Fundamentals (funnymentals) & Sentiment
- Thread starter AusDoc
- Start date
Pickering's observations and conclusions tally well with other discussion I have read. Caveat emptor of course, much could change on the global stage before the mooted rise but I would not be surprised to see continuing positive data flow from the US, on balance.
I still have a view that the USD will rise for a time buoyed by the improving US economy and then slide even as the economy powers ahead. This is based on an expectation of money flows out of the US as smart money pursues even better returns off-shore. How long the up cycle in the US lasts will depend on finding a government with the will to reduce the national debt and the wisdom to do so without destroying what's left of America. It won't be easy.
Anyway, I expect we'll see some life return to the fx markets in due course.
I still have a view that the USD will rise for a time buoyed by the improving US economy and then slide even as the economy powers ahead. This is based on an expectation of money flows out of the US as smart money pursues even better returns off-shore. How long the up cycle in the US lasts will depend on finding a government with the will to reduce the national debt and the wisdom to do so without destroying what's left of America. It won't be easy.
Anyway, I expect we'll see some life return to the fx markets in due course.
According to OrderFlowTrading.com for the week commencing Monday 4 August 21014:
Sentiment Analysis on relevant assets
Summer doldrums are here so we need to be more and more selective if we want to remain operational (and mentally sane) in the current environment. The past week has been dominated by a sell-off in global equities, driven by rising US rate expectations, weak US earnings and geopolitical tensions. Regarding the shift in US rate expectations, the main catalyst was the better than expected Q2 GDP data. Over the coming week, developments in Eastern Europe and the Middle East will no doubt continue to influence the markets. Also, monetary policy meetings in Europe, and services and industrial data will compete for attention. But the spotlight will probably be on Thursday's MPC meeting.
USD: sentiment is bullish. The USD is showing broad-based strength, supported by an improved economic outlook in the US coupled with firming inflation and labor market indicators that are shifting the focus toward monetary policy normalization. US yields have responded, providing for a fundamentally-driven USD rally on the back of interest rate differentials. This week, a lackluster calendar will have US markets more influenced by developments in Europe and Asia. Earnings momentum dries up with just 75 S&P500 firms slated to release. The biggest day will be Wednesday with 26 firms. There are still some widely watched names on tap including Loews, Walt Disney, Time Warner, CBS and Berkshire Hathaway.
GBP: sentiment is neutral. Price action has been seen a deterioration in the recent weeks but the underlying fundamentals of the sterling are still holding up. This week's MPC meeting is especially interesting as they will be revisiting their economic forecasts ahead of the August Inflation Report. Expectations are for a “no-change-stance” accompanied by a hotly contested debate, which should be revealed when the minutes are published in two weeks' time. The minutes of recent meetings suggest one or two members have been gearing up to vote for a rise in interest rates. Recall that since the July 10th meeting, UK CPI spiked higher and the unemployment rate fell further to 6.5% which is the lowest since December 2008. Thus, the evolution of the data has been such that Governor Carney’s emphasis upon data dependency may well become more aggressive.
CAD: sentiment is negative. Canadian markets start the week shut for the annual Civic Day holiday, and things don’t really heat up until Friday’s jobs print for July and the previous day’s trade numbers for June. A 5 year Canada auction on Wednesday will be somewhat more closely watched in light of the sudden curve cheapening over recent weeks. Recent USD strength, along with dropping Crude prices, have weighed on CAD which is really feeling the heat.
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They claim that GBP sentiment is neutral but I would take that with a grain of salt. It is true that the weekly chart remains bullish, as does the overall economic data but there has clearly been a change in sentiment lately and that has translated into a very bearish daily chart! I'm not at all sure that one can average these to arrive at a neutral stance that is meaningful for trading.
Sentiment Analysis on relevant assets
Summer doldrums are here so we need to be more and more selective if we want to remain operational (and mentally sane) in the current environment. The past week has been dominated by a sell-off in global equities, driven by rising US rate expectations, weak US earnings and geopolitical tensions. Regarding the shift in US rate expectations, the main catalyst was the better than expected Q2 GDP data. Over the coming week, developments in Eastern Europe and the Middle East will no doubt continue to influence the markets. Also, monetary policy meetings in Europe, and services and industrial data will compete for attention. But the spotlight will probably be on Thursday's MPC meeting.
USD: sentiment is bullish. The USD is showing broad-based strength, supported by an improved economic outlook in the US coupled with firming inflation and labor market indicators that are shifting the focus toward monetary policy normalization. US yields have responded, providing for a fundamentally-driven USD rally on the back of interest rate differentials. This week, a lackluster calendar will have US markets more influenced by developments in Europe and Asia. Earnings momentum dries up with just 75 S&P500 firms slated to release. The biggest day will be Wednesday with 26 firms. There are still some widely watched names on tap including Loews, Walt Disney, Time Warner, CBS and Berkshire Hathaway.
GBP: sentiment is neutral. Price action has been seen a deterioration in the recent weeks but the underlying fundamentals of the sterling are still holding up. This week's MPC meeting is especially interesting as they will be revisiting their economic forecasts ahead of the August Inflation Report. Expectations are for a “no-change-stance” accompanied by a hotly contested debate, which should be revealed when the minutes are published in two weeks' time. The minutes of recent meetings suggest one or two members have been gearing up to vote for a rise in interest rates. Recall that since the July 10th meeting, UK CPI spiked higher and the unemployment rate fell further to 6.5% which is the lowest since December 2008. Thus, the evolution of the data has been such that Governor Carney’s emphasis upon data dependency may well become more aggressive.
CAD: sentiment is negative. Canadian markets start the week shut for the annual Civic Day holiday, and things don’t really heat up until Friday’s jobs print for July and the previous day’s trade numbers for June. A 5 year Canada auction on Wednesday will be somewhat more closely watched in light of the sudden curve cheapening over recent weeks. Recent USD strength, along with dropping Crude prices, have weighed on CAD which is really feeling the heat.
---
They claim that GBP sentiment is neutral but I would take that with a grain of salt. It is true that the weekly chart remains bullish, as does the overall economic data but there has clearly been a change in sentiment lately and that has translated into a very bearish daily chart! I'm not at all sure that one can average these to arrive at a neutral stance that is meaningful for trading.
rod178
Well-Known Member
I'm currently suspecting that USD strength will be longer and stronger than we can currently imagine.
1) Ongoing trend of US business repatriation (or to Mexico)
2) Shale Oil (relates to 1.)
3) The rest of the world is in (relatively) worse shape than we currently suspect
4) Increasing instability in Europe, Asia and South America (relates to 3 and 1)
1) Ongoing trend of US business repatriation (or to Mexico)
2) Shale Oil (relates to 1.)
3) The rest of the world is in (relatively) worse shape than we currently suspect
4) Increasing instability in Europe, Asia and South America (relates to 3 and 1)
rod178 said:
You could be right. Despite all those points though, the USD has still failed to even take out 82 at this stage. Point 4 isn't having anywhere near the "flight to US safe haven" effect that it did. Though I fully expect a rise in the USD I can't escape the fundamental and sentiment realities of its severely weakened condition. It will be interesting to see how much they eventually have to get their yield curve to move before the dollar rise is convincing and not merely a rally to be sold.
rod178
Well-Known Member
AusDoc said:
Currently I cannot see any setup that would validate a short against the USD, the opposite in fact, so will continue to look for Shorts against Fiber and Cable until such time as there is a break in Market Structure (H4). Any ST break to the upside is worth considering a Short, until the trend is confirmed to have reversed. I gave up trying to be clever, getting in early picking tops and bottoms, some time ago, and now keep it simple. The results have been extremely $ positive. Additionally, I only look at the fundamentals in retrospect or sometimes as a potential excuse for stop hunt liquidity.
Every time a feel like going against the trend (often) I bang my head against my desk. That being the lesser potential pain.
On the COT, there is another aspect to consider.
The hedgers (now termed commercials), in FX many immediately think BMW etc.
The reason is the header term 'Commercial'. We know that one of the fundamental functions of the futures is to hedge risk of future price fluctuation.
In FX spot 10 banks account for around 80% of the traffic, it is reasonable to assume therefore that those same players carry much of the risk in FX spot.
Risk in bank circles is a whole new industry since the banking crisis - governments are insisting that banks taker greater control of risk, many of those banks have opened their own' risk control' centres
Dodds Frank legislation has ensured that all swap dealing banks, US and foreign are registered with the CFTC.
When a bank has to control risk and uses futures via it's own swap dealing company, those transactions are automatically listed as 'commercial'.
Lately GBP commercials have been exiting their shorts, would that indicate that banks have lesser need to hedge a specific risk, namely a long side risk.
http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer
The hedgers (now termed commercials), in FX many immediately think BMW etc.
The reason is the header term 'Commercial'. We know that one of the fundamental functions of the futures is to hedge risk of future price fluctuation.
In FX spot 10 banks account for around 80% of the traffic, it is reasonable to assume therefore that those same players carry much of the risk in FX spot.
Risk in bank circles is a whole new industry since the banking crisis - governments are insisting that banks taker greater control of risk, many of those banks have opened their own' risk control' centres
Dodds Frank legislation has ensured that all swap dealing banks, US and foreign are registered with the CFTC.
When a bank has to control risk and uses futures via it's own swap dealing company, those transactions are automatically listed as 'commercial'.
Lately GBP commercials have been exiting their shorts, would that indicate that banks have lesser need to hedge a specific risk, namely a long side risk.
http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer
the golden gun
RINSE & REPEAT
Alpha-Bet said:
You bet, bring it on. I reckon you can take 'em.
Someone sent me a link to this Jarrett dude. Honestly, I didn't actually watch the whole vid but I thought it might lighten the mood.
The Barclay's... hmmm... that'd be his neighbours across the road, right?
)AusDoc said:Someone sent me a link to this Jarrett dude. Honestly, I didn't actually watch the whole vid but I thought it might lighten the mood.
yes, i've noticed a few of the locals going at it. goes well with a spicy shiraz.
quite unusual for mid-week dust up. in my experience the good ones on any forum occur on the weekend when the markets are closed. the synergy of a few beverages and no market to satiate that build up of hormones that trading encourages is a moderators delight... ;D
regards our trading friend jarret. can he get himself an office to record his currency videos and not out on the street?
oh that's right...if i trade spot, of course allowing for the difference in sentiment and fundamentals i could end up with sun, sand and a pad like that you see behind.
in my video i promise scantily clad women draped over a lambo spraying each other with bollinger. don't miss it.
rod178
Well-Known Member
The RBA must raise rates for a lower dollar
http://www.businessspectator.com.au/article/2014/8/8/interest-rates/rba-must-raise-rates-lower-dollar?utm_source=exact&utm_medium=email&utm_content=853481&utm_campaign=kgb&modapt=
ADAM CARR 12 HOURS AGO 15
ECONOMY INTEREST RATES
Yes, it’s true. If the Reserve Bank of Australia wants a lower currency, then the smartest thing it could do -- right now -- is hike rates. Instead, the press release we saw after the board’s decision on Tuesday maintains the current exchange rate as a reason for more cuts.
“The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy.” That is the stuff of fiction by the way, as the Aussie dollar is well undervalued with the terms of trade where it is. But, the board is clearly still watching it.
Probably more so after yesterday’s spike in the unemployment rate, although with sample rotation and seasonal analysis problems -- not to mention the ongoing strength in full-time employment growth -- you simply can’t read anything into yesterday’s numbers. Noting that, the RBA board will still probably read that spike in unemployment as further proof that the Aussie is too high. It would only take a "hobbit’s fart" -- to quote our own Rob Burgess -- to spook them into cutting again, notwithstanding the consensus expectation that the next move will be up. Either way, policymakers have a choice: Global rates are going up, this we know, and the RBA can either choose to lead that cycle or they can lag it. I would argue that regardless of what the unemployment rate does leading the cycle will confer on Australia considerable tactical advantages if it’s serious about the currency over the long term.
To see this, take a look at New Zealand’s experience. The Reserve Bank of New Zealand has hiked rates four times in four months -- a full percentage point to 3.5 per cent -- and the currency has done little. Indeed it’s one of the more remarkable features of its tightening cycle to date -- just how stable the kiwi has been. Against the US dollar, the kiwi is virtually unchanged from March, when it started tightening, at US84.6c. Going back to the start of the year it’s not much worse, maybe 2c higher or so and only 3 and a bit cents higher compared to the average exchange rate since 2011.
That’s a good omen for Australia if the RBA - and hey look, I’m just throwing this out there - wanted to position itself better for 1) a housing market that’s booming and 2) inflation that’s already at the top of the band. Maybe it wouldn’t hurt that much.
But why do it at all? The unemployment rate is skyrocketing! Well, because on current trends, the RBNZ will largely be done tightening by the time Janet Yellen has a big stretch and a yawn, and decides that a depression isn’t what she should be worrying about after all. You know, with millions of jobs being created every year, a plunging unemployment rate and rising inflation. Most forecasters expect this moment of clarity to occur between mid to late 2015. By that stage, and using the RBNZ’s own 90-day bank bill forecasts, the RBNZ will only have two to three more rate hikes left -- and that’s spread out over the ensuing two years (ie out to 2017 and beyond). Over that period, the Fed’s expected to hike maybe 200bps.
We can’t pretend we’re not in a currency war. We are. By hiking now, the RBNZ is playing it smart -- more so because the kiwi hasn’t done anything. When the Fed does finally get around to normalising rates, the New Zealand will likely see its currency weaken -- and on a permanent basis. This is clearly a better path than tightening after the Fed: establishing a new ‘equilibrium’ for your currency as it depreciates, rather than appreciates -- or hovers at a high level. I’ve always admired New Zealand policymakers for being considerably smarter than their Australian counterparts -- New Zealand’s even running a budget surplus! The question for the RBA, Treasury and ultimately the government is where do they want to be left standing when the music stops?
http://www.businessspectator.com.au/article/2014/8/8/interest-rates/rba-must-raise-rates-lower-dollar?utm_source=exact&utm_medium=email&utm_content=853481&utm_campaign=kgb&modapt=
ADAM CARR 12 HOURS AGO 15
ECONOMY INTEREST RATES
Yes, it’s true. If the Reserve Bank of Australia wants a lower currency, then the smartest thing it could do -- right now -- is hike rates. Instead, the press release we saw after the board’s decision on Tuesday maintains the current exchange rate as a reason for more cuts.
“The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy.” That is the stuff of fiction by the way, as the Aussie dollar is well undervalued with the terms of trade where it is. But, the board is clearly still watching it.
Probably more so after yesterday’s spike in the unemployment rate, although with sample rotation and seasonal analysis problems -- not to mention the ongoing strength in full-time employment growth -- you simply can’t read anything into yesterday’s numbers. Noting that, the RBA board will still probably read that spike in unemployment as further proof that the Aussie is too high. It would only take a "hobbit’s fart" -- to quote our own Rob Burgess -- to spook them into cutting again, notwithstanding the consensus expectation that the next move will be up. Either way, policymakers have a choice: Global rates are going up, this we know, and the RBA can either choose to lead that cycle or they can lag it. I would argue that regardless of what the unemployment rate does leading the cycle will confer on Australia considerable tactical advantages if it’s serious about the currency over the long term.
To see this, take a look at New Zealand’s experience. The Reserve Bank of New Zealand has hiked rates four times in four months -- a full percentage point to 3.5 per cent -- and the currency has done little. Indeed it’s one of the more remarkable features of its tightening cycle to date -- just how stable the kiwi has been. Against the US dollar, the kiwi is virtually unchanged from March, when it started tightening, at US84.6c. Going back to the start of the year it’s not much worse, maybe 2c higher or so and only 3 and a bit cents higher compared to the average exchange rate since 2011.
That’s a good omen for Australia if the RBA - and hey look, I’m just throwing this out there - wanted to position itself better for 1) a housing market that’s booming and 2) inflation that’s already at the top of the band. Maybe it wouldn’t hurt that much.
But why do it at all? The unemployment rate is skyrocketing! Well, because on current trends, the RBNZ will largely be done tightening by the time Janet Yellen has a big stretch and a yawn, and decides that a depression isn’t what she should be worrying about after all. You know, with millions of jobs being created every year, a plunging unemployment rate and rising inflation. Most forecasters expect this moment of clarity to occur between mid to late 2015. By that stage, and using the RBNZ’s own 90-day bank bill forecasts, the RBNZ will only have two to three more rate hikes left -- and that’s spread out over the ensuing two years (ie out to 2017 and beyond). Over that period, the Fed’s expected to hike maybe 200bps.
We can’t pretend we’re not in a currency war. We are. By hiking now, the RBNZ is playing it smart -- more so because the kiwi hasn’t done anything. When the Fed does finally get around to normalising rates, the New Zealand will likely see its currency weaken -- and on a permanent basis. This is clearly a better path than tightening after the Fed: establishing a new ‘equilibrium’ for your currency as it depreciates, rather than appreciates -- or hovers at a high level. I’ve always admired New Zealand policymakers for being considerably smarter than their Australian counterparts -- New Zealand’s even running a budget surplus! The question for the RBA, Treasury and ultimately the government is where do they want to be left standing when the music stops?
the golden gun
RINSE & REPEAT
rod178 said:
Kind of like Canada vs. US monetary policy.