingly isnt over, and with near term uncertainty high, it is prudent to track UJ and use breaks of its 101.2-103.2 range as signals of net risk on or risk-off commitment .e.g. UJ higher risk on (jpy selling), UJ lower risk off (jp buying). The risk off move for GU imo is lower in this environment, and the risk-on move is higher. Thus, IMO UJ and GU are sync'd, and the two should be used as a tool.
by QuantumLogicTrading
1
BREXIT & GEO-POLITICAL AFTERMATH: SHORT GBPUSD - HOW TO TRADEGBPUSD - At the end of last week GU traded to lows of 1.32 on the brexit vote, before retracing substantially to 1.39 by the end of the day. - GU retraced 600-700pips after the brexit event IMO solely as investors took profit from their shorts (which causes buying) - thus there was no structural reason for GU recovering e.g. it was that 1.32 had mispriced GU too low for the brexit vote. On the back of this I expect the following for GU this week: 1. I have a 8/10 short conviction on GU and ultimately believe it will trade <1.30 by weeks end for the following reasons: - - As on friday, the bearish movements we saw on GBP were 90% fast money trades and NOT real/ slow money positioning (due to different regulations and trading strategies) therefore, this week, slow/ real money will now be able to get behind the short sterling move thus providing momentum for GBP to move lower and sub 1.30. *Fast money is hedge funds and slow money is asset managers* - David Cameron UK PM also resigned following the result, thus putting further downside expectations on GBP in the near-medium term particularly as it as all come at once. - Also the BOE plans to increase its QE by 66% 350bn to 600bn to support markets but this printing increasing GBP money supply affect puts downward pressure on the GBPUSD. - Further, members of the European parliament have asked and put pressure on the UK to make their exit faster than previously expected, this puts further uncertainty around the brexit and increases the negative impact it may have on the economy and therefore the GBP speculation is made further bearish. - As pictured I had expected the 1.356-1.382 range that had held at the end of last week to hold for the next 24hrs and for GU to trade relatively flat (24hrs for people to make decisions on positioning) however it looks like corporations and other entities have derisked their GBP exposure over the weekend hence we opened 300pips lower at 1.342. - With this range broken we now trade in no mans land, thus with all the negative biases my target from now is for GU to drift towards the lows set from last week for now - If the market changes significantly within the next few hours (e.g. trades back into range) i will update this view. - My target for GBP is <1.30 with a terminal value of 1.25 within the quarter - though i consider that the supportive (no hike) policy of the FOMC will ease GBPUSD losses somewhat. This in mind shorts at these levels are fair 1.34. Alternatively, I also encourage my favourite tactic of shorting/ fading any GBP rallies to 1.38/39 however the chance of GU realising such upside imo is only 50%, with bid trading dominating Volatility update: Current GU ATM 50 delta vols trade at 25%, which is surprisingly 2x higher than it was last week (the risk and volatility may not be over). 1wk GU ATM 50 delta vols trade at 30%, significantly higher than last week also. However 1ms trade 20.49% and are significantly lower than they were last week (illustrating the event risk that has elapsed). Current GU Option demand is skewed significantly to the downside, with Puts 27.5% vs calls 22.5% thus puts are in demand by about 20% more than calls - this supports current short views (RR -5). 1wk GU demand is also skewed in favour of downside coverage, with puts at 33% vs calls 28%, (RR -5%) with puts being demanded apprx 3% more than calls - supporting the near terms view of short GU USDJPY as a measure of market risk. I still suggest using UJ as a measure of GBPUSD market risk - the volatility seemingly isnt over, and with near term uncertainty high, it is prudent to track UJ and use breaks of its 101.2-103.2 range as signals of net risk on or risk-off commitment .e.g. UJ higher risk on (jpy selling), UJ lower risk off (jp buying). The risk off move for GU imo is lower in this environment, and the risk-on move is higher. Thus, IMO UJ and GU are sync'd, and the two should be used as a tool.
Short
by QuantumLogicTrading
3