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FX Update: USD close to the brink of support as US yields spikeSummary: USD weakness has extended to pivotal levels that are the bull-bear dividing line between a return to a weak USD regime and the more neutral tactical outlook if USD support holds here. Volatility remains muted, but will have a hard time remaining that way if we continue to see anything resembling the pronounced weakness in US treasuries yesterday Trading focus: Getting a grip on the US yield spike and what it means for the US dollar The most important development across markets yesterday was the steep sell-off in US treasuries all along the yield curve coming after a period in which US yields have been moribund. What are the drivers here? Is the market satisfied that US data is bouncing back strongly as evidenced in the latest strong September ISM Services yesterday (at 57.8) and that a stimulus deal looks more likely now that Trump is back in the White House and has argued in favour of striking a deal? Or perhaps the signs that Biden is pulling away in the polls is the chief driver and the argument here is that the Democrats are set to take back the presidency and the Senate, therefore paving the way for a massive multi-trillion stimulus passed in the first one hundred days of a Biden administration, taking US inflation much higher while leaving the Fed policy rate pegged near zero. The US dollar has clearly been driven by the market’s pricing of future inflation. The Biden argument seems the more plausible driver here, and US rates spiked all along the curve, but most aggressively at the long-end yesterday, with the 10-year trading above 0.75% resistance and the 30-year above 1.50%, a notable chart level. Also, the stronger the apparent edge that the Democrats are achieving in the polls, the less likely that Trump’s claims of a fraudulent election will be able to drive “contested election” uncertainty for any appreciable length of time after Election Day. In the meantime, however, if US rates continue spiking here the risk sentiment apple cart could be upset and keep the USD bears at bay – tough to tell where the balance of risks lies, but equities are stumbling in the European session today after the boost yesterday, supposedly from Trump’s quick return to the White House (at the margin, a healthy Trump through Election Day keeps the risk of election chaos at bay as well). Chart: AUDUSD The AUDUSD rally has found that 0.7200 is the sticking point here after an uninspiring RBA meeting overnight that provided no notable shift in forward expectations for policy. This has coincided with EURUSD testing the 1.1800 area. The narrative for the USD bears is that the US is set to unleash further torrents of liquidity, either right away in a last-ditch Trump administration-Democratic House deal to juice the economy and get checks in the mail ASAP, or at worst, after the election with a massive, multi-trillion new stimulus from an increasingly likely US Democrat “clean sweep” scenario. The downside trigger is rather far away at 0.7000 but is the more prominent chart point. The G-10 rundown USD – the US dollar taken to the last bits of support in a number of pairs – more USD liquidity from stimulus and rising expectations of a Biden win and the deeper negative real US rates that this might bring on a heavier dose of fiscal stimulus are theoretically USD negative, but if spiking US yields spike risk sentiment, the USD bears could be in for a rough ride tactically. EUR – EURUSD has tickled the 1.1800 level, arguably the local bull-bear line for the pair and a key for the broader USD outlook. The services PMI revisions for Europe were positive for Germany, but even worse for Spain at a terrible 42.4 as piecemeal shutdowns are threatened there. The only argument for euros is that they will hold their value because more cautious fiscal in Europe together with demographics will keep the negative real rate threat lower than elsewhere. JPY – hard to argue in favour of the yen if yields spike further, but as long as the spike is isolated to the US on fear of negative real rates, the stronger JPY story could re-emerge if risk sentiment wobbles here. So many JPY crosses resemble their USD counterparts (EURUSD and EURJPY, for example) and would expect that to continue. GBP – sterling poised for good news, which the market seems to be leaning for as we await the key headline announcing some breakthrough in post-Brexit transition period negotiations. Still have long term doubts on the height of the ceiling for sterling due to the UK’s structural deficits, but a sterling surge on finally getting the Brexit issue in the rear view mirror is likely in the cards.. CHF – nothing to report here, but watching with interest on whether yield move continues higher and drives weakness at the margin. EURCHF 1.0600-1.0900 is the limbo zone for the franc and has been since June. AUD – the RBA looking for ways to bring further easing if needed, but happy where it is at present and already hopeful that the unemployment rate peaks at a lower level than previously feared. AUDUSD has found resistance again at the pivotal 0.7200 area as noted above. CAD – CAD failed to react much to the very strong surge in WTI crude yesterday as USDCAD sits at a local tactical pivot area of 1.3250 – the pair looks passive and low-beta to the USD direction. NZD – in NZDUSD terms, we have been coiling and coiling since July – the clearest level at the moment there is the 0.6500 area, which could set up a run towards 0.6400 if the USD puts on a rally again. The AUDNZD cross is lost in the desert, but downside pressure risk towards 1.0600 perhaps weighs more as long at 1.0850 isn’t retaken. S EK – EURSEK needs a positive news in Europe and another surge in risk sentiment to punch back down through the 10.40 pivot area and suggest an end to upside risk. Right now - in limbo between recent top and that 10.40 area. NOK – a nice rebound in crude oil gives the NOK a shot in the arm and if positive risk sentiment continues here, we could see a full return to the 10.50 area in EURNOK. The CPI rise and implications for negative rates looks scary until we consider that it is mostly FX-driven as the trade-weighted NOK is some 8% below where it was a year ago even after the comeback from the spring-time lows. 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by Saxo
RidetheMacro| AUDUSD Crawls downwards 📉AUDUSD Key Points The Focus will be on the Australian Dollar this week with the Reserve Bank of Australia (RBA) expected to make a major decision on its cash rate. Additionally, the government will release its Annual Budget. As of Friday’s close, market consensus was evenly split on whether the RBA will adjust the cash rate in October or November. A 50/50 consensus usually means no rate cut. Rather than another full 25 basis point cut, it seems most market participants are anticipating some version of “micro easing” such as lowering the official cash rate from 25 bps to 10 bps this month or next. “Consequently, financial markets are now anticipating a roughly 50% chance the RBA will cut the official cash rate before the end of the year,” according to Brian Reid, Treasurer of Newcastle Permanent. For weeks, investors had been pricing a rate cut to 0.10%, based on forecasting from Westpac. But that changed last week with Westpac economists now forecasting November instead, at the November 3 meeting. until the Next time. Ridethemacro
Short
by Ridethemacro
ridethepig | Australian YieldsThe gridlock continues with CB's keeping Yields interlocked for as long as possible. An attack on the highs is inevitable if you ask me, sellers base is just not strong enough. 📌 Recession Strategy US will lead for the purpose of these flows, buyers may still make concessions and allow a retest of 0.82% lows but anything else looks very difficult. The counter-play here to the topside will cause severe damage to the economy as inflation enters back into the game. I will be doing a detailed post on inflation as there have been a number of questions coming in around how it will develop. We need to keep tracking the supply side to really get into the heart of the matter. The post is going to cover much more about the reversal of globalisation , government intervention, more protectionism, productivity taking another hammer via covid, less tech and etc and how to work with these moves.
TVC:AU10YLong
by ridethepig
1
ridethepig | AUD Market Commentary 2020.06.15For this one we are talking about an extremely disruptive swing that will continue to cause high beta FX outflows in the immediate term. The nice problem we have on our hands with this, is that we are now entering into a new long-term bullish trend for AUDUSD. So we 'know' this pullback will have a minimum flow towards the 0.650x handle before bulls have to deal with a completely new decision point. Since I considered the said bounce from the lows, a complete 5 wave sequence right on time for Fed and called live here, the strategic rule that one must now to cover and protect. In the long run, the positional struggle comes down to a struggle between USD devaluation via FED and restraining tendencies towards high beta fx. In this all embracing dance with risk, though an important strategy in itself is to remember it is only a means to an end.
Short
by ridethepig
6
ridethepig | Dovish RBNZ Pricing & Commodity Shortages📍 RBNZ formula So what are we trading here? In this position it would be an obvious mistake to not acknowledge risk sentiment worsening over the weekend as cases continue to escalate, clearly the market is exposed to the storm (that is to say the series of localised lockdowns are a done-deal, the only question remains whether it becomes more widespread). On the monetary side, the correct flow to shelter from if things materially worsen (sadly looks inevitable) is the dovish RBNZ. After the latest meetings they have opened the window for a game changer on the stimulus front coming in August (via lowering domestic borrowing costs). Consider the situation on the AUD side of the equation: Commodity shortages are entering back into play via the Covid shock which is a prelude towards the monetary crisis. Gold, Iron Ore, Copper and etc all look set for further advance; it will keep the basis for some action to the topside in AUD via collateral. Here tracking closely 0.677x in AUDUSD and 0.637x in NZD as the line in sand for the cross. Look to ride AUDNZD up towards the 1.12 macro targets. As usual thanks all for keeping the feedback coming 👍 or 👎
Long
by ridethepig
AUDNZD - ABC Correction In PlayHello traders, Australia has just moved Melbourne back into stage 3 lockdown for an additional 6 weeks. The AUD has performed extremely well over the past month due to the market pricing in an economic recovery. If other governments feel pressured to copy Victoria we could be set for a second lockdown in numerous parts of the world. This suggests the AUD may come under pressure in the near future. We are now looking to go short on the AUDNZD. From a technical perspective there is a head and shoulders set up in play and an ABC correction from the 5 wave structure higher. Any thoughts or comments please let us know.
Short
by Trading_Tony
ridethepig | GBP/AUD Outlook📍 Overview This chart comes after a conversation with @Alamakota. Brexit move played in this game was triggered in Jun 2016, you will notice on the Q chart how four years after buyers demonstrated a full retrace, before sellers rejected the highs and there we have the winning move. The UK is entering into the house of economic bondage in the ST and MT. Covid has put additional pressure on the pursuit of UK weakness; buyers were forced to flee and risks of a no-deal are rising again. As we discussed together earlier in the year in this Brexit chapter will make it difficult to conjure any reason to hold GBP and as such investors would rather avoid the unnecessary risk. The GBPUSD outlook will be also a function of how much artificial USD devaluation we see from global CB's to help keep EM alive. This makes the preferred vehicles of expressing weaker GBP clear, the connection between GBP vs EUR and JPY will be unprotected. Despite the risk associated with NDB, Downing Street have managed to get this across the line and pushed the UK into the blackhole. This "trap" in wave ii was much praised. The fact that it is a strategic goal to pump and dump the currency was not really considered by anybody. But the goal is and will remain to shake out soft retail hands and not allow any easy entries for the central knee-jerk reactions, while in the long run the crumbling continues. Risks to the thesis come from: => UK softening Brexit tone and looking for possible extensions => China-Australia trade protectionism In our case, short-term and medium-term / daily and weekly charts will come over the weekend as we dig deeper into the set-up. Hope I am wrong but looks like the UK is at the start of a difficult and costly journey. A more natural continuation is expected.
Short
by ridethepig
8
ridethepig | AUD Long-Term Macro Map We shall open the chapter on AUD with the Monthly chart and as usual work our way down towards the inner time frames. The aim for the frontal attack here comes with a double whammy from USD devaluation and Commodity appreciation. AUD buyers are aiming to carry out the deeply laid plan (although it was almost refuted after the Covid crisis) since the macro flows seemed handicapped but now the short-circuit is clear. Things will proceed as follows: 📍 On the USD side.... The key idea. All that has happened up till now was solely and simply to clear the board and unlock the pathway for large hands to get filled. Here we can prepare for the Dollar to begin its journey as planned towards the 75 and 50 targets over the medium and long term. Note that the immediate short-term outlook in DXY is still for a pullback after the latest payrolls, this will be bought as all believe things are right again.... the US had to make a choice between a higher stock market or a higher currency, this was a well orchestrated move from China & Russia right under everyones nose! How keenly the Whitehouse are to describe this as a win is very telling of the desperation! Why? Equities can continue rising and rising but what will the value of the dollar be then? The next example shows the example of how macro flows have been flanking in the background while all the masses are distracted: 📍 On the AUD side .... Expecting very little from the RBA till 2021, a masterstroke from Governor Lowe and Scott Morrison to achieve the liquidity and get borrowing costs down. A lot of uncertainty around the local macro data, forecasts reached extreme readings to the downside so any overshoots are seen as 'positive' or 'less bad'. In exemplary fashion, Lowe has managed to achieve the yield target above without bond purchases all month! Look and marvel! The usual critics will intervene and mutter something about inflation. But it is obvious that what I am admiring is not the way he conducted the rate cycle transition, but rather the performance of the AUD acting as a blockader to China / HK risk. " In Australia, the government bond markets are operating effectively and the yield on 3-year Australian Government Securities (AGS) is at the target of around 25 basis points. Given these developments, the Bank has purchased government bonds on only one occasion since the previous Board meeting, with total purchases to date of around $50 billion. The Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS. The target will remain in place until progress is being made towards the goals for full employment and inflation. " On the account that RBA avoid negative rates, then maximum pressure will be applied from AUD buyers when commodity shortages enter into play from 2021. Let us take a closer look at Copper: The point of the combination from Gold, Copper, Iron Ore will time the further illustration and lust to expand towards the 0.813x, 0.950x and 1.058x highs in the macro range. As usual we will open the inner flows with Weekly, and Daily charts before working our way into the Hourlies. Thanks for keeping the support coming with likes, comments, charts, questions and etc!
Long
by ridethepig
13
ridethepig | Australian Yields breaking out? Smells like it...I would have preferred it if Aussie Yields could have sought the break for the close last week, the decision to hold up here, rather than forcing the pass is notable that Yield curve control is really coming through. Which is an appendage to the following position in AUD: Those aiming for this macro swing position are effectively trading the artificial Fed control over USD supply side . As long as the printers are on full blast, the move from Fed towards a more lenient Yield curve control playbook will be done in broad daylight, as I have been saying for some time, they were faced with a decision as to whether they wanted a stronger currency or stronger equity market. After witnessing the Whitehouse policies being funded by Keynsian economics it is a disaster for confidence in the LONG RUN for the US. Capital is beginning to slowly migrate towards Europe and Asia. Get used to China and Russia having a larger seat at the table; hence we need to keep a close eye on Australia - China relations as the elephant in the room. What is important in the positional play is not the attack, but rather how price responds at support levels. We are wanting to only add exposure in periods of consolidation, calm waters. Do not let the loud noise and sharp spikes affect your decisiveness.
TVC:AU10YLong
by ridethepig
1
ridethepig | AUD Market Commentary 2020.05.26On the commodity currency front, looking for risk markets to reject the move quickly this week and trigger the flows towards USD. I recommended standing aside last week, and here I have been actively adding full sized AUDUSD shorts in the 0.660x handle. The healthy cleanse of USD longs in the antipodeans will make things a lot easier to trade with the next leg lower in S&P (see chart of the day below). It will immediately be clear once equities turn and the 'V' crowd are flanked that everything was not as it seemed. Sellers have to make an attacking move at the highs and defend the possible occupancy from buyers in the jurisdiction. A sustained break in AUDUSD through the 0.665x highs will remove any cover provided from the RBA panic cut. On the other side, remember we are tracking the 2's 5's curve which is signalling loudly that we are not out of the woods! This is a brutal squeeze for USD longs, a lot of pressure applied but we are reaching boiling point. Such a wilderness will not transform into a full bloomed garden despite how politicians sell it...
Short
by ridethepig
2
Long AUD/NZD, targeting 1.1000Recent developments A dovish RBNZ policy announcement has been conducive to the pair's push to a six-month high. Further monetary policy of asset purchases over negative rates was largely expected. Technical analysis The pair has given back a bit since rallying at its fastest pace since 2014 (around 7% increase in just over a month). If it can break past previous 1.0850 key level, then there should be a chance to test 1.10 or at the very least trade up the channel with ease. Primary drivers for a further move up On the fundamental side, elevated risk sentiment on the backdrop of bottoming growth in markets, as well as the continued divergence between RBA and RBNZ should support the upward direction of the pair. Policymakers have remained quite dovish, which should be risk-positive as central banks have incentive to ease rather than tighten. With that being said, the RBNZ policy stance is looking more dovish than the RBA's. We can look at both policy stances and yield curves for an indication of what's to potentially come. The RBNZ have kept the official cash rate at 25 bp, while the base of asset purchasing have been expanded to a cap of NZ$60bn. Although the market seems to be pricing in negative rates, I don't think it's likely that we will see that, given that the RBNZ effectively guided that it won't happen (at least for this year - although this could be on the cards for 2021). Why lose all credibility on forward guidance when there are other methods of easing such as bond purchasing or fixed term loans? Either way, the base case is further easing and I would look towards August and June meetings as further catalysts if financial conditions tighten. On the contrary, the RBA has stopped purchasing bonds since early May after hitting 25 bp on the 3Y; keeping the curve at the current levels should be supportive to Australia, which remains a relatively high yielding Aaa country (despite slight rating downgrade). Risks Downside risk on AUD/NZD lie in 1) narrowing policy differentials, 2) risk sentiment softening, 3) and/or a more hawkish RBNZ that would lead to NZD strength, thus pushing the pair lower. As such, targeting top end of the channel 1.1000 with a stop of 1.05985.
Long
by Miloslaw
6
ridethepig | The Elements of AUDJPYBuyers made the completion of an ABC corrective sequence to end the move with today's NY session. Europe are now leaving their desks with defensive superiority at the 70.2x highs. Next comes a test of the lows as the next customary inventiveness of swings across risk markets enters into play. The promises of a vaccine any time soon sadly look like unicorns, politicians will do anything to sell the re-open. After the preparatory manoeuvres complete at 0.650x, AUD sellers are keeping an eye on the weak fundamentals. Covid delivered massive blow to Australia, and with little immunity on the health front further pockets of lockdowns look a matter of when rather than if. Now the RBA is a bridge builder, although PBOC are in retreat and sheltering until the storm passes. It means the "Giant Panda" will no longer be on the AUD bid for the next few Months, and Quarters. AUD is surrendering the 70 handle with the close of shop today. Why? Well, because once the bid expires without breaking the barriers ahead, the lust to expand which was missing until then, is well and truly gone now. Early buyers cutting their longs into resistance, and macro players happy to park in JPY in this environment to prevent any breakup. Reassessment in the bearish view will be required above 70.2x as the nature of the move will be considered impulsive. For now expecting it to wend its wearisome way back towards the lows. It will be interesting to see how buyers flee for the close.
Short
by ridethepig
3
ridethepig | AUD Market Commentary 2020.05.12A normal move, but one which has a deeper meaning after the Chinese ban on Australian beef. Here tracking closely 0.650x resistance to mark another important high here. It is a clearly loud signal on the foreign policy side of their relationship considerably weakening, the Giant Panda (PBOC) who was once always on the AUD bid has taken cover. While Australia may be better positioned than many in terms of case numbers, it is in no way advisable to emphasise this too much. We are still tracking the same forecasts set out last month: " Inline Case - US and Europe opening in July with clear preparations for further rounds of social distancing programs that will come into play again at year-end through Q1 2021 as the virus migrates back in the Winter months. Opens up another calculated leg down in risk markets to sweep the current floor in place and early buyers It looks like we are set for a re-opening this summer and for schools in the West to go back in September. We will keep a close eye together on whether the inflows dry up, and will it be for long? We'll see. For now keeping a defensive stance, when equities roll over we will have a clearly defined swing and range in play for the rest of 2020. " Remember any hell-bent strategy on buying AUD, without taking into consideration the risks around the fallout of the West with China and their own domestic relationship will end badly. Protectionism, like a garden of weeds, will continue to force globalisation into retreat and wreak havoc! On the technical side, 0.650x is strong resistance and with US Equities S&P sitting under the 3,000 level we have all the 'green lights' for a second selloff in risk markets. I am actively adding AUDUSD shorts at 0.650x with stops above the double top at 0.660x.
Short
by ridethepig
6
AUDCAD 050520 PREPARATION FOR RBAOANDA:AUDCAD Like our FB page: PROCHARTLER INTERNATIONAL Leave your comments below. Disclaimer: These are only an idea or a point of view of what will happen in the market. Please do your own analysis and do not copy blindly. I will not be responsible for any losses if you follow the idea. These ideas are meant for sharing and learning. Please manage your risk-reward accordingly. You are allowed at any moment to leave any comments below as those comments will be taken as a learning point or reviews. Trade at your own risk and good luck. Regards: ProChartler
Short
by Pro_Chartler
1