Intraday Market Thoughts Archives

As cross-market correlations break down further, traders are increasingly urged to get more diligent in their technical and fundamental analysis for individual instruments. The most obvious breakdown is in the relation between the US dollar index and equities, whose positive correlation since Trump's election victory has now completely reversed into negative. This has also extended into the breakdown between bond yields and stocks. A new Premium trade was posted last night in a commodity currency, whose Head & Shoulder formation confirms the pair's bearishness.

The positive correlation since November was founded on the premise that Trump's infrastructure spending and corporate tax cuts will boost equities, inflation and further Fed hikes. But as the New Year opened and Trump's enthusiastic campaign promises turned to backtracking with Congress and the Courts, the Trump trade began to unwind, save for equities.

FX and metals traders will inevitably shift their attention to next week's Fed Chair Yellen Congressional semi-annual testimony (Tues and Wed) for a better feel on her stance regarding Fed hikes this year. But Yellen may offer little in the way of clues as she will likely indicate the need to wait and see how "phenomenal" Trump's tax program will be due in 2-3 weeks from now i.e. right before the March FOMC meeting. Until then, the dollar's binary trade will rest upon the timing and effectiveness of the Tax cuts rather than the hawkishness/dovishness of Fed speakers.

The current market reminds us of Fox Mulder on the X-Files. He had a poster behind his desk that said 'I want to believe'. He was referring to aliens and the paranomal but in the market's case, the belief in a near future with less taxes and regulation and more fiscal stimulus. 7 Premium trades are currently open: 3 in FX, 2 in commodities and 2 in equity indices.

Like Mulder, whenever the market sees a shred of evidence, it jumps to conclusions. On Thursday, Donald Trump promised “something phenomenal” on taxes in the next 2-3 weeks.

That was all the proof-of-life the market needed as the US dollar jumped 50-100 pips across the board and the S&P 500 rallied to a record high.

The usual arc of an X-Files episode was that after the initial glimpse, Mulder's partner Dana Scully would slowly prove that what might have looked like something out-of-this-world to be a very real and human story. In short, reality hit.

Trump, Abe & Yen

On Friday, it's Japanese PM Abe, who will make a two day visit to meet and golf with Trump.The risk is that Trump attacks the yen. Abe has been on a charm offensive since Trump was elected but the President has already named Japan as someone he believes is manipulating. In general, Trump is cordial with his guests but it's too early to be sure. A newswire report, citing sources, said currencies aren't his priority in the talks but we would be cautious and carefully watching short-yen positions nonetheless.

That's the ebb and flow of this market. Trump promises a magical future and the market believes, then over the following days and weeks, the reality of Congress, budgets, the judiciary, the Constitution, trade agreements or something else slowly reveals that there is no magic in politics.

That same ebb and flow is the trade, it's a slow USD slide until the next exciting headline hits. Other politicians are locked in similar battles so we must remain locked on Trump, Merkel, Le Pen and whoever else might occupy the spotlight.

مناقشة حول قمة بين اليابان والولايات المتحدة وعلى أحدث المعلومات حول خروج بريطانيا من الاتحاد الأوروبي

Congress is still Congress. The election of an all-Republican slate sparked hopes of quick and effective change in the United States but there are already signs that the agenda has stalled. The yen was the top performer on Wednesdaywhile the New Zealand dollar fell sharply after the RBNZ decision/statement. A new Premium trade in commodities has been added with charts & notes.

زخم المعادن و تردد الدولار (فيديو للمشتركين فقط)

Trump Stalled or Backtrack?

Throughout the election race and into his first days in office, Donald Trump promised a quick repeal and replacement of Obamacare. This week, he said change was “very complicated” and said it could take until next year. That shift is symptomatic of the mood that's settling over markets. Comprehensive tax reform has also been pushed back and the only substantive changes that Trump has tried – immigration – is tied up in the courts. Democrats are fighting many of his cabinet nominations.

In a way, a lack of change is good for markets. That's essentially the paradigm of the past six years. It's also disappointing because the market-positive forces on stimulus, regulation and reform are more likely to fall flat. It shows how dysfunctional the system is even when one side has almost all the power.

The subtle shift in tone is infecting global central bankers. Perhaps sensing an opportunity, they are pushing back against US financial deregulation.

On the economy, the optimism about US growth and fiscal stimulus has been tempered. The RBNZ statement talks more about global uncertainty than a higher-inflation paradigm.The statement sent the kiwi lower because there was none of the hawkishness that crept into the central bank vocabulary from November through January. Wheeler spelled it out by saying that the market got ahead of itself in pricing in a 2017 rate hike. Overall, he said the likelihood of rates moving up or down was equal.

The same shift is unfolding in trading. The bond market is the clearest example. Five-year yields fell to the lowest since early December despite a weak auction. If the stock market begins to follows suit, then uncertainty could quickly turn to frustration and broad risk aversion.

Another day with little or no US economic news or political drama, allowing us to ebvaluate FX in thos vaccum. The US dollar went from posting short-lived gains on Tuesday to broad declines on Wednesday. Bond bulls and bears are battling out, while FX traders await another Trump-Abe meeting before taking the next move in USDJPY. A new commodities trade, charts and note have been issued to the Premium subscribers. 

We start by lamenting the loss of another US forex broker but also the hope it will eventually lead to a steady, safe environment for retail traders.

The US dollar started New York trading on Tuesday with a strong bid but the lack of follow through was concerning. Looking at the CFTC numbers, it's clear that enthusiasm for the long dollar trade is starting to wane. Contrast that with surveys that show analysts continue to believe in the dollar.

One theory is that the US dollar is simply consolidating after an extended move higher. Another is that US political uncertainty is causing traders to square up until next week's Yellen testimony to Congress.  Why not a bit of both? We aren't alone in waiting for clarity on fiscal policy and count Janet Yellen as someone else who is watching and waiting to see what happens before making a move.

What is slightly concerning is the US dollar's inability to finish days near the highs. The Dollar Index on Tuesday looked like it was on its way to the best day in a month but it halved its gains late.

On the flipside of the equation is the pound. It was battered early in London but bounced nearly 200 pips from the lows to finish above the 100-day moving average. Is all the Brexit bad news finally priced in? It might be and technicals (including the reversal today) make a constructive case.

The yen bounced around Tuesday in a 111.75 to 112.50 range and it will be in focus at 2350 GMT with December Japanese current account data. The consensus is for a 1183B yen surplus.

Late in the week or on Saturday, Mnuchin is likely to be confirmed as Treasury Secretary. Shortly afterwards, we will be closely watching for any shift on US currency policy.

حديث مع فاطمة الزهراء الضاوي عن تأثير التيارات السياسية في فرنسا، بريطانيا و الولايات المتحدة على الأسواق العالمية

Too often market commentators infuse politics into trading when it's a fringe factor but we're in a different era now. The yen was the top performer to start the week while the Canadian dollar lagged. The RBA decision is due up next. In the Premium video below "Gold Stands up to USD", Ashraf explains how and why EURUSD declined despite the rise in metals and selloff in USDJPY, along with the charts for the existing and future trades.

Economists love to talk about politics. If you turned on CNBC any time over the past decade, the conversation would almost surely include politics. Minor changes were blown out of proportion while central banking and global trade stepped back. For years, the best trade was to ignore politics and focus on everything else but it's all changing now.

Not since the financial crisis do political headlines and polls matter so much. It started with Brexit and is increasing daily. The political ebb and flow is the trade most days and it's not going to change any time soon.

If you look at the past twenty years, the underlying trend of open borders, open trade and globalization was uninterrupted. The political actors changed but the story stayed the same, hence, the rules in the markets were largely unchanged.

With the Brexit vote and Trump's election it's clear that the game is changed and financial markets and as financial markets try to figure out the rules, the flux will continue.

Brexit at first was treated as an isolated incident but it's now abundantly clear that populism, protectionism and antagonism in politics have arrived. The next fronts are France and Germany. Anti-EU National Front candidate Marine Le Pen continues to poll well as she touts a Eurozone breakup and curbs on immigration. Will she benefit from Socialist candidate Emmanuel Macron's loss of votes as he battles it out with Republican Fillion-- who has announced he would stay in the race. In Germany, the pendulum might be swinging in the other direction -- latest polls put Merkel's CDU coalition behind the SPD. Mexico also appears to be swinging to the Left.

What's clear is that the tectonic plates are shifting. There is still some sense of denial in markets that real change is coming but as the days pass by, it's beginning to feel inevitable. At the moment, no one knows exactly what the change will look like but volatility and unrest in markets are guaranteed.

In the short-term what it means is that central bankers are less important that politicians. A case in point will be the 0330 GMT RBA decision. The market is pricing less than a 15% chance of a hike or cut before year end. Unless the statement contains something dramatic, those numbers will hardly move. And without a credible threat on rates, then the inevitable anti-AUD jawboning will be futile and should be faded.

Strong US jobs growth and hawkish Fed talk competed with soft wage growth Friday in a microcosm of what will be the big debate ahead of the March FOMC decision. The Japanese yen was the top performer last week while the pound lagged. CFTC positioning data showed waning interest in USD longs. A new chart note was issued to Premium subscribers regarding the existing USDJPY trade, which is the part of the existing 6 Premium trades (3 FX, 2 indices and 1 metal).

Non-farm payrolls rose 227K compared to 175K and that momentarily sent the US dollar higher but mere moments later the market refocused on wages and with earnings up 0.1% m/m compared to 0.3% expected, the US dollar began to slump. That was compounded by a revision to the December wages reading to +0.2% from +0.4%.

The US dollar sank to the lows of the day but was given a reprieve when the Fed's Williams said he sees some arguments for a March hike and that three hikes this year was a reasonable guess. The market is pricing just a 30% chance of a March 15 hike and a 39% chance of three hikes.

Williams emphasized data dependence but the question is about which data they will depend on. Jobs growth is clearly strong but the Fed has said it wants to see some evidence of wage growth. Some Fed members surely see wage growth as inevitable given the labor market and the prospects for stimulus. In the past, that would be enough for another hike or two but given the missteps at the Fed in the past 5 years, caution might have set in.

In terms of trading, politics continues to dominate as Brexit and Trump drive GBP and USD. The euro will soon enter a more politically-sensitive phase with Marine Le Pen formally launching her campaign on Sunday with a vow to restore 'monetary sovereignty'. She leads in three-way polls and former favourite Fillion embroiled in a scandal for hiring his wife and children with government money.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -46K vs -52K prior JPY -58K vs -67K prior GBP -62K vs -66K prior CHF -17K vs -14K prior AUD +12K vs +10K prior CAD +3K vs +3K prior NZD -1K vs -10K prior

Uncertainty about Trump's agenda, particularly his belief in a strong dollar, is sapping the market's appetite to bet on USD.