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Ukeureferendum

GBPUSD SHORT: DOVISH BOE M. CARNEY SPEECH HIGHLIGHTS - AUG CUTIMO Mark Carney was very dovish on the margin, certainly reinforcing their/ my view of an August cut being 90% on the table. The most supportive statements were "MonPol Important In Cushioning Effects Of Any Relapse In Recovery In Months & Quarters Ahead", "The MPC Does Not Have The ''Luxury '' and "More Should Be Done To Cushion The Effects Of Negative Shocks" - all of which infer that an August cut is very much on the cards - especially given that the BOE has been relatively neutral as yet, whilst they have increased the offering of interbank funding by a few £100bn, apart from that the BOE is yet to make any moves in conventional policy tools, which member/ market expects the BOE to do e.g. a Bank Rate cut and/or formal QE. I personally am short GBP$ at these levels (see attached posts), and these comments from today have certainly reinforced my position given their dovishness, even more so when combined with yesterdays minutes which said "most MPC members expect to loosen policy in August" and "detailed analysis of all available policy tools is required" - both of which go hand as 1) they want to make sure they analyse the economy properly, which takes time (July too soon) yet all members expect August to be enough time to conclude/ act upon such analysis. Not to mention, given bank forecast a median GBP$ price of somewhere near 1.225, being short in the 1.30+ imo is certainly probabilistically favourable, especially if you are able to execute close to the Post-brexit highs of 1.35 which has held as solid resistance and imo should do for the foreseeable future given we traded to lows of 1.38 before brexit so 1.35 is very expensive post brexit. Further, the median bank forecast was for a 25bps cut in the bank rate in July (with some calling for 40-50bps), so if that was the case in July, given BOE didnt deliver, this only increases the chances of a cut in August which imo will take GBP$ to 1.25xx. USD demand increasing - Federal Funds Rate Implied PDF prices: Also, on the USD side, demand is increasing which compounds the GBP$ short support, as the Fed Funds Rate implied hike probabilities are continuing to steepen. For example, since yesterday, the implied probability of a September/ November hike has increased from 12%/12% to 19.5%/20.8% - with, for the first time, a 50bps hike being priced at 0.4%/0.8% respectively; Decemeber's probability also steepened to its highest level post brexit to 40% from 33.7%, 50bps at 7.5% from 3.4% and 75bps for the first time at 0.3%. This aggressive steepening in the rate/ probability curve is likely a function of the risk-on market we are in (SPX 4 new highs in a row), with 10y rates rallying TNX, averaging +4% every day this week. Further, I think the FOMC speakers comments which have 80% been hawkish this week has also increased confidence. Gov Mark Carney Speech Highlights - Monetary Policy Cannot Do Everything To Counter The Impact Of The Referendum - MonPol Important In Cushioning Effects Of Any Relapse In Recovery In Months & Quarters Ahead - BoE July Minutes, ''Broadly Consistent With My Personal View.'' - The MPC Does Not Have The ''Luxury '' - Far Too Early To Draw Strong Conclusions On Precise Path Of The UK Economy - UK Economy Is Unlikely To Crash, It Is Likely To Slow - A Sharp Fall In Currency Rate Will Provide A Shot In The Arm To The UK’s Net Exports - More Should Be Done To Cushion The Effects Of Negative Shocks - Past Few Weeks Have Generated Considerable Uncertainty Around UK Economy, Policy & Politics - Monetary Policy Should Stand Ready To Move In Either Direction - Brexit Has Increased Materially The Degree Of Uncertainty - Some Of This Uncertainty May Dissipate, But A Good Chunk Is Likely To Linger Over Next 2-Yrs - Uncertainty To Weigh On Domestic Spending By Both Companies & Households For Foreseeable Future - The Amount Of Slack In The UK Economy Is Likely To Steadily Rise
Short
by QuantumLogicTrading
LONG DXY/ USD VS GBP: HAWKISH FOMC LOCKHART SPEECH HIGHLIGHTSFOMC Lockhart was the 4th Fed this week to imo be relatively Hawkish with his words, most notably reinforcing with the others brexits near-term stability saying "Doesn't Expect 'Brexit' to Have Near Term Impact on Economy" and " So Far 'Brexit' Reaction Largely Orderly". Most interestingly though was Lockharts view on the FOMC's positioning for future rate increases, saying "Won't Rule Out Two Rate Rises This Year" - which is extremely hawkish given most expect 1 at the most.. Back up this sentiment by insisting that the Fed is "Fed Not Behind Curve, Has Time to Decide on Next Rate Move". Nonethless Lockhart did somewhat contradict his "rate expectations" by saying "Time for 'Cautious and Patient Approach' to Rate Policy" which surely shouldn't be the case if 2 hikes are coming - that would be on the aggressive side. All in all, Lockharts comments go hand in hand with my Bullish medium term USD/ DXY view (see previous articles) - I like the USD vs EUR, JPY, GBP, AUD, NZD in the medium term so long DXY/ USD is favoured, even more so if 2 rate hikes were to be realised this year. At current levels short GBPUSD is my favourite expression FOMC RATE HIKE IMPLIED PROBABILITIES - On the likelihood of rate increases, in the past 24 hours, from the Federal Funds Rate implied probability curve we have seen rates/ probabilities firm after yesterdays "risk-break" recovery, with a 25bps September/ Nov hike steepening to 17.2% from 11.7%(Wed), and Dec setting new highs at 35.9% from 29.5% (Wed) - Dec also went on to double the probability of a 50bps hike to 5.1% vs 2.8%(Wed), giving Lockharts comments some weight. FOMC Lockhart Speech Highlights: -Fed's Lockhart: Fed Not Behind Curve, Has Time to Decide on Next Rate Move -Lockhart: Time for 'Cautious and Patient Approach' to Rate Policy -Lockhart: So Far 'Brexit' Reaction Largely Orderly -Lockhart: 'Brexit' Will Increase Long Term Uncertainty -Lockhart: Doesn't Expect 'Brexit' to Have Near Term Impact on Economy -Lockhart: Bond Market Yields Largely Reflect Flight-To-Quality Buying -Lockhart: Too Soon to Say 'All Clear' for Financial Markets -Lockhart: 'Brexit' Not a 'Leman Moment' -Lockhart: Still Expects U.S. to Grow by 2%, Expects More Job Gains -Lockhart: Economy is 'Performing Adequately' -Lockhart Says Fed Has Time to Decide on Next Rate Move -Fed's Lockhart: Presidential Election May Be Boosting Economic Uncertainty -Fed's Lockhart: Won't Rule Out Two Rate Rises This Year
TVC:DXYLong
by QuantumLogicTrading
SELL NZDUSD - RECONFIRMED BY 12M HIGHS? CPI PRINT EYED CLOSELYAlso as additional technicals to support the short NZD$ view: 1. On the daily and NU currently Trades close/ at to its +2 standard deviation lines, these are highly resistive. - Assuming NU trades mean reverting +2SD means there is a 95% chance of a price reversal/ 95% of all prices should be below the +2SD channel lines (e.g. NU highly likely lower from here). -- And as you can see by the Yellow circle highlights NU has held this +/- 2SD discipline in the past so is highly likely to maintain these levels in the future. 2. Also NU trades significantly above its 60, 120, and 250 Moving Averages on 1h, 4h, 1D, 1wk - this also signals strong overbought prices, where selling has a higher probability of success. 3. NZD$ looks to have confirmed the 0.73 12 month high level as resistance - strong pivot point. 4. The strong 100k+ print beat from NFP last week imo didnt price much into NZD$ downside at the time, however given the reaction in the Fed Funds rates market, it may be pricing now as the market now implies a 25bps hike at 5.9% Sept/ Nov vs 0% prev, 22.5% Dec vs 18.5% prev - 50bps hike 1.1% vs 0% - also the probabilities of cuts all fell significantly across the curve. 5. Risks to the view continue to be a hawkish RBNZ - as we saw last week the short played well but was undermined at 0.70 when RBNZ speaker highlighted the HPI issue and inferred the cut may not happen in Aug as a result (Hence the recovery back to 0.73). - The rate cut went from 80% to 50% on the back of these comments imo - now NZD CPI inflation and employment readings in the coming 30 days serve as the determinant of their Aug decision, a flat or miss CPI print will likely mean the RBNZ will cut 25bps (CPI is the no.1 target), so beyond the 0.73 level resistance we look for certain confirmation in the CPI reading, though it will be difficult to know what the market is thinking/ to get ahead of the market in the lead up, where the short was a giveaway before the RBNZ's new comments were on the table. - Also on this point it is worth noting that given many of the worlds CBs have shifted to a dovish tone in light of the brexit vote (e.g. RBA BOE BOJ FOMC) this indirectly puts pressure on RBNZ to cut as Kiwi/ NZD will continue to appreciate causing disinflationairy pressures/ brakes to continue on the nzd economy, thus we also carry positive upside given the worlds policy positioning at the moment. Trading Strategy 1. Sell @0.726 TP 0.702 SL 0.732 - More aggressive shorts may be added if confidence in a cut is higher - a cut will send NU down to 0.67 at least for example. *Be sure to check the attached post "SELL NZDUSD @0.73 - TP 700PIPS: BREXIT, RBNZ, FED & USDJPY HEDGE" for NZDUSD short fundamentals*
Short
by QuantumLogicTrading
1
SHORT GBPUSD @1.34 - BOE MINUTES HIGHLIGHTS - EXPECT AUGUST CUTAs expected BOE stood pat on their rate decision reiterating much of which was said last week by Gov M. Carney, the need for more analysis to be done is/ was key - " "Detailed Analysis" of All Policy Options Required" and "Extent Of Additional Stimulus Will Depend on August Forecasts". IMO the notes were very bearish and almost but 100% chance of some sort of action in August - "Most MPC Members Expect To Loosen Policy In August". Given Brexit, and the Inflation conditions in the UK anyway a cut of the Bank Rate, if only for 12ms, makes sense to ensure a smooth transition - especially as the UK welcomes a new PM & the article 50/ Brexit negotiations are yet to get underway, this will undoubtably put some pressure on the UK economy, where much of which could be smoothed by a 25bps rate cut. The minutes did point out interestingly that ""In the Short Run" Weaker GBP Will Boost Inflation" which makes sense, however they coupled this statement with "BOE Agents Report Some Businesses Delaying Investment", so the net impact of the Brexit event on inflation is yet to be seen. Overall IMO the decision to hold Policy still in July was as expected however, given the median analyst had forecasted a 25bps cut, this "hawkish" response imo has opened up a beter oppourtunity to sell GBP, as in the medium-term/ post the Aug decsion GBP$ is likely to trade below the 1.28 lows, with many analysts forecasting GBP$ somewhere between 1.20-1.25. Trading Strategy: 1. Short [email protected]/335, sell [email protected]/9 TP1 1.305; TP2 1.285 TP3 1.25XX. - I personally will not be operating SL on this trade as i believe BOE will cut in August 90%, and/or GBP$ will fall at somepoint on pure speculation, and/or as FOMC rate expectations continue to increase going into the later stages of the year. 2. Shorting any GBP rallies vs USD is also a good strategy from now on into the Aug rate cut, especially above 1.34. *In the unlikely event GBP$ trades higher on the back of this e.g. to 1.38/9 then i still advise shorting, however, given how stable cable was trading into the event (and after the event) i dont expect much short headwinds now - you could tell the market didnt actually believe in the rate cut/ money wasnt behind the rate cut as GBP$ rose to its post brexit highs at 1.33... is that how a cross should react when money is actually backing a cut? BOE Rate Cut/ Minutes Highlights: Bank of England Leaves Bank Rate Unchanged At 0.5% Bank Of England Leaves Bank Rate Unchanged At 0.5% BOE Jul Minutes: MPC Voted 8-1 to Maintain Bank Rate at 0.5% BOE Jul Minutes: 8 Voted to Keep Rate Unchanged BOE Jul Minutes: 1 Members Voted to Increase Rate BOE Vlieghe Voted to Lower Bank Rate to 0.25% BOE: Most MPC Members Expect To Loosen Policy In August BOE: MPC Members Had "Initial Exchange" on "Various Possible Packages" BOE: Extent Of Additional Stimulus Will Depend on August Forecasts BOE: "Detailed Analysis" of All Policy Options Required BOE: "In the Short Run" Weaker GBP Will Boost Inflation BOE: Longer-Term Outlook Depends on Inflation Expectations BOE: Economic Activity Likely to Weaken in Wake of Brexit Vote BOE Agents Report Some Businesses Delaying Investment, Hiring Decisions
Short
by QuantumLogicTrading
3
USOIL UKOIL: IEA MONTHLY OIL REPORT - BREXIT; DEMAND > SUPPLY 17The IEA Oil Market Report was largely in line with OPEC's assesment yesterday - Non OPEC output was seen falling in 2016 by 900,000 B/D - However, they differed on the 2017 perspective with 2017 expectations from the IEA forecasting a modest growth of 200,000 B/D in 2017. Opec Output however rose to an eight year high up 400,000 B/D in June at 3.21M B/D on the back of Saudia and Nigerian growth. On the margin the IEA actually came out on the margin relatively bearish for the oil market and its future - citing a global oil supply increase at +600,000 B/D to 96m in June - with Non OPEC seen at 55.9m B/D. Nonetheless, the IEA went out of their way to highlight that the oil market had made an extraordinary recovery from "Market Surplus" to "near balance" in Q2 2016. The IEA Uped the World Oil Demand Growth Forecast to 1.4M B/D in 2016 (up +0.1M B/D), whilst seeing World Oil Demand Growing by 1.3M B/D in 2017. On the margin it is unsure what the net forces are for 2016 and 2017's demand-supply balance will be, though a 1.4m B/D in 2016 increase in global oil demand growth outstrips the Non-opec 200,000 B/D increase in supply foretasted - this is medium term bullish for Oil . They remained on the fence with Brexit concerns which imo is a positive positioning for the oil market given there should be a negative bias Other notable statements were "There is still an ominous investment gap building up in the oil industry that might, depending on how quickly today's record high oil stocks are eroded, create the conditions for sharply higher prices over the medium term." and "Our underlying message that the market is heading to balance remains on track, but the modest fall back in oil prices in recent days to closer to $45/bbl is a reminder that the road ahead is far from smooth." - these comments in mind, traders should use this information to understand that volatility is likely to be higher so TP/SL should be adjusted accordingly to reduce the margin of error. Personally, i think further USD strength may continue to dull the oil market. IEA Monthly Oil Report Analysis: -IEA: Global Oil Supply Rose 600,000 B/D to 96M B/D in June -IEA: Non-OPEC Output Seen Falling by 900,000 B/D in 2016 -IEA: Non-OPEC Output Will See Modest Growth of 200,000 B/D in 2017 -IEA: Non-OPEC Output Rose in June by 205,000 B/D to 55.9M B/D on Partial Recovery in Canada -IEA: OPEC June Output Up 400,000 B/D to Eight-Year High of 33.21M B/D on Rise in Saudi, Nigeria -IEA: Says Saudi Arabia Ramped Up Output to Near-Record Rate of 10.45M B/D in June -IEA: Says Iranian Output Rose to 3.66M B/D in June, up 50,000 B/D From May -IEA: Says OECD Commercial Stocks Stood at Record 3,074 Million Barrels by End-May -IEA: Market Showing Extraordinary Transformation From Major Surplus to Near Balance in 2Q -IEA: Says High Oil stocks Are Threat to Recent Stability of Prices -IEA: Ups World Oil Demand Growth Forecast to 1.4M B/D in 2016 -IEA: Sees World Oil Demand Growing by 1.3M B/D in 2017 -IEA: Says Middle East Oil Output Rose to Record High of 31.5M B/D in June -IEA: Says Hard to Draw Conclusions About Brexit -IEA: Says High Oil Stocks Pose Threat to Price Stability www.iea.org
FX:USOILLong
by QuantumLogicTrading
LONG USD VS JPY, EUR, GBP: HAWISK FED BULLARD - FED FUNDS RALLYBullard is the lone Fed official forecasting just one additional rate increase, and expects modest growth over the next two and a half years. But he reiterated Tuesday he's not expecting the economy to head south. However, did go out of his way to mention a relatively dovish point "We Have Some Ammunition if We Need it During Next Recession". Nonetheless he remained hawkish net on the margin, reiterating FED Georges hawkish comments regarding the labour market "About as Good as It's Ever Been", whilst using the June NFP print to flatten any questions regarding the low May print saying "Strong June Jobs Gains Showed May Report Was 'An Anomaly'". Similarly Bullard continued with Georges sentiment of the US's post-brexit robustness stating that the "Market Reaction to Brexit Shock Was 'Satisfactory,' 'Orderly'" - and infact surprisingly pushed this hawkish brexit sentiment on to new levels of "Ultimately the Brexit Impact on U.S. Economy Will be 'Close to Zero'". This is perhaps the most hawkish/ upbeat statement i have heard form a key Fed member since the decision which is positive given Bullard's naturally dovish stance. Bullard also stressed the need for a solid US Fiscal package to boost demand, where i have to say fiscal stimulus has almost gone forgotten about in the last 7-years post crash, given the dominance of the central banks, quoting "U.S. Badly Needs Fiscal Agenda for Boosting Economic Growth". Once again todays "FED speaker tracker" continues to add to my long $ view in the medium term. Today already we have seen front end rates continue their aggressive recovery this week, with the fed funds rate implied 25bps hike probability now trading for Sept/ Nov at a whopping 18% vs 11.7%Mon, with Dec trading at 36.3% vs 29.2%Mon . 10y UST (TNX) rates trade up another 4% today after a 5% gain yesterday, whilst 30yrs trade 3% up on the day (TNY) - as global risk rallies. Whilst USD is trading a little weaker in the immediate term as it readjusts lower for risk-on USD selling, long USD/ DXY is my medium term view as we continue to see the US FOMC Rate curve aggressively steepen, which is likely to continue for the next week at least - steeper implied curve means hike is more likely - more likely or realised hikes = increased (in the medium-term) dollar strength. Further, we expect dovish/ easing BOJ BOE ECB over the same period, this monetary policy divergence compounds the long $ view against its 3 biggest crosses (hence the long DXY expression) Medium term trading strategy: 1. The best expression of this medium term USD view is long DXY - as above I hold 8/10 conviction views for a number of the heavily weighted USD basket crosses based largely on likely monetary policy divergence in the medium term (FOMC Hiking whilst BOE, BOJ & ECB ease/ cut) e.g. LONG USDJPY @104 - 106.3TP1 109.5TP2; SHORT EURUSD @1.11 - 109.3TP1 107.5TP2; GBPUSD @1.34 - 131.2TP1 128.5TP2
Long
by QuantumLogicTrading
8
BUY USDJPY @104 & SELL GBPUSD @1.33: RISK-ON, POLITICS, BOJ, BOEThe Federal Reserve's regulatory point man said work to address the lessons of the 2008 financial crisis won't be complete without better regulation of short-term funding both inside and outside the banking system. St Louis Fed President Jim Bullard may be the Fed's new super dove, but he's no pessimist, he says. Bullard is the lone Fed official forecasting just one additional rate increase, and expects modest growth over the next two and a half years. But he reiterated Tuesday he's not expecting the economy to head south. Trading Strategy 1. Given this I remain bullish on the $ in the medium term, despite this spike in risk-on which IMO is unlikely to last more than 2wks. In the immediate term I like long $yen as the best play ATM vs other expressions - with a target of 109, entry at 104 as 1) the markets have finally signalled they are ready for a recovery bull run, post the brexit risk-off/ safe haven rally - largley on the back of CB stimulus. I believe USDJPY has been the most sold risk-on asset, thus it is now ripe for buying; 2) JPY fiscal stimulus is likely to come; 3) BOJ is likely to deliver 10-20bps of cuts to its interest rate 4) we have broken the 104 "brexit seller resistance level" which has held since the vote - this break imo means we can now move to 109+ as the recovery leg before resuming lower; 5) the Fed Funds Rate curve continues to steepen across the curve but particularly aggressively in the front end (yesterday 10ys adding 5%) and as a result implied probabilities of hikes continue to rally across the 2016/17 tenors (Dec hike now 33.7% vs 29.2%Mon); 5) check the attached posts for long $jpy support 2. Secondly, short GBP$ is a trade i am closely eyeing.. I am a 70% seller at 1.32 (90% at 1.35) - short GBP rallies is the preferred trade as the BOE is likely to deliver easing in Aug that will drive us down to the 1.25 terminal rate that I have predicted - thus i am hoping we get some "poor information money" flows into GBP up to 1.34/5 going into Friday as 1) UK Political Uncertainty is eased - as Theresa May is the New PM starting Wednesday; 2) GBP buying on Thursday if the BOE doesn't cut rates, whilst I (and the market) believes an august cut is the likelihood instead, given the aggressive GBP selling these past weeks it is prudent to assume quite a large amount of money may/was be betting on a July Cut thus if this "disappoints" some of the market we could see cable trade higher to 1.34+; 3) Long GBP is the risk-on trade, so if risk holds up/ carries on rallying we could see GBP$ take us to 1.34+ - CB and Fiscal stimulus + the fact risk has been depressed for so long, i believe risk has the momentum to rally until the end of the week at least (next risk-rally then looks to 28th July for BOJ stimulus?) 3. The long $Yen and short GBP$ also acts as a dynamic hedge as the long UJ is the risk-on coverage, with the short cable the risk-off half - combining both semi-hedges your exposure, something i like to do when trading. FED Tarullo Speech Highlights - "the conditions for destructive runs that threaten financial stability could exist even where no institutions that might be perceived as too-big-to-fail are immediately involved" FED Bullard Speech Highlights - Bullard: An unemployment rate around 4.7%, gross domestic product growth of 2% and the Fed' preferred inflation gauge, the personal consumption expenditures index, at 2%. - "If there are no major shocks to the economy, this situation could be sustained over a forecasting horizon of two and a half years" - "we have no reason to forecast a recession given the current state of the US economy"
Long
by QuantumLogicTrading
RISK-ON RISK-OFF POSITIVE CORRELATION? SPX VS GOLD, JPY & UST P1The Paradoxical Risk-on/ Risk-off Asset positive correlation: 1. Risk off assets have outperformed to date, with Gold leading the gains at 28%, JPY following at 18% and US 10y treasuries Trading 16% up in 2016 - average at 20.5%. 2. Meanwhile, SPX trades 5% up since 4.1.2016 but more importantly, since 20th January lows SPX is up 15%. 3. this is significantly paradoxical, as fundamentally, Risk-on assets shouldnt trade well when safe havens do and the reverse can be said about Risk-off bull markets - Equities shouldn't trade higher. - the reason this positive correlation of both risk and safe haven assets rallying at the same is problematic is that in the long-run it is not sustainable - one MUST adjust to the downside as markets in the short-run trade as a zero sum game, liquidity is inelastic and non-infinite i.e. they cannot both keep gaining capital as there is a limit when all available liquidity is allocated. Consequently, at this point investors then have to forgo investing in one asset, if they want to speculate on another, as they dont have any new cash to invest - this is why we normally see safe havens and risk assets trade negatively correlated and price action is "seesaw" like most of the time as investors take money out of risk, for example, so they can allocate it to risk-off, as perceptions and market environment changes. Cause of the paradox: 1. An Unusual even split in investor risk sentiment e.g. in the immediate term, some believe the environment is stable enough to offer risk higher (CB easing/ support driven views), whilst others believe global risks are heightened enough to offer safe havens higher (Brexit, US election, China). Hence we see both SPX and Risk-off grow. Normally, the markets trade like herds e.g. behaviours skew to risk on or off, grouping with a strong bias to one side at the same time. This more "evenly distributed" sentiment we are experiencing rarely materialises as usually there is consensus on market risk e.g. all investors rationally agree that "now" is a highly uncertain time or the other way, given the same information is available. 2. Most likely imo , however, is that there is a short-term imbalance/ artificial risk inflation, where risk assets yet again are buoyed by central bank impetus. Following the brexit result a cascade of global CB dovishness/ support was injected into the markets providing the perfect artificial rise in equities - whilst the underlying market sentiment continues to follow the 2016 risk-off trend (as is shown by the 2016 outperformance of off (+21%) vs on (+5%), CBs have provided sufficient support to mask the risk-off bias - however it is unlikely to continue for long.
TVC:SPXShort
by QuantumLogicTrading
2
BREXIT YUAN DEVALU: USDCNH - SNEAKY FX FIXING? SELL SPX & FTSEAt the start of 2016 the PBOC began aggressively devaluing the off-shore Yuan against the USD, imo in an attempt to start the year with a competitive export:import advantage - with the aim of making 2016 a headline "come back" year for China amid the growing GDP growth and Credit bubble worries. As a result Equities across the board sold-off (-8.5% in a few days) as non-chinese Exporters globally feared that their biggest market/ growth market was coming under pressure, as the relative value of their USD exports soared, as Chinese import demand would fall significantly and as a function of the depreciation relative to the USD. Whilst the initial highly correlated move hit equities by -8.5% (7 days), however when fully priced, the CNH devaluation fears took the SPX down 13% to 1808 lows in just 12 trading days. The PBOC Deval intervention took CNH to lows of 6.7550 and low-closes of 6.6900. Brexit - Under the radar and sneaky PBOC FX Intervention? 1. Fast forward 6 months - the Days going into Brexit USDCNH traded at almost exactly the same fix as the pre-deval January level at 6.58 (blue line), then on the most volatile brexit days, the 24th and 29th, PBOC fixed the Yuan 1000pips lower to 6.6850, just above the extreme January lows at 6.6900 - Since then CNH has continued drifting lower, and now has eclipsed the shock January low closes of 6.6900, currently at 6.6960, which is now a new 6 year low. - This begs the question, did the PBOC plan this as a way to get their goal of competitive depreciation achieved WITHOUT the negative press/ market impacts that were seen in January? The answer is unknown but by looking at the Yuan prices on brexit day and the day after, it certainly looks like it - 1000pip devaluation in 2 days, thats bigger than any deval in CNH's previous history (even from January). How to trade it? 1. Imo this trade is a no brainer, given the PBOC seem happy to keep fixing CNH higher and have shown no signs of stabilising/ appreciating - with the last 6 daily candles in the green, my bets are that the PBOC in the near-term think they have gotten away with the deval, in the midst of all of the brexit effects e.g. Central Bank information flows are high, the brexit news itself and general market volatility are all acting as distractions - thus the SPX hasnt priced any of this deval YET despite it being more extreme than what caused the 8-13% equities sell off in January? - I have to admit, it has taken even me until now to realise this sly depreciation, nonetheless this trade (short Equities) is a one up on the market currently as most still havent noticed and continue to focus on central bank action.
Short
by QuantumLogicTrading
SHORT EURUSD: DOVISH ECB MONETARY POLICY MINUTES - FRESH EASING?IMO the ECB minutes were the most dovish/ clearly directed statements out of the ECB for several months. Before this, and in the past several speakers comments, sentiment has been towards the hawkish/ stale side, citing "ECB has done enough" as the main rhetoric. The June Minutes however show a renewed positioning of the ECB, where they clearly imply they are willing to take further action if needed be with quotes such as "ECB Ready to Act, Using All Its Policy Tools if Needed", and unlike BOJ Kuroda, the ECB clearly seem to have taken ownership of their poor economic ownership finally by saying " Underlying Inflation Has Yet To Show Clear Signs of Upward Trend" and "To Monitor Inflation Outlook Closely" - given that inflation is their headline goal, such comments, when combined with the above readiness to "act", makes the idea of further easing a much higher probability, especially of late where key members almost have refused to mention further action. IMO, this shift in rhetoric to the dovish/ directive side is in an aim to try and put some negative pressure on the EUR since it has managed to par losses vs the USD, whilst bleeding 12% appreciation vs the GBP. The ECB are likely trying to talk down the currency with such rhetoric, especially in light of brexit, where their currency has failed to revalue/ adjust for the negative economic impact that is coming. I see a very bearish outlook for the EUR over the coming weeks/ months given this new dovish ECB stance, much like the GBP, when a central bank wants the currency lower, that is usually the path it follows. Potential dampeners however are the fact that Draghi has before failed to deliver market expectations (Dec 2015 most notable), so unlike the GBP, the acertive nature of these dovish monutes likely have a diminished impact relatively to say the GBP. Nonetheless, i expect the ECB to continue with the rhetoric and given the appreciation/ stability with their biggest trading partners (USD/ GBP) i expect the ECB to take further action in the near term as as it stands, the EUR exchange rate mechanism will/ is failing to transmit the inflationairy pressure they need (infact the opposite) and further easing is the only way to solve this. Thus, I am short EUR from here, especially against the USD where i think it could be up to 500pips overvalued as it is, given its inability to price previous ECB stimulus (March) and Fed Hike in Dec - this short view is especially the case on the back of likely more easing + brexit uncertainties trade seemingly underpriced (vs EJ) and the new EU export inefficiency to the UK one of its biggest markets (given 12% appreciation) - Clear 4-8wk targets are the 1.082 handle in the near term, with 1.052 lows from dec last year the next aim on the back of any fresh easing/ brexit uncertainties still need to be priced. ECB Monetary Policy Minutes -ECB Minutes: ECB Ready to Act, Using All Its Policy Tools if Needed -ECB Minutes: Brexit Vote Seen As 'Important Source of Uncertainty' for Euro Area Outlook -ECB Minutes: To Monitor Inflation Outlook Closely -ECB Minutes: Brexit Could Cause Significant Negative Economic Spillovers to Euro Area -ECB Minutes: Brexit Impact Could Be Transmitted to Euro Area Through Trade, Financial Markets -ECB Minutes: Underlying Inflation Has Yet To Show Clear Signs of Upward Trend -ECB Minutes: Investors Expect Future Challenges for ECB in Sourcing Enough Bonds Under QE Program -ECB Minutes: It Shouldn't Matter Much Which Precise Assets Are Purchased Under QE -ECB Minutes: What Matters is Overall Purchase Volume, Associated Money Creation -ECB Minutes: Composition of Bond Purchases Still Matters to Investors -ECB Minutes: Health of Euro Area Banks is Key for Effective Transmission of ECB Policy
Short
by QuantumLogicTrading
1
USD/ DXY: FOMC DUDLEY & WILLIAMS - BREXIT & US ECONOMY SPILLOVER1. IMO Dudley tipped to the dovish side, especially on key inflation highlighting that it is " rising again, but still low". Other rhetoric reaffirmed much of what has been said post the brexit vote e.g. Uncertainty being the biggest factor. 2. Meanwhile, Williams was notably more upbeat/ optimistic, shrugging off the US's shock miss NFP report to instead point out that the underlying trend remains upward. He also relatively underplayed Brexit by saying his baseline view is that it will have a "modest impact" vs Dudleys sitting on the fence of "too soon to say". Further, Williams went on to underplay Brexit as a "normal global economic uncertainty". 3. Nonetheless, both found common ground regarding the "Uncertainty" surrounding the Brexit US spillover effects and "data dependency" being key for FOMC decisions. This has been the case not only between the two today but also for several members in the past few weeks/ months. 4. USD now looks to FOMC Minutes from the June Meeting for any further hints of net member direction and NFP on Friday. I expect much of the same, with bias to Dudley's more cautious/ dovish approach likely to underlie the Minutes but hopefully an outstanding NFP report to spur the USD. 5. The 30-day Federal Funds Rate futures market sold-off Fridays Hawkish gains today, with the Implied Probability of a 25bps FOMC rate hike significantly flattened across the curve, with a Sept/ Nov Hike now at 0% vs 5.9%, Dec at 13.7% vs 22.3% and Feb 2017 at 13.4% vs 21.8%. We also saw a dovish skew across the tenors in favour of a 25bps cut, with Sept/Nov probabilities increasing to 2.4% vs 2.2% Sept and 4.4% vs 2.2% Nov. July expectations traded flat at 97.6% no change. 6. Nonetheless, it was William's bias that won the day as DXY Traded well offered, up 66pips at 96.21, much of which driven by the risk-off turn markets have taken, sending USD higher across the board, most notably against the antipodeans (RBA driven), CAD (oil 4% lower) and GBP (down 2%) as BOE Gov Carney continued to provide dovish sentiment. Also imo earnings season $ demand may have started to price the index higher. 7. Going forward I expect to see continued USD strength across the board as GBP, the Antipodeans, CAD and JPY are likely to realise weakness on the back of poor economic fundamentals, brexit, and further oil falling (global growth worries - brexit/ china linked). Also I expect BOJ easing to price UJ higher in the near future which, all in all, should provide the perfect environment for a higher DXY and USD especially against JPY, NZD and GBP over the next 4-6wks for the attached reasons. End of week DXY should close up 3%+ if NFP comes in firm/ strong - 98.5 target Dudley on US Economy: - Dudley: Brexit Main Uncertainty, Too Soon to Say Impact Yet - Dudley: Investment in U.S. Also an Uncertainty - Dudley: Inflation Is Rising Again, But Still Low - Dudley: Fed Policy Remains Data Dependent - Dudley: Uncertain Outlook Means Can't Predict Fed's Next Move Williams on Brexit: - "I think the economic effects, on the baseline scenario, are relatively modest, but there still is the uncertainty about how things are actually going to play out," - "I would say that what's happened with Brexit has been just one of the normal uncertainties that always occur in the global economy and things that we just have to take into account," - On the poor US Jobs Report - "the underlying trend continues to be good, continues to be above trend and continues to show that the economy is strengthening and not weakening,"
TVC:DXYLong
by QuantumLogicTrading
SHORT NZDUSD: +2 STANDARD DEVIATION PIVOT POINT ON DAILY & H1Also as additional technicals to support the short NZD$ view: 1. On the daily, weekly and H1 NU currently Trades (and at 0.73) close/ at to its +2 standard deviation lines, these are highly resistive. - Assuming NU trades mean reverting +2SD means there is a 95% chance of a price reversal/ 95% of all prices should be below the +2SD channel lines (e.g. NU highly likely lower from here). -- And as you can see by the Circle Yellow highlights NU has held this +/- 2SD discipline in the past so is highly likely to maintain these levels in the future. 2. Also NU trades significantly above its 60, 120, and 250 Moving Averages on 1h, 4h, 1D, 1wk - this also signals strong overbought prices, where selling has a higher probability of success. *Be sure to check the attached post "SELL NZDUSD @0.73 - TP 700PIPS: BREXIT, RBNZ, FED & USDJPY HEDGE" for NZDUSD short fundamentals*
Short
by QuantumLogicTrading
7
SHORT GBPUSD & FTSE RALLIES: GOV M.C SPEECH & BOE FSR HIGHLIGHTS1. *Id say a 6/10 dovish reaction by markets, GBP falling across the board & FTSE gaining. Carney seems contempt with a lower GBP and is happy to continue talking the currency lower in an attempt to use the exchange rate mechanism as a leading instrument to buoy UK economic stability (GDP, CPI, Unemp) against the potential Brexit backdrop; thus I continue my view of shorting GBP on pullbacks (my near term <1.30 is imminent, with August end 1.25xx in sight) and FTSE on rallies near 6600. 2. I continue to be surprised by the lack of coverage/ rhetoric from media in general and the BOE/ Govs regarding the UK Political situation regarding Brexit e.g. failure to sign the Article 50, PM Cameron Resignation in Oct, 70% chance Brexit happens in 2017 vs 2016. Govenor Mark Carney Speech Highlights: - BOE Carney: Have A Clear Plan, Putting It In Place, And It's Working - BOE Carney: Will Take Whatever Action Needed to Support Stability - BOE Carney: GBP Fall Was "Necessary" To Support Needed Economic Adjustments - BOE Carney: Continues to See "A Material Slowing" in Economy Despite GBP Fall - BOE Carney: Evidence Since Brexit Vote Consistent With Expectation of Slowdown - BOE Carney: Want to Ensure No Question About Availability of Credit - BOE Carney: UK Banks Have More Capital Than They Need - BOE Carney: UK Banks Can Be "Part of the Solution, Not Part of the Problem" - BOE Carney: "Extremely Important" That Policy Decisions Well Targeted - BOE Carney: Negative Rates Have Potentially Counterproductive Consequences - BOE Carney: Commercial Property Not A Big Issue for UK Banks - BOE Carney: General Sense of Heightened Risk Aversion in Global Markets - BOE Carney: Have Wide Range of Tools If Monetary Policy Easing Required Financial Stability Report highlights: - BOE Lowers Countercyclical Capital Buffer for UK Exposures to Zero from 0.5% - BOE: Expects to Maintain CCB at Zero Until "At Least" June 2017 - BOE Move is First Easing of Policy Following Brexit Vote - BOE: Decision Will Raise Banks' Lending Capacity by GBP150 Billion - BOE: Decision Will Lower Regulatory Capital Buffers by GBP5.7 Billion - BOE "Strongly Expects" Banks Will Continue to Support Real Economy - BOE "Strongly Expects" Banks Will Continue to Support Real Economy - BOE: Ready to Take "Any Further Actions" Needed to Support Financial Stability - BOE: Stability of Funding Costs Should Reduce Pressure to Tighten Lending - BOE Sees Risk of Decline in Capital Inflows Following Brexit Vote - BOE: Persistent Fall in Inflows Would Put "Further Downward Pressure" on GBP - BOE: Prolonged Period of Brexit Uncertainty Could Weaken Eurozone, Global Economies
Short
by QuantumLogicTrading
SHORT AUDUSD TP 800PIPS: BREXIT, RBA, FED & USDJPY HEDGEShort AUDUSD is in my top 3 FX Trades for several reasons: 1. AUD is considered a riskier G10 currency cross, so AUD trades weaker in risk-off markets, or when equities/ SPX trade lower (you can see the high correlation with SPX at the bottom of the graph). - With Brexit concurring last week, global risk has increased, this is especially the case for AUD due to commonwealth connections. Therefore AUD is likely to come under pressure in the future as risk-off sentiment continues to dominate, as the US Election nears, Global growth worries continue (Japan, Europe, China) and Brexit/ uncertainty about further Euro Area exits continues to intensify - we can see Gold and US Treasuries continue to gain supporting the risk-off view and thus supporting selling AUD. Also, risk-off encourages $ buying as a safe haven deposit on the Brexit backdrop. - Further, going into earnings season next week, historically risk currencies (AUD) perform poorly as investors seek safer assets to hedge against earning surprises, thus this helps AUD selling and USD buying. Plus, most investors will want to hold some $ cash in order to fulfil their earnings based equity trading, so this also helps the short AU trade by increasing $ demand relative to AUD. 2. The RBA Meeting on Tuesday the 5th is likely to be dovish, as 1) Brexit risks are weighed in on again, after supportive/ dovish statements from RBA members following the Brexit decision and 2) AUD Macro Environment has performed poorly since the last meeting and the May Rate cut e.g. Retail sales 0.2% vs 0.3%, Unemployment flat at 5.7%. - However, I dont expect an RBA rate cut, as they cut last just 2 months ago in May by 25bps to 1.75% and their GDP print was firm at 3.1% v 2.8% yoy and 1.1% v 0.8% with Unemployment also stable (yet to see inflation), so I expect them to provide reassurance to markets with a strong dovish tone, with possible hints to a August rate cut - citing Brexit and looking forward to their end of July Inflation print as a gauge for further rate cuts. Nonetheless the dovish rhetoric should be strong enough to put pressure on AUD and tip the scales south supporting the AU short. 3. From a USD demand point of view, last week we saw USD lose 160pips against the AUD as Brexit Uncertainty negatively hit the Feds Rate hike cycle expectancy, flattening the curve in the front end which ruled out any hikes until Dec or 2017, fewer hikes = less USD strength. - However, since the beginning of the week where brexit risks ruled out hikes in the near term, the end of the week managed to turn rate hike expectations around as Brexit likelihood decreased/ shifted into 2017. This helped the Fed fund futures curve recover/ steepen somewhat in the front end, with the implied probability of a hike increasing from 0% to 5.9% for both September and November, whilst the probability of a hike in December also steepened significantly from 13.3% to 22.3% with the probability of a 50bps hike being priced for the first time at 1.1%. This trend of Fed Hike recovery is likely to continue as long as Brexit risks remain subdued, so we can expect USD to begin to price stronger in the coming days/ weeks. 4. Technically, AUDUSD trades 100pips away from a key handle at 0.76xx which is a double top and may provide the ideal short area. Further, higher than that at 0.78xx is the 12 month high which is also potentially a great level to get short from as a double top 5. Volatility - 1wk, 2wk and 1m (-1.52, -1.57, -1.60) AUDUSD Risk Reversals all trade with a downside bias indicating put/ downside demand is higher than upside, so the option market net expects AUDUSD to come down over the above tenors. - Out through the 5th, 6th, and 7th (post RBA) we see large notional OTM put options and open interest at 0.7365, 0.7440 & 0.7445 which supports the view that the RBA will be dovish and that AUDUSD is likely to hairpin around the 0.76xx double top level.
Short
by QuantumLogicTrading
4
RANGE BOUND - USDJPY: TRADING STRATEGY - PART 2 Trading for this week: 1. My plan for next week focuses on point "3." from the previous post - I am waiting for risk-on or risk-off assets to confirm investor conviction by using USDJPY as a barometer for net risk sentiment. Despite the market uncertainty and high volatility UJ last week traded within a 200pip range for the between 101.3-103.3. Therefore, I consider a 60pip break of either level to confirm the conviction to a sentiment e.g. 60pips higher is risk-on (Yen selling), 60pips Lower is risk-off (Yen buying). So of the two possibilities for this week (based on the previous post) Most likely i think is: 1) Global risk continues its recovery as I ask myself what possible risks/ events are there that could tip risk-off sentiment? My answer is none. However, there are several arguments for a risk-on bias e.g. 1) Central bank easing continues to offer risk higher e.g. a dovish RBA (5th) and BOE meeting (14th) price JPY lower and UJ higher 2) Implied vol continues dropping below realised vol, aiding bullish sentiment. 3) Brexit uncertainty continues its de-risking/ pricing as its unlikelihood increases. Further, I think Equities have another week of rallying to price before earnings uncertainty selling will become a factor. Trading Strategy: If Yen carries on Ranging I advise buying UJ at lows of the range e.g. between 101.3-101.9 - or you could buy at any price in the range as I have a target of 106 in the near-term and 110+ in the next 4+wks. Alternatively, I advise placing BUY STOP orders at 103.9-104.2 (level that confirms a risk-on breakout) as there will be 80% of UJ short Stop-Losses at this level, so we will likely see a short squeeze take us 200pips up instantly once UJ trades to at or about 104. I like owning UJ structurally in the medium term as even if UJ falls lower in the near term which is unlikely (what risk is likely to drive it lower?) as UJ trading at or below 101 (and the further it falls) the more likely the BOJ will be to launch emergency FX intervention and/or near term lower UJ increases odds of an aggressive BOJ cut at its July 28th meeting - which will make UJ trade 500pips+ higher, dependent on the measures/ aggressiveness taken. For some background/ support for the UJ higher trade 1. based on BOJ easing, recently JPY retail sales disappointed at -1.9% vs -1.6%, as did inflation which was seen at -0.4% nationally for CPI and Core and -0.5% for the same in Tokyo + BOJ's own Core measure continued its strong MoM downtrend at 0.8% (from 0.9% last) - consistently unresponsive inflation is the single biggest driver for BOJ easing/ cutting policy, and the poor inflation has been problematic since the last cut in January 2016 so this gives further weight to another cut, especially since it was 6+ months ago. - Also BOJ Kuroda and JPY Govt Aso and Abe had several emergency meetings last week as a result of the Brexit vote/ JPY appreciation, in which they discussed FX levels, although taking no action, such rhetoric and actions imply and give likelihood that the BOJ will take substantial action in July. - Technically, UJ has been oversold for several weeks, even if UJ higher isnt structurally long, we should at least be able to realise a 600-800pip recovery rally before moving lower again. Volatility - USDJPY Realised Volatility is trading higher than implied (bullish signal) with 2wk and 1mth at 19.64% & 15.6% vs implied's trading at 11.25% & 13.43% + there are some large notional OTM call strikes at 104.2 and 105, indicating the market may have a bullish bias. Also, the UJ 1wk/1m 25 Delta Risk Reversals Trade at apprx -1.6%, and falling, indicating the market is becoming more bullish by 1) being positioned long in the spot market but buying less downside option coverage and/or 2) Speculative Demand for UJ downside puts is falling. *Read my previous post "RANGE BOUND - USDJPY: IS THIS GLOBAL RISK RECOVERY REAL? PART 1" for analysis of last week and mo
Long
by QuantumLogicTrading
1
RANGE BOUND - USDJPY: IS THIS GLOBAL RISK RECOVERY REAL? PART 1Expectations vs Reality: 1. Following the referendum decision on Friday, as expected GBP sold off 10%+, the FTSE plummeted in a similar fashion and global risk assets sold off across the board, but FTSE/ Risk recovered a significant amount of those losses into Fridays close and for the rest of the next week.. So what happened to BREXIT? - Such behaviour would lead you to believe that the Brexit decision was all just a bad dream, with much of the price action volatility confined to Friday alone - rather where I had expected the decision on Friday to start a cascade of risk-on asset selling, as the brexit backdrop provides the perfect impetus to trigger the risk-off fear for the wider global risks e.g. US Election, Global growth, China Debt - and, ofc, the Brexit Macro economic spill-over itself. Why did we witness this Risk Recovery Paradox? 1. I think the main reason that risk managed to avoid carrying its bid bias into this week from Friday was PM David Cameron's decision early on Friday/ Monday to 1) Resign in October and 2) Refuse to sign the Article 50 which formally/ actually starts the Brexit Negotiations - the net effect is that brexit risks have been shifted into 2017 (or never) rather than present, thus providing investor confidence to buy risk at its Friday discount (why not) and take bets on a Brexit no show (illustrated by a buoyed GBP which imo should have fallen more). - What this combination of events now means is that Brexit now trades as a function of Political possibility rather than as a certainty because 1) By resigning in Oct and refusing to start the negotiations now, it means that Brexit itself is put on hold until at least October. Further, the fact that the above is the case, the whole "Brexit" likelihood is brought into question in itself as 1) How likely is the new PM in Oct going to sign the article 50 as soon as they get into office? I think VERY unlikely, its career suicide to start such a volatile process immediately when in office so that means the Brexit Negotiations are pushed further out and likely into 2017 (66.66% chance it occurs in 2017 now from odds-checker). 2) Will Brexit go ahead at all? I think Brexit absolutely is unlikely, as the new PM wont want the economic and political uncertainty that will follow - especially as the vote didnt happen under their leadership - imo its more likely that the new PM will forgo the blame onto Previous PM Cameron and/ or call for a re-referendum or scrap the idea completely and instead offer a solution to solve the "leave" voters problems e.g. Bid to fix EU immigration. 2. Worldwide Central Banks supportive/ Dovish statements - All Major CB have offered their support if their economy calls for it as a result of Brexit - namely the front-end of the FOMC's rate hike curve was severely flattened (Dec or 2017 hike now likely) and the BOE Gov Carney put 250bn in QE and 25bps of Int rate cuts on the cards - the net effect of these actions has been to smooth investor fear, and allow risk to rally, as low rates and QE has no doubt been the biggest driver for stocks in the last 8 years - the FTSE's recovery was/ is 100% underpinned by the BOE stance imo. 3. And the most interesting possibility is that - Investors don't believe in this risk-rally, instead it is just a micro unfolding that will eventually unravel, forcing risk to sell-off in the near future. And by looking at the stability of Gold, Bonds and Yen, this argument does carry alot of weight and is something ive been watching all week. All risk-off assets have traded flat/ higher, despite risk rallying - when risk-on and risk-off assets FAIL to maintain their negative correlation (as they are failing to do now, and are actually slightly positively correlated as they both rise) it usually means the rally is being undermined by a longer-term macro view - since liquidity is a 0 sum game in the long run, all assets cant grow at the same time, either risk must sell-off or
Long
by QuantumLogicTrading
RISK-OFF YEAR: BREXIT & US PRESIDENTIAL ELECTION: BUY GOLD @12592016, the year of the Risk-Off Asset Historically Gold has performed +10-20% in the 6 months into US Presidential Election years AND also by longing Gold on this pull-back it opens up the opportunity to benefit from the potential tail risk that the UK votes to "Brexit" in which Gold will likely trade through $1400. Gold is one of my favourite plays for 2016 for these reasons so I suggest a strategy of: Buy GOLD - 1@1259 2@1237 3@1210 Long term TP $1395 SL $1195 Short term TP $1310 SL $1195 - Near-term on a UK Vote to stay we will likely see Gold risk-on sell off towards the $1200 handle - this is a great opp to get a good average price by buying Gold on its way down as I expect Gold to trade close to $1400 by years end and into the Election. - A UK Vote Leave will put Gold close to the $1400 level within a week. - The time-risk are asymmetrically skewed to the upside for Gold IMO as 1) in the near term, Brexit and Global economic unbalance uncertainty buoys the precious metal; Further, the recent failure of risk markets (SP/DJ) to set new highs despite posting recovery, likely signifies the end of the equity bull run, and thus the start of the Gold bull Run. - and 2) The US FOMC Rate Hike Cycle, US Presidential election and wider Global Economic concerns of Deflation and low-growth which is a systemic issue and is also likely to be the case for the foreseeable future (with the 2nd and 3rd largest Central Banks - ECB and BOJ under pressure - among much of the developed world) all contribute to drive the increase in risk-off/ safe haven demand for Gold over the Long-Medium term. - Gold is selling-off due to the increased risk appetite in the market currently as the near-term Brexit risk is soothed by "Stay" biased polls - HOWEVER, with Gold Volatility trading 50% lower than it was a week ago (reflecting the settled risk this week) with current ATM at 15%, and with 1M Risk-Reversals trading with a positive call skew of 3% we can expect an upward bias over the coming weeks/ months. - As lower Implied Vols are projected across the 12m options curve and the 12m Futures curve is also trading contango which both imply the Gold market sentiment is for the price to rise. - Finally, as the FOMC Rate hike cycle intensifies over the medium-term, bond prices will come under pressure, thus driving further demand for Gold as the higher quality and higher return asset is sought.
FX:XAUUSDLong
by QuantumLogicTrading
6
BREXIT AND GEO-POLITICAL AFTERMATH: BUY USDJPY - HOW TO TRADENow that the Brexit risk has been realised the mentioned pairs above will share some correlation this week as the market changes between risk-on and risk-off as MANY on the events continually drive the sentiment shifts. My Plan & Expectations USDJPY 1. My conviction for UJ is long 8/10. -UJ traded to lows of 98.9 in the midst of the brexit hype, as the market hunted for risk off. Further, as with GBP it seems entities over the weekend have increased their JPY exposure to account for the increased percieved risk within the market causing UJ to open lower at 101.6 - However, over the weekend the BOJ had a meeting with other Japanese officials to discuss their plan (an easing plan likely) to combat 1. their inflation problem and now 2. the JPY's safe haven demand strength - both of which are cured by 8/10 aggressive easing policies by the BOJ - Thus I expect the BOJ to hold and emergency meeting this week announcing these changes to have immediate affect as UJ at 100 severely puts the brakes on their inflation growth target. - Further, as previously mentioned the BOE, SNB, FOMC and ECB (among others) have all said since the brexit vote that they are prepared to provide liquidity to markets and their rhetoric has been very dovish. - Thus the BOJ's new easing package which is likely to be aggressive e.g. 20bps rate cute and a large increase QE, will help depreciate the currency through increasing supply and reducing jpy demand. Further, the supportive/ dovish stance of the worlds central banks (particularly BOE and FOMC) will help ease risk aversion which in turn SHOULD reduce JPY demand therefore helping UJ trade better to the upside. So my trading plan for UJ is to buy at levels <102 - 101/2 is ideal (we are unlikely see 99 or 100 again as the risk-off impetuses have died). UJ should hold this range between 101.2 and 103 until CB meetings are in place - I will be holding UJ in the long term through to 110-115 at least. I have 8/10 long conviction for UJ Volatility update: Current UJ ATM 50 delta vols trade at 37.5%, which is surprisingly 3-4x higher than it was last week (the risk and volatility may not be over). 1wk UJ ATM 50 delta vols trade at 20%, significantly lower than current at 37.5% - I think this is a function of the central bank meetings expected this week which are inflating current volatility, with 1wk far vols lower as the events will have elapsed already. 1m UJ ATM 50 delta vols trade up on the week at 15.5% though the time curve is flattening meaning UJ vol is falling over time - lower vols = better conditions for UJ buying. Current UJ Option demand is skewed significantly to the downside, with Puts 40% vs calls 36% thus puts are in demand by about 10% more than calls - this supports nearterm risk-off views (RR -4). USDJPY as a measure of market risk. I still suggest using UJ as a measure of GBPUSD market risk - the volatility seemingly isnt over, and with near term uncertainty high, it is prudent to track UJ and use breaks of its 101.2-103.2 range as signals of net risk on or risk-off commitment .e.g. UJ higher risk on (jpy selling), UJ lower risk off (jp buying). The risk off move for GU imo is lower in this environment, and the risk-on move is higher. Thus, IMO UJ and GU are sync'd, and the two should be used as a tool.
by QuantumLogicTrading
1
BREXIT & GEO-POLITICAL AFTERMATH: SHORT GBPUSD - HOW TO TRADEGBPUSD - At the end of last week GU traded to lows of 1.32 on the brexit vote, before retracing substantially to 1.39 by the end of the day. - GU retraced 600-700pips after the brexit event IMO solely as investors took profit from their shorts (which causes buying) - thus there was no structural reason for GU recovering e.g. it was that 1.32 had mispriced GU too low for the brexit vote. On the back of this I expect the following for GU this week: 1. I have a 8/10 short conviction on GU and ultimately believe it will trade <1.30 by weeks end for the following reasons: - - As on friday, the bearish movements we saw on GBP were 90% fast money trades and NOT real/ slow money positioning (due to different regulations and trading strategies) therefore, this week, slow/ real money will now be able to get behind the short sterling move thus providing momentum for GBP to move lower and sub 1.30. *Fast money is hedge funds and slow money is asset managers* - David Cameron UK PM also resigned following the result, thus putting further downside expectations on GBP in the near-medium term particularly as it as all come at once. - Also the BOE plans to increase its QE by 66% 350bn to 600bn to support markets but this printing increasing GBP money supply affect puts downward pressure on the GBPUSD. - Further, members of the European parliament have asked and put pressure on the UK to make their exit faster than previously expected, this puts further uncertainty around the brexit and increases the negative impact it may have on the economy and therefore the GBP speculation is made further bearish. - As pictured I had expected the 1.356-1.382 range that had held at the end of last week to hold for the next 24hrs and for GU to trade relatively flat (24hrs for people to make decisions on positioning) however it looks like corporations and other entities have derisked their GBP exposure over the weekend hence we opened 300pips lower at 1.342. - With this range broken we now trade in no mans land, thus with all the negative biases my target from now is for GU to drift towards the lows set from last week for now - If the market changes significantly within the next few hours (e.g. trades back into range) i will update this view. - My target for GBP is <1.30 with a terminal value of 1.25 within the quarter - though i consider that the supportive (no hike) policy of the FOMC will ease GBPUSD losses somewhat. This in mind shorts at these levels are fair 1.34. Alternatively, I also encourage my favourite tactic of shorting/ fading any GBP rallies to 1.38/39 however the chance of GU realising such upside imo is only 50%, with bid trading dominating Volatility update: Current GU ATM 50 delta vols trade at 25%, which is surprisingly 2x higher than it was last week (the risk and volatility may not be over). 1wk GU ATM 50 delta vols trade at 30%, significantly higher than last week also. However 1ms trade 20.49% and are significantly lower than they were last week (illustrating the event risk that has elapsed). Current GU Option demand is skewed significantly to the downside, with Puts 27.5% vs calls 22.5% thus puts are in demand by about 20% more than calls - this supports current short views (RR -5). 1wk GU demand is also skewed in favour of downside coverage, with puts at 33% vs calls 28%, (RR -5%) with puts being demanded apprx 3% more than calls - supporting the near terms view of short GU USDJPY as a measure of market risk. I still suggest using UJ as a measure of GBPUSD market risk - the volatility seemingly isnt over, and with near term uncertainty high, it is prudent to track UJ and use breaks of its 101.2-103.2 range as signals of net risk on or risk-off commitment .e.g. UJ higher risk on (jpy selling), UJ lower risk off (jp buying). The risk off move for GU imo is lower in this environment, and the risk-on move is higher. Thus, IMO UJ and GU are sync'd, and the two should be used as a tool.
Short
by QuantumLogicTrading
3
22ND, 23RD, 24TH TRADING STRATEGY: GBPUSD - BREXIT/ REFERENDUMIn the previous post we have used the Price Action data from the Scottish UK Referendum for GBPUSD for the 3-days on and around the vote so the 17th, 18th (vote day) and 19th (result day) of September 2014 as a gauge to forecast whats in store for Price action on Wednesday, Thursday and Friday this week (the parallel days for both of the referendums). Reliability of the estimates made in the previous post: 1. Given the excessive absolute implied volatility (larger than 2007 levels) which is likely to be anywhere between 40-60% on the day(s) as we currently trade near 30%; and the excessive relative implied vol levels compared to the SUR, which only realised 9% at the time, which is 5-8x less than the market expects for the Brexit vote, the daily range estimate of 340-480pips for each of the 3 days on average is warranted - especially as we have already realised an ATR of 371 last week on the 17th, thus making a 480 pip range not particularly unlikely. - Historical Vol for UER has also traded 80%+ higher already in the last 3 days compared to SUR. - these implied and realised volatility differentials in mind, I also think the range of 1.35-1.57 is also prudent, though i think the risks are skewed to the downside of the model rather than the upside. Trading Summary: - For 22nd, 23rd, 24th we predict an ATR of 340pips, currently trading at 1.47 which is a 4x resistance level on the Daily, i think this range will be skewed to the downside, so I advise shorting GBPUSD >1.47 with SL at 1.484, TP anywhere from 1.46 to 1.40 for 2 reasons: 1) range trading in mind, a scalping 50-100pip strategy may also be useful given the high expected volatility and range, shorting all pullbacks to 1.47 may enable several 50-100pip TP trades. 2) Given the high expected range (340-480pips) and 500pip Standard deviation, the long-term play e.g. 1.40tp is also one I am trading as GU is likely to reach these levels in this environment of unparalleled volatility. -Currently I am splitting my margin between scalp trades and long-term GU positions (good for portfolio diversification) at this point in time, e.g. I have a few GBP shorts with close TP and a few with longer TP targets, this reduces my macro portfolio risk:reward as you reduce the risk of the shorter trades, but increase the reward of the longer trades. - ATM I am 8.5/10 short GBP vs USD and CHF (JPY is too volatile - 25% more so than GU and GCHF) Risks to the Trading strategy: - If GU breaks and holds above 1.485, my short play conviction falls massively to 2/10 (from 8.5/10) as for me it signals a potential trend reversal for GU to price higher since 1.47 has held for 6 months - I will cut all shorts past 1.485 and I am not interested in shorting GU if it holds past 1.48. - Further, there are risks that due to massive expected volatility/ uncertainty, game theory fears everyone out of the market e.g. everyone is too scared to trade, thus the spot market trades paradoxically against the volatility and realises flat price action since there is no volume. - This forecast and strategy is based purely on range bound trading (as guessing the direction IMO is too difficult giving the volatility/ uncertainty in the market and also as I believe the market should realise large ranges - thus validating the strat), however if the range/ price action assumptions do not hold true to some degree e.g. we trade flat or just rocket north, then the Short only strategy is obviously flawed. *See the 22nd, 23rd, 24th Forecast PA post attached to this one which shows the forecast used*
Short
by QuantumLogicTrading
14
22ND, 23RD, 24TH FORECAST: GBPUSD - BREXIT PRICE ACTION ANALYSISUK EU Referendum (Brexit) vs Scottish UK Referendum Price Action Forecast: - We will use the difference in ATR and volatility between the 3-day run up into UK EU Referendum (UER) and the Scottish UK Referendum (SUR) in order to forecast what we expect price action to show on the 22nd, 23rd and 24th. 2014 SUR 3-DAY EVENT (17,18.19) 1. 1-Period ATR for the 17th 18th and 19th was 110pips, 163pips and 241pips - average of 171pips 2. 3-Day range was: 280pips - 1.6240 to 1.6520 3. On the day 12noon Implied ATM vol 17th-19th was: 8.8% 79th, 8.01% 52nd, 6.97% 22nd 4. On the day 10-period Historical Vol was: 10.4%, 10.4%, 11.1% 2014 SUR 3-DAY LEAD UP (14,15,16) 1. 1-Period ATR for the 12th 15th and 16th was 73pips, 53pips and 149pips - average of 91pips 2. 3-Day range was: 150pips - 1.6150 to 1.6300 3. On the day 12noon Implied ATM vol 12, 15, 16th was: 8.82% 76th, 9.34% 87th and 8.45% 65th 4. On the day (12,15,16) 10-period Historical Vol was: 10.9%, 10.8%, 10.4% vs 2016 UER 3-DAY LEAD UP (17, 20, 21) 1. 1-Period ATR for the 17th, 20th and 21st was 195pips, 371pips 155pips - Average of 255pips 2. 3-day Range was: 580pips - 1.4195 to 1.4775 3. On the day 12noon Implied ATM vol was: 23.2% 100th, 24.3% 100th and 20.16% 99th 4. On the day 10-period Historical Vol was: 14.1%, 19.4%, 19.2%; *2016 UER 3-DAY EVENT (22, 23, 24) FORECAST* 1. 1-Period ATR for the 22nd, 23rd and 24th FORECAST: `293pips, 1141pips, 250pips; (171pips/91pips)*255pips = average 480pips (average adj 340pips), SD of 500pips 2. 3-day Range FORECAST: +/-1100pips - 1.4600 to 1.3500-1.5700 3. On the day Implied/ Realised ATM vol FORECAST: Event Volatility has been implying anywhere from 30%-60% over the brexit 3 day period, with ATM currently trading at 26% already. Evaluation: 1. The price action forecast around the event suggests that we could see a 1100pip range over the next 3 days (22, 23, 24) - given that we dont know the direction of the range, we can assume a distribution of 1100pip +/- at the current trading price thus forecasting GBPUSD to trade anywhere between 1.35-1.46-1.57. - Further, the model expects an average daily range of 480pips, with the vote day skewing the average significantly (1141pips), therefore i think a 340pip (average adjusted) daily range is more likely. 2. Combining the estimated distribution range of 1.35-1.46-1.57 with the standard deviation of the foretasted daily ranges = 500pips, the model ends up showing significant statistical relevance by backward validating itself e.g. +/- 2SD of the mean at 1.4600 is 1.5600 and 1.3600 (+/- 2*500pip). Before knowing this the model had already forecasted a 1.35-1.57 range thus this is somewhat reassuring as the model held true when back tested using +/- 2SD. 2SD is significant as it accounts for 95% of outcomes. - The model also estimates that the tail risk of a BREXIT would cause GBPUSD to fall -3SD which is down to <1.31 (1.46 minus 1500pips) - this is also somewhat close to what I would have expected the day after the vote. *See the 22nd, 23rd, 24th Trading strategy post where I link this information to execution*
Short
by QuantumLogicTrading
BREXIT GBP: USE USDJPY AS A RISK-BAROMETER & WAIT FOR LONDON 8AMIndicators to check BEFORE GBP Shorting for confirmation I also suggest using two other key pieces of information BEFORE shorting GBP. 1. Use USDJPY as a measure of market risk appetite and stability - As you can see below UJ has traded with a tight 38pip range vs GBP$ at 180pips. Therefore we can use UJ as a measure of stability and risk appetite: 1) because of its stability - UJ isn't acting as susceptible to the volatility "noise" - with 4.5x less range; and 2) because as we know UJ is the "safe haven" FX pair which is sold massively when markets are trading risk-off. or risk averse. - How to use UJ for GBP direction: Assuming UJ is the stable measure of risk (which has been true for the past week) it is fair to ALSO assume: 1) A rise in UJ means increased JPY selling which means there is a stronger risk-on attitude in the market as investors shed "safe yen" - buying GBP in the uncertain BREXIT environment IMO is considered the "risk-on" move - SO we can confirm GBP rallies with a rise in UJ 2) Conversely a fall in UJ means JPY buying, which means investors are seeking risk-off/ safer currency plays - selling GBP in the BREXIT uncertainty environment IMO is considered the "risk-off/ low risk" move - SO we can confirm new GBP shorts with a fall in UJ *If you believe that the risk-on/ risk-off moves are the other way round e.g. GBP upside is the low risk play - then you can STILL use UJ as the indicator, just the other way around than above. IMO and logically, GBP lower in this uncertain UK environment is the LOW RISK trade - especially given we traded at 1.46 8wks ago (not much downside is priced at these levels thus GBP moves lower are lower risk) 2. Wait for London open between 8am-10am GMT (4-6 hours from now) - In these past weeks, the London open has been a key catalyst for GBP direction ESPECIALLY on the Sunday-Monday Asia which over as all of the weekend information is priced in for the biggest FX clients in LDN. - Therefore it is prudent NOT to take a position until the big money volatility/ fluctuations/ noise is out of the way otherwise SL's may be susceptible to being hit AND MORE IMPORTANTLY, we may misjudge the market direction/ sentiment (given LDN is the largest FX Flow session). - Several times the market direction and momentum has changed or been confirmed aggressively during the London open 8am-10am GMT so I think this indicator is a vital determinant
Short
by QuantumLogicTrading
3
UK EU REFERENDUM/ BREXIT: BUY EQUITY RISK AND GOLD DISCOUNTEDThe UK EU Referendum has presented significant discounted buying opportunities, with many blue chip names anywhere from 5-15% down in the last 2wks. The uncertainty regarding the UK position in the European Union has pushed investors to see Gold, Treasuries and JPY, whilst fleeing risk equities. - IMO the next week or two will form a trend of oscillating risk-on/ risk-off asset price swings as the markets reflect the volatile investor sentiment - this opens up significant arbitrage opportunities within the equity markets and Gold - by owning both on pullbacks you then TP as the investor sentiment switches into the favour of each - as it is bound to do. - Essentially this strategy is a volatility play (ATM volatility for Gold almost double since last month), you naturally own both "sides" of the market (risk-on and risk off), thus taking profit when the sentiment swings in the way of each of the assets. 1. My personal Favourite GOOG and FB are currently trading at an average of apprx 10% down - I advise buying GOOG and FB at these levels, in a pyramid (increase lots if further downside occurs). - Long GOOG and FB can be used as an event scalp as I expect their values to climb 2-5% back within the week, or you can hold longer for the full 10%. GOOG and FB discounted 5-10% are high alpha and low beta trades since IMO fundamentally they operate monopoly's over the Online Marketing Market and have significant Top and bottom line figures. - Alternatively you could pick up Nasdaq 100 Index at a 5% discount, and own the market which in the long run will pay off - although I do not advise this trade so much (3/10) as I believe equities are due a correction - especially coming into earnings. 2. Long Gold on any 2-5% pullback, which i think we will see by Tuesday is a good trade: 1) as Gold will rally on Wednesday/ Thursday as global Macro risk is hedged for the vote day. 2) In the longer run, Risk assets (spx) are due a correction, thus Gold is due to outperform and have a bull run. 3) By holding Gold on pullbacks you can benefit from the tail risk of the UK actually REALISING BREXIT where IMO Gold would rally 10% as the Global Macro environment flees to safety. 3. By playing both the long Gold and Equity on pull backs you benefit from: 1) the natural hedge of owning long risk and Risk-off assets, thus your portfolio is diversified to perform in the short run for any outcome but also in the long run. 2) you own both assets at a discount so probability is on your portfolios side.
FX:NAS100Long
by QuantumLogicTrading