Dollar Weakness, The Reasons it Continues
Dollar weakness is the theme. The Euro, has bounced off its lows and been in a steady climb for weeks. I think most traders felt that the market was to negative on it and even though I called for 1.2000 the move happened much quicker then I envisioned. After reaching my target, I thought we were heading to sub 1.0000 which never happened and doesn’t look in the near term cards. But why, why the total turn around? Of course I do not have the definite answers but I do have opinions so here we go,
1. The market was totally over sold. With Europe staggering under the weight of defaults and downgrades did anyone want to hold the Euro? We saw the beginnings of the undoing of the European Union (if you listened to some commentators) and if that materialized there would have been a big mess. Of course none of this occurred. People realized how foolish those thoughts were and the Euro rebounded.
2. U.S. Economic numbers are not improving. Traders and Economists go through periods of time when they look at numbers with a slant. For a while every number coming out was skewed toward the positive, now the gleam has vanished and the market is looking at things a bit more realistically. Look at U.S. Treasury yields, they are at (almost) record lows. That was the leading indicator here, Definitely. The Fed sees the problem with the growth scenario and it will not be raising rates anytime soon.
3. Corporate Profits. I actually look at these numbers and see realistic improvement. The problem here is that Corporations in the past have turned improved profits into increased hiring and improved infrastructure. To me, (and rightly so) they are increasing cash reserve in the event the economy moves toward a double dip.
4. Yield. Traders need to make money. This year (I know this for a fact in many banks) trading profits are behind budget. Hedge Fund profits are lagging and eventually everyone looks at the numbers and says “We need to do something”. This is where I think we are now (or pretty close to it). Traders need to put numbers on the books. A few weeks back I was constantly looking for the breakout. It never occurred and it cost me plenty. A trend with a positive carry is the best one to have.
5. Positions are light. So many people were chopped up in markets the past 6-8 weeks. Therefore there are no large positions on. Couple this with vacations and positions are light. Traders behind budget will be afraid of missing this move and jump in. It doesn’t have to be big, they just have to get in, and they will. The vast majority of traders are sheep, following the market rather then leading (on the desk we call them Muppets).
These are a few of my thoughts, check back later for the remainder of them.
Good Luck and Good Forex Trading.
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.
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