Where now for Euro?

Hi Viper traders,

Super Mario and his chums announced some unprecedented changes to their short term interest rate structure last week that will kick in this week. The most obvious and eye catching of all is the negative interest rate for deposit holders at the ECB.

The ECB has made things interesting in the World of Central Bankers by announcing that holders of excess funds (deposits) will have to pay interest of 0.10% to keep that money at the Central Bank. The Central Bank is also trying to get more of the easy money in to the European economy with other measures.

The equity markets loved these moves to aid growth in the Euro region and subsequently rose but interestingly after initially falling to 1.3500 the EUR/USD exchange rate is back to 1.3600 (aprox) after being as high as 1.3665.

Why did the currency not decrease far more? Well, let’s not forget that the Euro has been talked lower from almost 1.40 and so had already reacted in advance but primarily because there was no announcement of a “QE” style printing of Euros. Mr Draghi hinted this may come later if needed but said no more at this time. This would seem to highlight the probable diffference in opinion from the BUBA (German Central bank) and the other individual European Central Banks.

So what now? I am tempted to say “good question I don’t know the answer to that” but will try anyway.

It very much looks as though this is going to be a slow process initially where the currency market decides whether more action is required. What I mean by that is does the market push higher quickly towards 1.40 to force the ECB’s hand or will flows turn away from the Euro with a negative deposit interest rate? I suspect the former and can give you no other pointer than market reaction to another good set of numbers from the US in the shape of last Friday’s NFP and yet there was no flight from Euros in to the Greenback. Why? Because albeit winding down the US still has QE in motion while the ECB does not.

I am, as you know in favour of a move into the Greenback as we move in to the second half of this year but I believe the most likely scenario over the next week or so is a short squeeze higher in the Euro and mostly against a slowly moving small lower Yen. I do not think this will get past 143 (currently 139) but will be a better bet than against the Greenback which will grind slowly higher keeping the EUR/USD close to 1.3600 where we are sitting currently.

As i said this could well be a slow process and in the meantime expect the equity markets to move even higher and Gold lower.

There are some market events to keep an eye on this week in Australia and New Zealand but the most important is the BOJ meeting early Friday which I believe will be nothing new from the BOJ and there will be some volatilty before settling down to a slow begrudging move higher in USD/JPY and a grinding to the bottom of JPY weakness at somewhere near 104/105 mainly on US$ strength.

This will not last forever and I expect a move higher in the Euro down the road on flows and then the test that Mario has avoided so far will happen and the ECB will have to do more if they are to weaken the Euro to keep away from the dreaded deflation cycle they fear.

I expect Cable to remain in a 1.6750/1.6850 range while the EUR/GBP looks a little low at below 0.8100 for now and I expect a bounce back to 0.8150 where I would look to go short

Enjoy your trading

Dicko

The ECB’s big moment is almost here

Hi Viper Traders,

The ECB meeting this Thursday 5th June is likely to be momentus for 2 reasons:-

1) The ECB cut rates so that those holding Euros at the Central Bank will be charged- negative interest rate

2) The ECB embark on a Bond purchasing programme (Fed style QE).

The ECB led by Mario Draghi have made it clear that they will act to achieve a lower exchange rate of the Euro in order to steer the region away from the very real possibility of Japanese style deflation. This was shown to be all the more important just today with preliminary German CPI at -0.1%.

The Central Bank is not concerned whatsoever about inflation but is concerned that even with very little inflation and no deflationary pressures the effect on the region’s economy as a whole is no growth as investors hold on to their Euros and do not invest or spend them. If however the Euro countries did fall into the dreaded deflation spiral where prices are lower tomorrow so nobody spends because “real” interest rates mean hording pays and spending does not, then it is almost impossible to get the economy growing as Japan will testify.

I believe the ECB will send a clear message that holding Euro’s now will cost money and by effectively printing money to buy bonds the Central Bank is saying you will lose money tomorrow too, so invest in growth vehicles such as stocks and shares. The idea is to get growth moving with investment instead of just saving funds which will lose value over time.

We have seen the impact on the US$ of QE style printing and this should weaken the Euro accordingly further away from 1.40 where we were only recently towards 1.30 against the Greenback.

I expect the easing to achieve 1.3200 very quickly and sub 0.8000 to the UK pound. Beyond the initial moves I believe it will make sense to invest for yield by being long AUD, NZD and staying long £ against the single currency.

For those of you that like a “gamble” then I like the look of the Turkish Lire for yield pick up now that the Turkish currency has stablised with much higher interest rates.

I expect the move by Mr Draghi and his fellow Council Members to further the bull market in equities with the S&P 500 moving on to yet new highs but my tip is the Nikkei which I expect to outperform, indeed judging by the move recently higher of 2% has begun already. The Japanese economy at last is looking at growth with inflation in place and on track for the 2% targetted by the BOJ and has not been knocked off course by the recent rise in Sales tax.

So to recap I am looking to be long US$ and GBP against the Euro as we head in to the meeting and after the inital moves look to go long Aussie,Kiwi and (small) Turkish Lire for longer term yield plays against the Single Currency. I expect the bull run in equities to continue and the Japanese stockmarket to outperform. A caveat to that is I expect foreign demand to return to the Yen and therefore unlike the move last year of higher Nikkei and weaker Yen I do not see the Yen weakening across the board and only a relatively small deprecaition against a resurgent US$ to say 104.

I do expect the pound to continue it’s recent strength after the tests of last week which saw some impressive profits by shorting against the JPY and then if you did not TTM bounce all the way back, however I think 1.7000 Cable is off the cards for now with Greenback strength gradually pushing this pair lower but as mentioned earlier I see EUR/GBP lower, in fact I see no reason to not expect 0.7800 in the coming months.

I expect the Greenback strength to continue and a strong NFP this week could push us close to 1.3000 assuming Mario and the gang have done their bit. Against this background I see Gold lower and heading for US$ 1000 by the end of the year.

Enjoy your trading and keep the Risk management tight

Dicko  

Is a Japanese “Tapering” on the horizon?

Hi Viper traders,

As I write this after the long weekend in UK and US the first thing that jump out from the markets is the Stock market is looking well bid at new highs on the S&P 500 futures. This is a reflection of the Ukranian Presidential election not causing any further concerns (yet!) and the European election overall being fairly benign. That of course doesn’t tell the story in the UK and France.

I am curios as to why the Yen has not weakened further on this type of “risk-on” in the equities market and no safe-haven issues?

I am starting to wonder if the Bank of Japan (BOJ) are done easing to the maximum and considering an exit strategy along the lines we have seen at the FED in the US.

Why? and so what? You may ask.

Well at the BOJ meeting just gone the minutes showed that their was a good deal of satisfaction of where their economy is now, in particular with inflation at more than 1% heading towards their goal of 2%. Don’t forget that this great economic powerhouse has lived with deflation for years now and it is no mean feat to have got to this stage. The other interesting point was a speech from the Deputy Governor of BOJ that said they are mindful of keeping to 2% inflation and not overshooting for the hallowed ground for Central Banks of “price stability”.

I do not expect the BOJ to be so open in forward guidance as we have seen with FED and Bank Of England in recent times as they try to avoid sudden market movements like a Japenese Government Bonds (JGB’s) sell off which would harm their strategy in terms of market growth from borrowing. However there feels like something has changed and there is plenty of Yen resisitance even against a clearly recovering US$.

I am looking for opportunities to be LONG Yen and like the look of the Euro/Jpy in particular for what I believe could be a sizable move down alongside EUR/USD. I also think we are due correction in £ and could see £/JPY drop well into the 166/169 territory from currently 171.20/70 level.

I think we are now in very interesting times in the UK and think we may have seen the top against US$. My concern about being long GBP now is that political developments in the UK could move quite quickly after the UKIP success in the European elections. Could there be a sooner referendum on Europe here than expected? Is the coalition going to last? This would mean uncertainty and a sell of of the Pound from here.

I still expect US $ strengthening from here but not without some hiccups along the way and am happy to be short EUR/USD which I expect to weaken on both Greenback strength and further Euro depreciation led by the ECB.

So keep your eyes peeled and start taking notice of news from Japan and speeches from the likes of BOJ Governor Kuroda which have not had much impact recently, that is going to change.

Enjoy your trading

Dicko

Busy week for figures, where next?

Hi Viper Traders,

The Sun is out and I hope you all had a great weekend.
This week has quite a number of significant economic releases across the World.

The Chairman of Bundesbank in Germany has spoken and not really said much except the German economic growth is likely to be slower in this 2nd quarter. The Germans are not saying alot regarding the Euro which Marion Draghi has put front and centre of the ECB June 5th meeting.

Tuesday morning for you insomniacs out there is the RBA minutes from their last meeting and this could move the AUD which for my money looks too high currently sitting not far shy of 0.9400 to the US$.
Later on at the more civilised UK time of 9.30 there is the release of the UK Consumer Price Index which on recent releases has shown inflation at lower than the BOE’s target of 2% p.a. I think this will move sterling if comes in higher than 1.85% to the upside but the real danger at this time is of the pound being pushed lower on Bank of England concerns of a higher exchange rate and the desire at the Old Lady to keep rates low for as long as possible. If looking for a higher pound I will point you in the direction of Eur/Gbp which I think has room to go lower still on Euro weakness soon. Against the US$ I am not sure but think we may have seen the high now for sometime at just below 1.70.

Which brings me nicely on to FOMC minutes release expected at 7pm UK time Wednesday. The US economic releases from this quater are so much stronger than Q1 and it can only be a matter of time before the Greenback starts getting the bids these numbers deserve. I would look for any mention of improving economic data from the Fed as likely to make this happen. The Fed has talked yields down very successfully on the bond market in fact last week saw 2.50% on the US Treasury 10 year which is the lowest in ages and in my opinion the bottom. I expect these yields to pick up strongly towards 3% and consequently a stronger US$ across the board.

Earlier in the morning on Wednesday it is the turn of Bank of Japan (BOJ) to release their minutes and a press conference after. The Japanese market has stalled in recent times with players liquidating their short Yen positions mainly on concerns about Ukraine and some worries regarding stockmarket valuations. Japan is determined to achieve 2% inflation and has printed enormous amounts of Yen to this end, however they have also recently introduced a Sales tax that is likely to slow down shoppers and therefore potentially derail the 2% inflation goal. The market looks as though it has got fed up waiting for any further stimulus from the BOJ to help offset this tax and if there is no increase in the Bond purchases they have been doing it looks very likley that we will see below 100.00 USD/JPY. That being the case I would see as a long term opportunity to go Long USD/JPY which I think will benefit very directly from Greenback strength and higher yields as said above. For those that want to buy JPY I suggest looking at AUD/JPY which although has been higher could easily fall below 90.00 from currently 94.70. Also on Wednesday here in the UK, is the MPC votes which are unlikley to show any dissent from Governor Carney and not have much impact on sterling (see above).

Thursday starts early with Chinese Manufactruing PMI figures from HSBC and these will be interesting to show how the slowdown in China is panning out. Too fast and there will be real concerns particularly for the AUD, gently will probably help the Aussie a little and stockmarkets in general which looked shaky last week.
Euro PMI numbers will look for any signs of slowdown as a reason to sell EUR/USD with June ECB meeting looming large. I feel that any move to 1.3800/50 would be an opportunity to go short with a move down to 1.3200 coming later this year.

The rest of the weeks figures are probably not so important but keep an eye on the US housing market figures Thursday and Friday as a guide to Fed policy, meaning strong sales = higher rates and firmer Greenback.

So for me I am now looking for attractive levels to go long US$ e.g 1.3820 against Euro, 1.6950 Cable and below 99.25 USD/JPY.

The stockmarket fell away last week on what looks like technical repositioning of Bonds and Stocks in large Fund portfolios and has presented an opportunity to be long stocks with a move back towards 1900 in the S&P 500 on my radar.

So lots to look forward to coming up and good opportunities to trade.

Keep the risk management tight and enjoy

Dicko

The Euro has turned but for how long?

Hi Viper traders,

The Euro fell away strongly from the almost but not quite peak of 1.4000 last week and is currently trading at 1.3768. As predicted here some of this is US$ recovery, which I expect to continue but mainly the move was a weakening of the single currency.

As I stated in my last blog the ECB led by Mario Draghi are concerned that a strong Euro is effectively a de facto tightening of monetary policy and that is the last thing they want. They also do not want to engage in much “loosening” of interest rates at a time when the economic climate is improving albeit slowly, in the region hence the talking the currency down rhetoric of recent times which has got us to this point. Mario and his chums have painted themselves in to a corner of “doing something in June” if need be or losing credibility. This is going to mean a period of volatile moves until the next ECB meeting on June 5th with eyes firmly focused on inflation or rather lack of it in Europe.

Going forward from here on the currency markets I see a band of 1.3670-1.3970 until the next ECB meeting and the risk is a break below where a fall past 1.3600 is likely to signal further downwards moves towards 1.3400 very quickly.
Cable is still quite well bid and the pound against sterling remains my focus of attention looking for any pullback towards 0.8210 as a great place to buy £.
I still believe the AUD is overvalued and expect this to head back to 0.9000 and beyond over the coming months. I have 2 reasons for this 1) stronger US$ and 2) I think we are likely to see a risk off pulling in of horns by investors sometime soon which will weaken the Aussie.
The Yen is unclear at this time but should any further problems flare up from Ukraine which is quite likely as elections draw near this month, then expect JPY strength and for me this will be a good time to short AUD/JPY, so keep a close eye on the news.
Gold is a bit like the JPY and watching on from the sidelines. I would expect a spike well above 1320 on any Ukraine escalation of trouble e.g. Russian troop movements into Ukraine. Without the current troubles I believe Gold would already be much lower and I am awaiting any spike to short against an improving Greenback.

So, in short the EUR/USD will be jumpy and range bound (see above), the AUD looks overcooked, £ to continue higher against the Euro but look for pullbacks and lastly the US$ is going to creep up against most currencies for the remainder of this year and beyond.

Have fun trading and stick to the rules

Dicko

Mario stirs the pot and Greenback starts to recover too

Hi Viper Traders,

On Thursday the ECB via Mario Draghi’s press conference started to lay the groundwork for a more competitive Euro. As per previous utterings Mr Draghi talked about the exchange rate being a factor in the ECB deliberations when they meet to discuss monetary policy and in particular how a too strong Euro was akin to tighter policy. What he and his fellow council members mean by this is the stronger the Euro the harder it is to export and the cost of goods imported is lowered which means lower inflationary pressures and closer towards deflation which all Central Banks for good reasons, view as the equivalent of the economic plague.

So did Mario and his chums do anything concrete? Not yet is the answer but he made it clear that without a move lower by the Euro then at the June ECB meeting they will and he has talked in terms of bond buying (QE) and other tools to get the job done. This had the impact of pushing the EUR/USD back from the brink of 1.4000 to the current level of 1.3780 where there seems to be good solid support for now.

The Cable has fallen back to 1.6850 with the EUR/GBP well below 0.8200 as forecast here some time back. Sterling fell even though today’s Manufacturing Production figures came in stronger than expected and until yesterday would likely have pushed Cable through the 1.7000 milestone.

I expect a little more £ pull back from here as the market is over skewed in terms of sterling strength at this time, however I see the pound staying fundamentally strong and look for any push back above 0.8210 as an opportunity to short Euro’s. Will Cable reach 1.7000 ? I doubt that and the reason is across the pond.

I expect the US$ to push on from here, as you know I have long since been looking for Greenback strength and although only starting to show against European currencies I believe this is the start of the move higher across the board. The Fed will of course continue to play down how soon before they start raising interest rates but with figures starting to consistently show strength after the Winter ravaged Q1 I look for any pull back as a great time to go long.

So that said what currency(s) to be short of against the Buck? Euro on any push back to 1.3850 looks good to me and the Aussie is my favourite other play. The Euro I am confident will be pushed lower at last by the ECB and the Aussie is already way above 0.90 where the RBA said they would like to see 0.8500 or lower plus add in the slowing Chinese economy and the impact that could have on the Oz economy says to me that the risk is on the down side and current level of 0.9370 is high with stop somewhere just above the year high of 0.9460.

The other currencies are a not so clear, though for you CAD players of which I am not very often the direction of USD/CAD looks higher back towards 1.1200 from 1.0900 currently. I am not clear on the Yen at the moment as the market as very definitely stalled and is awaiting the BOJ response if any, to the recent Sales tax over in Japan plus any more Military action from Russian backed Militia in Ukraine could send the JPY stronger on risk off plays.

The Equity market is struggling to reach new highs and that is little wonder given the maturity of this bull run alongside QE being tapered down by the Fed and no further stimulus from BOJ. That said any moves from the ECB to help the European economy could give a fillip to the market which I view as an opportunity to look for the top of this cycle.

Very interesting times are here and they are going to get more interesting still meaning more volatility ahead than had been the case of late which will give more chances for profits going forward.

Keep things tight and don’t be greedy by sticking to the rules you have been shown and enjoy your trading

Dicko