'Dollar/Currencies' Tag RSS Syndication from SeekingAlpha.com Hard Assets Investor submits:

by Brad Zigler

Real-time Monetary Inflation (last 12 months): -1.6%

Reserve currencies continued to take ground from gold this week. Sterling appreciated 4.1 percent against bullion while the euro rose 3.2 percent. Both the yen and the Swiss franc climbed 1.2 percent.

Complete Story » The LFB submits:Another day, another slow motion, automated, train wreck-type move in equity futures trade. The European futures trade was held in a 0.5% range for 15 hours on Thursday, and then, on cue, just as the closing bell rang across Euro-land the high-frequency trading algorithms kicked in and wrecked the best laid plans of buy-and-holders. The moves decimated the near-term Dax, FTSE, and CAC charts. S/P futures responded, and handily smashed three 30-minute candles containing 1.5% of the S/P value into the lap of anybody looking to be in a trade for anything more than half a session. Cash markets are not to be trusted, especially with the Mad Hatter and Tweedle Dee and Tweedle Dumb running the show. Forex Movers- Thursday trade is all about melt-ups and melt-downs with Cad, Aussie, and Cable close to their opening prices after a huge swing back and forth overnight, in-line with global equity futures going on a roller coaster ride. Forex Shakers- Eur, Jpy, and Chf have all held their moves against the Usd, as global markets go into another melt-down. The current market conditions require a trade plan, a sound constitution, solid money management, a realistic view of what should be banked and when, and the understanding that trades may need to be taken on multiple occasions before one will hold. The markets are tradable, they just need agility, and an understanding of the fact that computer coding maybe went just a few X’s and O’s too far in regard to contingency hedges that seem to have been designed to cream those who are idly monitoring last quarter’s 401K statement. The computer coders replaced the trade desk specialist, and in doing so removed a path of liquidity that would balance the needs of all participants. No specialist on the desk means that computer algorithms are sent out to look for liquidity instead, and when they cannot find it the low-volume melt-ups and melt-downs appear. Low Liquidity
Inter-bank lending is not happening in any great degree, and is expensive to insure, which leads to a lack of leverage and a heightened distrust of holding anything past the closing bell. That scenario is then leading to the need to balance books at the close of every regional session, three times a day. After all, not many would trust a hefty open position to a computer algorithm if at any time between market close and market open the liquidity dries up.And so we have the new generation of global risk markets, built by default for traders and not investors, with nuances that many will take too long to adjust to. Suffice to say, it will be the prop desks that rape and pillage their way through 2010, and it will be the prop desk that issues a client note on January 1st 2011 that explains the reason why they made more in spread than performance fees, and that average Joe would be so much better off under their wing, because of the treacherous waters that lie beneath the Exchange floors. Instead of having a 300 point stop loss for a 20 point gain, the answer is to determine the 4-hour trend (90 SMA), look to trade in that direction with regular exposure, or counter-trend with 50% reduced exposure. Look to buy support at main price action points from the previous session, looking to the low of the day initially, and bank two sets of 30% of the position and pull the stop to the entry at target 1, before hitting the high of the previous day. Leave 40% as a runner that can test the previous HOD, and be prepared to close out if it fails to break. Timing The Trade
Keep an eye on the clock, and ride futures momentum at 2am (Dax), 6-7am (London Fixings), 11am European close, 2.30pm (Nymex close). Outside of those times, forget it, there is no momentum, and forget trading the cash market. Futures-based algorithms are stealing all of the moves ahead of the cash-trading herd. In these conditions there really is no need to look for dividends, which may cycle back into vogue eventually but that will take a while, as the dividend amount is always at risk of being diluted by depreciation in the underlying asset via the daily melts that are an integral part of the Exchange days. The easiest route to longevity is to trade in-line with global risk, and hedge that risk as required, with currency and futures contracts. Buy and Hold is dead; long live Futures Trading. Get in, get banked, get out, and sit by and watch the carnage happen while the analysts go about explaining why you should actually be in the wreck, rather than watching with your futures trades in the bank.

Disclosure: None
Complete Story » Matthew Bradbard submits:

Crude recovered the two previous days' losses, gaining 1.8% today. We expected to see the 50 day MA give way and prices to trade lower, we were wrong. We would move to the sidelines until Crude gives a clearer signal on direction. We expect a trade above $79.50 to signal higher ground, and a trade below the 50 day MA at $76.35 to signal lower ground. Natural gas is higher by 2.44% as of this post, having gained all four sessions this week. For futures traders, as long as the 50 day MA holds, on a closing basis we would remain long. For option traders, we like purchasing 50 cent October and November call spreads.

We would think after a 50% Fibonacci retracement and a failure to remain above the 200 day MA indices are headed south again. Whether it be talk of deflation, a disappointing jobs number or lackluster earnings, a move below the 50 day into next week, at 1077 in the S&P confirms lower action. Aggressive traders could short indices with stops above the recent highs.

Complete Story » Macro Man submits:

If there's on thing punters can rely on these days, it's for Mervyn King to sound as dovish as an albino pigeon trying to get into a "doves only" night at the disco. And yesterday was no different, with the Swerve downplaying the recent strong GDP print and bleating on about how spare capacity is likely to pull down inflation to target. Well, it hasn't yet, has it?

Team Macro Man is sure it is not alone in questioning the Bank of England's credibility here in the context of consistent upside surprises, both to its own and market-based inflation forecasts (see below chart of the UK inflation surprise index). The Bank repeatedly argues that the (supposedly) large output gap is likely to bring down inflation and that it should look through the "one-off" shocks of VAT and the currency depreciation of the past few years.

Complete Story » Andrew Wilkinson submits:

Yields are relatively static with dealers reluctant to sell bonds towards the top of the recent yield range for lack of evidence that central banks will normalize monetary policy anytime soon. Nevertheless they appear reluctant to dive deeper into the traditional safe haven offered by fixed income on signs of revitalized growth around the world. Providing a counterweight to a midweek report from the Fed indicating modest growth at best is a series of rising European confidence measures today casting the light firmly on the Eurozone as the surprising bastion of growth.

Complete Story » Andrew Wilkinson submits:

The U.S. dollar index reached its lowest point in three months as differences in the pace of recovery between the U.S. and the Eurozone rise to the surface. The latest evidence shows growing confidence within the region. Meanwhile the anecdotal U.S. regional evidence from the Fed’s 12 districts continued to prove that the domestic economy maintains a moderate pace of growth.

Complete Story » The LFB submits:Global markets are absorbing a period of weakness that has equity and commodity sentiment placed firmly on the short side of global trade, and breaking a three-year inverse correlation that has allowed the dollar index to also be sold lower. A technical swing point of note in regard to global risk tolerance will be 1105 holding as support on a weekly S/P close, which may just help to stabilize the volatility a little.

The move out of the USD Up/Equity Down correlation, and vice versa, seems to have a lot to do with inflated Treasury note values, dropping U.S. yields, and question marks regarding the sustainability of American debt levels. Ironically, a lower value Usd may help in the very near-term to balance the twin deficits of the Trade and Current accounts.
Complete Story » Nicholas Vardy submits: It's the 24th year running that The Economist magazine has published its famed Big Mac Index -- a tongue-in-cheek way of measuring purchasing power parity (PPP) -- that is, the relative over and undervaluation of the world's currencies.

According to the theory of purchasing power parity, a dollar should buy the same amount of the same good across all countries. As a result, in the long run, the exchange rate between two countries should move towards the rate that equalizes the prices of an identical basket of goods and services in each country.

By comparing the cost of Big Macs -- a good produced in about 120 countries -- the Big Mac Index calculates the exchange rate (the Big Mac PPP) that would result in hamburgers costing the same in America as they do abroad. Compare the Big Mac PPP to the market exchange rates, and voilà!... you see which currencies are under or overvalued.

Complete Story » The LFB submits:

At a time when most markets are being starved of yield and Treasury notes returns and mortgage rates are at record lows, the buy-and-hold investors would long for 2-3% annualized returns from CD or near-term exposure. How ironic then, at a time of famine in regard to return, that the average trading range on equity futures on a 24 hour basis is running at 2%.

Each day, global markets are selling resistance and buying support in an algorithm-based pattern that refuses to allow exposure to develop beyond one session and just will not allow a mid-term trend to form, at a percentage rate that most would accept as a 12-month return. Intra-day volatility is strong, mainly because of low participation levels but in the new generation of global market trade volume analysis means absolutely nothing, especially when a mid-term trend is not in place. The higher-than-average participation on the days of heavy short price action indicates fear is prevalent, as the near-term tail wags the long-term dog, and sets a self-fulfilling pattern that will be very hard to break. The last decade has been a traders market in regard to beating alpha, and the buy-and-hold portfolio that seems so last decade has been replaced with the get-in-get-out-get-done mantra. The cost of intra-bank trade is allowing the automated trade process to bank at will, and is not allowing the algorithms to leave an intra-day move of more than 1.5% unchecked; if it moves, the algorithm will close it, long or short. In the trading environment that has been cast out of a dot com bubble, a housing crash, a Fed inspired economic revival, a sub-prime contagion, a credit-crisis, another housing crash, multiple stimuli packages, another Fed bail-out, a reality check in regard to leveraged greed and unrealistic expectations over a ten year period, the forex market has been a shining light. As a market of need, not equity greed, forex trade has moved along in quiet fashion, following the daily schedule of greasing the wheels of global commercial trade and hedging the overleveraged positions that the computer coders created. Buy-and-hold has never been a pre-set criteria for currency trade, instead the forex market tracks like a laser guided missile the movement in risk and demand markets. When global markets trend, forex traders bank less often and allow runners to run, and when volatility hits, forex trader’s bank early and often. There is no tail wagging the forex dog; currency traders have a unique market that follows without expectancy. As a commercial grade asset, foreign exchange trading has come of age. It is accepted as an integral part of a balanced portfolio, and will continue to hedge and trade risk in whatever environment the over-leveraged, high-frequency trading algorithms choose to put in front of it. 2-3% volatility? Put a forex leash on it, and look to bank a good percentage before the computer coders get the chance to steal it back. Whenever the trends form, which they will just as soon as the economic outlook becomes clear to all, forex traders will adjust in quick time, and let some runners run.
Complete Story » The Pragmatic Capitalist submits:

The latest data from The Economist’s Big Mac Index shows that the euro is still overvalued compared to the dollar, however, calls for parity may be a bit aggressive:

Complete Story » Matthew Bradbard submits:

Regardless of the color of the book, traders did not like what they saw today. Crude traded below the 50 day MA but did manage a close above that level; in September at $76.30. We would be selling rallies if forced into the market, still thinking there is more down side. By the conclusion of the week we would expect an attempt at $74 in the lead month. Natural gas appeared to break out to the upside today but before we get too excited, understand yesterday was options expiration and today is the LTD for front month futures. Tomorrow’s action will be key to see follow thru and the AGA inventory report also comes out. We suggest purchasing October and November 50 cent call spreads.

The stock market did not like the Beige book and could be rolling over from here. Clients exited their August 1150 ES calls and bought back their September 1000 ES puts today at just better than 6 point ($300/per). This leaves them long September 1075 ES puts with a target of 1025 on the futures. If we roll over from here we will be looking to scale into shorts in various indices for clients with stops above the recent highs. We’re perplexed in the Treasury complex and have our hands full with the indices and currencies so we will stand aside until we get a clearer picture.

Complete Story » Andrew Wilkinson submits:

Dovish comments from policymakers in Britain and a dip in Australian inflation prospects conspired to lift government bond prices midweek after yields had shied away from record lows on the theory that a U.S. economic slowdown might snowball into something bigger.

Complete Story » Andrew Wilkinson submits:

A certain amount of regrouping appears to be underway as investors try to size-up the risks to the growing theme that world growth continues albeit modestly. That’s the glass half-full version of what some believed might mark the onset of a double-dip recession. Tuesday’s amelioration in consumer confidence at the U.S. Conference Board has served to rein in some of the attitude to risk. However, Asian markets ran ahead catching up to recent strong performances on Wall Street while a marginally stronger Japanese yen isn’t depicting a complete reversal in the recent theme. Indeed the commodity currencies remain buoyant on a fundamental basis although the big story overnight was a dump in the Aussie dollar.

Complete Story » Tom Lydon submits:

Euro ETFs have given up their high spot after hitting an 11-week high against the U.S. dollar on bad news regarding consumer sentiment. Now that all indications are that consumer spending will stay depressed, investors are pouring back into safe haven ETFs instead.

Higher-yielding currencies, such as the euro, are taking a backseat now after data fed worries that a weak U.S. labor market is restraining consumer spending. Much of the recovery’s strength hinges on these numbers. Bradley Davis for The Wall Street Journal reports that in early afternoon trading in New York, the euro was at $1.2994 from $1.2994 late Monday.

Complete Story » John M. Mason submits:

As European financial markets seem to be stabilizing, it is time to look again at the value of the U.S. dollar. After the heat over the sovereign debt crisis cooled somewhat the value of the dollar, once more, headed south. Over the past two years or so, global markets have seemed to be saying, if the financial world is going to fall apart today, I want to be holding some kind of dollar assets. However, if I am to bet on the value of the dollar over an extended period of time, then I want to hold assets denominated in other currencies.

As one can see from this chart showing a trade-weighted index of the United States dollar against the major currencies of the world, the general drift of the value of the dollar since the early 1970s has been downward. There are two major upswings. The first relates to the tightening of credit by the Federal Reserve under the leadership of Paul Volcker. This is the upswing that goes from about 1980 to 1986. The second upswing came during the federal budget tightening led by Treasury Secretary Robert Rubin which eventually resulted in a budget surplus and lasted from about 1995 into 2001.

Complete Story » Dr. Duru submits:

The British pound’s bounce from May’s 14-month lows versus the U.S. dollar has surpassed all my expectations. The currency has stumbled at key resistance points as expected, but the trend upward has been persistent and undeniable. The pound has followed a steep channel straight up.

The pound is now sitting right at its 200-day moving average (DMA) right after marginally conquering its highs from April. Beyond this point, the pound is likely to continue its rally all the way back to its highs for the year and beyond.

Complete Story » The LFB submits:The last trading week of July is holding global risk markets in tight ranges, has sold commodities to near-term support, and yet still has the dollar index on the run lower. There is complete separation in regard to major currency pair movement, with an every-man-for-themselves mentality that has extreme reactions to macro-economic releases. The market has to absorb a speech from Bank of England Governor King, and U.S. Durable Goods Orders on Wednesday.
Forex Movers- Eur/Usd has become extremely volatile in the near-term, and by far the noisiest pair out there, but until 1.3050 can get broken it may just be a storm in a tea cup. Gbp is bullish, again, and does need to retest support at 1.5550 it would seem before making the next leg higher. Jpy is losing ground, but at an inflection point that previously failed to take the currency lower from, and a pull-back on Usd/Jpy to 87.50 would be no surprise.
Forex Shakers- Aud lost all bullish speculative interest in response to weaker than expected CPI numbers overnight, and now comes off the radar. Cad is trying to attract buyers in reaction to interest rate differentials that are building, especially against the Usd. Chf still looks lost in regard to varying trend, momentum, and price action contradictions.
Global Risk and Demand- S/P trade is trading above the 200-day SMA area at 1105, and will signal a positive stance if 1110 is held above on a weekly chart close (click to enlarge). Crude oil traders are holding support on WTI at 77.00.

As from Jun 01 10 the signals posted to clients each day will be inclusive of any Trade Plan that the trade team sees as having the potential to move.

Disclosure: None

Complete Story » Surly Trader submits:

It seems that the market is in a precarious position. After a few months of very weak trading, we have experienced a fairly significant 10% bounce off of the lows and now the S&P 500 sits within a few points of June highs. The positive price action stems from decent corporate earnings results and outlooks, short covering, a bounce in the Euro, and the release of European bank stress tests (for whatever they are worth).

Click to enlarge:

Complete Story » Matthew Bradbard submits:

Weakness in commodities, what to do? Here are a few ideas…get short, exit longs or be prepared to buy from lower levels.

We think Crude oil and the distillates have put in an interim top, and expect prices to fall back. We reserve the right to change our mind if September closes above $79.50. We expect a $3 pullback in Crude and 10-15 cents in the distillates and then we would re-evaluate from there. Exit ALL remaining longs. In terms of an allocation in this sector we prefer bullish exposure in natural gas via October and November 50 cent call spreads. As of the action today, prices appear to be breaking the downsloping trendline previously mentioned. The next hurdle will be a settlement above the 50 day MA; at $4.57 in September.

Complete Story » Larry MacDonald submits:

Many analysts have warned that China’s position as a major lender to the U.S. Government means America’s standard of living and freedom to set its own course is dependent on another country. If China were to dump its vast holdings of U.S. Treasuries abd dollars, it would send U.S. interest rates shooting upward and the U.S. dollar tumbling downward.

Complete Story »