US 2 Yr yields today reached 0.75. Seems the market is inclined to follow the footsteps of the QE1 trade, stocks up, treasuries down? And what of the Dollar? Will the dollar be sold as the Dow is bought?
Quotes:
Dow 11562
FTSE 5973
GBP/USD 15364
EUR/USD 13106
Gold 1405
Silver 30.23
Crude 9125
US 10 YR 3.49
US 2 YR 0.75
USD/JPY 83.74
USD Index 80.4
Treasury auctions today attracted the weakest demand in 6 months, with a bid to cover ratio of 2.61. So are Treasury's a buy or a sell right now? Depends on your timeframe. From what I have read it seems likely that in March, with $700 Billion of debt willl require restructuring from the likes of Portugal, Spain, and Belgium, so the typical buy treasury's safe haven scenario as we have seen with Greece and Ireland is likely to play out again. I think it unlikely that the 2010 lows reached by the 10yr and 2 yr alike would be likely to be breached.
Further bad came from US home prices declining more than expected.
Ok so I have been trying to figure out whether it's inflation or deflation, whether the 20 yr bull market in bonds has come to an end? And having read extensively over the arguements on either side. Here are my findings;
The central tenet of the deflation arguement, in the US, is that there is 54 Trillion USD of outstanding debt, the ratio private sector debt to GDP is at record levels. The arguement is that the sheer weight of this debt, and the addition of private sector deleveraging, and the destruction it has on money supply (i.e. the lack of additional loan creation which increases the supply via fractional reserve banking) means deflation will be the driving force.
Now this is a strong arguement, one that has some similarities to the Japanese deflation era (however the savins rate in Japan is much higher, and also the population demographic is rather different), and despite years of money printing/quanttiative easing Japan has not managed to escape these "deflationary" forces.
The premise of the arguement for inflation, is essentially unprovable, in quantitative means. It's more of a proof by historical reference, whereby the majority of times money has been printed to such an extent, when the economy recovered, money veolcity picked up, the excess reserves flowed out, and inflation soared. As you can see with commodities reaching record highs, gold at $1400, Silver at $30, the market does not believe Ben Bernanke will be able to act accordingly to put inflation back into it's place. Given the oustanding debt and weak housing market, does he have the capacity to raise rates?
Neither of these arguement's really governs my outlook. Essentially my base case for 2011 is that the Dow will continue to rise. Corporate earnings will continue to outperform, and beat estimates. This is a bull market, and the consensus that inflation, or deflation, Bernanke will continue to print to accomodate the market, means, in my opinion, that the Dow is likely to continue to trend upwards and perhaps even make new highs in 2011.
Given this, and given the nature of the market dynamic in 2009, I think it is likely that traders will stick to a similar script of yields moving higher. Eurozone issues are likely to provide opportunities to buy into the Dow and to sell treasuries as risk comes back in after the moments of panic. Now, what of the Dollar?
Surely it is too early, even with earnings season coming up, and the likelihood of the Dow to conintue upwards to 12,000, surely it is too soon for the market to price in interest rate increases (by the Fed). I would be observant of how in the ocming weeks the dollar trades, with respect to the rising Dow, to decide at which point it is favourable to begin longing the dollar as part of a possible move up to 90 and beyond, on the dollar index. However, with Eurozone issues likely to take a backstage as earnings news comes in, we will have to see whether the dollar will be rallying with the dow, or selling off with it to observe what the correct trade will be.
Tuesday, 28 December 2010
Tuesday, 16 November 2010
US Dollar!!
Quotes:
FTSE 5668
Dow 11020
EUR/USD 13485
GBP/USD 15879
Gold 1339
Silver 25.37
Crude 83.11
Xstrata
Everyone was bearish on the Dollar.I myself was beginning to think it was over for the dollar?! The technicals set themselves up, as the dollar held its support trend line from december 2009, then came better than expected economic indicators, worse than expected earnings from Cisco last week (bringing the dow lower), markets fearing another rate rise by China to curb inflation, fears over Irish debt repayments, a revision of outstanding Greek Debt. What more could you want for reasons to buy the Dollar?
So I bought the Powershares DB US Dollar Fund on Friday (and added to the position today), and today shorted Eur/USD (at 13513) and GBP/USD (at 15901) as shown above.
Having reached my anticipated level of 0.36% yield on the US 2 Yr, from my prior recommendation, I will be looking to see how the 2 yr trades, yield currently at 0.5%, and will be monitoring it for the possibility of further long positions.
Mervyn King has revised up forecasted CPI for mid 2011 to reach 3.5%, before later falling back to the 2% target, with remaining slack of high unemployment to be the driver of this. Regardless, I see the Pound as a strong currency, with our fiscal austerity measures, and CPI above what most economists anticipated, indicates the recovery in Britain is stronger than in the US, and potential for interest rate rises to be priced in by the market at some stage next year, are higher (not that I think those rate rises will come). So why am I short? Well, with the Euro crisis taking centre stage again, market sentiment is likely to favour the Dollar, and despite the UK being likley to maintain its credit rating, and not be too greatly affected by Bank holdings of Irish Debt (this year at least), fears of contagion due to trade relations and proximity are likely to take hold.
I am short the Pound in the short term, to target 1.55, and perhaps lower. However will most likely look to go long at osme point in 2011.
Trade Ideas
existing positions:
EUR/USD
I am contuing to hold my short EUR/USD position, to target 13400 in the short term (this week), and 13000 thereafter. Ideally I am looking to hold til 1.2 within the next couple of months.
Short EUR/USD 13513 Stop 13613 Target 1.34 in next 2 days, 13000 in next 2 weeks.
Stop is tight as risks are Ireland accepting a bailout, and market suddenly short covering, taking it to 1.38 and so on. However I would look to take on a new hsort position at this point most probably.
GBP/USD; short at 15901, Stop 16001, Target 15700 in the coming week, 15500 beyond.
Powershares DB US Dollar Fund; Opening 2270, stop 2230. Taget 2600.
Potential new trades:
1)What else? I am looking to go short the Dow, to target 10700, and the Ftse to target 5300. However I think there is the risk of sharp reversal in the Dow back to 11200 zone, given the trend of US indicators outperforming, and possible decoupling from the Eurozone news as well as divergence from the negative correlation with the Dollar, so it would have to be a close below 11,00. I have decided against it for now, however if the right expected risk/ reward presents itself, it may be a good opportunity.
2) gold at 1338, taken a beating since closing below 1370 on Friday with fears of the slowdown in China (with rate rises) and the upturn in the dollar affecting all commodities. Silver down from its high of $30, trading at $25.37 currently.
Potential trade;
Short Silver 24.90, stop 25.20, target 24.00
To combine with a small long position in Gold (as despite dollar strength, and bearish technicals, upside in gold is possibleon safe haven buying from EuroFears, perhaps that is why it traded back up from 1330, to 1340 in the latter part of the US market)
Long Gold at what I expect would be around 1320, 20 point stop, let it run as long as the Silver position is open. Good profit taking opportunites would be 1350-1360.
3)Long USD/JPY, having broken out of its wedge, and broken the 50 day moving average. USD/JPY at 8330 does look to be targeting 8500/8600. However the move up has not been as sharp as I would like, so I am keeping it on my wathclist for now.
4) xstrata at 13.11, a possible short if it breaks 13, to target 12, and possibly beyond to 11.50. to hedge myself against an upturn in commodities, and also play the fears in the Eurozone, I would combine this with a long gold position.
Short XTA at 12.97, Stop at 13.14, target 12
Long Gold 1339, Stop at 1315, Target 1350
I would weight the short Xta as twice the size of the gold position however, as I find the the probability of the gold rally less likely at this stage I feel.
Sunday, 3 October 2010
US 2 Yr all time low yields!! BUY BUY BUY?
US GDP beter than expected figures on Thursday helped push the market from 10850 to 10934, and selling off thereafter.
Dow 10833
FTSE 5611
EUR/USD 13803 (stay long, target 1.4)
GBP/USD 15796
USD/JPY 8327
Gold 1319!
Crude 8173
Xstrata 1242!! (I advise selling half of position from 1120, to target 1300)
Gold continuing to make ground on fears of further easing and currency debasement, stay long, 1330 likely to be breached next week, next stop 1350. unless China crashes next week, this trade is good to keep going.
Seems that everyone has caught onto the idea that the US is aiming for a weak dollar and high inflation to allow it to pay off its debts. However this being the sentiment, and we must trade sentiment and price, please bear in mind any reversal in the Eurozone situation, as well as the reality of the decline in notional of US dollars since the crisis (as per the Hugh Hendry arguement), mean a sharp reversal in the dollar is possible at any time.
US treasury yields are at all time lows, and I am now positioning myself to go long. I like to pay top price for my bonds. With Non Farm Pay Rolls due for release on Friday, I think this provides an exciting opportunity to come into the market, if you are not already.
Why are treasury's, stocks and commodities rallying all at once? Stocks and commodities from the sweet spot easy money trade, as per March 2009.
Treasury's? From the latest FOMC statements, the weakness of the recovery and the Fed's commitment to help stimulate growth, have lead to the consensuvs view that further bond purchases are in store. The consensus view seems to be that with further asset purchases from the FED deemed likely strong demand is coming from Japan, as the markets see tell tale signs of entry into a deflationary era.
The real question is CAN THE FED CREATE INFLATION?
Commodities and gold traders clearly think they can, and that they won't be able to control it. The bond market thinks that they cant, and the US goes into deflation.
The risks to the gold trade are that a sharp shock in the markets, triggered by a debt default in Europe or a crash in China (as anticipated by Chanos) could cause large scale derisking, in a similar fashion to the Dubai debt news in december 2009.
Although the Jim Rogers arguement for commodities being a good place to go in inflation, or deflation, as money has to go somewhere, I think the commodities trade is an inflation, currency debasement story, and will trade according to that.
Why am I long US Treasury's:
Outs. I like a trade which gives me outs. Yields at all time lows, so a new high in price has been achieved. There will have been numerous traders, Nassim Taleb and the likes, short treasuries since early Q1, "I recommend everyone in the world to be short US Treasury's".
Alot of people, will still be short perceiving the weakness in the dollar to precipitate fears of US default. But this will not come to pass, not yet.
With the dollar weak, what will happen to yields on the 2 yr if news of greece defaulting, or further eurozone fears come out......Hence I am long.
Non Farm Pay rolls:
The Dow seems to have found 10840 difficult to hold. I would estimate 30% probability of a pull back to support at 10500, however regardless I have no position at the moment. Depending on market dynamics on Thursday, with possibly a weaker than expected initial jobless claims result, I will be looking to position myself short prior to this, and into the release on Friday.
If the Non Farm payrolls result is worse than expected I am looking for the Dow to sell off 100-150 points, AND THEN to rise, as traders price in a greater probability of further QE and so buy the easy money market.
trading strategies;
stay long gold, short dollar (as per last week)
long us 2 yr, I will consider stopping the trade if yields break above 0.46% depending on the reasons behind the move, with yields currently at 0.42. This is a medium term trade. "epic bull markets usually go out with a bang".
Long the dow, Short te FTSE towards latter end of week, with jobless claims and payrolls due. As a poor payrolls number likely to be indicative of further QE, I see mediumt erm gains in the Dow to be greater than those of the FTSE (with further QE in the UK less likely to be acceptable within current UK austerity program). More details to follow.
Dow 10833
FTSE 5611
EUR/USD 13803 (stay long, target 1.4)
GBP/USD 15796
USD/JPY 8327
Gold 1319!
Crude 8173
Xstrata 1242!! (I advise selling half of position from 1120, to target 1300)
Gold continuing to make ground on fears of further easing and currency debasement, stay long, 1330 likely to be breached next week, next stop 1350. unless China crashes next week, this trade is good to keep going.
Seems that everyone has caught onto the idea that the US is aiming for a weak dollar and high inflation to allow it to pay off its debts. However this being the sentiment, and we must trade sentiment and price, please bear in mind any reversal in the Eurozone situation, as well as the reality of the decline in notional of US dollars since the crisis (as per the Hugh Hendry arguement), mean a sharp reversal in the dollar is possible at any time.
US treasury yields are at all time lows, and I am now positioning myself to go long. I like to pay top price for my bonds. With Non Farm Pay Rolls due for release on Friday, I think this provides an exciting opportunity to come into the market, if you are not already.
Why are treasury's, stocks and commodities rallying all at once? Stocks and commodities from the sweet spot easy money trade, as per March 2009.
Treasury's? From the latest FOMC statements, the weakness of the recovery and the Fed's commitment to help stimulate growth, have lead to the consensuvs view that further bond purchases are in store. The consensus view seems to be that with further asset purchases from the FED deemed likely strong demand is coming from Japan, as the markets see tell tale signs of entry into a deflationary era.
The real question is CAN THE FED CREATE INFLATION?
Commodities and gold traders clearly think they can, and that they won't be able to control it. The bond market thinks that they cant, and the US goes into deflation.
The risks to the gold trade are that a sharp shock in the markets, triggered by a debt default in Europe or a crash in China (as anticipated by Chanos) could cause large scale derisking, in a similar fashion to the Dubai debt news in december 2009.
Although the Jim Rogers arguement for commodities being a good place to go in inflation, or deflation, as money has to go somewhere, I think the commodities trade is an inflation, currency debasement story, and will trade according to that.
Why am I long US Treasury's:
Outs. I like a trade which gives me outs. Yields at all time lows, so a new high in price has been achieved. There will have been numerous traders, Nassim Taleb and the likes, short treasuries since early Q1, "I recommend everyone in the world to be short US Treasury's".
Alot of people, will still be short perceiving the weakness in the dollar to precipitate fears of US default. But this will not come to pass, not yet.
With the dollar weak, what will happen to yields on the 2 yr if news of greece defaulting, or further eurozone fears come out......Hence I am long.
Non Farm Pay rolls:
The Dow seems to have found 10840 difficult to hold. I would estimate 30% probability of a pull back to support at 10500, however regardless I have no position at the moment. Depending on market dynamics on Thursday, with possibly a weaker than expected initial jobless claims result, I will be looking to position myself short prior to this, and into the release on Friday.
If the Non Farm payrolls result is worse than expected I am looking for the Dow to sell off 100-150 points, AND THEN to rise, as traders price in a greater probability of further QE and so buy the easy money market.
trading strategies;
stay long gold, short dollar (as per last week)
long us 2 yr, I will consider stopping the trade if yields break above 0.46% depending on the reasons behind the move, with yields currently at 0.42. This is a medium term trade. "epic bull markets usually go out with a bang".
Long the dow, Short te FTSE towards latter end of week, with jobless claims and payrolls due. As a poor payrolls number likely to be indicative of further QE, I see mediumt erm gains in the Dow to be greater than those of the FTSE (with further QE in the UK less likely to be acceptable within current UK austerity program). More details to follow.
Sunday, 26 September 2010
Stay Long--GDP figures due this week-buy any sell off?
Stay Long gold, Stay long the Dow.
Quotes:
Dow 10900!
FTSE 5637
eur/usd 13477
gbp/usd 158277
Xstrata 1235!!
Gold 1295!
Gold currently at 1295, having touched 1300 briefly on Friday, the Dow currently at 10900, to target 11000 tomorrow, or Tuesday.
Stay long gold, currently at 1295, Stop at 1270, Target 1330.
GBP/USD currently at 15828, to target 16000. Trade: Buy 15828, stop 15700, target 16000.
Stay long the Dow, having opened at 1040, currently at 10890, I think an ideal place to look to add to your long would be around 10830 or 10802, on any minor sell off, With a 10700 stop, target 11200, to hold for 1-2 weeks.
The hedge:
This is how I am going to hedge my beta risk. Short Crude, currently at 7680, stop at 7727, open trade, no limit.
Market brief overview:
Why is the market rallying? The question it seems should perhaps more be alligned to why has the market been ranging since May? No matter how bearish the news has been, the Dow has been supported at the 9700 level. Having broken resistance at 10400, and now 10840 next stop is 11200.
Following a GS conference call the suggestion is that further QE is likely, from Bernankes recent statements, and that announcement of this will not take place til Novemeber.
Regardless, this is what I'm looking at. The big question everyone is asking is deflation or inflation?
Arguements for inflation: QE, money printing, commodity prices go up, stocks supported by low rates environment (as high unemployment make it impossible for anything more than a trivial 0.25 rate increase in near future).
Recent rally in Gold , Silver (at 21.40, reaching a 30 yr high)seem to imply that this is the favoured view.
Arguements for deflation: The private sector is still deleveraging, loss in notional from US house prices greatly outweighs supply of dollars from QE, 30 yr bond market bull trend still in tact, hence long dollar short stocks short commodities.
US 10 yr yield at 2.60%, is this a shorting opportunity?
Regardless of the "fundamentals", if the yield on 10 yr US Treasury's (currently at 2.60%) does not break below the lows of 2008 (around 2.08%) and manages to form a break out here, I will be backing the inflation trade. If they break below I will be backing deflation. As I am of the opinion that it is a critical juncture.
However inflation or deflation, Gold had rallied during deflation in the 1930's, as well as inflation/stagflation during the 70's. More importantly a negative real interest rate environemtn such as that at present is likely to support Gold.
US GDP due for release on Thursday, market likely to anticipate poor results, and sell off 50-60 points before release, I would be looking to go long the result, as well as long any sell off in the case off a worse than expected result.
Quotes:
Dow 10900!
FTSE 5637
eur/usd 13477
gbp/usd 158277
Xstrata 1235!!
Gold 1295!
Gold currently at 1295, having touched 1300 briefly on Friday, the Dow currently at 10900, to target 11000 tomorrow, or Tuesday.
Stay long gold, currently at 1295, Stop at 1270, Target 1330.
GBP/USD currently at 15828, to target 16000. Trade: Buy 15828, stop 15700, target 16000.
Stay long the Dow, having opened at 1040, currently at 10890, I think an ideal place to look to add to your long would be around 10830 or 10802, on any minor sell off, With a 10700 stop, target 11200, to hold for 1-2 weeks.
The hedge:
This is how I am going to hedge my beta risk. Short Crude, currently at 7680, stop at 7727, open trade, no limit.
Market brief overview:
Why is the market rallying? The question it seems should perhaps more be alligned to why has the market been ranging since May? No matter how bearish the news has been, the Dow has been supported at the 9700 level. Having broken resistance at 10400, and now 10840 next stop is 11200.
Following a GS conference call the suggestion is that further QE is likely, from Bernankes recent statements, and that announcement of this will not take place til Novemeber.
Regardless, this is what I'm looking at. The big question everyone is asking is deflation or inflation?
Arguements for inflation: QE, money printing, commodity prices go up, stocks supported by low rates environment (as high unemployment make it impossible for anything more than a trivial 0.25 rate increase in near future).
Recent rally in Gold , Silver (at 21.40, reaching a 30 yr high)seem to imply that this is the favoured view.
Arguements for deflation: The private sector is still deleveraging, loss in notional from US house prices greatly outweighs supply of dollars from QE, 30 yr bond market bull trend still in tact, hence long dollar short stocks short commodities.
US 10 yr yield at 2.60%, is this a shorting opportunity?
Regardless of the "fundamentals", if the yield on 10 yr US Treasury's (currently at 2.60%) does not break below the lows of 2008 (around 2.08%) and manages to form a break out here, I will be backing the inflation trade. If they break below I will be backing deflation. As I am of the opinion that it is a critical juncture.
However inflation or deflation, Gold had rallied during deflation in the 1930's, as well as inflation/stagflation during the 70's. More importantly a negative real interest rate environemtn such as that at present is likely to support Gold.
US GDP due for release on Thursday, market likely to anticipate poor results, and sell off 50-60 points before release, I would be looking to go long the result, as well as long any sell off in the case off a worse than expected result.
Monday, 20 September 2010
Gold to break 1300
gold currently at 1279, set to break 1300.
apologies for the brevity of the post, markets have kept me busy.
Buy anything below 1280, 30 point stop, 30 point target (limit around 1307, before a retest of 1300).
Dow 10700 currently, XTA above 1190.
apologies for the brevity of the post, markets have kept me busy.
Buy anything below 1280, 30 point stop, 30 point target (limit around 1307, before a retest of 1300).
Dow 10700 currently, XTA above 1190.
Sunday, 12 September 2010
Long the Dow
Dow- 10526
Buy, Stop 10340, Target 10700.
Buy Xstrata on open, if you get 1120 add. Any price below 1150 is decent, with an 1100 stop, to target 12 by mid week. Then see a 12 close, followed by an 1170 correction next day (to be bought).
Apologies for the brevity of the post.
Buy, Stop 10340, Target 10700.
Buy Xstrata on open, if you get 1120 add. Any price below 1150 is decent, with an 1100 stop, to target 12 by mid week. Then see a 12 close, followed by an 1170 correction next day (to be bought).
Apologies for the brevity of the post.
Thursday, 5 August 2010
Non Farm Payrolls-Buy the Dow on any sell off
Despite initial jobless claims coming in at 479K exceeding estimates of 455K, the Dow maintains its bullish dynamic, not even breaking 10600, and currently sitting at 10670.
This is extremely positive. With Non Farm pay rolls due for release tomorrow, forecast of -60K (however private sector forecast is 90k jobs added which will be a key driver in the markets reaction). Either way its a 50 50. I dont see the Dow declining any more than 10630 at best before the news result, and prior to this any sell off between 50-150 points would be seen as a buying opportunity, to close out with a rally before close, or rebound early next week.
This is extremely positive. With Non Farm pay rolls due for release tomorrow, forecast of -60K (however private sector forecast is 90k jobs added which will be a key driver in the markets reaction). Either way its a 50 50. I dont see the Dow declining any more than 10630 at best before the news result, and prior to this any sell off between 50-150 points would be seen as a buying opportunity, to close out with a rally before close, or rebound early next week.
Thursday, 29 July 2010
US GDP tomorrow-50 50?
The Dow rallied off its 10,000 base as earnings from the likes of UBS, Alcoa, Caterpillar have gotten earnings season to a great start. However notice the Dow is finding it difficult to hold, let alone break through 10567 resistance.
Initial jobless claims falling to 11k to 457k.
GDP forecast at -2.5%, which is to be expected with what Greenspan described as the natural "wall" facing the economy in June, implying his view that its a momentary setback.
The dollar index falling back down to 81, just like it fell back last earnings season, with risk aversion falling away as earnings takes the spotlight away from Greece and the eurozone issues. Also of note is that Gold has sold off, as the dollar declined, having recently broken its 50 day moving average, and breaking below 1160 briefly yesterday, and now up to 1167..
Talk of deflation and a possible japanese style outcome for the US economy by a Treasury member, adding to possible concerns of a larger scale slowdown.
Dow 10457
FTSE 5290
GBP/USD 15608
EUR/USD 13074
Crude 7834
Xstrata 1031
Right now, from comments from Bernanke and the Fed revising their estimates, and pushing back when they think unemployment will decline below 9%, even if GDP outperformed no one is going to be bringing forward expectations of interest rate increases. So until earnings season is over the Dollar is likely to remain weak (until risk aversion over Greece etc comes back in).
Worse than expected GDP will weaken the dollar, but only slightly, as pretty much everyone is looking at a weak Q2 result. If GDP outperforms I see the potential rally in the dollar to be greater.
Given the Dow is close to resistance I would be looking to go Short Dow, prior to the results, and close it out at 10420, 10410 before the results. Then if the results are positive, wildly larger than expected, buy into the Dow 10470,10490 to target 10550.
Buy USD index at 81.50 to target 82.50.
Trading Idea for UK Open 30/07/2010 (if GDP better than expected):
1) Short Dow prior to result, Sell 10450 and above, stop 10475, target 10400 before results
Immediately after results if Dow rallys to 10470-10510, as indicative of good news
Buy dow, 30 point stop at recent support, Target 10590
2) Buy USD index 81.50 equivalent, to target 82.5
Initial jobless claims falling to 11k to 457k.
GDP forecast at -2.5%, which is to be expected with what Greenspan described as the natural "wall" facing the economy in June, implying his view that its a momentary setback.
The dollar index falling back down to 81, just like it fell back last earnings season, with risk aversion falling away as earnings takes the spotlight away from Greece and the eurozone issues. Also of note is that Gold has sold off, as the dollar declined, having recently broken its 50 day moving average, and breaking below 1160 briefly yesterday, and now up to 1167..
Talk of deflation and a possible japanese style outcome for the US economy by a Treasury member, adding to possible concerns of a larger scale slowdown.
Dow 10457
FTSE 5290
GBP/USD 15608
EUR/USD 13074
Crude 7834
Xstrata 1031
Right now, from comments from Bernanke and the Fed revising their estimates, and pushing back when they think unemployment will decline below 9%, even if GDP outperformed no one is going to be bringing forward expectations of interest rate increases. So until earnings season is over the Dollar is likely to remain weak (until risk aversion over Greece etc comes back in).
Worse than expected GDP will weaken the dollar, but only slightly, as pretty much everyone is looking at a weak Q2 result. If GDP outperforms I see the potential rally in the dollar to be greater.
Given the Dow is close to resistance I would be looking to go Short Dow, prior to the results, and close it out at 10420, 10410 before the results. Then if the results are positive, wildly larger than expected, buy into the Dow 10470,10490 to target 10550.
Buy USD index at 81.50 to target 82.50.
Trading Idea for UK Open 30/07/2010 (if GDP better than expected):
1) Short Dow prior to result, Sell 10450 and above, stop 10475, target 10400 before results
Immediately after results if Dow rallys to 10470-10510, as indicative of good news
Buy dow, 30 point stop at recent support, Target 10590
2) Buy USD index 81.50 equivalent, to target 82.5
Sunday, 20 June 2010
Volare? Dow breaks 50 day moving average
Quotes:
EURUSD 1.2451 (Fri Close 1.2387)
GBPUSD 1.4856 (1.4461 to target 1.53)
DOW 10436
FTSE 5250
Gold 1256.9
Crude 7846
Global recovery in confidence this week saw the risk come back, with the dollar weakening, and Euro gaining substantially as markets become less pessimistic about the Greece default situation.
The Dow having broken through its 50 day moving average at 10400, with support at 10250 and resistance at 10900, seems good from a price risk to reward ratio, however the potential for a sharp downturn with Eurozone news stil exists.
However given Greece's downgrade on Tuesday, and the market bouncing back from it, the market seems to have a positive bias. Ideally a pullback to 10350 on similar news (which does not contradict the potential catalyst of Q2 earnings) will be a potential buying opportunity.
Gold:
Gold pushing through to the 1260's and continuing its rally seems to indicate continued scepticism over the stability of fiat currency? Gold rising due to continued expectations of a low rate environment. Gold rallying on inflation concerns (Despite US CPI contracting -0.2% in May?).
I dont think its any of the above. I think simply that Gold declined with the market correction in May, with correlation to the commodities markets as fears grew over the sustainability of demand from China, and it has simply bounced back with them. Given the sharp surge in the dollar during that period, as a flight to safety, with the dollar index hitting 89, the recent pullback to 85 may have lead Gold to benefit from the weak dollar.
Gold has been notoriously difficult, in my opinion to gage following its sharp decline in December as an implrovement in payroll figures led the dollar to begin its rally. Prior to this Gold had rallied with the Dow (as the global recovery seemed to call for inflation that would outpace Bernanke's rate increases).
However having broken its previous May high of 1250, I would consider going long, with a tight stop, to target 1300. However, given the underlying Debt problems in the market, and the potetial for a fast downturn in the market at any moment, I would have to pair this trade with a short position in another asset correlated to Gold which I do not expect to perform as well.
The impact of Q2 earnings season due to be commencing soon is likely to favour a continued rally in the Dow to the 11000 zone, and perhaps beyond if the Eurozone can keep quiet.
Crude:
Crude has support at 75, and looks like it may attempt to make its way back to the lower 80's, with a previous high of 87. Personally I do not feel that the demand from China will suffice to maintain crude at these levels, I expect to see a "new normal" type situation in the Eurozone with subdued growth, so from a supply demand point of view, I think there is potential for crude to continue to range between 75-lower 80's for a while more.
Yuan:
China has stated that it will take a more flexible approach to its exchange rate, by removing its peg to the Dollar. Given the recent appreciation of the Dollar, I dont see a massive rally in the Yuan. However what will be interesting to see will be its affect on USDJPY, as a strengthening of the Yuan may lead to Japense exports becoming more competitive and leading to an incease in demand for the Yen.
Longer term:
If corporate earnings season fails to beat estimates this time, then what can hold the market up? With government debt problems, cutting in consumer credit lines, lack of robust hiring in the private sector, high unemployment, the fundamentals dont look great at the moment. But that doesnt mean the market cant go higher for now.
Strategies:
1)long dow 10436, stop 10200, target 10700.
Reducing beta risk from Eurozone: Short FTSE (The Ftse has immediate support at 5236 and below that at 5000, however resistance at 5436, with Q2 earnings due to come out first in the US it is more likely that the Dow will outperform the FTSE).
EURUSD 1.2451 (Fri Close 1.2387)
GBPUSD 1.4856 (1.4461 to target 1.53)
DOW 10436
FTSE 5250
Gold 1256.9
Crude 7846
Global recovery in confidence this week saw the risk come back, with the dollar weakening, and Euro gaining substantially as markets become less pessimistic about the Greece default situation.
The Dow having broken through its 50 day moving average at 10400, with support at 10250 and resistance at 10900, seems good from a price risk to reward ratio, however the potential for a sharp downturn with Eurozone news stil exists.
However given Greece's downgrade on Tuesday, and the market bouncing back from it, the market seems to have a positive bias. Ideally a pullback to 10350 on similar news (which does not contradict the potential catalyst of Q2 earnings) will be a potential buying opportunity.
Gold:
Gold pushing through to the 1260's and continuing its rally seems to indicate continued scepticism over the stability of fiat currency? Gold rising due to continued expectations of a low rate environment. Gold rallying on inflation concerns (Despite US CPI contracting -0.2% in May?).
I dont think its any of the above. I think simply that Gold declined with the market correction in May, with correlation to the commodities markets as fears grew over the sustainability of demand from China, and it has simply bounced back with them. Given the sharp surge in the dollar during that period, as a flight to safety, with the dollar index hitting 89, the recent pullback to 85 may have lead Gold to benefit from the weak dollar.
Gold has been notoriously difficult, in my opinion to gage following its sharp decline in December as an implrovement in payroll figures led the dollar to begin its rally. Prior to this Gold had rallied with the Dow (as the global recovery seemed to call for inflation that would outpace Bernanke's rate increases).
However having broken its previous May high of 1250, I would consider going long, with a tight stop, to target 1300. However, given the underlying Debt problems in the market, and the potetial for a fast downturn in the market at any moment, I would have to pair this trade with a short position in another asset correlated to Gold which I do not expect to perform as well.
The impact of Q2 earnings season due to be commencing soon is likely to favour a continued rally in the Dow to the 11000 zone, and perhaps beyond if the Eurozone can keep quiet.
Crude:
Crude has support at 75, and looks like it may attempt to make its way back to the lower 80's, with a previous high of 87. Personally I do not feel that the demand from China will suffice to maintain crude at these levels, I expect to see a "new normal" type situation in the Eurozone with subdued growth, so from a supply demand point of view, I think there is potential for crude to continue to range between 75-lower 80's for a while more.
Yuan:
China has stated that it will take a more flexible approach to its exchange rate, by removing its peg to the Dollar. Given the recent appreciation of the Dollar, I dont see a massive rally in the Yuan. However what will be interesting to see will be its affect on USDJPY, as a strengthening of the Yuan may lead to Japense exports becoming more competitive and leading to an incease in demand for the Yen.
Longer term:
If corporate earnings season fails to beat estimates this time, then what can hold the market up? With government debt problems, cutting in consumer credit lines, lack of robust hiring in the private sector, high unemployment, the fundamentals dont look great at the moment. But that doesnt mean the market cant go higher for now.
Strategies:
1)long dow 10436, stop 10200, target 10700.
Reducing beta risk from Eurozone: Short FTSE (The Ftse has immediate support at 5236 and below that at 5000, however resistance at 5436, with Q2 earnings due to come out first in the US it is more likely that the Dow will outperform the FTSE).
Tuesday, 4 May 2010
Greece heats up the market-Get your shorts on?
With continuing fears over Greece, and the market not believing that it will be able to sustain a spending cut that would allow it to prevent a default, the yield on Greek 2Yr Bonds currently around 16%. Despite solid earnings and the Dow reaching a high of 11200 in the previous weeks, and even coming back to 11150's yesterday, even good earnings results from the likes of UBS cannot hold off the market. Fears of contagion with Portugal recently being downgraded, and widening of spreads of Portuguese and Spanish bonds, has raised fears in the market that there is more to this "debt crisis" as previously thought.
Yes companies earnings are outperforming, however with Q1 results soon to draw to an end, the balance of news moving the markets will be between debt related news from the P.I.G.S versus the likely improvements in American indicators. And no doubt the debt related news from the P.I.G.S will be more heavily weighted.
Quotes:
Dow 10914
FTSE 5410
EUR/USD 12900!!
GBP/USD 15140
Crude 8207
Barclays 323
RBS 50.8
Xstrata 10.02
USD Index 83.48!!
The miners have been undergoing a correction for the past few weeks, as contnuing fears over the impact of the Greece situation and fears starting to grow over a possible bubble in China (specifically in the housing market, and its relationship with homebuilders, and industrial metals).
Where the USD Index was recently dropping down to 79-80 region, the massive burst in volatility and rise in greek yields has spurred a flight to quality, risk aversion rally with US treasury yields dropping.
The DOW having today broken its 20 day moving average, and currently sitting close to its 50 day moving average at 10900, a solid break to around 10880, would be a good shorting opportunity targeting 10750 (with a stop at 11005). However with Non farm payrolls due for release on Friday (and the possibility of a large increase of 100k or 200k jobs) this is an uncertain proposition. However, although we cannot gage the dynamic of the market til the night before, it stands to be a reasonable possibility that even a big decrease in the unemployment rate, and a 100-150 pt rally, may prove only temporary as Greece and debt related news will no likely dominate over the coming weeks.
Cure oil inventories due to come out this week, are likely to indicate a further increase in supply (as the price of $82 is largely a result of perception of future demand based on the expected demand of China and the recovering global economy), so I would expect a possible drop to the mid to lower 70's if the price manages to break support at the $79.50 level.
Financial stocks continuing a week long correction, aided by underperforming earnings by Barclays, and also possible default related losses from the Eurozone, as well as their general beta correlation to general market sentiment. However trend line still remains in tact, buying would be a matter of ones conviction on the contagion aspect of Greece.
Trading Strategies:
Short EUR/USD at 1.295 Stop 1.305 Target 1.25 with no support til 1.25, and resistance at 1.30 is a good risk/reward ratio for a shorting opportunity.
Duration:1-2 weeks, Exit conditions: If you feel there is extensive proof to a resolution of the Eurozone debt fears
Buy Gold at 1169, and to be bought until 1165 stop, with an upside target of 1220 in 2-3 weeks. Also a great beta hedge with the EUR/USD play above, as they are usually negatively correlated.
Short Dow at 10885, Stop 11012 Target 10750.
Exit Conditions; Non Farm Payrolls shows amazing improvement in American Economy, and the Dow breaks strongly above 11000, so 11030s.
Short FTSE? Although it is likely that a hung parliament will result from the election on Thursday, market reactions I do not feel have been too pessimistic about this (looking at GBP/USD still above 1.50 also), so although there is a technically strong shorting possibility witha stop at 5600, targeting 5000 this would have to be combined with, in my opinion a bet on the election outcome or played after the election result (Which I feel may even provide a short term bounce to the market with a Conservative victory).
Yes companies earnings are outperforming, however with Q1 results soon to draw to an end, the balance of news moving the markets will be between debt related news from the P.I.G.S versus the likely improvements in American indicators. And no doubt the debt related news from the P.I.G.S will be more heavily weighted.
Quotes:
Dow 10914
FTSE 5410
EUR/USD 12900!!
GBP/USD 15140
Crude 8207
Barclays 323
RBS 50.8
Xstrata 10.02
USD Index 83.48!!
The miners have been undergoing a correction for the past few weeks, as contnuing fears over the impact of the Greece situation and fears starting to grow over a possible bubble in China (specifically in the housing market, and its relationship with homebuilders, and industrial metals).
Where the USD Index was recently dropping down to 79-80 region, the massive burst in volatility and rise in greek yields has spurred a flight to quality, risk aversion rally with US treasury yields dropping.
The DOW having today broken its 20 day moving average, and currently sitting close to its 50 day moving average at 10900, a solid break to around 10880, would be a good shorting opportunity targeting 10750 (with a stop at 11005). However with Non farm payrolls due for release on Friday (and the possibility of a large increase of 100k or 200k jobs) this is an uncertain proposition. However, although we cannot gage the dynamic of the market til the night before, it stands to be a reasonable possibility that even a big decrease in the unemployment rate, and a 100-150 pt rally, may prove only temporary as Greece and debt related news will no likely dominate over the coming weeks.
Cure oil inventories due to come out this week, are likely to indicate a further increase in supply (as the price of $82 is largely a result of perception of future demand based on the expected demand of China and the recovering global economy), so I would expect a possible drop to the mid to lower 70's if the price manages to break support at the $79.50 level.
Financial stocks continuing a week long correction, aided by underperforming earnings by Barclays, and also possible default related losses from the Eurozone, as well as their general beta correlation to general market sentiment. However trend line still remains in tact, buying would be a matter of ones conviction on the contagion aspect of Greece.
Trading Strategies:
Short EUR/USD at 1.295 Stop 1.305 Target 1.25 with no support til 1.25, and resistance at 1.30 is a good risk/reward ratio for a shorting opportunity.
Duration:1-2 weeks, Exit conditions: If you feel there is extensive proof to a resolution of the Eurozone debt fears
Buy Gold at 1169, and to be bought until 1165 stop, with an upside target of 1220 in 2-3 weeks. Also a great beta hedge with the EUR/USD play above, as they are usually negatively correlated.
Short Dow at 10885, Stop 11012 Target 10750.
Exit Conditions; Non Farm Payrolls shows amazing improvement in American Economy, and the Dow breaks strongly above 11000, so 11030s.
Short FTSE? Although it is likely that a hung parliament will result from the election on Thursday, market reactions I do not feel have been too pessimistic about this (looking at GBP/USD still above 1.50 also), so although there is a technically strong shorting possibility witha stop at 5600, targeting 5000 this would have to be combined with, in my opinion a bet on the election outcome or played after the election result (Which I feel may even provide a short term bounce to the market with a Conservative victory).
Monday, 12 April 2010
Dow 11000- Stay Long
Having broken the 11000 barrier last week the Dow still looks technically strong. Despite confusion over the Greece deficit and bail out situation on Friday, the Greece government bonds spreads have reduced back below the 450 bpt mark as news is released of another proposed $61 billion promise from the eurozone and IMF combined, in order to avoid a potential future default.Market volatility today was at a 2yr low.
Quotes:
Dow 11,000
FTSE 5772
USD 80.57
Gold 1156.70
Crude Oil 8432
EUR/USD 13590
GBP/USD 15370
Xstrata 1283
Underlying conditions? Housing, consumer credit, still weak. Meredith Whitney estimating that banks and lenders willl cut $2.7 trillion in outstanding credit lines by 2011.
However the market is technically strong. Liquidity driven bull market continues. Potential obstacles would be further default scares from Portugal, Spain, UK, however with Q1 earnings season approaching I think it is likely that earnings outperformance will be able to counter any bearish news from possible downgrades in credit ratings of P.I.G.S..
Greek bond auctions tomorrow should set the tone, for whether the market has faith in the new proposal, and a furtehr tightening of greek bond yields should aid the market in maintaining its bullish dynamic.
Commodity stocks have seen a slight pause in their rally with the dollar also having weakened, from its previous 82 zone. A good opening tomorrow, be indicative of a high probability play for them to continue to previous highs (e.g. Rio Tinto currently at 39.46, high of 41.04)
Strategy:
Long Dow, Stop at 10880. Buy any corrections below 11000.
Quotes:
Dow 11,000
FTSE 5772
USD 80.57
Gold 1156.70
Crude Oil 8432
EUR/USD 13590
GBP/USD 15370
Xstrata 1283
Underlying conditions? Housing, consumer credit, still weak. Meredith Whitney estimating that banks and lenders willl cut $2.7 trillion in outstanding credit lines by 2011.
However the market is technically strong. Liquidity driven bull market continues. Potential obstacles would be further default scares from Portugal, Spain, UK, however with Q1 earnings season approaching I think it is likely that earnings outperformance will be able to counter any bearish news from possible downgrades in credit ratings of P.I.G.S..
Greek bond auctions tomorrow should set the tone, for whether the market has faith in the new proposal, and a furtehr tightening of greek bond yields should aid the market in maintaining its bullish dynamic.
Commodity stocks have seen a slight pause in their rally with the dollar also having weakened, from its previous 82 zone. A good opening tomorrow, be indicative of a high probability play for them to continue to previous highs (e.g. Rio Tinto currently at 39.46, high of 41.04)
Strategy:
Long Dow, Stop at 10880. Buy any corrections below 11000.
Wednesday, 17 March 2010
Dow New High-BUY?
The Dow made a 17 month high today, maintinaing its positive dynamic following Tuesdays FOMC statement of rates remaining low for an "extended period". Having broken past the key resistance level of 10700, this now looks to become key support, and now looks like an opportune moment to go long.
Obviously there are still potential volatile events relating to P.I.G.S and a possible downgrade of the US or the UK, however market consensus right now seems to be that its all fine, Greece and anyone else who needs to will be bailed out, and the market will work itself out in the event of a downgrade, and borowing costs for the US should not rise too much. I dont know about that, but I know that one must not fight the tape. And while fundamentals in my opinion, are still weak, a liquidity driven market where excess money is being printed is very likely to drive the price of assets higher, and also lead to inflation. Given the nature of markets, and that when everyone is bullish, (as everyone, really seems to be, in the media anyway) I would advise a tight stop, an inital stop at 10700, and a second stop at 10650 (for longs placed in the 10670/10680 region).
With CPI due for release tomorrow however, my view is that over the coming weeks it is more likely to beat expectations, and with forecast currently at 0.1% I think it is likely to be beat or matched. Given however that the markets are currently fearful of inflation, any major overshoot on this result could provide a 30-50pt sell off, and this would be looked at as a buying opportunity tomorrow in my opinion given the current market dynamic, and in the absence of any unexpected debt related news.
GBP/USD has been driven up by a short squeeze as perception of fundamentals improves with better than expected unemployment report, and also a general easing of fears relating to government debt (despite Mondays news relating to potential cuts for the UK and US ratings). Although there is continuing unexpected news possibilities, with random poles on the election, and the "hung parliament" scenario coming back in to cause weakness in the pound. Fundamentally given this, and deficit, and the lack of improvement in the economy, I feel the pound is currently still susceptible to a sell off. However you cant fight the tape, and with a tight stop at 15285 I am looking to go long.
Quotes:
DOW 10739
FTSE 5645
GBP/USD 15324
EUR/USD 13737
Gold 1123
Crude 8306
Goldmans 176.68
RBS 43.55
USD Index 79.74
Trading strategies for Thursday 18th:
1)Buy GBP/USD 15324, Stop 15285 Target15380, however medium term target to 1.56-1.57, and potentially beyond.
2)Buy Dow current 10739, Stop 10700. Target 10790
Buy Dow at 10680, stop 10650, target 10730.
A longer term trade would be placement of a stop in the 10400 region, as there is also support there, however this is likely to be reached only if there is sudden unexpected news, hence it would be good to combine this with puts, or buying the VIX.
In order to hedge beta, or correlation risk, I would be looking to short crude, as it is close to upside resistance, at 8350
3)Short Crude 8309, target 8250 (however short to be held as long as above longs are held). (crude postion to be approx 30% of the portfolio)
4)long ftse, at 5645, stop at 5600, target 5700.
short term (next day)
Alternatively shorting the FTSE in proportion to the Dow would enable a beta hedge, as the Dow currently looks technically stronger than the FTSE in my opinion.
Medium Term (1/2 weeks):
Long FTSE
Long Dow
Obviously there are still potential volatile events relating to P.I.G.S and a possible downgrade of the US or the UK, however market consensus right now seems to be that its all fine, Greece and anyone else who needs to will be bailed out, and the market will work itself out in the event of a downgrade, and borowing costs for the US should not rise too much. I dont know about that, but I know that one must not fight the tape. And while fundamentals in my opinion, are still weak, a liquidity driven market where excess money is being printed is very likely to drive the price of assets higher, and also lead to inflation. Given the nature of markets, and that when everyone is bullish, (as everyone, really seems to be, in the media anyway) I would advise a tight stop, an inital stop at 10700, and a second stop at 10650 (for longs placed in the 10670/10680 region).
With CPI due for release tomorrow however, my view is that over the coming weeks it is more likely to beat expectations, and with forecast currently at 0.1% I think it is likely to be beat or matched. Given however that the markets are currently fearful of inflation, any major overshoot on this result could provide a 30-50pt sell off, and this would be looked at as a buying opportunity tomorrow in my opinion given the current market dynamic, and in the absence of any unexpected debt related news.
GBP/USD has been driven up by a short squeeze as perception of fundamentals improves with better than expected unemployment report, and also a general easing of fears relating to government debt (despite Mondays news relating to potential cuts for the UK and US ratings). Although there is continuing unexpected news possibilities, with random poles on the election, and the "hung parliament" scenario coming back in to cause weakness in the pound. Fundamentally given this, and deficit, and the lack of improvement in the economy, I feel the pound is currently still susceptible to a sell off. However you cant fight the tape, and with a tight stop at 15285 I am looking to go long.
Quotes:
DOW 10739
FTSE 5645
GBP/USD 15324
EUR/USD 13737
Gold 1123
Crude 8306
Goldmans 176.68
RBS 43.55
USD Index 79.74
Trading strategies for Thursday 18th:
1)Buy GBP/USD 15324, Stop 15285 Target15380, however medium term target to 1.56-1.57, and potentially beyond.
2)Buy Dow current 10739, Stop 10700. Target 10790
Buy Dow at 10680, stop 10650, target 10730.
A longer term trade would be placement of a stop in the 10400 region, as there is also support there, however this is likely to be reached only if there is sudden unexpected news, hence it would be good to combine this with puts, or buying the VIX.
In order to hedge beta, or correlation risk, I would be looking to short crude, as it is close to upside resistance, at 8350
3)Short Crude 8309, target 8250 (however short to be held as long as above longs are held). (crude postion to be approx 30% of the portfolio)
4)long ftse, at 5645, stop at 5600, target 5700.
short term (next day)
Alternatively shorting the FTSE in proportion to the Dow would enable a beta hedge, as the Dow currently looks technically stronger than the FTSE in my opinion.
Medium Term (1/2 weeks):
Long FTSE
Long Dow
Tuesday, 16 March 2010
Dow not moving just grooving-Wait and See
Quotes:
FTSE 5625
Dow 10657
USD 80.16
Crude 80.04
Gold 1113
GBP/USD 15100
EUR/USD 13690
Xstrata 1168
The Dow has continued to ebb higher with the generally positive market dynamic, as the Euro plans to put in measures to bail out Greece if required, and fears of contagion relating to sovereign debt calm. EUR/USD having rallied of 13500 has the potential to make it back to the 14000 provided the FED maintains its stance tomorrow of keeping rates low for an “extended period”. Given the potential problems in the market, and ongoing problem with the weakness of the Yuan, I think it is likely that they will maintain the same outlook.
Announcements by credit rating agencies that the UK and US were close to having their ratings cut did not trigger any significant sell off (bull market dynamic), with the market rallying into the close as Dodd’s financial regulation plans come in weaker than expected.
Miners have seen 3-4% correction as China continues to take a tough stance on preventing overheating and hyperinflation, suggesting further tightening. Oil rallied from 7930 today back into the $80 region as the market maintains its positive dynamic.
At the moment the miners seem to be hitting key resistance, a point to note would be that despite China’s efforts to slow down its economy, and prevent runaway inflation, it doesn’t necessarily mean it will be able to do so. Hence the demand for miners is likely to remain high, and so earnings are likely to be a key catalyst to maintain their rally.
Financials continue to rally with easing of Government debt fears, and tightening of sovereign spreads. Goldman Sachs having approached key resistance at $175,a break above this would suggest a high probability rally to the $190 region, pending the completed release of Dodd’s financial regulation reform. I also continue to be long RBS, with a tight stop. Longer term investors may consider a stop at 40p (in case of any unexpected news relating to downgrades of the UK government, or UK fiscal situation).
However we have reached significant resistance on the Dow, with the market unable to hold on to the 10700 region. Most likely the catalyst for a move beyond this would be Q1 earnings season, however any significant improvement in non farm pay rolls may provide the push through, turning 10700 into a key support level.
Right now the risk/reward ratio isn’t really there to go long, so the key is to wait, for a break to the upside past 10700, or another corrective phase.
Possible ratings cuts, and further pre election surveys pose further downside risk to GBP/USD making it difficult to forecast, however, from a purely technical perspective any large daily move up to 15200/15300 would be seen as potential for a rally back to 16000.
Oil having met key resistance once again in the $82 region, crude looks set to continue to range, between 78-82 (in absence of any bearish news that could trigger a further correction to the lower 70’s region).
In my opinion the underlying conditions of the economy, in relation to consumer spending, availability of consumer credit, unemployment, and the American housing market, continue to remain weak. However with quantitative easing set to continue opaquely via Fannie Mae and Freddie Mac, there is a good chance of an ongoing liquidity driven rally (once the Dow is able to break above 10700).
FTSE 5625
Dow 10657
USD 80.16
Crude 80.04
Gold 1113
GBP/USD 15100
EUR/USD 13690
Xstrata 1168
The Dow has continued to ebb higher with the generally positive market dynamic, as the Euro plans to put in measures to bail out Greece if required, and fears of contagion relating to sovereign debt calm. EUR/USD having rallied of 13500 has the potential to make it back to the 14000 provided the FED maintains its stance tomorrow of keeping rates low for an “extended period”. Given the potential problems in the market, and ongoing problem with the weakness of the Yuan, I think it is likely that they will maintain the same outlook.
Announcements by credit rating agencies that the UK and US were close to having their ratings cut did not trigger any significant sell off (bull market dynamic), with the market rallying into the close as Dodd’s financial regulation plans come in weaker than expected.
Miners have seen 3-4% correction as China continues to take a tough stance on preventing overheating and hyperinflation, suggesting further tightening. Oil rallied from 7930 today back into the $80 region as the market maintains its positive dynamic.
At the moment the miners seem to be hitting key resistance, a point to note would be that despite China’s efforts to slow down its economy, and prevent runaway inflation, it doesn’t necessarily mean it will be able to do so. Hence the demand for miners is likely to remain high, and so earnings are likely to be a key catalyst to maintain their rally.
Financials continue to rally with easing of Government debt fears, and tightening of sovereign spreads. Goldman Sachs having approached key resistance at $175,a break above this would suggest a high probability rally to the $190 region, pending the completed release of Dodd’s financial regulation reform. I also continue to be long RBS, with a tight stop. Longer term investors may consider a stop at 40p (in case of any unexpected news relating to downgrades of the UK government, or UK fiscal situation).
However we have reached significant resistance on the Dow, with the market unable to hold on to the 10700 region. Most likely the catalyst for a move beyond this would be Q1 earnings season, however any significant improvement in non farm pay rolls may provide the push through, turning 10700 into a key support level.
Right now the risk/reward ratio isn’t really there to go long, so the key is to wait, for a break to the upside past 10700, or another corrective phase.
Possible ratings cuts, and further pre election surveys pose further downside risk to GBP/USD making it difficult to forecast, however, from a purely technical perspective any large daily move up to 15200/15300 would be seen as potential for a rally back to 16000.
Oil having met key resistance once again in the $82 region, crude looks set to continue to range, between 78-82 (in absence of any bearish news that could trigger a further correction to the lower 70’s region).
In my opinion the underlying conditions of the economy, in relation to consumer spending, availability of consumer credit, unemployment, and the American housing market, continue to remain weak. However with quantitative easing set to continue opaquely via Fannie Mae and Freddie Mac, there is a good chance of an ongoing liquidity driven rally (once the Dow is able to break above 10700).
Thursday, 4 March 2010
Non Farm Payrolls
With better than expected Initial Jobless claims today, at 469K compared to 475K, the market has remained buoyant, and maintained its positive dynamic,with the Dow currently at 10430. The market has remained constrained in its range though, as Pending homesales decline, coming in at -8.8% vs forecast of 1.5%.
Earlier today BOE maintained its program, and did not announce any further QE, and maintained the base rate at 0.5% (however some have sugested that although furtehr QE may be required in the future, this was not the time to announce it with GBP/USD strugglign to hang on to the 1.5 mark).
Market fears over Greece have largerly subsided, over market perceptions that the ECB bail out is a certainty (although Trichet still has not provided any clear details), and a successful and oversubscribed bond auction today by Greece ios further evidence of this.
Quotes
FTSE 5543
Dow 10450
GBP/USD 15032
EUR/USD 13579
Gold 1133
USD 80.53
Scenarios
Non Farm Pay Rolls market Forecast:
Unemployment rate: 9.8%
Change in payrolls: -40K
With severe snow in some regions of the US during February the consensus is that it is likely that the job losses will be greater than previously forecast:
1) Non Farm Pay Rolls <-80K
Dow sells off initally maybe to 10250 region, or lower 10300. USD Index maybe toward 80.11, 79.90.
Both would be buying opportunities in my opinion, and I expect the Dow to rally back quickly due to the current positive market dynamic,and close out higher.
2) Non Farm Pau rolls between -50K to -20K.
No real change
3) Non Farm Payrolls >-10K
Dow rally 100 points to 10500 region, and if payrolls are positive over 10k then maybe a steeper rally, that should give back a small amount towards the close.
Dollar rally past 81, toward 81.50)
Also Goldman Sachs looks strong, having recently broken its 50 day moving average, having closed at $163.65 (from an Opening of $157.69). And may do well if Payrolls are at least neutral.
Earlier today BOE maintained its program, and did not announce any further QE, and maintained the base rate at 0.5% (however some have sugested that although furtehr QE may be required in the future, this was not the time to announce it with GBP/USD strugglign to hang on to the 1.5 mark).
Market fears over Greece have largerly subsided, over market perceptions that the ECB bail out is a certainty (although Trichet still has not provided any clear details), and a successful and oversubscribed bond auction today by Greece ios further evidence of this.
Quotes
FTSE 5543
Dow 10450
GBP/USD 15032
EUR/USD 13579
Gold 1133
USD 80.53
Scenarios
Non Farm Pay Rolls market Forecast:
Unemployment rate: 9.8%
Change in payrolls: -40K
With severe snow in some regions of the US during February the consensus is that it is likely that the job losses will be greater than previously forecast:
1) Non Farm Pay Rolls <-80K
Dow sells off initally maybe to 10250 region, or lower 10300. USD Index maybe toward 80.11, 79.90.
Both would be buying opportunities in my opinion, and I expect the Dow to rally back quickly due to the current positive market dynamic,and close out higher.
2) Non Farm Pau rolls between -50K to -20K.
No real change
3) Non Farm Payrolls >-10K
Dow rally 100 points to 10500 region, and if payrolls are positive over 10k then maybe a steeper rally, that should give back a small amount towards the close.
Dollar rally past 81, toward 81.50)
Also Goldman Sachs looks strong, having recently broken its 50 day moving average, having closed at $163.65 (from an Opening of $157.69). And may do well if Payrolls are at least neutral.
Sunday, 28 February 2010
Ranging Not Changing-Dow 10300
Weaker than epxected consumer confidence on Tuesday helped trigger an intial sell off in the Dow to the 10200 region. However, Bernankes statement of keeping rates low "for an extended period" combined with outperformance of US GDP at 5.9% (vs forecast 5.7%), and the general market dynamic, helped the market bounce back.
Quotes (End of week)
Dow 10338
FTSE 5372
EUR/USD 13633
GBP/USD 15238
USD Index 80.36
Crude 7963
Gold 1118
I still feel the underlying conditions are weak. The catalyst for intiating a broader sell off will be a growth in the prevalence of news relating to Government debt issues. The plans surrounding the Greece issue, and also further bearish news relating to Dubai, and other countries in the P.I.G.'s nations are liekly to grab more attention as we pull away from the close of earnings season.
Coming Week:
Major news events in the coming week are Eurozone unemployment rate, CAD GDP, CAD rates decision, CHF GDP, GBP rates decision as well as the all important Non Farm Pay Rolls on Friday.
I think it is likely that Eurozone figures will be as expected or worse, CAD GDP likely to outperform at 4.2% (vs forecast 4%), and rates likely to remain unchanged across the board.
UK GDP calculated up at 0.3% (vs 0.1%), and although this is good news, its weak compared to other G7 nations, and I think its likely that BOE will not close out the possibility of further QE.
Non farm payrolls forecast at 9.7% and -40K losses, I think is likely to be as expected or worse, given that I cannot see any reason for there to be an increase in hiring.
The US dollar index having fallen back to 80.36, and Bernanke maintaing his position of keeping rates low "for an extended period", which I think is likely to be longer than current market forecast of June. However I am still bullish on the dollar (as stimulus induced news such as GDP continues to outperform, and with continuing risk aversion), and would be looking to add to my position on any sell off (in particular on Friday with Non Farms).
I think the DOW has a positive bias dynamic at the moment, and with some strong support at the 10,000 level I would be looking for it to remain within its range of 10400-10200(due to an absence of any major news releases to be on hte upside in my opinion),prior to Thursdays initial jobless claims.
Stratgies:
1)Buy USD Index at 8036, Target 8100, Stop 7990 (prior to Non Farm Payrolls)
However as a LONG Term strategy I would be looking to buy now at 80.36, and adding to my position if possible, in the 79 and 78 region.
2)Sell GBP/USD at 15350/15400
I think the possibility of further QE is likely, and with no real intermediate support for GBPUSD til the 1.38 region I would be looking to sell. However given the dynamic of the market I think a Monday bounce back to the 1.53/1.54 zone is possible, and would be looking to sell the rallies.
3) EUR/USD wait for unemployment rate on Monday
If EUROZONE unemployment rate is significantly worse than expected I would be looking to sell, targeting the 1.34 region. However, what would be the easier play in my opinion, would be if surprsingly it outperformed, and we could see a big shoot up to 1.37/1.38 followed by a quick sell off.
However what would be a more interesting trade would be utilising the correlation of EUR/USD with Oil, and Gold, and given that I think some of the UK miners, particularly Xstrata are due for a bounce on Monday open, I would be looking to go for a combined strategy. However will have to wait for the dynamic of the market on Monday open.
Quotes (End of week)
Dow 10338
FTSE 5372
EUR/USD 13633
GBP/USD 15238
USD Index 80.36
Crude 7963
Gold 1118
I still feel the underlying conditions are weak. The catalyst for intiating a broader sell off will be a growth in the prevalence of news relating to Government debt issues. The plans surrounding the Greece issue, and also further bearish news relating to Dubai, and other countries in the P.I.G.'s nations are liekly to grab more attention as we pull away from the close of earnings season.
Coming Week:
Major news events in the coming week are Eurozone unemployment rate, CAD GDP, CAD rates decision, CHF GDP, GBP rates decision as well as the all important Non Farm Pay Rolls on Friday.
I think it is likely that Eurozone figures will be as expected or worse, CAD GDP likely to outperform at 4.2% (vs forecast 4%), and rates likely to remain unchanged across the board.
UK GDP calculated up at 0.3% (vs 0.1%), and although this is good news, its weak compared to other G7 nations, and I think its likely that BOE will not close out the possibility of further QE.
Non farm payrolls forecast at 9.7% and -40K losses, I think is likely to be as expected or worse, given that I cannot see any reason for there to be an increase in hiring.
The US dollar index having fallen back to 80.36, and Bernanke maintaing his position of keeping rates low "for an extended period", which I think is likely to be longer than current market forecast of June. However I am still bullish on the dollar (as stimulus induced news such as GDP continues to outperform, and with continuing risk aversion), and would be looking to add to my position on any sell off (in particular on Friday with Non Farms).
I think the DOW has a positive bias dynamic at the moment, and with some strong support at the 10,000 level I would be looking for it to remain within its range of 10400-10200(due to an absence of any major news releases to be on hte upside in my opinion),prior to Thursdays initial jobless claims.
Stratgies:
1)Buy USD Index at 8036, Target 8100, Stop 7990 (prior to Non Farm Payrolls)
However as a LONG Term strategy I would be looking to buy now at 80.36, and adding to my position if possible, in the 79 and 78 region.
2)Sell GBP/USD at 15350/15400
I think the possibility of further QE is likely, and with no real intermediate support for GBPUSD til the 1.38 region I would be looking to sell. However given the dynamic of the market I think a Monday bounce back to the 1.53/1.54 zone is possible, and would be looking to sell the rallies.
3) EUR/USD wait for unemployment rate on Monday
If EUROZONE unemployment rate is significantly worse than expected I would be looking to sell, targeting the 1.34 region. However, what would be the easier play in my opinion, would be if surprsingly it outperformed, and we could see a big shoot up to 1.37/1.38 followed by a quick sell off.
However what would be a more interesting trade would be utilising the correlation of EUR/USD with Oil, and Gold, and given that I think some of the UK miners, particularly Xstrata are due for a bounce on Monday open, I would be looking to go for a combined strategy. However will have to wait for the dynamic of the market on Monday open.
Monday, 22 February 2010
P.I.G.S. fly away Bulls come out- Buy Dollar
With the Dow currently trading at 10430, and crude back at $80 the market has pushed forward the past week with the recovery in corporate earnings overcoming fears of sovereign debt defaults. Friday was a mixed day with options expiry causing unexpected market movements, defying usual correlations, and news of Bernanke raising the Fed discount rate for Banks, saw the market sell off and quickly recover (over the prospect that the move indicates a belief in the recovering economy).
Quotes:
FTSE 5378
Dow 10423
Crude 8025
EUR/USD 13681
GBP/USD 15570
Gold 1121
USD Index 8029
Weaker than expected news, with the UK failing to post a trade surplus for January, and continuing fears over the fiscal situation leading to weakness in the Pound.
Bearing this in mind. I think the underlying conditions are still weak in the global economy, however particularly in the US, with previously mentioned aspects such as availability of credit, consumer lending, and unemployment levels. Stocks can continue to rise as companies are able to produce better than forecast earnings, however how long can this continue? How will, what now seems to be, a closer exit strategy by the Fed, and higher interest rates affect small businesses?
Meredith Whitney stated earlier this week that she estimates bank earnings to be 30% below forecast, with higher capital requirements, and regulatory form, likely to reduce profit margins. The problem for banks is that loan default rates are still likely to be high, from "bad borrowers", and "good borrowers" aren't borrowing.
In the absence of new news relating to Government Defaults, with problems in Dubai, Greece, Italy, Portugal, and Spain, the market is likely to continue towards 10700, aiming to take out previous resistance.
However, given the number of bearish news event possibilities, I continue to be sceptical over the rally.
Gold has remained above its breakout wedge, and with 84% positive correlation to the S&P over a 1month time frame, I would be looking to go long gold at some stage, having opened up Sunday night at 1127.
However, I just don't feel like buying, right now.
Strategy:
Buy USD Index 8029, Stop 7968 Target 8130
The Dollar Index currently at 8029 is also good value in my opinion, with support at 7968 and near term resistance/target of 8139.
Quotes:
FTSE 5378
Dow 10423
Crude 8025
EUR/USD 13681
GBP/USD 15570
Gold 1121
USD Index 8029
Weaker than expected news, with the UK failing to post a trade surplus for January, and continuing fears over the fiscal situation leading to weakness in the Pound.
Bearing this in mind. I think the underlying conditions are still weak in the global economy, however particularly in the US, with previously mentioned aspects such as availability of credit, consumer lending, and unemployment levels. Stocks can continue to rise as companies are able to produce better than forecast earnings, however how long can this continue? How will, what now seems to be, a closer exit strategy by the Fed, and higher interest rates affect small businesses?
Meredith Whitney stated earlier this week that she estimates bank earnings to be 30% below forecast, with higher capital requirements, and regulatory form, likely to reduce profit margins. The problem for banks is that loan default rates are still likely to be high, from "bad borrowers", and "good borrowers" aren't borrowing.
In the absence of new news relating to Government Defaults, with problems in Dubai, Greece, Italy, Portugal, and Spain, the market is likely to continue towards 10700, aiming to take out previous resistance.
However, given the number of bearish news event possibilities, I continue to be sceptical over the rally.
Gold has remained above its breakout wedge, and with 84% positive correlation to the S&P over a 1month time frame, I would be looking to go long gold at some stage, having opened up Sunday night at 1127.
However, I just don't feel like buying, right now.
Strategy:
Buy USD Index 8029, Stop 7968 Target 8130
The Dollar Index currently at 8029 is also good value in my opinion, with support at 7968 and near term resistance/target of 8139.
Sunday, 14 February 2010
Dow 10700?-When P.I.G.S. start flying-Buy GBPUSD, long FTSE with short Dow
Another mediocre week in the market, with the dow ranging between 9800-10100. The market bounced on Tuesday with news that Germany would step in to "bail out" Greece, however the plans lacked detail and were quickly withdrawn, with Germany's economy having performed unexpectedly poorly in the final quarter (flat GDP results).
Quotes (end of week)
FTSE 5172
Dow 10145
US Index 8050
EUR/USD 13634
Gold 1093.7
GBP/USD 15700
China raising reserve requirements by 0.5 bps also flattened out the Tuesday rebound in commodities, with most mining stocks ending the week pretty much flat.
Week ahead:
Significant releases to come from the UK, with CPI (-0.6% foreceast), UK unemployment (7.8% forecast, -10K job losses), and the Bank of England Minutes. I think UK unemployment is likely to have bottomed,and CPI to continue its inflationary trend from last month. I think GBPUSD could target the 1.6 region.
With fears over Greece likely to continue unless a clear plan of action is issued, relating to the IMF or some other bail out plan, there is likely to be only a short term, bounce in the Euro, and Dow.
I think the possiblity of further negative news relating to Italy, Spain, Portugal as well as Dubai (for which clear plans have not been revealed) the market is likely to remain ranged at best, but with all these uncertainties, I must remain bearish.
Greece and the property market:
I have been thinking whether, ironically, the situation with Greece and a resumption in risk aversion could be benefical to the American economy. With continuing fears we have seen yields on treasuries fall, this month, the 30YR has gone from 4.71 to 4.65%. With the possibility further risk aversion, I am interested in the possibility of a lower yield 30 YR treasuries being helpful in stimulating more buyer demand in the American property market, in the below sort of chain:
Eurozone problems=>Lower Yields on 30Yr=>Greater affordability of mortgages=>Increased demand in property market=>reduced foreclosures =>reduced "toxicity" of the MBS=>Greater excess reserves in banks=>Banks lend more freely=>Increased demand in property, hiring and so on..
However, that is more just a peculiarity I wanted to mention.
Week ahead my strategy would be to go long GBPUSD, and slightly short Eurusd (to beta hedge)
And long FTSE, slightly less short Dow (as a beta hedge).
Quotes (end of week)
FTSE 5172
Dow 10145
US Index 8050
EUR/USD 13634
Gold 1093.7
GBP/USD 15700
China raising reserve requirements by 0.5 bps also flattened out the Tuesday rebound in commodities, with most mining stocks ending the week pretty much flat.
Week ahead:
Significant releases to come from the UK, with CPI (-0.6% foreceast), UK unemployment (7.8% forecast, -10K job losses), and the Bank of England Minutes. I think UK unemployment is likely to have bottomed,and CPI to continue its inflationary trend from last month. I think GBPUSD could target the 1.6 region.
With fears over Greece likely to continue unless a clear plan of action is issued, relating to the IMF or some other bail out plan, there is likely to be only a short term, bounce in the Euro, and Dow.
I think the possiblity of further negative news relating to Italy, Spain, Portugal as well as Dubai (for which clear plans have not been revealed) the market is likely to remain ranged at best, but with all these uncertainties, I must remain bearish.
Greece and the property market:
I have been thinking whether, ironically, the situation with Greece and a resumption in risk aversion could be benefical to the American economy. With continuing fears we have seen yields on treasuries fall, this month, the 30YR has gone from 4.71 to 4.65%. With the possibility further risk aversion, I am interested in the possibility of a lower yield 30 YR treasuries being helpful in stimulating more buyer demand in the American property market, in the below sort of chain:
Eurozone problems=>Lower Yields on 30Yr=>Greater affordability of mortgages=>Increased demand in property market=>reduced foreclosures =>reduced "toxicity" of the MBS=>Greater excess reserves in banks=>Banks lend more freely=>Increased demand in property, hiring and so on..
However, that is more just a peculiarity I wanted to mention.
Week ahead my strategy would be to go long GBPUSD, and slightly short Eurusd (to beta hedge)
And long FTSE, slightly less short Dow (as a beta hedge).
Thursday, 4 February 2010
Trading Strategies for Non Farm Pay Rolls tomorrow: (Sell Dow, Sell miners?)
Non farm pay rolls strategies ( market expectation is for 10K jobs to be added):
The NFP release tomorrow is also potentially very beairsh for the Dow, and the market in general as we are due the release of the anuual "revision". Which could cut up to 842K jobs from the 04/2008-03/2009 payrolls!! Which would imply that the job market was worse than previously realised, at that time. I think the sheer surprise factor of seeing a big number like that could prove extremely bearish.
I expect the Dow to break 10,000 if the payrolls are flat or negative, and perhaps to break the 10,000 level in the Asian markets overnight, or early in the European morning session.
A) Non Farm Payrolls better than expected 15k-50k (I expect the dow to be around 9950, 10050 going into the results):
1)Buy the Dow, aiming for around the 10190. However I expect the dow to sell off quickly after that, as the market awakens to the continuing obstacles to the global recovery.
2) Buy Crude. Currently at around $73. To target $75.90, and may be give some back, and close around $74.70.
3)Buy mining stocks
4)Buy Large Banks
B) Non Farm Pay rolls worse than expected. -25K to -55K
1)Sell the Dow. Which should be at around 9980-10030 going into the result. I would look for an initial target for around 9930/9950. And then a further break below to the 9800 region, perhaps stabilising at 9820. With the possiblity of a further break below, after the european close, if the figure is closer to the -55k end.
2)Sell crude. Currently at $73 to targetthe $72 region intially, and then possibly break towards $70.90.
3) Sell mining stocks
4)Sell large Banks
C) Non Farm pay rolls -57K-100K
1)Same strategy as B, except I am looking for the Dollar to actually strengthen off "bad economic news" as a flight to safety and for the price of the 2Yr to go up (in contrast to the consensus view for this news result).
Any sell off in the dollar tomorrow should be looked at as a buying opportunity in my opinion. With US dollar index currently at 8022, aiming for 81-82 in the coming weeks.
The NFP release tomorrow is also potentially very beairsh for the Dow, and the market in general as we are due the release of the anuual "revision". Which could cut up to 842K jobs from the 04/2008-03/2009 payrolls!! Which would imply that the job market was worse than previously realised, at that time. I think the sheer surprise factor of seeing a big number like that could prove extremely bearish.
I expect the Dow to break 10,000 if the payrolls are flat or negative, and perhaps to break the 10,000 level in the Asian markets overnight, or early in the European morning session.
A) Non Farm Payrolls better than expected 15k-50k (I expect the dow to be around 9950, 10050 going into the results):
1)Buy the Dow, aiming for around the 10190. However I expect the dow to sell off quickly after that, as the market awakens to the continuing obstacles to the global recovery.
2) Buy Crude. Currently at around $73. To target $75.90, and may be give some back, and close around $74.70.
3)Buy mining stocks
4)Buy Large Banks
B) Non Farm Pay rolls worse than expected. -25K to -55K
1)Sell the Dow. Which should be at around 9980-10030 going into the result. I would look for an initial target for around 9930/9950. And then a further break below to the 9800 region, perhaps stabilising at 9820. With the possiblity of a further break below, after the european close, if the figure is closer to the -55k end.
2)Sell crude. Currently at $73 to targetthe $72 region intially, and then possibly break towards $70.90.
3) Sell mining stocks
4)Sell large Banks
C) Non Farm pay rolls -57K-100K
1)Same strategy as B, except I am looking for the Dollar to actually strengthen off "bad economic news" as a flight to safety and for the price of the 2Yr to go up (in contrast to the consensus view for this news result).
Any sell off in the dollar tomorrow should be looked at as a buying opportunity in my opinion. With US dollar index currently at 8022, aiming for 81-82 in the coming weeks.
Non Farm Pay Rolls tomorrow (and revisions)-Dow to break the 10,000 barrier?
The Dow fell sharply today from the 10200 region down to a low of 10001 as worse than expected intial jobless claims were released (480K vs 460K).
The Dow had done well at the start of the week due to some better than expected news from ISM figures, and good earnings results in technology among others, and we saw commodites and mining stocks stage a 5-10% recovery from last weeks sell off.
There are fears mounting over the "contagion" aspect of government debt problems in Greece, and how much it could spread. The market is concerned that, as people underestimated the subprime debt issue as being "contained", and not big enough to cause any serious problem, the risks of interconnectedness within the institutions bearing these risks, and how they could impact lending to the wider public and therefore the eocnomy in general were overlooked.
This brings us to an important question. Can the stock market, which is a reflection of the potential future earnings of a company do well, if the companies earnings are doing well presently, despite high levels of unemployment?
Has sustainable top line growth returned? I'm not convinced. Has sustainable growth resumed, vis a vis GDP figures? I'm not convinced (inventory build ups?).
If the companies continue to produce good earnings, and people keep buying the stocks on that, then surely the market must continue to rally despite the unemployment situation? I'm not convinced. Here's why.
Essentially, where before it was the toxic balance sheets of the banks, due to all the mortgage backed securities they owned, and fears of counterparty risk among banks and not knowing who's going to be able to repay you, that drove up overnight lending rates (accelerated by Lehman's bankruptcy), and brang forward the credit crunch as such.
Essentially now what we have are Governments with bad balance sheets, and as we see yields on Greece, and Portugal continuing to rise. How will this impact yields on Gilts,Treasuries, JBG's? The triple A ratings of the United States has been questioned by the S&P ratings agency recently, stating that if there is not a convincable fiscal debt reduction strategy they may lose their rating. What will the impact of this be for the united states, the proverbial last to default?
What will the impact of US ratings cuts be on their ability to finance the interest on the debts they already owe. With mounting unemployment certainly tax revenues are down. What will the impact of US sical problems be on the markets perception of China. The worlds largest owner of American Debt?
With no evidence that unemployment has stabilised, or that there is any near term infrastructure for hiring (except for the numerous random projects the American Government is trying to create to employ people, such as building new railways and so on..) the possiblity of 30y yields rising the property market is likely to trend lower. So adding to the possibility of an increasing number of foreclosures.
In short Government debt problems, in my opinion, are likely to cause a decline in the avilability of credit from banks, due to the fact that so many banks are capitalised by government bonds. Take for example the UK, where I believe currently the FSA allows banks to hold gilts, as a risk free assets. How will their capital requirements be affected by a government debt crisis? Surely this will result in lower levels of lending to the consumer, and thus have an impact on companies earnings prospects.
Hence I am bearish on the dow in the medium term.
The Dow had done well at the start of the week due to some better than expected news from ISM figures, and good earnings results in technology among others, and we saw commodites and mining stocks stage a 5-10% recovery from last weeks sell off.
There are fears mounting over the "contagion" aspect of government debt problems in Greece, and how much it could spread. The market is concerned that, as people underestimated the subprime debt issue as being "contained", and not big enough to cause any serious problem, the risks of interconnectedness within the institutions bearing these risks, and how they could impact lending to the wider public and therefore the eocnomy in general were overlooked.
This brings us to an important question. Can the stock market, which is a reflection of the potential future earnings of a company do well, if the companies earnings are doing well presently, despite high levels of unemployment?
Has sustainable top line growth returned? I'm not convinced. Has sustainable growth resumed, vis a vis GDP figures? I'm not convinced (inventory build ups?).
If the companies continue to produce good earnings, and people keep buying the stocks on that, then surely the market must continue to rally despite the unemployment situation? I'm not convinced. Here's why.
Essentially, where before it was the toxic balance sheets of the banks, due to all the mortgage backed securities they owned, and fears of counterparty risk among banks and not knowing who's going to be able to repay you, that drove up overnight lending rates (accelerated by Lehman's bankruptcy), and brang forward the credit crunch as such.
Essentially now what we have are Governments with bad balance sheets, and as we see yields on Greece, and Portugal continuing to rise. How will this impact yields on Gilts,Treasuries, JBG's? The triple A ratings of the United States has been questioned by the S&P ratings agency recently, stating that if there is not a convincable fiscal debt reduction strategy they may lose their rating. What will the impact of this be for the united states, the proverbial last to default?
What will the impact of US ratings cuts be on their ability to finance the interest on the debts they already owe. With mounting unemployment certainly tax revenues are down. What will the impact of US sical problems be on the markets perception of China. The worlds largest owner of American Debt?
With no evidence that unemployment has stabilised, or that there is any near term infrastructure for hiring (except for the numerous random projects the American Government is trying to create to employ people, such as building new railways and so on..) the possiblity of 30y yields rising the property market is likely to trend lower. So adding to the possibility of an increasing number of foreclosures.
In short Government debt problems, in my opinion, are likely to cause a decline in the avilability of credit from banks, due to the fact that so many banks are capitalised by government bonds. Take for example the UK, where I believe currently the FSA allows banks to hold gilts, as a risk free assets. How will their capital requirements be affected by a government debt crisis? Surely this will result in lower levels of lending to the consumer, and thus have an impact on companies earnings prospects.
Hence I am bearish on the dow in the medium term.
Thursday, 28 January 2010
US GDP tomorrow-Sell Sell Sell?
The Dow reached a low of 10084 today, over coninuing pessimism with worse than expected initial jobless claims (470K vs 450K) and orders for durable goods (0.3% vs 2%), and continued uncertainty over Bernanke's relection (which was later confirmed).
Following on from the previous quarters better than expected GDP results, the market is forecast for tomorrow is 4.5%. Given the level of stimulus in place, I think we still have a 50 50 chance of this being met. However, as stated in my previous blog, will the market rally off it?
Secarios, and strategies:
A)GDP worse than expected, 2-3% lets say.
Strategy:
1)Sell the Dow, Stop at 10190, target 9600
I see no reason why the Dow cannot break through the 10,000 mark, to target 9800 initially over the next two weeks, and finally after a worse than expected Non farm payrolls resut in the weeks ahead, to target 9600.
2) Sell Eurusd (and also buy US dollar index)
Eurusd currently around 1.39, heading towards 1.30 by the next quarter.
3) Sell the miners (Rio tinto target around 2600)
4)Sell Crude (Currently at $73 Targeting $65)
B) GDP meets or exceeds expectations
1)Buy the Dow targeting an initial rally to the 10200 region. However I expect it to sell off quickly after this rise, as the market awakens to the continuing poor fundamentals.
Following on from the previous quarters better than expected GDP results, the market is forecast for tomorrow is 4.5%. Given the level of stimulus in place, I think we still have a 50 50 chance of this being met. However, as stated in my previous blog, will the market rally off it?
Secarios, and strategies:
A)GDP worse than expected, 2-3% lets say.
Strategy:
1)Sell the Dow, Stop at 10190, target 9600
I see no reason why the Dow cannot break through the 10,000 mark, to target 9800 initially over the next two weeks, and finally after a worse than expected Non farm payrolls resut in the weeks ahead, to target 9600.
2) Sell Eurusd (and also buy US dollar index)
Eurusd currently around 1.39, heading towards 1.30 by the next quarter.
3) Sell the miners (Rio tinto target around 2600)
4)Sell Crude (Currently at $73 Targeting $65)
B) GDP meets or exceeds expectations
1)Buy the Dow targeting an initial rally to the 10200 region. However I expect it to sell off quickly after this rise, as the market awakens to the continuing poor fundamentals.
Sunday, 24 January 2010
Dow breaks 50 day moving average- Reversal? (Long FTSE, Short Dow, Long Dollar)
The Dow broke its 50 day moving average on Thursday, due to a combination of news of the Obama plan to halt propietary trading activities at banks (meaning a significant decline in their revenue), as well as the ongoing bank tax plan, and continuing impact of tighening of lending at Chinese Banks.
Since around October though, the Dow has been running out of juice, with the chart seeming to form a dome shape. In order for the dow to maintain its rally since March, we require a catalyst in the form of topline growth from Q4 earnings. So far, in the earnings season, it hasnt come, and if there is no sign of significant progress on this I think we may be in for a reversal.
I think that Bernanke most likely will not raise rates early as he is a "scholar" of the depression, and says that was one of the shortcomings of the 1930s Era.
On the other hand if top line growth comes in, and yields start rising again (as they have been), rates going up sooner, could lead to more foreclosures, so lower consumer spending (for those using their homes as equity).
Also with current uncertainty regarding regulation reforms (bank taxes, and the likely cost increase to their customers), health care , I dont see large scale business hiring, and even if unemployment does bottom, a lack of hiring, and improvement is likely to reinforce a reversal.
Week ahead:
Bernankes reelection is unconfirmed as of yet, requiring the approval of at least 1 of 4 republican board members to make it through. If it does so happen that he is not reelected, this is likely to cause uncertainty among traders who were relying on Benanke keeping the cheap money rally going.
However with the lack of this, and lack of any other bearish news this week, of key important wil be the USD GDP news. Forecasts currently at 4.2%. There is a clear dichotomy in my view between stimulus induced news results, such as GDP, and the reality of the economic situation such as Non Farm Pay rolls.
No doubt GDP will meet expectations, or roundabouts, however what will be key will be if the Dow rallies off it. If the Dow starts selling off, on "good news" then we know the reversal is on, and the general sentiment is bearish.
We also have the FOMC rates decision coming up this week. I think Bernankes likely to maintain his previous rhetoric of rates remaining low for an "extended period", given rate increases were to be on the back of clear evidence of a stabilisation/recovery in unemployment.
I am looking for the Dow break below 10,000 within the coming weeks, particularly around the release of Jan payrolls.
My overall macro strategy to benefit from this would be to go Long the FTSE, and short the Dow (over the period of the next month).
The FTSE closed the week at 5217, and the Dow at 10202. However the FTSE has been pulled down largely due to the fall in share price of banks and miners (as per the Obama regulations, and Chinese tightening of Bank lending). However, with CPI coming in at 2.9% last week for the UK, I think it is likely that UK GDP will beat expectations this week, as finally the QE induced recovery begins to kick in.I also think unemployment in the UK is likely to have bottomed.
My view on commodities stocks are that they are likely to range for the next two weeks. There is alot of uncertainty out there, about rates, the dollar, the Chinese economy, ultimately even good earnings (as was the case with GS) will prove difficult to overcome market sentiment at the moment.
I see the dollar getting stronger due to risk aversion (rather than market expectations of rate increases), and US 2 yr yields falling. I do not see any significant rally in Gold til perhaps March, if the US decides to continue QE.
Since around October though, the Dow has been running out of juice, with the chart seeming to form a dome shape. In order for the dow to maintain its rally since March, we require a catalyst in the form of topline growth from Q4 earnings. So far, in the earnings season, it hasnt come, and if there is no sign of significant progress on this I think we may be in for a reversal.
I think that Bernanke most likely will not raise rates early as he is a "scholar" of the depression, and says that was one of the shortcomings of the 1930s Era.
On the other hand if top line growth comes in, and yields start rising again (as they have been), rates going up sooner, could lead to more foreclosures, so lower consumer spending (for those using their homes as equity).
Also with current uncertainty regarding regulation reforms (bank taxes, and the likely cost increase to their customers), health care , I dont see large scale business hiring, and even if unemployment does bottom, a lack of hiring, and improvement is likely to reinforce a reversal.
Week ahead:
Bernankes reelection is unconfirmed as of yet, requiring the approval of at least 1 of 4 republican board members to make it through. If it does so happen that he is not reelected, this is likely to cause uncertainty among traders who were relying on Benanke keeping the cheap money rally going.
However with the lack of this, and lack of any other bearish news this week, of key important wil be the USD GDP news. Forecasts currently at 4.2%. There is a clear dichotomy in my view between stimulus induced news results, such as GDP, and the reality of the economic situation such as Non Farm Pay rolls.
No doubt GDP will meet expectations, or roundabouts, however what will be key will be if the Dow rallies off it. If the Dow starts selling off, on "good news" then we know the reversal is on, and the general sentiment is bearish.
We also have the FOMC rates decision coming up this week. I think Bernankes likely to maintain his previous rhetoric of rates remaining low for an "extended period", given rate increases were to be on the back of clear evidence of a stabilisation/recovery in unemployment.
I am looking for the Dow break below 10,000 within the coming weeks, particularly around the release of Jan payrolls.
My overall macro strategy to benefit from this would be to go Long the FTSE, and short the Dow (over the period of the next month).
The FTSE closed the week at 5217, and the Dow at 10202. However the FTSE has been pulled down largely due to the fall in share price of banks and miners (as per the Obama regulations, and Chinese tightening of Bank lending). However, with CPI coming in at 2.9% last week for the UK, I think it is likely that UK GDP will beat expectations this week, as finally the QE induced recovery begins to kick in.I also think unemployment in the UK is likely to have bottomed.
My view on commodities stocks are that they are likely to range for the next two weeks. There is alot of uncertainty out there, about rates, the dollar, the Chinese economy, ultimately even good earnings (as was the case with GS) will prove difficult to overcome market sentiment at the moment.
I see the dollar getting stronger due to risk aversion (rather than market expectations of rate increases), and US 2 yr yields falling. I do not see any significant rally in Gold til perhaps March, if the US decides to continue QE.
Wednesday, 13 January 2010
Higher Reserve Requirements for Chinese Banks-Commodities Correction? Buy the miners?
From what I can see there has been a small corection in miners, crude oil, and Gold hasnt maintained its gap open from Sunday night. Yesterday news came out that policy makers in China, will look to raise reserve requirements of the banks, raising concern about liquidity levels in Asia (for speculative purposes, to push prices up) and I guess also to support loans for more construction etc (which would support greater demand for commodities).
As we know there is a close relationship between commodities and the bond market. Commodities tend to rise in an inflationary environment, in which yields are required to go up(to compensate the investor in real terms) and so bond prices decline.
However momentarily there seems to be some scepticism over the recovery with the non farm payrolls result from last week, which has led to a slight improvement in demand for treasuries.
The issue in China is not something that I think will take hold of the market for long, I expect it to be forgotten in a week, if less, and for the rally in commodities to continue. This is likely to be further aided, rather than hindered, by a lack of improvent in payrolls next month, leading to hope of an extended period of low rates in the US, and more room to play out the carry trade.
My recommendation would be to see how this plays out, on the first sign of a clear resumption in the upward trend, either this week or next, I would be looking to buy into the miners.
Gold has fallen alongside the commodities sector, however from its viewpoint as a currency, there is no reason, that it should remain weak, hence I am still bullish on gold prices, especially if next months payrolls show no improvement.
As we know there is a close relationship between commodities and the bond market. Commodities tend to rise in an inflationary environment, in which yields are required to go up(to compensate the investor in real terms) and so bond prices decline.
However momentarily there seems to be some scepticism over the recovery with the non farm payrolls result from last week, which has led to a slight improvement in demand for treasuries.
The issue in China is not something that I think will take hold of the market for long, I expect it to be forgotten in a week, if less, and for the rally in commodities to continue. This is likely to be further aided, rather than hindered, by a lack of improvent in payrolls next month, leading to hope of an extended period of low rates in the US, and more room to play out the carry trade.
My recommendation would be to see how this plays out, on the first sign of a clear resumption in the upward trend, either this week or next, I would be looking to buy into the miners.
Gold has fallen alongside the commodities sector, however from its viewpoint as a currency, there is no reason, that it should remain weak, hence I am still bullish on gold prices, especially if next months payrolls show no improvement.
Sunday, 10 January 2010
Trade Recommendations for 11/01/2010
Equities;
Buy at Open, Sell at Close;
UK:
Carclo Plc
Kazakhmys Plc
Legal & General Group Plc
Randgold Resources (play on Gold, as it has opened up 17 points tonight)
UK Coal Plc
US:
Union Pacific Corp
United States Steel Corp
Qualcomm Inc
Europe:
Commerzbank
Sell at Open, Buy at Close;
Real Estate Opportunities Ltd
Costain Group Plc
Commodities;
Buy Gold (Apr-10 futures). Target Entry between 1155-1140, stop at 1129. Hold til 1200 (if not previous high of 1230's).
Please note this is a fundamental trade recommendation, exit and entry points for this should really be placed in accordance with the traders own risk/reward preferences.
Buy at Open, Sell at Close;
UK:
Carclo Plc
Kazakhmys Plc
Legal & General Group Plc
Randgold Resources (play on Gold, as it has opened up 17 points tonight)
UK Coal Plc
US:
Union Pacific Corp
United States Steel Corp
Qualcomm Inc
Europe:
Commerzbank
Sell at Open, Buy at Close;
Real Estate Opportunities Ltd
Costain Group Plc
Commodities;
Buy Gold (Apr-10 futures). Target Entry between 1155-1140, stop at 1129. Hold til 1200 (if not previous high of 1230's).
Please note this is a fundamental trade recommendation, exit and entry points for this should really be placed in accordance with the traders own risk/reward preferences.
Non Farm Payrolls-Is the Gold rally back on?
The Non Farm Payrolls result for the month of december, coming in at -85K, was a disappointment to most traders. However interestingly the stock market rallied off it, with the dow closing at 10620.
What to make of it?
The Dow rallying (after its initial sell off) probably indicates that the market is relieved to know there will still be some time before the Fed tightens, facilitating the rally to continue off "cheap money".
The december payrolls were also revised to show a gain of 4k, compared to its previously stated loss of -11k.
Is the Gold Rally/Carry trade rally back on?
Perhaps. Gold sold off prior to the news release, however subsequently came in stronger, and closed at $1139. Gold being the bet that the Fed cannot tighten, as soon as it needs to (in order to avoid escalating and excessive inflation lecvels), due to the adverse affect it would have on a struggling job market.
Prior to the release expectations for a rate increase by June were around 50%. They must now surely be corrected. Given that, in order to be sure of any sort of stabilisation, or recovery, they would ideally be looking for consecutive monthly improvements in the unemployment figure (well thats what I would be looking for at least).
Implications for consumer spending and topline growth (Q4 earnings and beyond)?
Clearly without evidence of a stabilising unemployment number, the notion of an increase in consumer spending this year to support top line growth of companies (as opposed to profits made by cost cutting) is questionable.
Another fact to point out is that there has been no correction in the rising yields for treasuries with the outcome of this report, so it looks like the mortgage rate level is set to rise from its current 5% level. This will not aid the property market, as more foreclosed properties come onto the market (due to the high, and increasing unemployment rate) with buyers still uncertain about the property market.
This means a large number of American homeowners will still remain underwater (their property being worth less than their mortgage), and thus unable to use their home equity for loans, and so prevent an increase in consumer spending.
This combined with the the vastly contracted availability of credit lines to the consumer, is unlikely to the support the short term desire (of the market) for companies to produce top line growth, in my opinion.
Meredith Whitney Cuts estimates on Goldman Sachs;
News broke on Thursday of Meredith Whitney cutting her profit estimates for Goldman Sachs, and Morgan Stanley among others. The share price took an immediate correction, but quickly rallied back to close on Thursday the 7th at $178.
Given the steepness of the yield curve and spread between the 30yr and 2yr (traditionally indicative of profitability of banks) I would recommend that the rally seen in banking stocks since the start of this week is likely to continue.
Is the Gold rally back on?
Having opened at $1156 just now, from a close of 1139. Yes it most definitely is!
What to make of it?
The Dow rallying (after its initial sell off) probably indicates that the market is relieved to know there will still be some time before the Fed tightens, facilitating the rally to continue off "cheap money".
The december payrolls were also revised to show a gain of 4k, compared to its previously stated loss of -11k.
Is the Gold Rally/Carry trade rally back on?
Perhaps. Gold sold off prior to the news release, however subsequently came in stronger, and closed at $1139. Gold being the bet that the Fed cannot tighten, as soon as it needs to (in order to avoid escalating and excessive inflation lecvels), due to the adverse affect it would have on a struggling job market.
Prior to the release expectations for a rate increase by June were around 50%. They must now surely be corrected. Given that, in order to be sure of any sort of stabilisation, or recovery, they would ideally be looking for consecutive monthly improvements in the unemployment figure (well thats what I would be looking for at least).
Implications for consumer spending and topline growth (Q4 earnings and beyond)?
Clearly without evidence of a stabilising unemployment number, the notion of an increase in consumer spending this year to support top line growth of companies (as opposed to profits made by cost cutting) is questionable.
Another fact to point out is that there has been no correction in the rising yields for treasuries with the outcome of this report, so it looks like the mortgage rate level is set to rise from its current 5% level. This will not aid the property market, as more foreclosed properties come onto the market (due to the high, and increasing unemployment rate) with buyers still uncertain about the property market.
This means a large number of American homeowners will still remain underwater (their property being worth less than their mortgage), and thus unable to use their home equity for loans, and so prevent an increase in consumer spending.
This combined with the the vastly contracted availability of credit lines to the consumer, is unlikely to the support the short term desire (of the market) for companies to produce top line growth, in my opinion.
Meredith Whitney Cuts estimates on Goldman Sachs;
News broke on Thursday of Meredith Whitney cutting her profit estimates for Goldman Sachs, and Morgan Stanley among others. The share price took an immediate correction, but quickly rallied back to close on Thursday the 7th at $178.
Given the steepness of the yield curve and spread between the 30yr and 2yr (traditionally indicative of profitability of banks) I would recommend that the rally seen in banking stocks since the start of this week is likely to continue.
Is the Gold rally back on?
Having opened at $1156 just now, from a close of 1139. Yes it most definitely is!
Wednesday, 6 January 2010
Trade Recommendations for 07/01/2010
Hold (from Tues):
Kazkhmys
Chariot Oil and Gas
Buy at Open, Sell at Close:
UK:
BHP
Nestor Healthcare Group
Zions Bancorporation
Stobart Group
Compass Group
Xstrata
Wolseley PLC
US:
Wells Fargo
Sell at Open, Buy at Close:
National Grid PLC
Kazkhmys
Chariot Oil and Gas
Buy at Open, Sell at Close:
UK:
BHP
Nestor Healthcare Group
Zions Bancorporation
Stobart Group
Compass Group
Xstrata
Wolseley PLC
US:
Wells Fargo
Sell at Open, Buy at Close:
National Grid PLC
Monday, 4 January 2010
Trade Recommendations for 05/01/2010
To buy before close on 4th:
Goldman Sachs Hold (if havent bought, buy 172.40, 170.90 Stop, Target 175 by Thursday 7th)
UK stocks:
ChariotOil & Gas LTD Buy; 26.443 Stop 24.9 Sell; Close
Halfords Group PLC Buy ;417.45 Stop 408.00 Sell; Close
Kazakhmys PLC Buy ;1372 Stop 1322.0 Sell;Close
Lloyds Buy ;52.00 Stop 50.41 Sell;Close
Marks&Spencer Buy 409.39 Stop 405.71 Sell;Close
RBS Buy 31.82 Stop 28.83 Sell;Close
UK Coal PLC Buy 79.72 Stop 76.72 Sell;Close
Goldman Sachs Hold (if havent bought, buy 172.40, 170.90 Stop, Target 175 by Thursday 7th)
UK stocks:
ChariotOil & Gas LTD Buy; 26.443 Stop 24.9 Sell; Close
Halfords Group PLC Buy ;417.45 Stop 408.00 Sell; Close
Kazakhmys PLC Buy ;1372 Stop 1322.0 Sell;Close
Lloyds Buy ;52.00 Stop 50.41 Sell;Close
Marks&Spencer Buy 409.39 Stop 405.71 Sell;Close
RBS Buy 31.82 Stop 28.83 Sell;Close
UK Coal PLC Buy 79.72 Stop 76.72 Sell;Close
Sunday, 3 January 2010
Trade Recommendations 03/01/2010-08/01/2010
Goldman Sachs Buy; Open (04/01/2010) Sell; Close (04/01/2010) Stop$167.80
(Previous close is 168.80)
Risks:Earnings estimates have been cut by Meredith Whitney, any bearish statements prior to Q4 season coming up could cause a sharp drop.
(Previous close is 168.80)
Risks:Earnings estimates have been cut by Meredith Whitney, any bearish statements prior to Q4 season coming up could cause a sharp drop.
Strong Dollar
The dollar breaking its 50 day moving average on the 4th of December, has been a key day. Prior to this the dollar had mainly rallied on risk aversion, as a safe haven, and with better than expected non farm pay rolls of -11000, this led the market to bring forward their expectations of a rate increase, and thus the dollar rallied. Since then it has been consistently rallying off good news.
January the 8th is a key day, when we'll see if this non farm pay rolls was simply anomalous data volatility, or part of a reversal in the unemployment trend.
Obviously this is a key moment, as from historical perspectives of the Fed's decisions after previous recessions, market perceptions are that the Fed cannot begin rate hikes until there is evidence of an improving job market.
Also given that Ben Bernanke is a scholar of the great depression, and has stated that one of the mistakes in those times was increasing rates too soon, my own view is that remains will remain low for an "extended period" well into late 2010, and perhaps early 2011.
We are also approaching Q4 earnings season. And market perceptions are that the holiday sales went well for retailers, but will companies show "top line" growth, and not just savings made by cost cuttings? Is consumer spending back?
When I try and look at market consensus for these things, given I do not have access to my own research, data etc, what I look at is stories. Who's selling me the best story, that makes sense, that fits in with what the market is saying.
Long term my view on the US economy is doubtful. I think there will come a stage towards the latter part of 2010 or early 2011, when paying interest on their debts becomes a serious issue, and the Fed will keep printing money, people will lose faith in treasuries (to a greater extent they have now), yields go up as default risk is priced in, as well as a devaluation of the dollar.
However short term, I'm looking for a strong dollar, with support on the US dollar index at 74, and a near term target of 80, which could quite well be taken out on Friday, or earlier, as the market begins to anticipate Friday will show positive figures.
Another reason why I'm bullish on the dollar, for 2010, is that there are numerous problems within other regions, such as the Greece, Italy, Spain debt concerns, as well as those in dubai. Any additional unexpected news releases of this nature, (for example from Eastern European loans), is likely to bring the dollar up as a safe haven again.
Bearish view points on the US economy;
If I were to state a case for a bear it would go along the lines of Im looking for unemployment to get worse, " Im looking for 10.2%-10.4% maybe more in January (so the payrolls released in Feb), cuz although businesses can get credit now, there's no consumer spending, and with fears over healthcare reforms and stuff the employer cant take risks adding to his expenses.." Which is actually what I did say 3 weeks ago.
I could also say there are problems in commercial real estate, which if unresolved, could pose supply risk on the property market, cause prices to go down again, thus reduce consumer spending, and reduce the possibility of a near term improvement in the job markets.
Bullish (on the price of the dow):
Business driven recovery, unemployment is a lagging indicator, improving retail sales, top line growth set to resume, positive news in jobless claims. So much liquidity out there, it has to go up.
Given these two view points, my feeling is that the non farm pay rolls news on Friday is likely to be positive for the dollar.
Scenario A) Job losses low, in the region of -20000, to -75000, or even a slight addition in the number of jobs and the dollar rallies.
Scenario B) Although the dollar has been selling off, on bad news, I think that if the december results were shown to be an anomaly, and the losses were around -120k, or more, the whole market shakes up. And the dollar rallies as a safe haven.
So my feeling is that the odds are in favour of a dollar rally.
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