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On FX
Want to see a completely wrong headline? Here’s mine from seven months ago:
The “deal” that I was referring to in this piece was changed dramatically from the one that is being worked on with creditors today.The haircut on bonds has changed, and the yields on the back end paper have been reduced, but I don’t think it matters. The deal that is now on the table has, in my opinion, very little chance of getting inked. I'm betting against it.
Having been as wrong as I was a half-year ago, I’m very skeptical today. My bottom line on this is:
There will be no Greek deal. What is being discussed today will never get signed. As a result, there will be a payment default by Greece during March. By April, Greece will be forced out of the EU.
This will have significant consequences across a variety of markets, the most obvious would be in the EURUSD.
My last thoughts on the EURUSD were on January 7th (LINK)where I acknowledged that I had eliminated my CASH (futures) short EURUSD and replaced it with short Euro option positions. That call was a “half right". At the time of that blog the EURUSD was 1.2750 (vs. the 1.3115 close in NYC today). Switching from a cash short to an option short saved me a bit of money, and a few sleepless night as the Euro found a bid and made a halfway decent recovery against the Buck.
As of today I am back short the Euro on a cash basis (I kept the $ call options from 1/7/2012). I think some big disappointments are in front of us on the various problem countries of Europe as the implications of a busted Greek deal are realized.
I think EURUSD will be 1.2500 or lower (5% upside on the trade) by the end of March. A nice "tradable" move.
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I agree with most of what you say except for one logical inference.
"There will be no Greek deal. What is being discussed today will never get signed. As a result, there will be a payment default by Greece during March."
What stops them from simple ponying up with March's payments under the cover providing more time to work out the deal? A couple of big money dealers could cover the payments out of their pockets and still make a profit out of the ramp up on the forex and equity markets. Except they wouldn't have to since they own the politicians who would would provide the cash out of taxpayer pockets. Am I technically wrong about this being possible?
It is human nature to kick the can when faced with a dire outcome. If they can do it likely they will do it. Who knows, by the time the next payment comes due maybe they'll be able to teach this horse to sing.
I would add that this is, IMHO what has been happening. A little "aid" leverage here and a whole lot of FX profit there.
Greece is broke. Finished. Kaput. The math does NOT work. We've known that for the last two years. The only question is when they default and how.
Bruce would you mind writing up a piece on what the consequences will be if and when Greece does default for the Euopean and the US banking system? Say by April or May.
It does seem that the powers that be are going to let Greece go now, but have they really any idea what calamity is coming once they do! Wil
l it be as bad as some say or will it be a temporary bump in the road, you reference the Euro will just drop to 1.25, which says to me things may not be that bad once Greece defaults. Your thoughts are always appreciated.
Hmmm. I'll write that piece.
A thought to invest with that has paid me big time over many years:
Your worst fears will not be realized.
I think, if and when, Greece takes a real step toward healing, it will not result in a true crisis. That's not to say there won't be some fallout. Is it "priced in"? Not completely, but this ain't going to surprise anyone that reads a newspaper.
In my year-end bit I said the following. I'm changing the timing of the story based on how things are stacking up today, but I'm still thinking the same. It won't be the crisis that it might be.
b
-Greece will continue pretending it wants to be in the EU and tied to
the Euro, until July. Its deteriorating economy and inability to service
its restructured debt will force Greece to leave the EU and
re-establish the Drachma. The New Drachma will trade as high as 1,000 to
the dollar (800/Euro). When the Drachma is brought back (over a
weekend), the Greeks will formally default on their external debt. This
won't be the crisis that everyone fears, but it will add to the
instability in the other peripherals. Populations in Ireland and
Portugal will protest that their countries should follow Greece’s steps.
Admire your conviction but I have been trying the "ZH trade" for better than 8 months now and as reasonable and rational as the thoughts are here, it would seem that the politicians realize that they have NO FREAKIN idea what would happen if Greece defaults and thus will keep throwing money at it until they retire...that has been and is likely to be the winning bet
Logic and this market have nothing in common with government/bank interventions ALL THE TIME. I wish they would let the markets do their job and we can all get this cavity filled to stop the decay and let us move on (in a logical manner).
Hi Bruce,
Like reading your points of view. Especially your Hildebrand prediction was spot-on ! Do yo see any reasons why the Japanese are not pulling a "Hildebrand" and pegging the USDJPY at eg 100 by offering unlimited JPY ? If they wish to target inflation this would be a good start don't you think ?
I wrote about this in one of my bits. I said that the Japanese would love to do a peg. But they can't. The USDYEN plus the EURYEN cross (and some of the others) are are super gigondo markets. The relative size of these two markets has 20 times the capacity of the Bank of Japan.The EURCHF is much, much smaller than these markets.
So I say if they try a peg the Bank of Japan will be blow to smithereens. I think the Japanese are well aware of these facts. So I say no peg.
I like USDYEN on the long side. I've said that for some time. The Yen will weaken on its own weight. This country has more trouble than any industrial country today.
Oops. China just stepped in.
Riiiigggghhhtt. Never trust what China says, only what they actually do.
Bruce...open the gimlet eye...China is coming the the rescue...ES...Buy Buy Buy.
Hey..where is Jon Corzine anyway....did the MSM forget about him?
Thx for the link Kowalski - that one gets printed and taped to the wall - - -
Bruce you poor fool. You can't go around making rational conclusions based on facts - those days are over.
Greece is fine, The EU is great, and the DOW is going to a Barron's high 15,000.
Turn off your brain - turn on CNBC.
And stick with Cramer.
Top is in, bitchez.
Obama won't get beautiful USA Today Dow numbers going into November, with or without what is now a trapped Bernank's assistance.
in fact why not support the usCONgress just doing some more spend spend spend. think i saw someone point out the other day that approach will allow us to see a debt ceiling kabuki in about september (oh the election season drama, that). like voting even matters...
That is a very interesting theory. He has had it all his own way and the Republicans have gone along for the ride higher on their insider traded holdings. Now they have to really get serious, are they going to let this ride higher as their prospects tick lower?
There may be no Greek deal but death by a thousand rumors can be just as deadly. If the rumors from today 'maybe-maybe' and tonight 'China will do it' keep ratcheting up the market (never to correct), then I will have lost all my money before it all collapses
PS Bruce ... good time to short EC on China rumor (or maybe just another cut on the way to 1.35)
Hey Bruce I liked your muni write up. Saw in WSJ there is a lot of supply coming to market this month. Curious to see how it turns out.
the financial hedonists simply kill God everyday...and yet what makes God awesome is that he just breaks their balls anyways. The weather in Europe is horrendous...and in the USA we're starting the year with easily the mildest winter on record. And what i find fascinating...taking away the mega events of Fukushima, the Arab Spring and Afghanistan...here is our investing life...coming down to the weather. To God. I no longer watch the Weather Channel cuz they slit God's throat everyday now too. Sure.."they'll tell you what's going to happen"...but a simple cursory glance at history? "Go phuck yourself dumb American." If there is to be any..."beauty"...to this as it were...it is the fact that "the evil speculators" such as yourself Bruce take on the absolutely MASSIVE credit risk the bulk of so called "US banks" have vis a vis the euro and win. (Full disclosure: i'm sticking by my Seeking Alpha call of two years ago when i called the euro THE ZERO.) We do know this: THE UNITED STATES NOR ANY COUNTRY ON EARTH HAS EVER BEEN COUPLED WITH EUROPE. Indeed...what the world is discovering is that the violent unwind of the EU is in fact a very good thing! (there's a lesson in life about the difference between bad words and bad deeds--but i'll leave it to God to sort that one out as He only can of course.) Now imagine being the real General Marshal if you will...and submitted the entire US economy to the competitive forces of the entire Planet! Doesn't take a rocket scientist to see..."the few that are left are pretty darn good!"
the US fascination for God would fool any god himself. If there is a materialistically hedonist world, that has pushed resource mal-utilisation to its limits, its the US model; the one that the average Greek youth, like youth all over the world dream about, forgetting the real reality of his own dissolving world. The american dream of WS easy money and hyperconsumerism mantra, where you only eat industrial food made by Corporate USA, Monsanto et al., ARE true Gods of modern universe.
What God do you refer to? The myth in your head or the myths created by others, hundreds of them...never ending deification of man's phantasm. I leave you to it, as also its corollary, finding a scapegoat; has to be a scapegoat in this construct, the devil's disciple. In order to make the story Hitchcockian. Forgetting that if God is all-seeing, all-knowing, he made the devil as well, and, knows the end of a story that never ends. Now there is a tale about a snake that ate its tail and so goes on living forever.
If the universe were created by some universal force, its the least of our problems, as we see nothing of its footprint that we can fathom; and we, are the least of his cosmic concerns...to each his own destiny. Ours seems to be making images to fill this incommensurable gap of not knowing where we came from and where we end up. Pity we be ready in this existential void of cataclysmic consequences to kill for it in our fantasy word, all and each and every one of them who don't fit the bill, as we sing "God chooses his own". Now that makes us truly perfect in universal harmony, as a natural expression of destruction, the contrary of our life impulse, 'fantasy perfect' and animal like to boot.
My, what a morbid mood you are in, falak! Okay, I'll play along...
It is very nearly impossible for humans to fathom a universe that was created by a force greater than our own, though the force is not an all-seeing, all-knowing God of biblical lore. Just as it is impossible for most Americans to fathom true poverty, having seen no such decimation in all our lives, it is just as impossible for most humans to fathpm that their existence has been put in place, not by magic, rather by a process that continues for the infinity of time, constantly spitting out, regurgitating, then consuming itself over aeons of time of which we puny ones have no concept.
The universe is indeed your proverbial snake that lives forever; constantly consuming more of himself. His destruction is his creation.
To me, the idea that "God chooses His own," perhaps meaning, "Hey, if they can't hang, that ain't my problem," is anathema to what the universe is trying to tell us. Call me naive, call me soft, call me other names that may not sound as nice to my delicate sensibilities, but I do believe that the underlying aim- if there is one- of this endless cycle is to realise entropy in the form of love.
Only when we spirits of the "snake" (call it Gaea, call it Jesus, what have you...) move towards loving each and every other spirit that inhabits our realm will we become closer to the central form that creates without end. Only with love can we know an inkling of what ic is called God.
Perhaps the Buddha did inded reject materialism and material things but I know a bunch of monks who couldn't live without their cell phones. In other words, it comes from each one of us, from inside of us and no amount of posturing will change our true feelings. Nor will it change our relationship with the universe.
From inside out. It is the only way to purity.
:D
Funny you say that : morbid. I don't feel it at all. I have no problem with the "existential void". As I see it, those who have trouble with facing it HAVE to fill it up; and then protect that value system; whence the morbidity of seeing it being "attacked" "desecrated" by others. So I feel no morbidity, I travel lightweight through life. But I object to this prevalent morbidity that this exclusive "love" of one's own God creates. These guys sell a toxic product.
So, "love" is your driving force; you are like the early evangelists, not like the subsequent Catholic church... who even found time to hate the Orthodox church to "protect" their own construct. Hate...not love... Good for you. I buy that. In your world there is no need to kill the other for ideological reasons. No "just" war. Right? Imagine, if Orly had been Pope from 1070 onwards she would never have sung "God wills it!". The Crusader game would never have started and we would not have gotten into the mess in Christian world, over 600 years, from bad to worse, until Enlightenment. And...its still not over! Thank you for having cleared THAT deck! I'd vote for you as permanent Pope any day!
Inside Out like Buddha... Who would not buy that! Champagne and truffles for every body!
Wouldn't the Buddha defer on the victuals, though?
Oh, well, just one won't hurt...
:D
Everybody keeps focusing on USDEUR. Including this article I've seen at least 3 that deal with the EUR. But everybody's missing the play of the decade: USDJPY. The JGB and JPY on Tuesday totally flopped. Too early to make the call on JGB but USDJPY is shouting loud and clear: major reversal in the making.
Ermmm, don't get all happy just yet, Vint.
There were machinations in the yen last evening by the Bank of Japan that had very little residual effect on the market. I stated on Mr. Krasting's post the other night that if the Japanese were to intervene in the markets that now would be a good time. I am glad to say that I was right about that. Unfortunately, the bounce from that minor intervention was laughably miniscule in relation to previous moves by the BoJ.
I have already closed my long position in USDJPY. I just don't trust it to go much higher before some sort of correction amidst the psycho-babble coming out of Europe (and now China...), despite the fact that the technicals are screaming for a monstrous long position to be taken. In fact, it now appears that Japanese yen crosses will churn in this range for quite some time- perhaps even years. Dr. Bernanke has pretty much guaranteed that by promising ZIRP until at least late 2014 and it is now apparent that there is very little the Japanese can do about it. They are out of ammo and they know it. The Fed knows it, too, and while they may feel bad about their Aisan partner suffering so broadly, I don't think they mind that much.
The long USDJPY trade may be the trade of the decade but I don't think it will be in the first half of this decade. However, there is a proxy trade on the Euro that is not being propped up by any and all means necessary that will play into the second great round of deflation in the West; one that is reflected by the slowing economies of Japan, China and southeast Asia, as well as the diminshing returns of new QE money bidding up commodities: short AUDUSD.
The Australian dollar is in as much of a pickle as the Japanese yen as it relates to the domestic economy. They're damned if they do, damned if they don't. So far, Australia has been spared much economic hardship because the massive building in China has continued unabated for the past twenty years, new money has found a home in various commodities, partiicularly metals (of the precious and base kind alike..) and the domestic real estate market has rocketed in the meantime. All of this has gone on to create a wealth effect that has diminishing returns in and of itself. We can all remember what happens when the wealth effect is no lpnger a viable economic policy model.
As risk-off becomes the buzzword over the next year or so, I would expect the AUDUSD to really take it on the chin. There is no protection there, save higher interest rates paid in carry, which will also fade as the Australian economy slows. It was fully expected that the RBA would cut rates at their last meeting but they didn't. That inaction may prove to be a mistake, hastening a correction by the central bank to perhaps ease more quickly than they would like in the future. Panic ensues, traders bail. AUDUSD drops like a stone.
Or not.
:D
Felix Zulauf makes a similar argument for AUDUSD in Barrons Rountable in January
Trying to punch holes in your hypothesis... but I can't. Excellent post Orly.
Terrific post.
I'm in total agreement about the AUD/USD play. I can see that one dropping to 1.0375 quite easily. I'd look for a close below 1.0650 to confirm a move towards the 1.03 range.
As far as the EUR/USD, the upward momentum died right at the 100 day MA as I thought it would. I don't think it's going to break above it now. All the "good news" was baked in with that nearly 700 pip move up from Jan 16 - Feb 9...it's downhill from here.
Thanks, you guys. I appreciate it.
:D
Good musings above. What are you thoughts on the CAD? That sucker is nowhere near as strong as the AUD and last few weeks have simply been a battle with 1.0000. I'm naturally long the CAD (and GBP, but thats neither here nor there) because of work and i try and buy some USD whenever i see it getting out of its range and being slightly undervalued to CAD. Just not sure what to make of the recent action in USDCAD.
The Canadian dollar is closely tied to the price of oil and gasoline and is getting more closely tied every day, what with the new discoveries of shale oil popping up everywhere. As the economy of North America goes. so goes the price of gas. Right now, we are experiencing a small rebound, so the Loonie should strengthen into the summer, meaning the price in USDCAD should go down. The caveat would be "terrorist" attacks, the tensions in the Middle East and outright interventions in the markets, of course. Then, who knows? Flight to safety or play the oil trade? Your guess is as good as mine.
However, technically speaking, a weekly chart of the USDCAD shows a retracement in place back to a long-term Fibonacci level right around the 0.9800-level. A long-term base has been set up there since late September of 2009, so expect the price to be pulled into this range like a magnet. In fact, the price has already bounced off resistance of a 50% retracement between the longer-term Fibo-levels. (I know, kinda confusing...) That happened at the 1.0540-level.
The longer-term outlook may be for the USDCAD to stay attached to this range for a while, maybe quite a while, just as the USDJPY pair will kind of hover here and not do much until the US can raise rates in late 2014.
:D
Good info. Been eyeing that 98s level as well on USDCAD (and more LT the high 0.94s), on the flip side, would gladly sell back some USDs at anything 1.05s and above. Almost miraculous how much fib applies in FX, at least moreso than any other market i can think of.
Hey, zero, if you're still there...
I hadn't been following the USDCAD pair but since I looked at it today, I thought I would keep an eye on it. There is a tell here that is completely unexpected and, for the life of me, I can't figure it out just yet. It does seem quite real, however.
Today, the action in the EURUSD was inversely realted to the action in the USDCAD. The Euro tanked. The USD, not against the JPY or another currency that I am aware of, ramped against the Loonie. There are some shenanigans going on, sure (vis-a-vis the DXY...) but who cares, as long as you can find it early and play it out for profit.
I'm going to watch this, as the Euro is at a very strong support level dating back to at least mid-December of last year. A break below this level could send the USD soaring against the CAD.
Go figure!
Best of luck trading, zero!
:D
Its amazing to see geopolitical events explained through a lens of currency trading. I wonder if there is an analogy there; if I traded more often would my trading partner's cooking improve or my risotto be more al dente? I am attracted to the Fibonacci like by a magnet. The Raptors got robbed in the last second by a 3point long shot. I wonder if the CAD will lose to its US dad like a bouncing ball off court with 1.05 seconds left.
Ach! Risotto! For some reason, rice and I do not get along.
Try as I might, my risotto is not only not al dente, it is al piatto e cucchiaio!
I think I do not simmer it in a hot enough pan?
LD scenario - is still alive (meaning the TOP could already be in place) -- the sharp rally into the close today could have been Leg B of C. LD's subwaves are comprised of 3 wave moves primarily. The market would need to turn down and put in a new low below today's low. My target is 1336.
http://jeffreygtc.blogspot.com/2012/02/tuesday-february-14th.html
http://jeffreygtc.blogspot.com/2012/02/tuesday-february-14th.html
What do you expect? Greek style, you have been warned!
As Mark Twain said, it is difficult to make predictions, especially about the future. Good luck on your public call. At least you have the courage of your convictions.
I second that Coldfire. Good Luck BK, I hope you make bags of moola!
According to his blog he, BK, doesn't working the markets anymore.
Poor greek great people poor politcs, and no way you can live when you take more than you produce...doesn't work. Pay attention to that.
Break the Jan lows 1.26. Yeah I'd take that trade. Feb seasonal weakness kicks in on equities, profit taking turns to panic, panic turns to a HFT flash crash and you have a pin pong trade on the EUR with USD bids.
EUR will also be sell if emerging markets still keep buying up USD's. That's bearish. So short emerging markets (FX/equities) and short EUR
Payback
Greece had me fooled the other day. I couldn't believe the parliment voted for the austerity measures (or whatever the hell they are voting about) but I should have listened to Tyler and known Germany would want more.
Europe is crazy. The HFT boxes are drooling over Draghi's $10 trillion of LTRO/ESM/EFSF bullshit fiat confetti and it is keeping the markets liquid. So when the debt isn't rolled heads will be, but what dates are we looking for?
Obviously March 20th is the day Greece re-issues $14.6 billion, is there another date we should have our eyes on?
How about May? Best to prep now.
Here's an excellent article by the Telegraph's Andrew Lilico on whats going to happen come the Ides of March when Greece {finally} bites the dust:
http://blogs.telegraph.co.uk/finance/andrewlilico/100010332/what-happens-when-greece-defaults/
I cannot imagine that the peasantry who'd so happily signed on to the 47 week paid vacation plan including the back waxing and crack tweezing options won't be any damned too shy from wanting to dangle their noble altruistic leadership from the nearest lampoles once the inevitable conclusion of departing the EU, abandoning the Euro and reinstituting the Drachma occur.
As in WTF, why?
I can't imagine living in Greece and not having already exchanged everything I possibly could into cash Euros/dollars/gold by now.
I don't think you want a bank account full of Euros when the SHTF.
I have a vision of Greek banks with tumble weeds blowing through them while crickets chirp calmly...the safes are open and the cold empty steel chambers echo of past glory.
There is no past glory here. All is fiat. Move along...