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Near-Term FX Views and More
The US dollar extended its gains against all the major currencies and most emerging market currencies over the past week. The ECB's asset purchase program was a key driver, but the euro, though it fell a little more than 5.5 cents from the mid-week high to Friday's low, was not the weakest of the majors. That distinction goes to the dollar bloc.
The New Zealand dollar lost 4%., encouraged by a soft inflation report. Next week central bank meeting will likely drive home the point that the tightening cycle is over. We suspect the next move will be a cut. The Australian dollar shed 3.6%. Expectations for a rate cut as early as next month are growing. The Canadian dollar lost 3.4%, spurred by the Bank of Canada's surprise 25 bp rate cut.
Given the price action and the long anticipation of the ECB's asset purchase program, we had thought there was a reasonable risk of a sell the rumor buy the fact type of activity. This did not materialize. Instead, the ECB's decision accelerated the existing trends: European stocks and bonds moved sharply higher, and the euro tumbled. The euro fell to $1.1115 before a modest short covering bounce lifted it back to almost $1.13 before the weekend, which is around where the lower Bollinger Band is found.
With the Greek election likely to be inconclusive in the early part of the week and the Italian presidential election process just beginning, political uncertainty is set to intensify. At the same time, while the FOMC statement is unlikely to change substantively, other economic data, including Employment Cost Index and Q4 GDP will likely show the continuing strength of the world's largest economy. Our fundamental analysis continues to point to a strong dollar and a weaker euro.
However, the technical indicators are still urging caution. The RSI and MACDs are stretched. The Stochastics did not confirm the move to new lows. A euro bounce toward $1.14-$1.1450 will likely be seen as a new selling opportunity. On the downside, the $1.10 area offers psychological support, but the low from 2003 near $1.0750 is the next important technical level.
The Japanese yen was the strongest of the majors against the dollar and was a little softer than flat. Despite repeated tries, the dollar was capped just below JPY118.90. The RSI leaves room for a further dollar pullback though the MACDs are trying to turn. It is difficult to get excited. We have often suggested that the dollar-yen pair is mostly range-bound. When it looks like it is trending it is moving from one to another. Since the middle of November, the dollar has been confined to a JPY115.50 -JPY121 trading range with few exceptions.
The weakness in the euro dragged sterling lower. It slipped below $1.50 for the first time since July 2013. There is a small bullish divergence in the RSI, which did not confirm the new lows at the end of the week. Even though the short euro positions are extended, we suspect that the political uncertainty there makes sterling the better candidate than the euro to try to pick a near-term dollar high if that was one's inclination. Initial resistance is seen in the $1.5080-$1.5120 area.
The dollar's high against the Swiss franc since the SNB's unexpected removal of the currency cap is just below CHF0.8840. A move above there could spur a move toward CHF0.9000-CHF0.9150. Support is pegged near CHF0.8500.
With the risk increasing of a rate cut by the Reserve Bank of Australia as early as next month, the Australian dollar broke below $0.8000 for the first time since 2009. It was like a small dam bursting (not a big one like when the SNB abandoned its cap). The Aussie fell almost to $0.7880 before stabilizing. Technically it is overextended. It finished the week well below its lower Bollinger Band (~$0.7985). On a medium term basis, we remain bearish. However, we suspect new shorts may be at a disadvantage.
The Canadian dollar is also over-extended. Technical indicators do not appear to be signaling an imminent top for the US dollar. The US dollar pulled back in response to the stronger than expected Canadian retail sales and the tick up in core CPI. However, that pullback was seen as a new US dollar buying opportunity. Some consolidation is likely near-term. Initial support is seen in the CAD1.2360 area.
While US Treasury yields are often seen as driving other rates, in the current environment, it appears that the sharp declines in European bond yields are giving US bonds a bid. The Federal Reserve statement is likely to be mostly the same as before, recognizing that it can continue to be patient. However, if the FOMC is going to prepare the market for a hike around the middle of the year, the March FOMC meeting, which is followed by a press conference, will be more important.
The large jump in US oil inventories and reports suggesting that some countries have boosted their output (apparently more than offsetting the loss of a couple hundred thousand barrels a day from Libya) will likely keep prices on the defensive. There has been a choppy consolidation over the past couple of weeks. This is helping to alleviate the over-sold condition, but there is no convincing technical sign that an important low is in place.
Observations from the speculative positioning in the futures market:
1. There were three significant speculative position adjustment of more than 10k currency future contracts. The gross short euro position grew 14.1k contracts to 232.7k. It has risen by 50k contracts since mid-December. The record was set in mid-2012 at 251k contracts. Speculators covered 16.1k gross short yen contracts, leaving 104.4k contracts still short. The net short yen position of 77.9k contracts is the smallest since early November last year. The speculative short Swiss franc position was nearly halved to 18k contracts (from 31.3k). It is interesting to note that the net speculative position remains short 9.8k franc contracts.
2. Despite the seemingly universal bearishness toward the euro, the gross speculative long position of 52k contracts is bigger than the gross position of the next two largest combined. The speculative community has 35.3k gross long sterling contracts and 26.5k gross long yen contracts.
3. The speculative net short sterling position of 37.1k contracts is the largest since July 2013. Since the end of October 2014, the gross short position has doubled to 81k contracts.
4. The net short speculative US 10-year Treasury futures position was reduced to 146k contracts from 182k. This was a function of 37.5k new gross long contracts (to 376.3k) and 1.5k new gross short contracts (to 521.9k).
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...."some mocked me......others insulted me"........
messiah complex much?
Take a break.
If we learn just one lesson from all this it is that we aren't in the club. When FX trades suddenly go bad it will be because we weren't forewarned but others, those in the club, were. Why play in that space at all if it is so rigged?
The solution is not all that hard. Gresham's Law tells you all you need to know.
thank you zh for all the schooling. between the articles and commentary, i have learned more about financial markets than from any other source.
it may sound funny but i think college kids should be required to read zh every day. some will learn, others will be part of the fsa anyway so f them
I often wonder when my stops will get clobbered as happened with CHF. I expect there will be a lot more currency devaluations as months pass.
the dollar is doomed and the bilderberg's are behind it.
http://www.covert.co.nr
Crikey. Financial Doom porn like this would be better if it had more finance in it. Bilderbergers are just a bunch of people trying to make sense of a frequently senseless world. I wish them luck. You, covert, I wish would post youtube clips direct rather than hide them in a forum.
Put your money where your mouth is.
Cover the new margin requirements, and watch the usd tank. The banksters are getting hammered this time.
The ultra levered / Art Cashins are getting called. They trade 5:1 f/x levered 5:1 tripple levered "fanny May" derivitives.
Art has no safe home. UBS or any other bank is under my scrutiny. For Fucking Ever!
People like Art Cashin make me laugh. If we took the absolute value of your trades and rehypothecated them.
I'm guessing 100:1 ratioes.
So that $18 Trillion in debt will become $36 Trillion and nothing bad will become of it?
Weimar Germany was such a success, and bailing out corrupt banks the solution to our problems?
Where is the analysis of right and wrong - as should be in any conversation of human activity?
Reading your missives I would think I should max out the credit cards, rob a bank, and throw care to the wind as long as I felt I was in the right while saying I was dispassionate and speaking only of analytics and numbers on the backs of babes and senior citizens.
The dollar-yen pair is range-bound. Since the middle of November, the dollar has been confined to a JPY115.50 -JPY121 trading range with few exceptions.
This calls for a range bound strategy. Buying the lower support and selling the upper resistance taking profits as the pair trends from one area to the other and leaving positions on from both sides. This is a time when a USA Forex broker is a liability because of lack of hedging.
usd/jpy can't find a home. I'd say as the $usd corrects, usd /jpy might go 111-113 level
Color me retarded
MTM, I think you know I'm correct.
ZeroHedge. The leeche/progenitor, of financial(scumbag banker) prowess. Bitchez
Be Gee Bus. Okay
Scumbag .gov parasites/
I'll bet, the Mark to Falacy Trafic is up this week.
Mark
I want this to be a productive thread. I think Mark To Market is financed,(subsidized) and I have a problem with that.
Mark To market isn't unbiased, and is selling product without a label.
I sell nothing. My commentary is available for free. I have not advertisements on my own blog.
But I agree I am biased. It is called analysis and constructing and argument. I have views. I marshall evidence. I sometimes point out problems or contradictions in others' arguments. Guilty as charged.
Selling product without a label? How about selling product without anyone even knowing his name? Tyler Durden... I'm buying shit tons of gold tomorrow, but I'm just sayin'... If someone is selling, that means they think it's worth less than you think it is. I think Tyler Durden is right, but you have to admit he's one hell of a gold salesman. Mad respect to him, though, no doubt.
EUR/USD is going back down to 111.18
I am curious what the overall economic conditions, employment participation rates, part-time vs. full-time employment rates, marketable job classifications (Not bartenders, waitresses, 'hospitality', 'leisure' and Obamacare-cum-GDP growth), median incomes and $Debt levels, the last time the United States enjoyed a $DX of 100 or higher for any sustained period of time...?
Good point.
Being on the ground in the U.S. I can tell you 90% are struggling and pissed off.
Many don't know why or at who, but a growing number are figuring it out. When America wakes up it will be something to behold; it is going to be a shit-storm of epic proportions that no number of Police or Soldiers can contain. There is no will for a war with Russia or anyone else.
This whole Swiss Franc debacle just says to me "don't ever be a currency trader.". Dear God these are huge losses!
And I simply cannot fathom having that much money let alone losing that much literally " in an instant."
I think at a professional level that's what interests me the most. (Not that I am a trained "professional"....know people who are and find it interesting they never want to talk about it.
I've felt pretty good as an analyst and economic historian to make a market call...long equities on the response to 2008...and then stick to!that call both here and at SA up to 2013 where I nailed twelve percent in ten days got terrified and have been in treasuries ever since.
Never had the courage to go past ten years and I wish I did...but I was new to government debt (ironic since it was the huge move higher in junk debt that has propelled equities to such dizzying heights)...so I was " gonna get learned."
And indeed I did. This was well before taper, the media was a real Hound of Baskerville...CNBC certainly showed no love...and I got SLAMMED by taper.
Unlike the Carnival Barkers who were daily pronouncing the ten year to four percent and "escape velocity" I simply took the Fed at their word: NO MORE STIMULUS.
I didn't see how that didn't confirm/conform to my view and I missed a huge equity rally...but also some EPIC potholes as the ENTIRE commodity complex was OBLITERATED.
Breathtaking indeed. To bad I don't do this for a living.
So "off to the races" last year and still I wondered "no bunch bowl, no recovery, respect for treasuries only at The Hedge"... and yes equities topped out treasuries again...at the index level...best performer was long dated by far however and that is an asset class...and here we are " taking on Putin by taking out Russia."
Anyone talking about that as a bad idea analytically besides me?
To my knowledge NOBODY IS.
And KABAM! THERE GOES RUSSIA.
Talk about feeling good about being in Treasuries!!!
The dollar soars, my life in dollar terms sure got better....and yes "interest rate crosses" suddenly looked interesting to me.
Seriously though...DID ANYONE SEE. THE SNB RELEASING THE PEG???
I SAY NO.
The losses have been staggering AMD yet again I find myself happy in "minefield avoidance." But at some point at the euro gets annihilated, gold surges yet again, the oil patch is torn asunder, etc...etc...the dangers of Drinking From the Kool-aid really have to be recognized.
So I say again....having sent the trust of so many now violated by the SNB's removal of the peg to...what is it?....800 billion in potentially WORTHLESS euros
WHY WOULD ANYONE IN THEIR RIGHT MIND TRADE CURRENCIES?
And that is my extended thought for the day.
Everest Capital? With NOTHING LEFT?
DEAR GOD!!!!
What a fraud this recovery is.
If the Republicans can't secure a landslide victory in the Presidential I will absolutely be SHOCKED.
Nobody has been minding the Candy Store.
THE MONEY IS GONE.
The Swiss, The Swiss. It's about wealth preservation!
Hi! My name is "Marc to Fallacy" I know some ex-vets that will give me some UP-VOTES, for my unproven cause.
These "battle hardened" guys understand geopolitical politics because they killed some people.
Ohh Da little girlz, be naughty.
This is how it works? Unga Bunga
Retired, too much time, thread.
You keep telling yourself that, long $ fanboy. The usdx gave back almost 1% in late European trading going into N.Y. and then bounced because Greek Vote fears.
keep telling yourself the U.S. is decoupling from the rest of the world, while the jobs numbers, earnings, and housing numbers continue to decline.
YC I think you a lot so that's why I'll say don't short the dollar. This rally has legs and the safe haven positions from stock losses haven't even started yet. I'm half expecting to break the 120 mark after Greece takes the euro down.
Who said anything about "directly" shorting the $? Personally, I've been where both of you are before.
Keep with the minor crosses and keep have good stops and you may make lot of money. The wild swings maybe just at their beginnings. Good luck in the casino and may all your profits come from Goldman's balance sheet.
Fred your're so Macro.
Fred, I'm going to be gentle. Minor cross margins were called on Wednesday. The margin requirements were raised by 300% After the FRiday New York close. Margins were raised from 2% to 3% on the MAJOR currency pairs.
Yen, Pound, Euro, USD... I spent hours doing "asset reallocation"
Yen cross--you are right the dollar index did give back 1% or so late Friday, though only after it appreciated by among the most in a given week in euro history. You want to talk about the tail. I am talking about the dog.
So perma-dollar bear are you saying you think the euro has bottomed or that the dollar index has topped ? Next week we''ll see Q4 GDP. The US grew faster in the April-Sept period than it has in a decade. And what did Europe grow by. Hint: it stagnated. What did Japan do? Hint: it contracted. You are putting to much weight on high frequency data that is very noisy. Yes you are right a large diverse economy like the US there are always some mixed signals. I am trying help identify the underlying signal.
M2M, you seem to have more than a few vocal critics around here. Well, for the record, as one who has been short EUR/USD since 1.37, one of the many things I check is what one of your critics says---and then I fade him (interested parties with lots of free time could scour the ZH archives...a recidivist convicted thief in Saudi Arabia has enough fingers to count the times the guy has been right). I have a sneaking suspicion he is a trust fund kid, so he can afford to follow his own advice and suffer the consequences.
As for the fellow in this thread who has you responsible for the Bolshevik Revolution (I saw you on TV on SNB Day and you look remarkedly well-preserved for a man your age), there is one screaming irony right in front of him as he frequents this site, but that shall remain amongst the whispers.
It's easy to be right, for a while, when you're in the club. Troglodytes like me, not so much.
And you believe the govt numbers ? hahhahhhhaha thanks for the laugh.
"Some mocked me. Others insulted me." Awww, did little Marcie gets his widdle feelings hurt? There's a go-suck-your-thumb-in-the-corner app for that. You work for Brown Brothers Harriman. You are part of the problem. Given the history of your company financing the Bolsheviks, you've got a lot of gall coming on ZH.
The signal you should identify is the masses gathering their pitchforks. There, with that single tip, I have remunerated you for all the hard, yet truthful, things I've written about you and your despicable company.
Correct, Marc's puerile crowings certainly do not contribute ....
+1
You're going Medieval on me? You can do better than that. Tell me about all your great E/A's and new ALGO programs.
Didn't "Marcie" refer to Marc-to-Market rather than to you? Do you both work for BBH?
Right you are. Marcie is Marc Chandler of BBH and Yen Cross must be his girlfriend.
Blah Blah? Do you speak Russian?
I could read charts all day...I wonder what would a new Russian offensive in Ukraine (Stratfor new alert) would do to the Euro, within your 45 days timeframe?
Old Naughty. I stand by my comments.
Let's dance. It's ironic you've been silent for so long? Getting a bit distraught over your 3X levered ( Pharma)ETF'S?
of course you would.
Throwing a monkey wrench, into the ocean, hardly a ripple...
But sorry, no dance, too old, aching knees.
How's that .gov pension treating you? I'll bet you have that little Parker '20 in your backyard?
Thank You, for personally responding to my comment.
I think there's a "LOT" of time between "NOW" and March. The markets have already priced in the ECB devaluation.
Do you know what all the other geopolitical and Central Bank fluctuations over the next 45 day cycle are going to be?
Why is it the ECB leaked € 50 billion, and added an additional 10 the next day?
Central banks are on their collective "back feet". They're lost and looking for direction.
I don't trade the Ponzi € directly. I'd be willing to R/R a retrace based on the U.S. macro>declining numbers.
Markets have already priced in.......huh? Any market that would price in anything any central bank states it will do is a fool. The ECB could change that whole intent in a blink, and it probably will within 90 days.
Not picking on you, Cross, nor your analyses/opinions, but someone should step out there with a pair and tell us dummies where the $ is headed. All of the esoterica is confusing and I gave up on Ouija Boards long ago.
GDP numbers are a joke since we are producing less and spoon feeding and jacking each other off more each year. Obamacare distorts everything and does nothing but enriches pharma and insurers. The $ can't be following data like GDP, Unemployment, etc., they are all LIES.
I just heard Kasich tell Chris Wallace that when the holy ones vacated the Executive and Legislative they left a 4 trillion surplus. Either he is a bigger liar than our homo Muslim or the idiot is so stupid that he has trouble dressing himself.
Currencies, as in fiat, in the hands of Republicans-Democrats and central bankers are cocktails of strichnine, arsenic and cyanide.