5 Reasons for “Risk On”
So today was a Risk On day. Amazing. Today reinforces my view that we are in for a weak recovery and are in the midst of range bound trading with a bias toward Emerging Market strength. Here are my 5 reasons why:
1. The Administration will do everything necessary to keep the recovery, no matter how anemic it is. Lets face it there is a lot invested in getting the economy moving. Mostly getting reelected.
2. For the last few months traders seem to me to be looking for the breakout trade. It has not come. Either on the topside or the bottom. I have be seeing less evidence of traders looking for the breakout. Rather it seems the market is trading the trend and not fighting it.
3. Flows, They have mostly been Dollar sellers. Rate rises in India, Korea, Malaysia, Brazil, Chile…… have all been well received. Increased rates means higher Yield (see #5) and it shows that the Central Banks are not afraid to move when the time is deemed right.
4. Euro, Very Very Very bid. It seems that no one cares about stress tests and Greece debt and a Portuguese credit downgrade. Everything now is Euro positive. Probable because it was just over sold, but for now the market views all news (well at least most) in a positive manner for the Euro. I think there are still a lot of Euro shorts out there (and a few more attempted everyday) so a further squeeze is in the cards.
5. POSITIVE CARRY ! There is no thing like it and during quiet times ( vacations? ) it is an easy trade.
Good Luck and Good Forex Trading
A Slow Economy, It sure looks that way.
There was an interesting article on Daily Finance today. It gives six reasons why the economy will grow slowly. I agreed with him before I even read the article, sadly I see very little sustainable growth. The numbers do not lie. A tremendous number of people are un or underemployed. Will this be changing anytime soon? How? Big business is adjusting to a lesser workforce. Small business is struggling under a lack of credit. To drive the current economy I think it is vitally important to foster Small Business growth. Right now I do not see it happening.
To read the Article on Daily Finance CLICK HERE
Good Luck and Good Forex Trading
What goes up must come Down
Another roller coaster week for the markets. Stocks gave back a large amount of their gains on Friday and in the worst way possible for me, in one big move. Combine this with the Emerging Market FX markets which have creeped to the topside of recent ranges (and in some cases broken out) and I think caution is the best way to proceed. The reason for caution is that breakout have been few and far between. Really we are in a range. A big range, but still a range. Lets take a look at a few of the markets;
Korea-1196-1218 was the basic range for the week, closing at the top. for the last few days the market bounced between 1196-1205, so closing up here might be a breakout. I bought on the break of 1205 but went home basically square having sold at 1218 at the close on Friday (others reaching so that they could go home square I would assume). Korea recently raised rates and I would think that is it for now so I do not see a big break to the topside as long as stocks do not crumble. I prefer to trade this from the Dollar long side.
India-46.80-47.30. Once again we closed near the high with the breakout level being 47.15. Very good support at the 46.80 level from locals and the offshore players. India has recently raised rates and I expect another one this month and then a pause.
Indonesia-9025-9130. Although this was the range the majority of the week the market was 9050-9060 with little to no trading. The market closed at 9115-9130. This currency, in relation to the rest of the region has lagged and we could see the Dollar move higher even if others stay stable.
China- The currency which was the most talked about, is now the least. With the once off revaluation off the table and the introduction of two way risk very little goes through the market.
Euro- Rally! This move took me totally by surprise. Clearly the market felt it was over sold and that all the bad news about the region was out. But more importantly I think it had a lot to do with the Chinese situation. After the Chinese introduced two way risk the G-20 took place. I suspect that the Chinese laid it on the table and told everyone, If you want a stronger Yuan then keep the Euro bid. Reality or perception, it is happening.
Good Luck and Good Currency Trading.
Poll of the Week
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Does the Rally have Legs?
So does this rally have sustainable legs? I am really not sure. Watching stocks collapse 10 days ago certainly had me glad I am basically sitting on the sidelines. Then we get the ensuing rally had me rethinking my decision. Certainly one of the things in the favor of a sustained rally would be Hedge Fund returns. Currently they are lagging for the year. Portfolio managers that I talk to are very interested in sound ideas on the markets. Most are reluctant to spend premiums or put on negative carry trades. This signals the potential for further Emerging Market gains. On the other hand the struggle that Funds are facing is similar to what Banks and other financial institutions are having. As such I think they will be quick to pull profits off the table This is what I think we saw ten days ago. Stocks trading sideways, trouble in Europe and weak economic numbers coming out of the U.S., left traders with the initial thought of taking positions off the table. Why we rallied back I think shows the total lack of conviction on the market.
Asia seems to be leading the way. Singapore has once again raised growth forecasts (third time) and China continues to try to slow their growth. In Latin America, Bank Itau surpassed Goldman Sachs in underwriting in Brazil. These things lead me to think that the rally might last, BUT I will take a cautious approach to it as those sudden selloffs are unnerving.
Good Luck and Good Forex Trading
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