Posts by "jamshed"

Interesting report by Danske bank on friday, http://danskeresearch.danskebank.com/link/WeeklyFocus250311/$file/WeeklyFocus_250311.pdf

Summary,
spanish yields are not rsing with the PIG, --> spain is ok
EURUSD moving with 2 year euro dollar swap spread, strong correlation
rising rate expectations for euro are moving the currency higher.
1.50 target listed for 6m months and 1.46 for 3 months.

good read for those interested in macro view.

jnz

"Dollar will be weak as long as US GDP is sub 2% and umemployment is close to 10%"

The Euro is bouncing between 1.3750 and 1.41.50.

One perception is that Dollar is oversold, the QE2 story will unfold along with the US elections on Nov 3rd and the Dollar will have a rally. The reasoning is that QE2 will be small and measured and austerity from the Congress will kick in. What this perception misses is the source of new growth for the US economy. The job growth is small and the housing market is very much in the doldrums. US will have 1-2% growth and even this might go down.
The source of growth in Q4 in 2010 was from the fiscal stimulus. Minus this stimulus and the the growth remains tepid which means the Dollar remains "not strong". A long term trend of close of 10% unemployment scenario is forcing the FED to do something. Having moved short term rates to zero, there is not much the FED can do except to also bring longer term rates closer to zero and trigger some inflation and force companies to build more and hire more, if at all this happens.
So, in my view, the Dollar is in for some bouncing down further whatever the Dollar bulls say.

On the other hand, there is an equally horrowing story out of the Eurozone in the shape of Greece, Ireland, Portugal and Spain. The main event out of the Eurozone is another banking crisis that leads to a sovereign crisis. The leading indiator for this is the rising yield for the PIGS.

Whatever happens right after the november election for the dollar, and however strong the dollar rally is, it is clear that the US FED in Bernanke's leadership is out to do a massive QE2. It is also clear that that the FED does not know how much is the eventual impact of QE2. Would a 1 trillion purchase of treauries in one year add 1% to the US GDP? probably even less. What the FED actually wants to do is to trigger 3%-5% GDP growth for a year in exchange for its QE2. This means that eventually QE2 will have to as big as 2+ trillion$. So, dont be fooled by the "small and measured" approach.

US needs 3-5% GDP growth over several years and that is not doable with 100 billion treasuries or even with 1 trillion purchase over a year. I think its more than couple of trillion + fiscal stimulus + tax cuts + spending cuts etc.

Check the latest GDP numbers and consider the trend for the last several quarters

Is the Dollar in an extreme position on a weekly basis where a reversal in direction is imminent?

I cannot say instantaneously where the Dollar Index is heading at the next moment or the next hour. However, looking at the weekly chart there are few major milestones than can be noticed. At the same time, around these milestones, there are critical events that have determind the direction of the index for the next few weeks or months.

My view is that unless there is an accompanying trigger or event, the domniant trend does not reverse. It may linger on, but a major reversal occurs around a major event or extreme position in an inter-market.

Consider the weekly chart of the Dollar Index, http://stockcharts.com/charts/gallery.html?$USD

In July 2008 point 1, there is an extreme postion in Oil at 147 and peak commodity prices. In September 08 position 2, there is the Lehman bankruptcy. In position 3 around December 08, there is a huge spike in the Euro. In position 4, there is the low in global stock markets and accompanying bank stress tests in the US and Citi coming up with a profit. In position 5 / early December 2009, the US economy and the employmnt market shows improvement and accompanying decrease in asset purchase programs by the US FED along with the emerging Dubai and then Greek debt crisis. In March 2010 point 6, it becomes clear that there is no clear rescue for the Greeks and eventually at point 7 in May June 2010, a IMF and Eurozone backed Greek rescue does emerge along with stress testing for Europeon banks.

In all these milestones or inflection points, it is clear that news is moving the markets inherently people r deciding in one direction or the other. Is it herd mentality or behavioral investing? whatever one calls it the conclusion I have is that Dollar index major moves are accompanied by global events in stock, currency, commodity markets, central bank interventions or global events that cause panic.

What happens next for the Dollar? Next instance I have no idea.

However, there is this big QE intervention by the US FED. This is not even started yet. Unless there is global security event that triggers risk aversal and Dollar buying, the Dollar weaking has just started.

Market moving events are happening quite quickly in the last three years. So, its quite possible something will come up. But for the Euro to depreciate right now, there is got to be a major Euro financial crisis greek style. Short of that or a global black swan style event, the Dollar will stay where it is or continue to weaken.

Thats why I would not buy the Dollar just because it has fallen down so much in the last few weeks is not enough reason. Just looking at the chart, and assuming a technical view, the Dollar index may go to 80. But I have no idea on technicals. But there is no fundamental reason why the Dollar index will rise unless there is a major event.

A word of caution: What are the inter-market flashes at this time?

Well, the Dollar is at a fifteen year low versus the Yen, and versus the Aussie and Canadian dollar close to the peaks from July 2008. Gold has had a big run. With these unusual or extreme positions, the Euro actually should be much higher versus the Dollar than where it is now and thats why I think 1.50 is possible for the Eurodollar.

I would sit around, hold my Euro position, prepared to sell around 1.50 or higher and just wait. If there is this major global event, I will sell the Euro and buy the Vix, otherwise just wait and do nothing and thats a hard thing to do.
Why would I consider selling my Euro position? I think not to sell above 1.50 would be crazy given the crisis that just happen earlier and the austerity that is being implementated across Europe.

The next big news is the US elections and QE2 and both around Nov2. But I think this will not change much both QE2 and the resutls of the elections are obvious. The real positive news out of US and for the Dollar Index would be an improvement in monthly job numbers whenever it comes. Would it be November? Form people who I know in NY who were hired and fired recently, looks like the job market is as bad as it was a year ago.

Happy investing

Hi Ashraf,

you have the best free info site out there on fx.

all of us do suffer from various biases - and listening from different points of view allows us to question our assumtions. no one is a fortune teller - but some have a better handle on whats moving the markets than others.

In the last couple of years, your medium calls have been on the mark, i wd say 90% of the time.

In the last Euro dip, when Euro fell in december last year, you called for 1.38 when the euro ws around 1.47 and then called for 1.27 when it hit 1.38 and then for 1.17 when it fell below 1.27. this was an excellent call.

Last year, when the Euro started to rise after march 09, you have called for 1.57 when the Euro was around 1.32 - again a great call.

The only major exception that i can recall is your view for the start of a multi year dollar bull market back in march / april. i am not sure if you have chaged view on this or not.


If people would really listen, and not focus on 10-50 pips noise, there is a lot of money to be made.
a 10% rise with a 100% margin is clearly doubling your money.

So, thanks for your efforts - I just dont understand why u have this site up for freebees...
you should be running your own currency and macro fund.


by the way... do u plan to have talk / seminar in germany any time soon?

br,
jamshed

To all the Elliot wave / technical / charters out there,


Employers cut staffing by 95,000 workers after a revised 57,000 decrease in August, Labor Department figures in Washington showed today. The median estimate of economists surveyed by Bloomberg News called for a 5,000 drop.


now what does your charting say? short the euro some more?

hahaha