On Jul 4th webinar, when Bitcoin traded at $2590, I mentioned the technical and fundamental reasons why it would drop below $2000. 12 days later, Bitcoin fell to $1800. Today's price is at $2540, down $400 over the last 2 days despite the BIP91 lockin. Find out why & what's ahead in Monday's webinar.
The rising tide of global growth is lifting all boats but there are lessons in how some are recovering better than others. The Aussie is the strongest, while the JPY is the weakest as equity indices enter an obligatory corrective rally ahead of the Fed. Month-to-date, all currencies are up against the dollar, with the loonie on top and GBP at the bottom. The Premium Insights will issue a trade tomorrow ahead of the Fed decision.
In the pre-crisis era there was an economic orthodoxy that virtually every country followed. That order has broken down in the past decade and led to a series of economic experiments and now we're beginning to see the results.
The big surprise of 2017 has been Canada...as it was the surprising outperformer of 2016. The IMF said on Monday Canada will lead G7 countries in growth and that's with commodity prices halved from two years ago. Economists still don't quite believe in how strongly it's grown.
A pessimist would say that unsustainable asset price rises – housing in this case – have juiced consumer spending. A more favourable judgement would be that stimulative government policies boosted growth.
The UK could have been in the same position as Canada but fiscal tightening and Brexit uncertainty undercut some of the growth potential. It's a similar story in Europe where fiscal discipline and pockets of tight bank lending have held back the recovery.
In the US, Washington is incapable of consensus and the gridlock continues but there is always the belief that politicians there will do the right thing…once all the other options have been exhausted.
The two biggest losers in Monday's IMF update were the US and UK. The commonality there is political uncertainty.
The lesson so far this year is that it's tough to pick the winners and losers because it's such a fine line. In generations past, one country would be growing 4% and another 1%. Now, the difference in forecasts between the top G7 country (Canada 2.5%) and laggard (Japan 1.3%) is small but still has big implications in FX.
We could see just how big those implications are if Japan ever turns the corner. The minutes of the June BOJ meeting showed the board has no plans of exiting policy any time soon as long as CPI does not reach 2% despite tightening labour markets.
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European indices are selling off again, not only due to the prospects of invevitable QE tapering from the ECB, but also due to ongoing declines Europe's auto sector due to allegations of price collusion. Daimler-Benz and BMW are down 15% and 11% year-to-date. On Friday, the Premium Insights locked in 345-pt gain in the Dax short trade opened on Monday. A new note had been issued to indicate the next step (when & where).
The euro surged last week and is now less than 50 pips from the August 2015 high. The Swiss franc narrowly beat the euro last week as the top performer while the pound lagged. CFTC positioning showed increasingly-crowded bets against the yen. The euro has been skidding along the lows for more than two years but is now threatening to break out. Large gains in three of the past four weeks has EUR/USD bumping up against 1.1714 and a break would be a foray into the massive void formed by the drop to 1.05 from 1.40 that started in 2014. Here's Ashraf's January piece (when parity forecasts were FX traders' favourite past-time) asserting not only EURUSD would not reach parity, but will hit $1.10.
The latest leg of gains comes as the US dollar struggles economically and politically. The non-stop drama and gridlock in Washington increasingly threaten another round of risk aversion.
Inertia should keep a bid in the euro early in the week but the calendar picks up midweek with the FOMC, some higher-tier US data and German CPI on Friday.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +91K vs +84K prior GBP -16K vs -24K prior JPY -127K vs -112K prior CHF -4K vs 0K prior CAD +8K vs -9K prior AUD +51K vs +37K prior NZD +36K vs +32K prior
The yen trade is beginning to look saturated, especially when you factor in the carry trade. The positioning is the kind of thing you might see before a squeeze on risk trades.
The Canadian dollar finally flipped to a net long position. That means the squeeze on the shorts is done but there is still plenty of ammunition if longs want to get involved. In AUD and NZD, meanwhile, the trade is starting to get crowded.
The before-and-after DAX30 charts from Monday and today highlight the straightforward nature of technical formations in translating into anticipated outcomes. You may recall we posted this as our Monday mystery chart and issued it as a short for our Premium subscribers to enter at 12550 and exit today at 12205. Other index trades are kept open into the weekend alongside 2 FX and 2 metals trades.
DAX30 is set to complete its 2nd monthly decline after an uninterrupted 6-month rally, which was the longest since the June 2012-Jan 2013 advance, following the Italy/Spain debt resolution of summer 2012. The ECB's inevitable start of effective tapering (not meaningless tapering seen in March when duration was extended and size curtailed) is boosting the euro and dragging German and European equities.
The argument that any ECB tapering would not hurt stocks on the grounds that assets proceeds would be reinvested does make sense, but may not stand to weigh on the euro due to the somewhat converging US-Ezone policy paths. In fact, as long as the tepid performance of hard US data makes no case for H2 Fed hike and German-US 10 year spread breaking above its 6-year trendline resistance, the euro reward tend to be more material than the impact on European indices.
The euro sent a powerful signal on Thursday as it surged to 23-month highs despite continued dovish rhetoric from Draghi. EUR was the top performer while sterling lagged. Politics are also back on the trading agenda. A new EUR trade & charts analysis was issued before the ECB press conference. Both the Arabic and English videos are posted below for subscribers.
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Days like Thursday make it tough to explain currency moves but also make the underlying market dynamics clear. The ECB didn't make any meaningful changes to its statement. References to the size and duration of QE programs were unchanged and that initially sent the euro slightly lower.
Fast-forward to the press conference and a rally in the euro took hold that extended as high as 1.1658 from a low of 1.1479. Was it something Draghi said in the press conference? Hardly. He was clear the governing council was unanimous about no changes to forward guidance and he continued to preach patience.
At best there was some of the big picture optimism we warned about but it came in a small dose as he said that incoming information confirmed that the strengthening of the economy is broadening. That was balanced by a warning that underlying inflation had yet to show convincing signs of a pickup. His words were carefully chosen as to avoid any hawkish signals and a repeat of the Sintra speech fallout. He failed, nonetheless.
So while there was no clear catalyst for the gain, it is inevitable that QE will be curtailed further this year. The aggressive euro buying points to the underlying demand for EUR. It cruised through resistance at the 12-month high and finished the day with a strong bid. Ultimately, the market senses that a shift in Draghi's tone is inevitable and euro buyers have jumped into the race before the starting pistol.
At the same time, some of the EUR/USD strength Thursday also came from the other side of the trade. The US dollar sold off on a report that the Trump-Russia investigation had broadened to include his business deals. In the past, though, those type of politically-driven market moves have faded.