Dollar: Heed the BIS’ Warning but Act When the Markets Move Euro Traders Put Their Confidence on the EU’s Hands as Conditions Deteriorate British Pound Hearing Calls for Stimulus, Government Lending Numbers Ahead Japanese Yen Best Performing Currency on the Day on Carry Unwind New Zealand Dollar Proving More Stubborn with Giving Up its Strength US Oil Following Risk But Syria and Turkey Stand Off a Concern Gold Rebounds as European Stimulus Expectations Override Stalled Dollar Dollar: Heed the BIS’ Warning but Act When the Markets Move
There is a critical difference between having your convictions and trading your convictions. A prevailing fundamental view may look wrong or even be irrefutably incorrect, but it is the common expectations of the masses (wrong or right) that determines where we move and how quickly we get there. It is our charge as traders to assess whether the markets are following the lines of reason and how engrained momentum is relative to that belief. When underlying sentiment is aligned to the fundamental current that carries the greatest influence moving forward, we have the best mix for developing a lasting, market-wide trend. Therein lies our current predicament. The outlook for growth, financial stability, yield and dividends, the European crisis and a list of other concerns is material. Yet hope continues to distract from a troublesome outlook.
Last week, sentiment disengaged from the tenuous belief that capital markets would be supported by another round of stimulus from two of the world’s most active market patrons. The Federal Reserve’s snub calls for another round of asset purchases (QE3) undermined one of the most effective, short-term stimulus trades for the opportunistic investor. Similarly, the conclusion of multiple Euro-area leader meetings (the EU Finance Minister meeting and a meeting between the German, French, Italian and Spanish Prime Ministers) signaled that the threshold for supporting the markets and thereby investors had been set far higher than originally expected. With aspirations for an easy trade checked, it would seem that storm clouds would bring on the next wave of deleveraging, but there is yet another diversion ahead of us: the EU Summit.
The Summit over scheduled for Thursday and Friday isn’t just a concern for the Euro itself. Considering the region’s crisis represents the most immediate threat to global, financial stability; a temporary stay could relieve significant pressure from the entire system. That said, it important to look at the core issues that threaten the broader system. The Bank of International Settlements (BIS) made mention of big-ticket concerns in its meeting Saturday. The central banks’ bank said require a “healthy push” by governments to fix their problems. Further, the group warned that banks are still highly leveraged as they expect bailouts, and the pool of safe havens is shrinking quickly as need rises (a big dollar support).
Euro Traders Put Their Confidence on the EU’s Hands as Conditions Deteriorate
The Euro-area headlines were particularly discouraging Monday, but it seems the market is curbing its reaction to negative developments perhaps under the assumption that a meaningful rescue attempt will be made towards the end of the week. Unfulfilled expectations for last week’s Fed decision can easily lead hold out market-bulls to transfer their assumptions to the next, most critical policy gathering. The EU Summit faces possible backlash from fears that the region’s crisis can go critical and spread to the global system if they do not step in to offer a ‘Shock and Awe’ policy. That concern alone seems to bolster expectations that relief will be offered. In the meantime, the BIS made sure to make special mention of the Euro-region’s financial situation. Perhaps optimistic traders should take head of German Chancellor Merkel’s ardent stand against common bonds and joint liability guarantees – which she reiterated Monday. In other news, Greece’s Finance Minister resigned after four days on the job, Cyprus became the fifth EZ country to seek a bailout and Moody’s downgraded 28 Spanish banks.
British Pound Hearing Calls for Stimulus, Government Lending Numbers Ahead
In an FT interview, the man competing with Adam Posen for the title of most bearish Bank of England member (David Miles) remarked that a ‘substantial’ amount of support was needed to support the UK economy. This aligns to his vote for 50 billion sterling in additional bond purchases at the last central bank gathering. Interestingly enough, the policymaker went on to suggest that there was no evidence that the government’s austerity path has dampened the country’s growth and thereby left it exposed to the Euro Zone’s troubles. That is an interesting position to take. That specific argument should be kept in mind when we read the public financing numbers due in the upcoming session.
Japanese Yen Best Performing Currency on the Day on Carry Unwind
The Japanese yen was far and away the best performing currency this past session. In fact, the funding currency’s rally was so strong that it managed a near 1 percent rally against the next, best performing major – the fellow safe haven US dollar. The general performance can find its roots in carry trade unwind which is often the direct result of risk aversion. We felt the shift in sentiment through the capital markets this past session but the unwinding of a risky position (carry) is going to be far more reactive than taking a new short-risk position (long dollars).
New Zealand Dollar Proving More Stubborn with Giving Up its Strength
In the hierarchy of the investment currencies amongst the majors (Canadian, Australian and New Zealand dollars), we have seen more prominently that the kiwi is holding its value in unfavorable winds better than its counterparts. With a market rate (as opposed to benchmark yield) higher than its counterparts and limited scope for rate cuts over the coming 12 months, the currency has proven stubborn when it comes to risk aversion and carry deleveraging. That said, if a market-wide tumble takes; the kiwi won’t be able to resist.
US Oil Following Risk But Syria and Turkey Stand Off a Concern
Oil made a critical move this past Thursday when it dropped below $80 / barrel for the first time since October of 2010. Technical traders will note that this broke a critical trendline that extends all the way back to the third quarter of 2009. Given a recent risk aversion push to amplify a demand issue as global activity levels cool, this isn’t too great a surprise. However, we should also be cognizant of supply shocks (even if the demand gap is wide). The growing row between Syria and Turkey over a shot down plane over disputed territories can create trouble quickly.
Gold Rebounds as European Stimulus Expectations Override Stalled Dollar
The downdraft from goldthat followed the Fed’s decision to reject fresh quantitative easing couldn’t hold over to this week. If the world’s largest central bank isn’t willing to actively devalue its currency and all global fiat, others could take its place – or so the thinking goes. That said, other groups’ efforts will not be as effective for a gold bid as the dollar will be a first and potentially better alternative to fellow currencies.
For Real Time Forex News, visit:http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go towww.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
Conference Board China May Leading Economic Index
Important data for countries that export raw material to China.
Public Finances (PSNCR) (Pounds)
Net Borrowing deficit is at an all time high, the long term deficit will affect its sovereign credit rating.
Public Sector Net Borrowing (Pounds)
S&P/CS 20 City s.a. (MoM) (MAY)
Shiller Home Price Index at an all time low since the housing bubble. Home Sales for May highest since April 2010.
S&P/Case-Shiller Composite-20 (YoY) (MAY)
S&P/Case-Shiller Home Price Index (MAY)
Richmond Fed Manufacturing Index (JUN)
SUPPORT AND RESISTANCE LEVELS
To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visitTechnical Analysis Portal
To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit ourPivot Point Table
CLASSIC SUPPORT AND RESISTANCE
INTRA-DAY PROBABILITY BANDS 18:00 GMT
There is a critical difference between having your convictions and trading your convictions. A prevailing fundamental view may look wrong or even be irrefutably incorrect, but it is the common expectations of the masses (wrong or right) that determines where we move and how quickly we get there. It is our charge as traders to assess whether the markets are following the lines of reason and how engrained momentum is relative to that belief. When underlying sentiment is aligned to the fundamental current that carries the greatest influence moving forward, we have the best mix for developing a lasting, market-wide trend. Therein lies our current predicament. The outlook for growth, financial stability, yield and dividends, the European crisis and a list of other concerns is material. Yet hope continues to distract from a troublesome outlook.
Last week, sentiment disengaged from the tenuous belief that capital markets would be supported by another round of stimulus from two of the world’s most active market patrons. The Federal Reserve’s snub calls for another round of asset purchases (QE3) undermined one of the most effective, short-term stimulus trades for the opportunistic investor. Similarly, the conclusion of multiple Euro-area leader meetings (the EU Finance Minister meeting and a meeting between the German, French, Italian and Spanish Prime Ministers) signaled that the threshold for supporting the markets and thereby investors had been set far higher than originally expected. With aspirations for an easy trade checked, it would seem that storm clouds would bring on the next wave of deleveraging, but there is yet another diversion ahead of us: the EU Summit.
The Summit over scheduled for Thursday and Friday isn’t just a concern for the Euro itself. Considering the region’s crisis represents the most immediate threat to global, financial stability; a temporary stay could relieve significant pressure from the entire system. That said, it important to look at the core issues that threaten the broader system. The Bank of International Settlements (BIS) made mention of big-ticket concerns in its meeting Saturday. The central banks’ bank said require a “healthy push” by governments to fix their problems. Further, the group warned that banks are still highly leveraged as they expect bailouts, and the pool of safe havens is shrinking quickly as need rises (a big dollar support).
Euro Traders Put Their Confidence on the EU’s Hands as Conditions Deteriorate
The Euro-area headlines were particularly discouraging Monday, but it seems the market is curbing its reaction to negative developments perhaps under the assumption that a meaningful rescue attempt will be made towards the end of the week. Unfulfilled expectations for last week’s Fed decision can easily lead hold out market-bulls to transfer their assumptions to the next, most critical policy gathering. The EU Summit faces possible backlash from fears that the region’s crisis can go critical and spread to the global system if they do not step in to offer a ‘Shock and Awe’ policy. That concern alone seems to bolster expectations that relief will be offered. In the meantime, the BIS made sure to make special mention of the Euro-region’s financial situation. Perhaps optimistic traders should take head of German Chancellor Merkel’s ardent stand against common bonds and joint liability guarantees – which she reiterated Monday. In other news, Greece’s Finance Minister resigned after four days on the job, Cyprus became the fifth EZ country to seek a bailout and Moody’s downgraded 28 Spanish banks.
British Pound Hearing Calls for Stimulus, Government Lending Numbers Ahead
In an FT interview, the man competing with Adam Posen for the title of most bearish Bank of England member (David Miles) remarked that a ‘substantial’ amount of support was needed to support the UK economy. This aligns to his vote for 50 billion sterling in additional bond purchases at the last central bank gathering. Interestingly enough, the policymaker went on to suggest that there was no evidence that the government’s austerity path has dampened the country’s growth and thereby left it exposed to the Euro Zone’s troubles. That is an interesting position to take. That specific argument should be kept in mind when we read the public financing numbers due in the upcoming session.
Japanese Yen Best Performing Currency on the Day on Carry Unwind
The Japanese yen was far and away the best performing currency this past session. In fact, the funding currency’s rally was so strong that it managed a near 1 percent rally against the next, best performing major – the fellow safe haven US dollar. The general performance can find its roots in carry trade unwind which is often the direct result of risk aversion. We felt the shift in sentiment through the capital markets this past session but the unwinding of a risky position (carry) is going to be far more reactive than taking a new short-risk position (long dollars).
New Zealand Dollar Proving More Stubborn with Giving Up its Strength
In the hierarchy of the investment currencies amongst the majors (Canadian, Australian and New Zealand dollars), we have seen more prominently that the kiwi is holding its value in unfavorable winds better than its counterparts. With a market rate (as opposed to benchmark yield) higher than its counterparts and limited scope for rate cuts over the coming 12 months, the currency has proven stubborn when it comes to risk aversion and carry deleveraging. That said, if a market-wide tumble takes; the kiwi won’t be able to resist.
US Oil Following Risk But Syria and Turkey Stand Off a Concern
Oil made a critical move this past Thursday when it dropped below $80 / barrel for the first time since October of 2010. Technical traders will note that this broke a critical trendline that extends all the way back to the third quarter of 2009. Given a recent risk aversion push to amplify a demand issue as global activity levels cool, this isn’t too great a surprise. However, we should also be cognizant of supply shocks (even if the demand gap is wide). The growing row between Syria and Turkey over a shot down plane over disputed territories can create trouble quickly.
Gold Rebounds as European Stimulus Expectations Override Stalled Dollar
The downdraft from goldthat followed the Fed’s decision to reject fresh quantitative easing couldn’t hold over to this week. If the world’s largest central bank isn’t willing to actively devalue its currency and all global fiat, others could take its place – or so the thinking goes. That said, other groups’ efforts will not be as effective for a gold bid as the dollar will be a first and potentially better alternative to fellow currencies.
For Real Time Forex News, visit:http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go towww.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
Conference Board China May Leading Economic Index
Important data for countries that export raw material to China.
Public Finances (PSNCR) (Pounds)
Net Borrowing deficit is at an all time high, the long term deficit will affect its sovereign credit rating.
Public Sector Net Borrowing (Pounds)
S&P/CS 20 City s.a. (MoM) (MAY)
Shiller Home Price Index at an all time low since the housing bubble. Home Sales for May highest since April 2010.
S&P/Case-Shiller Composite-20 (YoY) (MAY)
S&P/Case-Shiller Home Price Index (MAY)
Richmond Fed Manufacturing Index (JUN)
SUPPORT AND RESISTANCE LEVELS
To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visitTechnical Analysis Portal
To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit ourPivot Point Table
CLASSIC SUPPORT AND RESISTANCE
INTRA-DAY PROBABILITY BANDS 18:00 GMT
No comments:
Post a Comment