Mario says lower but will the market take notice?

Hi Viper boys and girls,

Sorry been a bit of a gap but I have been sunning myself in Lanzarote.

While I have been away and even back a few days, the market has seen a move lower in EUR/USD on Draghi comments then no follow up with action so has bounced back.

I repeat what I said last time, he will have to provide action to maintain credibility and most likely in the form of some type of QE like the States and Japan have done already. This is the proven way to lower the value of a currency and will benefit the whole European region.
What does this mean for you and I ? Well until he does the Euro will be supported and at present is unable to fall below 1.3700 and this could lead to a move towards 1.4000 if he is not careful. For me that means I am not going long Euros in the anaconda but am prepared to do so on Rattlers and cobras.

The stockmarket globally would welcome such a move from the ECB as it looks towards the FED ending QE this year and not sure if the Japanese will increase their version. This means there is going to be continued volatility in the Equity markets and where you may want to focus your anaconda trades.

I believe that this next wave of money printing by the ECB will happen and give the stockmarket one last large shot in the arm and take the S&P 500 past 1900 and new highs near 1950 that will then be seen as the top.

So keep an eye on currencies with an eye to the stockmarket and “risk on” or “risk off ” trades accordingly. Remember stock market going up US/JPY usually follows and vice versa, conversely the Aussie usually likes a strong equity market and vice versa.

Regarding the stockmarket look for pullbacks to buy as the recent move down from 1890 to 1815 on the S&P 500 has shown but don’t get greedy and trade size properly as you now can with the change of microlots value on the equity markets on your trading platform.

Keep your eyes open for Draghi and his ECB chums talking at 1.3900 EUR/USD or near and some action to be taken at the next ECB meeting on May 8th.

I expect more of the same in the next week or 2 and oh yes one last point, I believe the Aussie is overvalued and having peaked at 0.9400 against the USD looking to short this against the USD and GBP when the set ups are in place.

See you soon

Dicko

ECB , The OLd Lady , NFP’s and all that.

Hi Viper traders,

Here we go again as we move into the most eagerly awaited week of the month for economic events and I thought it would be worth looking back over the last month to compare where the main currency pairs and S&P 500 are now to last NFP day.

Eur/Usd is about 1 big figure lower (-100 pips)
Cable is about 50 pips lower
Usd/Jpy is unchanged
Aud/Usd is up 2 big figures
S&P 500 is 9 whole points lower (1878 now 1887 7th Mar).

So trying to put this in to context shows to me an anomaly re the Aussie. Why is this currency up across the board (the play of the month was short EUR/AUD) when the Australian economy is slowing down and has potentially another 25 basis point rate cut in the pipeline from the RBA? The answer is open to much conjecture, however I believe that so many investors had themselves long of Euro’s and short AUD and have decided to take their profits and look to invest elsewhere. The cost of running long EUR/AUD is not far short of 1 pip per day and if the ECB cut will become more expensive. At last I think the market is starting to look at the Euro in general and ask “why are we long of this”.

So what to make of this, well I think being short EUR is making more sense by the day but what to be long of? How about the Kiwi? The interest rates are higher than most at 2.75% and going higher, this means an investor in NZD will be paid for holding the currency against another like the Euro at virtually 0% and perhaps going lower!
This pairing has faired quite well for me this month and the only concern is if there is a Risk off movement i.e. stockmarket sell off. So a strategy that I am employing is Short the currency pair and short the equity market of choice as a hedge at a carefully chosen level.
So far this month I have made money on both sides by putting the trades on and taking off at the time of a pullback in the stockmarket and I expect to carry on doing so for some time to come.

Ok back to this week, I suggest if you like my thoughts above then wait until at least after the NFP figures this week. We have the Old Lady of Threadneedle Street up first on Thursday and not much is expected, however watch out for more comments from voting members of a strengthening economy nature which would boost £. The ECB as I said last week is going to have to act on what is the problem for most of Europe, a strong Euro. If the ECB and in particular Mario Draghi just try to talk the currency lower they risk losing some credibility and the market will push the Single currency higher. I do not expect them to do this and the “tools” he has talked about using will be made clear this week at the meeting and following press conference.

That brings me to the NFP, who knows! Quite frankly this economic release has been a lottery so far this year and why should this month be any different. I do believe a stronger Greenback will happen sooner or later this year but for now it looks like later! That said it looks like the US$ has some support at current levels we have seen on the index before and there followed a strong bounce from here when the FED last met.

Back to the Aussie I do not expect this strength to continue and I am looking to short when the move runs out of steam and most likely that will be against the Kiwi too.

So to recap I think a “carry play” of short EUR and long NZD is taking shape and well worth looking at long term when the correct set up is there on anaconda. I am neutral on US$ and JPY at this time.

Have fun and keep to the rules

Dicko

Euro turning at last?

Hi Viper traders,

I have left this weeks blog for a couple of days waiting to see what the market made of the Euro amid the Ukranian/Russian conflict before we go into next week’s NFP and ECB rate decision days and in the meantime seen the Aussie and NZD become the “go to” currencies!

So having watched and traded I am firmly of the following thoughts :-

Be short the Euro as we move into a potential week for the ECB to act on rates, either a negative deposit rate or some form of QE.

Beware the Aussie (in particular) and Kiwi rise at these levels 0.9250 and 0.8670 as they look stretched and could snap back lower.

I am neutral on the JPY, however with the unresolved Russian “aggression” still in the headlines I would not look to be short Yen.

The Euro is finally losing it’s appeal and although unlikely to plummet anytime soon, looks headed lower across the board. This will help the region as a whole to import inflation while helping the German powerhouse export even more successfully. I believe the ECB is coming round to this idea and knows that more than verbal intervention is needed, we shall see.

The Aussie has risen sharply after a good employment figure, a seemingly happy Central Bank with the current exchange rate and perversely a slowing down Chinese economy! How fickle markets can be, the Chinese slower growth should hurt the AUD but the market has decided that they , the Chinese are going to relax some restrictions on lending money and therefore effectively lower their interest rates to help stimulate stronger growth.
I have to have 2 concerns there, firstly Governor Stevens did not say that they were happy per se with the exchange rate and relying on a the Chinese to help is fraught with danger.

On the Russian front (not much fun in Stalingrad!) it seems to me that we could easily see an escalation on the ground and/or Western sanctions that would only cause a selloff on the Stockmarket, a flight to quality in the Yen and also a move away from “riskier” currencies like the Antipodean superstars, NZD and AUD.

So to declare my hand I am short Euros against the USD and JPY while watching the Aussie with a view to short on the correct set up.

You may remember me talking about the Pound being undervalued against Euro at 0.8375/.8400 and that has proved to be the case and a profitable one at that! I hope I was not the only one to have made some capital from that, however I am now out of this preferring to be short EUR elsewhere as stated above.

Keep your eyes peeled for opportunities and don’t be too greedy in this market and above all enjoy your trading

Dicko

Fed meeting , my takeaway

Hi Viper traders

The Fed meeting on Wednesday was about 2 things of note a) Is the US economy stalling? and b) where next for interest rates?

Of course the 2 above points are linked but cutting past the different views on timing of interest rate moves ahead the FOMC seem to be agreed as follows :-

a) The recent bad weather has had a temporary damping down effect on the economy which is now starting to move forward again as the Polar conditions ease. To that end they have continued tapering at the same rate and we are now down to Bond purchases of just (!) US$ 55 billion from April and the expectation is for this US$10 bio. reduction per meeting to continue until the purchases cease completely in the autumn. You will recall the QE3 programme was US$ 85Bio at it’s height.

b) The next move on interest rates is up and this is expected by most on the FOMC to start in 2015 rising to 1% or higher by the end of the year and 2% or higher by end 2016. This is considered a relatively slow pace of rate increases and is well below the “normal” rate of 4%.

The immediate reaction was a firmer Greenback and higher long bond rates as the market took this on board. This is not surprising as in recent weeks the Buck has been sold on concerns the economy has slowed down as shown by weaker than expected employment numbers and the US 10 year bond had risen to yield less of a return. The stockmarket fell but quickly found it’s feet the following day and is now just a little shy of previous highs.

My feelings are that the Fed has done a pretty good job of not scaring the markets with a message that all knew was coming and adding some more details. This means it will be about economic figures going forward as it should be, in particular inflation numbers which are below the Feds target of 2%. So keep an eye out for speeches from Fed members in coming days on this subject.

I have a sneaky feeling that this may mean we have seen the top in Eur/Usd for a while and begin to see a move away from the single currency. I like the idea of being short Euro and don’t want to be short of the Japanese Yen while there is trouble in Crimea and note that the anaconda in EUR/JPY is edging to the downside. I also think the Sterling has room to increase in value against EUR and keeping an eye on this pair too.

Ok those are my thoughts on the Fed meeting and market moves since and will write again next week.

Keep enjoying your trading and follow the rules we have outlined to you

Dicko

NFP figures to keep tapering at same rate

Hi Viper traders

The NFP figures last Friday surprised to the upside after the previous 2 very disappointing releases and this has put a bottom under the Greenback, which had looked to be heading for a freefall prior to the numbers for February.I now expect the Fed to continue the tapering down of bond purchases at the same level as previously.

So where next? Well the market seems to be taking a “wait and see” approach to US$. On the one hand there has been some pullback against AUD, CAD and £ but the “mighty” Euro is still well bid.

The Euro was sent to new highs by Mario Draghi last Thursday after the ECB meeting and seemed to say the European economy is over the worst and growth will improve from here. Inflation, which is well below the ECB target of 2% will normalise meaning there is not likely to be any further change to interest rates.

The picture from my perspective remains the same , Germany is flying but the rest of the Eurozone is struggling. This means that there is an out of balance overall economy but still investors buy the Euro looking to invest in the Dax or maybe pick up nice Yields from Italian or Spanish Bond markets with low chance of losing on the Euro value while the ECB does nothing. So 1.4000 looks more than likely unless some really strong numbers come out from the US and gets investors heading stateside again.

I have a hunch that the 1.4000 level is what may move the ECB and get even the Germans to look at lowering the Euro. If this is the case then keep an eye out for talk about QE in Europe and / or negative deposit rates.

The US/JPY looks attractive here on any strong numbers from the US and to that end is the pair where I will look to buy the US$ with a target of 105.50 in mind.
The only beware warning here is any strong pullbacks in the stockmarket, however that is not looking that likely after shrugging off the Ukranian crisis and powering on regardless.

The UK Pound is at a crossroads before I believe continuing higher across the boards, while we await the Budget. This of course will sound the start of an election campaign in earnest that is likely to have many promises of tax cuts and business friendly rule changes. I expect the pound to strengthen on this and see the current level against the Euro 0.8350 as temporary and likely to turn lower very soon while cable looks headed to 1.7000 in the coming months.

The Aussie looks to be finding some support at this time but I still believe there is room for weakness in this currency and favour being short at this time against near neighbour the Kiwi which will begin raising interest rates this week.

A mixed bag I agree but as always keep your risk management tight and enjoy your trading

Dicko

Be Safe, Ukraine and all that

Hi Traders of a Viper persuasion

The Ukraine fan has well and truly been hit and the Russian’s are being portrayed as the Bad Boys by the West. Whatever the rights and wrongs it seems pretty clear that the Russians have taken over Crimea and there is nothing that can be done about it. Expect some diplomatic verbals but the game is over.

The usual fall out has happened Oil is higher, Gold is higher, Us Treasuries are higher (lower yield) and currencies of emerging markets and commodity exporting countries (AUD/NZD) have been sent lower. And of course the dear old Bill and Ben (JPY) has strengthened.

This is a perfect example of risk being taken off the table but interestingly the stock markets have fallen relatively little, probably because there is very little that can or will be done by the West to take on the Russians and their modern Czar Puttin.

So what to take away from this ? Don’t be short of JPY or Gold and for a little while Oil. The USD is neutral except against the Emerging markets and JPY. I don’t see any chance here of picking up JPY at a good level for weakness in the future unless we see the USD/JPY fall below 100.00. So again at this level 101.25 currently, don’t be short of JPY.

Looking ahead to the end of this week we are excited about the ECB and BOE meets on Thursday and of course NFP the day after.

The Euro has the look of being invincible and to my own amazement I have to say 1.4000 Eur/Usd looks on the cards. Why ? I can only guess that the German economy is far stronger than was originally thought and this is enough to excite investors, despite the weakness elsewhere in Euroland especially when the US is looking subdued at best.

That brings me to my point re the Greenback, is the economy genuinely running out of steam or as I believe, taken a hit from the extreme weather they have been suffering over there? Time will tell on this and the stockmarket loves it anyway because the chances of an interest rate rise have been pushed back further.

So to recap be carefull on currencies and do not be short Yen right now, I am looking for any pull back in the Stockmarket say 1800 in the S&P 500, as a good place to buy and Euro strength looks almost certain even if they cut the Lending and Deposit rate as this will be viewed as last cut and even better for the German economic strength.

Last mention must go to our Pound and I am looking to go long here for push towards 1.7000 cable and below 0.8150 against Euro

Have fun and enjoy what you are doing

Dicko

Risk on or Risk off ?

Hi traders of the Viper Nation

I am often talking about Risk on or Risk off in regards to the market place and specifically what this means to the Forex market.

Overnight we have seen a classic case of investors feeling nervous about taking risk and therefore a risk off environment has taken shape. You can see this in the Stock market which is lower overnight probably on 2 factors , the Ukraine situation and Russian “involvement” and the BOJ’s Mr Sato talking in terms that suggest the Bank of Japan is not about to increase their money printing.

So again we have seen this mean a strengthening in JPY across the board and pressure on currencies like the AUD. The USD index is a little higher and this can be mainly put down to the very good New Home Sales numbers from yesterday rather than a flight to the Greenback.

How do you spot this kind of move ? Well keep an eye on the Equity markets and they will guide you to see if risk on by higher stock markets or the opposite is true and use this to guide your trading e.g. do I want to be long of JPY or short? Allied to trading the strategies you have been shown you will find this an additional help.

I like the look of AUD/NZD and believe there is room on the downside and I am short in this pair, I am also looking at EUR/GBP which I believe could push below 0.8200 soon down to 0.8100 at least. The 2 Central Banks meet next week and on our trading day will be very much in focus.

In the meantime trade with extra care against the Greenback as the figures from over that side of the Pond continue to baffle, is it the weather or is there economy entering a new downturn? Not sure so I am wary at this time

Happy Trading

Dicko