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  • Intraday Market Thought: What’s the Yields Signal?

    by Adam Button | Jan 26, 2021 18:12
    Another jumbled mess of a trading session in an exuberant but divergent....The dollar is off its lows of the day, but still down across the board...EURUSD is off its highs after the ECB said it's studying the causes behind....Ashraf posted the chart below, highlting similarities in DXY weakness alongside....Note how DXY bottomed in mid Q1 2018 (after a brief market selloff), while....nbsp;....Monday's 7-bp decline in US 10-year yields (from 1...10% to 1...03%) is considered a break below its 2-week range support, but keep an eye on....03%) and prior 1...0750% support as new resistance...Normally, that would signal risk aversion or declining economic prospects....The Fed is buying $120B in Treasuries and MBS per month while re-investing....One force driving down yields was yesterday's remarks from Senate....This lingering disappointing may also explain why indices are reluctant to....nbsp;....Any further decline in yields would be likely accelerate selling in USD/JPY and....The problem is that the opposite happened on Monday in what was a strange....Much of the broader discussion in markets is about bubbles and there are....Bonds might be giving us an early signal that it's all run too far...At the same time, bonds themselves will become the story on a fall back below 1%....That would signal more easy money for equities and we've little doubt that....In summary, it's a market without a real theme right now besides anticipation of....US stimulus talks have tried to fill the void but haven't been able to capture....nbsp;..
  • Intraday Market Thought: Yield Shield Peeled

    by Adam Button | Feb 25, 2021 22:26
    Yield Shield Peeled Chart The broader market is struggling with weather to interpret rising yields as a....On Thursday, an ugly rise in rates (10 yr hit 1...60%) led to a big reversal in risk with CHF leading and AUD lagging...The US PCE report on Friday will add another big risk...Below are snippets of the past 2 days given by Ashraf to members of the....nbsp;....There is a good argument that rising yields reflect confidence in the economy....At the end of the day, US 5-year yields were up 22 basis points to 0...82% and US 10s had briefly hit 1...60%....On its own, 1...6% isn't anything akin to 'high rates' but at the start of the month....98%....They've moved too quickly for anyone's comfort and that message....5%....Initially the FX market shrugged off higher yields, early on Tuesday AUD/USD....After a strong US durable goods orders report, the Canadian dollar also hit a....But as the jump in yields grew increasingly disorderly, both reversed....Cable was also sucked back to 1...40...Importantly, this was a global jump in yields and while the outlook is strong....The Fed will be facing pressure internally and externally to clamp down....The first step will be verbal intervention...The Fed's Williams speaks Monday, Brainard on Tuesday and Powell next....Yet, if Friday's PCE report shows unwelcome inflation, they may be forced....The consensus estimates on both core and headline are +1...4%....As Ashraf hraf has pointed out in Monday's video (direct open link here), he..
  • Intraday Market Thought: Dollar in Demand, Best in 8 Months

    by Adam Button | Mar 26, 2021 16:55
    Dollar in Demand, Best in 8 Months Chart The US dollar continues to strengthen and that leaves us with an opportunity....DXY is having its best month since July 2020...The US week wrapped with softer than expected core PCE price index at 1...4% y/y vs exp and prev 1...5%....Below are 2 charts: First is the extended analog with 2018 that deserves....The second chart is that of the latest progress in USDJPY, where it was when we....nbsp; ....US 10-year yields made a big move higher on February 16 to break above the....20%....That kicked off a round of risk aversion that continued this week...The second-worst performing currency in that period is the New Zealand dollar,....However the worst performer is the Swiss franc, which is a traditional safe....What's happening?....It's all about carry...Pledges from the Fed to keep ultra-low rates had made the US dollar into a....At the same time, the eurozone is struggling to roll out the covid vaccine....There are plenty of cross-currents but there is a clear unwind in USD-funded....That also helps to explain how CAD is the only currency to outpace USD...Canadian bonds have narrowly traded alongside their US counterpart and as....Another factor that's boosting the US dollar is positioning...Short-USD was one of the most-crowded trades coming into the year...nbsp; As the dollar index climbs to the highest since November, that trade will....What could kick the dollar into overdrive is a shift in Fed....For now, the chorus about seeing through transitory inflation is a huge hurdle....nbsp; We also do not think the chapter of oil selloff is over...nbsp;..
  • Intraday Market Thought: Slow Motion Tantrum & VVIX

    by Adam Button | Jul 8, 2021 13:12
    Slow Motion Tantrum & VVIX Chart Equities dip in a broader bout of risk-off on a combination of travel....The relentless bid in bonds continued on Wednesday as the paradigm of bond and....CHF and JPY are the strongest, followed by EUR, while NZD and AUD are at the....US initial jobless claims came in higher than expected (373K vs exp 350K)....Ashraf kept reiterating the message to the WhatsApp Broadcast Group Members:....The long USDJPY trade did not work out well, but it was later compensated with....This risk-off is not stopping soon...This VVIX/VIX chart was shared with our the Group earlier...For an explanation on how to use/read the VVIX/VIX, please see this video...Convincing explanations for falling yields remain elusive with technical....One factor that can't be ignored is the Fed...The drop in yields accelerated after the June 16 FOMC and that's not a....The kneejerk reaction was to push yields higher on a taper but the message now....That they could taper/hike as growth slows and temporary inflation recedes...The FOMC minutes underscored the delicate balance...They said a 'substantial majority' of participants judged that....In a sense, this could be a different kind of taper tantrum...Technically, there isn't much support until 1...23%, where the 200-day moving average currently resides...Where it gets interesting is the reflexivity embedded in the Fed...They cheered rising yields earlier in the year and will be cognizant that....Beyond that, there's a conundrum that Fed and other central bank buying....Ultimately though, the only way forward is to watch for headlines, economic data....July signals are often hazy so we have no expectation that this puzzle will be....nbsp;..
  • Intraday Market Thought: Macklem vs Powell vs Orr

    by Adam Button | Jul 14, 2021 14:17
    Overnight, the RBNZ signalled it will end QE (fully tapers) this month...Moments ago, Powell's prepared speech indicated inflation is well below....Yesterday, a Fed official brushed off a high CPI print but after a weak bond....The US dollar is down across the board ,with the kiwi leading the pack...The Bank of Canada decision is at 2 pm GMT, followed by Macklem's speech 1....Ashrafs suggested for the WhatsApp Broadcast Group a 2-pronged trade on CAD....US June CPI rose 5...4% compared to 4...9% y/y expected in the largest rise since 2008...Core and monthly numbers were similarly strong and the initial reaction in the....As the minutes ticked by though, the dollar strength began to fade...Part of that was market participants picking apart the report...The jump in used car prices is undoubtedly transitory...They rose another 10% in June for a 45% y/y increase – a shocking number....There were other quirks too, including energy and some durable goods...In all, 6 items accounted for 55% of the increase in June...As that was digested, the US dollar gave back its gains, even completing the....There are lingering concerns though...Rent inflation has risen in consecutive months in what could be a long-term....The dollar got a second lift on a 30-year bond auction...The yield at 2...000% was much higher than 1...976% expected and that triggered a second rally in the dollar and a....05%....The price action looks a bit like bonds reversing the recent gains or pricing in....As yields ticked up, stocks also ticked lower...In the day ahead, we will get the BOC decision and Powell testimony...For the BOC, a taper is in the cards and a strong consensus has emerged around....Also keep a close eye on forecasts as inflation is likely to move higher and....That's because recent lockdowns didn't weight on growth as much as expected and....For Powell, the main message of transitory inflation is unlikely to....On Tuesday, SF Fed President Daly offered an early hint at a taper....That fits with market expectations but a reiteration from Powell would firm up..
  • Intraday Market Thought: We're a ways away

    by Adam Button | Jul 29, 2021 12:54
    We're a ways away Chart quot;I think we're a ways away from having had substantial further progress....This was the most decisive sentence from yesterday's Fed press....nbsp; As soon as Ashraf read this phrase, he immediately alerted the....Powell and the FOMC shifted communication to signal that they're....The US dollar initially jumped on the Fed decision (because of removing "....Yesterday's pre-FOMC Premium trade is already +70 pips in the green...nbsp;The first look at Q2 US GDP is up next...nbsp;....The first surprise came in the FOMC statement when the text was changed to....This was to reflect that that the US economy is closer to the '....Powell underscored that in the statement by saying there was still 'some....nbsp; He later repeated that same line, indicating it was planned...It's also a departure from two weeks earlier when he said they were '....Powell also twice deferred to the committee regarding inflation and risks....That suggests there's disagreement on whether or not price rises will prove....Expect plenty of commentary along those lines in weeks ahead from the hawks and....In terms of the market, the initial shift in communication boosted the....The thinking there may be that while a taper is inching closer, there's no....We will be carefully watching for any shift as the implications are digested...Looking ahead, the advance look at Q2 GDP is up at 1230 GMT on Thursday....The consensus for GDP is an annualized pace of 8...6%, reflecting the reopening...Indications on business investment and inventories will be the place to watch...This week the IMF stretched out the timeline for the US recovery on some of....Ultimately that may be good news as it will keep the Fed from rapidly..
  • Intraday Market Thought: Kabul Fills Jackson Hole

    by Adam Button | Aug 26, 2021 20:18
    Kabul Fills Jackson Hole Chart The ink was barely dry on the rising yields narrative before news of two....As Ashraf indicated, geopolitical risks weigh on markets when US interests....The last time this happened was in January 2020 when US soldiers were....The US dollar is stronger against all currencies, with the yen the least weak....US initial jobless claims edged up while the 2nd reading of Q2 GDP edged lower...We should also mention how US yields initially shot up as a result of hawkish....nbsp;A new FX trade was issued to Premium members...nbsp;....Markets were settled into a bit of a lull ahead of Powell's Jackson Hole....The main themes of equity strength and yen weakness continued Wednesday but....A larger change was in the sovereign bond market where yields rose the most....There's no clear catalyst but we're reminded of the June/early-July drop....It later turned out that the bond market was dialed into what was coming with....Is there a new signal brewing? It's far too early to say...US 10-year yields rose 4 basis points to 1...34%, which is only back to August 13 levels and far from 1...60% pre-delta...The obvious catalyst for higher rates is the better sentiment on delta, but it....Technically, there's reason to expect the move to extend...The double bottom at 1...12% in July/August hasn't been tested with lows near 1...23% last week despite the jitters...A climb above the August high of 1...38% would add to the case for higher rates and, by extension, higher USD/JPY...Nonetheless, US 10 yr yields must first cross above the 55-DMA of 1...34%....In Asia-Pacific trading there was another hint from the Bank of Korea, who....75%....Economists were split on the move ahead of time but rising consumer debt, a hot....Officials had been signaling a rate hike since May but that was delayed by a....Could that be a hint about what's coming from the Fed?..
  • Intraday Market Thought: FOMC Consistent with Jackson Hole

    by Adam Button | Sep 23, 2021 13:52
    FOMC Consistent with Jackson Hole Chart The FOMC upped its hawkish message on Wednesday, but the market reaction was....There is an explanation in the final paragraph on why FX held and indices....nbsp; GBP is up after the BoE showed more optimism in its statement/....nbsp;The Canadian dollar is the top performer while the yen lagged on the....Canadian retail sales fell by less than expected and US jobless claims edged up....A new Premium FX trade was issued ahead of yesterday's FOMC statement...Below is some of our analysis on the Fed's new dot plot, Powell's....nbsp;....nbsp;....Wednesday's risk tone grew more positive after Evergrade said it would....A report in AsiaMarkets also said that a bailout is coming...Finally, comments from the RBA's Debelle along with Powell hinted at a....Understandably, some market participants may not have wanted to react to the....The FOMC statement itself was neutral but the 2022 dots moved to show a 9-9....All but one dot (from 5) now show at least one hike in 2023 with the....In his press conference, Powell was surprisingly candid on a taper, saying....He also outlined that the taper would be completed around the middle of next....All this was more hawkish than anticipated but dollar strength was mild...In bonds we saw the 'policy error' trade kick off again with the long....Stocks remained comfortable though and that may underscore the push and pull....Ashraf reminds us in this video from 4 weeks ago why the taper will not be....nbsp; ....nbsp;..
  • Intraday Market Thought: Yen Extremes & Opportunities

    by Ashraf Laidi | Dec 30, 2022 19:58
    Yen Extremes & Opportunities Chart Thinning year-end volatility is no excuse to ignore a few interesting....Whether it is the 11th weekly consecutive advance for EURUSD, the....The former can be attributed to a combination of deepening inversion in....The yen's moves are particularly significant despite the recent....The same can be said about gold and silver as they advance over the past 2....Metals' resilience is also setting up to be a major theme of 2023-24...nbsp; But let's talk more about the yen...nbsp;....CURRENCIES PERFORMANCE VS GOLD....The above charts illustrate currencies' performance vs gold...The the bottom right chart (2022), shows USD is the only G10 currency to have....4%....The yen, is the second weakest currency, down 13% vs gold...As I explained in chapter 1 of my book the secular approach to measuring....nbsp;....You will note that in the 14 years between 2009 and 2022, the yen has....Weakest in 2009, 2012, 2021 and 2nd weakest in 2022...Strongest in 2010, 2011, 2016 and 2018...In three other years (2014, 2015, 2017 and 2019) the yen was nearly the....Hardly ever the yen's performance was middle of the range...nbsp;....How about the same charts for yen and others going back to 1993? No problem,....What will you notice? You will find the yen's risk-off or risk-on function....Although we have never seen the yen at its weakest over two consecutive years,....How? The yen was the weakest in 1995 and 2nd weakest in 1996—just like....So what happened in 1995-6? The BoJ cut rates down to 0...5% in 1996 from as high as 6...0% in 1990...Can the yen pull off a recovery in 2023? You have 30 years' worth of charts....Will it be a retreat in yields? Will the Bank of Japan finally end yield curve....nbsp; So much to ponder, so many frameworks to consider...Enjoy the Holidays and best wishes for a busy, happy and healthy new year...nbsp;....nbsp;..
  • Intraday Market Thought: Typical Errors on Gold, Silver, USD

    by Ashraf Laidi | Apr 1, 2024 16:14
    Typical Errors on Gold, Silver, USD Chart I've often said in order to better assess the solidity of a gold selloff or....I shall not go into the details of examining the technicals of copper and....Instead, let's focus with illustrations on XAG and DXY...Just as we gleaned valuable information from silver and USD during the low....nbsp; Gold has yet to make any notable pullback since breaking its 4-year....Silver, however, has not yet broken its own 4-year trendline resistance...nbsp;....As long as silver rally does not show the same potency and momentum shown by....Watch today's action for instance, how all currencies are down against the....To better understand the above thesis, take a look at Summer 2020 (blue shaded....In that case, the gold rally and USD plunge was a result of unprecedented....Selling USD, buying indices and buying metals was the easiest and most....nbsp; As long as both the Gold/Silver ratio and DXY are moving closely....A similar example to Spring-Summer 2020 was spring 2021...A contrary example to the above two cases was summer 2022--when the Gold/....There are two clear reasons why this information is vital and useful for....1...It will help you avoid committing the amateur error of blindly shorting the US....2...It will help you avoid buying silver erroneously and irresponsibly (just....nbsp;....Charts wise, instead of focusing on silver technicals, go straight to the....nbsp;....Zooming on the daily chart, you will find EURUSD, GBPUSD and AUDUSD mostly....In effect, they're reverting to their medium term support...If you have read the above 290 words of this analysis, then I shall reward you....1...As long as silver is not breaking key technical upside (or downside), then we....nbsp;....2...Said differently, the inverse correlation between silver and US dollar....3...Identifying what is in fact the USD is also part of the equation...Using USD/CNH can help avoid the traps of DXY, which gives more weight to EUR....nbsp;....Overnight, hours after the Monday Asia open (5:16 am British Summer....Indeedm gold peaked at 2265...nbsp;....This is the same WBG to which I shared why $2185 was going to be the target for....nbsp;....The Group was also told of the $2222 target, 10 days before it occured...The explanations, calculations and rationales are all documented on our WBG....nbsp; Ill be happy to share all upon request...Finally, I shared with the Group a unique quantitative rationale on why....nbsp;....nbsp;..