Random Thoughts
It is a quiet start to the week with the Labor Day holiday. Interestingly the market is little changed from where we left it on Friday. Is this the bottom? Or mearly a pause before another move lower for the Dollar? We are currently at support in Usd/Krw (1170-71) and India 46.70-75. The rest of the region has taken its cue from these currency pairs and as such remain in line. I have always been better off thinking medium term and as such I see this price action as a Pause and not a Bottom.
Speaking to friends in Equities they have continually spoke of large M&A’s going on. This is very positive for the equity markets and should translate to Emerging Markets.
Trends. Most traders that I know are behind budget this year. This is at large banks and HF’s. As such traders will try to latch onto something going into the 4th quarter of the year. The trend seems to be a weaker Dollar. Ranges have been realatively tight. Coming back from vacations I can see new short Dollar positions being put on.
Euro. This is a bit tricky. I perfer to sell rallys here AGAINST Emerging Markets and not Dollars.
Patience is very important now.
Good Luck and Good Forex Trading
Housing Prices Stumble
In another sign that the economy is not preforming well Existing Home Sales fell to the lowest level in fifteen years. The market was expecting a weaker number but the extent of of this fall certainly surprised participants. One reason given is the ending of the Federal Tax Credit which expired in April. I still think we have another leg down in prices. In my town prices are down about 20% from the peak. At this level sales initially picked up but after talking to local real estate agents it has once again leveled off. Of course it is very difficult to pick the bottom of the market and if I was in the market for a home I would not hesitate to purchase one at these levels. This, as I feel in 10 years prices will be higher. I think what is holding back Home Buyers is Fear and the lack of stability in the Job market. If people have jobs they will spend.
Outlook
I continue to look for range bound markets for the foreseeable future, with Asian Emerging Markets taking the biggest hit. I prefer to be short Dollars and Short Emerging Market currencies.
Good Luck and Good Forex Trading.
The Fed Delivers
The FOMC statement came out today and the Fed said it would reinvest the proceeds from maturing securities back into the market. Therefore this will stop the flow of money out of the Economy.
The central bank will reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting today in Washington.
This sent the Dollar falling and Stocks higher. Emerging Markets preformed well initially but reversed direction toward the end of the session to close near the highs of the day.
Overnight the Dollar rallied as traders took risk off before the announcement. Positions were light this morning and I think initially after the announcement traders tried to reinstate short Dollar positions. I agree that the Dollar should move lower against the Euro (hearing stops building above 1.3240-50), but against EM I am not so sure. We saw strong Dollar buying from a variety of sources against Asia, and C3. I will not fight this but I will proceed with caution. A weak Dollar makes sense but against what is the question.
On the contrarian view is what I am hearing from people living and working in the region. It is booming! Restaurants are filled Bars are packed and people are spending money. This is why I am preceding with caution.
Posititons
Long Usd/Krw
Long Usd/Idr
Short Euro (very short term play)
Good Luck and Good Forex Trading
So we had a Slow Day
With the combination of a Singapore Holiday and the summer season the markets were extremely quiet today. In spite of this the Dollar felt bid all day although there really wasn’t a lot of movement.
India. 1mth range 46.24-46.38. We once again stopped short of the 46.40 level and it is clearly becoming the key breakout level. I do think we will break out higher.
Korea. 1mth range 1161-65. On Friday locals were paying offers at the close (1159). Today there was steady buying of Dollars all day. At the close Locals were once again buying Dollars. Key level is 1165, I expect we will break above this level tonight.
Indonesia. This currency has been a lagger. I think the market is short Dollars. I am concerned that we could have a short squeeze here. This currency is very illiquid and has been trading with a very narrow bid/offer spread (due to the lack of movement) for the last few weeks. If the Dollar breaks higher like I anticipate this currency pair could move.
Euro. This currency traded heavy all day. I think this is some consolidation before another move higher. Although I think we are going to move lower first the bigger move is higher so I prefer to buy dips.
Last week everyone was waiting for the Employment number, today talk was of waiting on the Fed statement later this week. More QE, I think the market was expecting that. If it doesn’t come and the statement, although more bearish doesn’t mention more QE I think the Dollar will (temporarily) benifit.
Good Luck and Good Forex Trading
What am I Missing?
So am I the only one? The Employment number on Friday was a bit (at least) disappointing. What made it even more disappointing is that the “whisper” number was for a better number. The price action was for a weaker Dollar. This makes sense. That is the trend and a weak U.S. Economy should equal a weak Dollar. But what took me by surprise was the reaction of Asian Emerging Markets. At first they weakened (makes sense) but then gradually they recovered closing near their strongest point of the day. Even when stocks were at their weakest the Dollar (against Asia) was unable to gain any ground. This surprised me as I think most people were short Dollars going in and more importantly Fundamentals. Asia is an export economy, the U.S. is an import economy, if we are not buying then Asia should slow also and as so their currency’s should weaken. So far I have been wrong but I think that this is temporary and a reversal will occur. BUT, (there is always a BUT) remember the trend…..WEAKER DOLLAR. We went into the Employment number short Dollars on Friday. Although we cut down slightly, we are still positioned that way. I think cutting down on Dollar shorts against EM is appropriate but I do not see a reason to go long at this time.
This week will be interesting. The Fed have a meeting and no change in the official rate is expected. What will be closely watched will be the statement.
“U.S. central bankers said in June that more monetary stimulus “might become appropriate” if the economic outlook “were to worsen appreciably,” according to minutes of their meeting. Chairman Ben Bernanake said last month the Fed may at some point maintain stimulus by reinvesting the proceeds from maturing bonds.”
“I lean toward a result where the Fed talks about reinvesting mortgage-backed securities runoff at next week’s meeting but decides to wait six weeks and see what the economic data bring,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “The economic recovery downshifted in May but activity is absolutely not hurtling toward a double dip.”
The Fed has recently been hedging on the strength of the recovery. With this very weak employment report I can see them once again buying securities. Certainly rate rises are not anywhere in the near future. As I have previously written, employers are squeezing more out of present employees (employees are happy to comply as they like the extra money and don’t want to lose their jobs), so a positive change in employment seems like a long shot.
Trades.
Short Euro. For some reason the market has gone from the Euro dissolving six weeks ago to talk of 1.4500 in the next few weeks. I think a long Euro Bias is correct. The market is currently focusing on the U.S. problems and as such we should see a higher Euro.
Emerging Markets. I am torn here, so I am hedging my bets. I like Asia out performing Latin America.
Flows. We saw Dollars sellers in our office, others only saw Dollar buyers. I think this shows the difference of opinion going on currently. Although I said above that we are core short Dollars I will be steering us to a more neutral position over the next few days.
Click Here to read the article on Bloomberg News.
Good Luck and Good Forex Trading.
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