Fundamental Update For Week 1 June 19'
Todays move seen in the U.S. equities market was a clear example of a "risk on" sentiment by institutions and retail traders alike. This follows after a pretty ruff start of the week for the dollar (DXY), where we banked +90.4 pips in a single trading day to our target for NZD/USD for our V.I.P members.
U.S. equities are simply the benchmark because it outperforms essentially everything in the global financial system.
This includes:
-The world's largest economy
-The first central bank to make assertions on global economic growth by which all other following central banks follow suit to accommodate their QE (quantitative easing) program.
-The influence that the U.S. treasuries enjoy as being the safest form of financial instrument in the world.
These influences are what seeded the ability for the U.S. economy to recover the way it has since the 2008 recession. What was seen today was counter trend, a day after the S&P technically speaking has begun its corrective intensity.
Fundamentals:
DXY:
One of the key themes speaking to the speculative interests which was seen today regards monetary policy. We posted earlier today the speech from Fed Chair Powell, where we simplified it as a non-rate change conclusive lecture. His remarks were simple, although I'm sure those who watched it were overwhelmingly bored. He wanted to stress that the FED is carefully calculating the impacts of the trade war, and will accommodate to their best ability as non political, appointed officials. Ignoring Trump's request that the FED cut interest rates in the light of the Chinese cutting their interest rates for the devaluation of the Yuan, the FED chose wisely to ignore this, as they legally are obligated to do so.
We can ignore the fact that the short term speculative bounce was purely on dovish remarks from Powell today, but we can't ignore the fact that the market isn't done playing games. I feel downside momentum will continue. If the markets choose to look at this in a comprehensive way, two things will be ascertained by the market.
1) The environmental theatre is showing signs of a deterioration in growth.
2) If central banks have to stabilize in order to contain the contraction, will they even be able to? (There is a great documentary on HBO released last week covering the extreme stress and how the FED handled the 2008 recession which I will link in this blog post)
youtube.com/watch?v=wyz79sd_SDA
The dollar was very interesting to me today. It's more positively correlated to the S&P 500, however, I don't agree that it is a carry trade preference. In terms of relative performance, carry traders are not as significant in terms of the advancement of the US dollar seen today (5/4)
The DXY has been taking its strength from 3 things:
1) Weakening Euro
2) Brexit (Pound)
3) Yen
The trade wars are tallying up in terms of risk, and all eyes fundamentally are on it. Watch it closely.
Non-Farm Payrolls will not be covered, as we'll not be trading it.
AUD:
The RBA cut rates this past session to its lowest level on record, 1.25%. This is very high considering Australia is considered a developing economy, and odd considering it is a "carry currency" which for those that don't know, simply are currencies that are held long term because of their higher than average market yields for overnight/ REPO (repurchasing) rates.
This rate rate was FULLY priced in by the market, and was widely known, which is why you are not seeing the same price action technically in all AUD pairs that would be status quo for an all time low rate cut. The concern of growth by the RBA will be what I'm focused on. GDP figures this week are what to watch for for the AUD, which will determine how well priced in this rate cut actually is.
Educational:
Here's a quick crash course on the perception of monetary policy and I will do my best to make this simple.
Cheaper yields mean easier access to cheap money which fosters/supports growth both in terms of exports/imports and demand for international investment.
All major central banks (FED,BoE,RBA,BoJ,ECB,BoC,& RBNZ) are statistically expected by the global financial system to see rate cuts all across the board later this year.
INTEREST RATE CUTS = QE (QUANTITATIVE EASING)
GBP:
One word. BREXIT. End of story.
Trade Wars:
'The Trade' is now being fought on multiple fronts.
US vs. China. There are rumors that the Chinese government is working with U.S. counterparts to imply a more appropriate response to President Trump's plan; which is positive for the U.S.
There are also suggestions from various influential FED members that Trump and Xi Jinping will not even shake hands at the upcoming g20 summit, which would be very negative.
Dollar/Yuan is not moving away from 7 as posted in my blog from the 15th of May, and the USD/HKD (Hong Kong Dollar) is now approaching it's lower floor range. It will be linked below.
thefxblogger.com/may15
U.S./MEXICO
There is a pull back in the USD/MXN exchange rate, meaning there was an improvement between the relationship these two countries. Capitulation from the Mexican Government? I think not. I think that the real answer to this is that the President Trump's own GOP party is beginning to doubt their counterparts abilities in his role in the well being of the economic partnership between US and Mexico. This is rare, which would mean a block of the presidents plans of a tariffs, which would only exacerbate the fundamental risk in terms of the political theatre. Political concerns between GOP and Trump would be the last thing that would help the situation. As long as there is pressure between the legislative and executive branch, there (as I'm sure we all know by now) the United States will suffer from a stalemate which will help no-body, especially the average citizen looking to buy avocados at a reasonable price for their dinner. A $2 trillion infrastructure spending plan would be an obvious an example of something that will not get through the executive department if this GOP vs Trump situation increases.
EURO:
One word. Italy. The pressure from the EU is butting heads with the way that it is choking off Italy's efforts to stimulate growth the way they should, however can't because their hands are tied. The threats by the Italian PM that he would resign if the ECB would work in their favor, is a push against the Euro as this political fight increases in terms of uncertainty. The remarks by the ECB is what to watch for this week, and listen to the tone of one of the largest central banks. Links to the live stream will be provided across all channels.
What's going on with tech?
It's simple. Google & Apple rely on China. Investigations involving antitrust activities also has impacted the tech sector, which has resulted in this segment of the economy to enjoy no rally seen today. This is further complicated by China investigating and limiting United States based firms in their country, the same way that Wawaie was treated by the DOJ.
Yields:
Yields look for the fundamental weight that is the sole reason why the global economy is in and has been in a risk off sentiment. On May 15th, I mentioned in my article regarding the inverted yield curve between the 3m-10yr T-bills. This is why I am doubtful for "risk on" sentiment as seen today.
Today, was the first advance (less of an inverted yield curve) in 10 trading days.
Where to this week? Only time (Trump) will tell.
We just need no more additional negative developments, without fundamental threats, to be able to get some traction for a bullish reversal on the S&P. However, those that are set it and forget it, should be very cautious.
Gold:
if yields are rising, and risk aversion are cooled, this helps to stabilize the safe haven demand of gold. Remember, if the central banks continue the path towards devaluation via QE, gold will rally.
Buy gold, hold it.
Crude Oil:
Trading at Dec. levels, as much as this is a demand speculative result, I expect a boost in the price of Oil, which is around 2000 pips and will be provided to our VIP members only.
Take away:
if your best performers in the best performing market in the world is at risk, there are consequences. The theme that is undisputedly poor was the GDP figures on monday. These were poor. It will have another update in the service sector PMI, and I will be watching it very closely because the US Services PMI - ISM (May) because it accounts about 3/4th of the output of the United States, which accounts for the reliability of forecasts for the most developed economy in the world.
Even though today saw the S&P advance the highest since January of this year, statistically speaking, correlation doesn't result to causation, for all of the complicated factors and independent variable that I've discussed above.
Thanks for your time, and I wish you the best week of trading.
U.S. equities are simply the benchmark because it outperforms essentially everything in the global financial system.
This includes:
-The world's largest economy
-The first central bank to make assertions on global economic growth by which all other following central banks follow suit to accommodate their QE (quantitative easing) program.
-The influence that the U.S. treasuries enjoy as being the safest form of financial instrument in the world.
These influences are what seeded the ability for the U.S. economy to recover the way it has since the 2008 recession. What was seen today was counter trend, a day after the S&P technically speaking has begun its corrective intensity.
Fundamentals:
DXY:
One of the key themes speaking to the speculative interests which was seen today regards monetary policy. We posted earlier today the speech from Fed Chair Powell, where we simplified it as a non-rate change conclusive lecture. His remarks were simple, although I'm sure those who watched it were overwhelmingly bored. He wanted to stress that the FED is carefully calculating the impacts of the trade war, and will accommodate to their best ability as non political, appointed officials. Ignoring Trump's request that the FED cut interest rates in the light of the Chinese cutting their interest rates for the devaluation of the Yuan, the FED chose wisely to ignore this, as they legally are obligated to do so.
We can ignore the fact that the short term speculative bounce was purely on dovish remarks from Powell today, but we can't ignore the fact that the market isn't done playing games. I feel downside momentum will continue. If the markets choose to look at this in a comprehensive way, two things will be ascertained by the market.
1) The environmental theatre is showing signs of a deterioration in growth.
2) If central banks have to stabilize in order to contain the contraction, will they even be able to? (There is a great documentary on HBO released last week covering the extreme stress and how the FED handled the 2008 recession which I will link in this blog post)
youtube.com/watch?v=wyz79sd_SDA
The dollar was very interesting to me today. It's more positively correlated to the S&P 500, however, I don't agree that it is a carry trade preference. In terms of relative performance, carry traders are not as significant in terms of the advancement of the US dollar seen today (5/4)
The DXY has been taking its strength from 3 things:
1) Weakening Euro
2) Brexit (Pound)
3) Yen
The trade wars are tallying up in terms of risk, and all eyes fundamentally are on it. Watch it closely.
Non-Farm Payrolls will not be covered, as we'll not be trading it.
AUD:
The RBA cut rates this past session to its lowest level on record, 1.25%. This is very high considering Australia is considered a developing economy, and odd considering it is a "carry currency" which for those that don't know, simply are currencies that are held long term because of their higher than average market yields for overnight/ REPO (repurchasing) rates.
This rate rate was FULLY priced in by the market, and was widely known, which is why you are not seeing the same price action technically in all AUD pairs that would be status quo for an all time low rate cut. The concern of growth by the RBA will be what I'm focused on. GDP figures this week are what to watch for for the AUD, which will determine how well priced in this rate cut actually is.
Educational:
Here's a quick crash course on the perception of monetary policy and I will do my best to make this simple.
Cheaper yields mean easier access to cheap money which fosters/supports growth both in terms of exports/imports and demand for international investment.
All major central banks (FED,BoE,RBA,BoJ,ECB,BoC,& RBNZ) are statistically expected by the global financial system to see rate cuts all across the board later this year.
INTEREST RATE CUTS = QE (QUANTITATIVE EASING)
GBP:
One word. BREXIT. End of story.
Trade Wars:
'The Trade' is now being fought on multiple fronts.
US vs. China. There are rumors that the Chinese government is working with U.S. counterparts to imply a more appropriate response to President Trump's plan; which is positive for the U.S.
There are also suggestions from various influential FED members that Trump and Xi Jinping will not even shake hands at the upcoming g20 summit, which would be very negative.
Dollar/Yuan is not moving away from 7 as posted in my blog from the 15th of May, and the USD/HKD (Hong Kong Dollar) is now approaching it's lower floor range. It will be linked below.
thefxblogger.com/may15
U.S./MEXICO
There is a pull back in the USD/MXN exchange rate, meaning there was an improvement between the relationship these two countries. Capitulation from the Mexican Government? I think not. I think that the real answer to this is that the President Trump's own GOP party is beginning to doubt their counterparts abilities in his role in the well being of the economic partnership between US and Mexico. This is rare, which would mean a block of the presidents plans of a tariffs, which would only exacerbate the fundamental risk in terms of the political theatre. Political concerns between GOP and Trump would be the last thing that would help the situation. As long as there is pressure between the legislative and executive branch, there (as I'm sure we all know by now) the United States will suffer from a stalemate which will help no-body, especially the average citizen looking to buy avocados at a reasonable price for their dinner. A $2 trillion infrastructure spending plan would be an obvious an example of something that will not get through the executive department if this GOP vs Trump situation increases.
EURO:
One word. Italy. The pressure from the EU is butting heads with the way that it is choking off Italy's efforts to stimulate growth the way they should, however can't because their hands are tied. The threats by the Italian PM that he would resign if the ECB would work in their favor, is a push against the Euro as this political fight increases in terms of uncertainty. The remarks by the ECB is what to watch for this week, and listen to the tone of one of the largest central banks. Links to the live stream will be provided across all channels.
What's going on with tech?
It's simple. Google & Apple rely on China. Investigations involving antitrust activities also has impacted the tech sector, which has resulted in this segment of the economy to enjoy no rally seen today. This is further complicated by China investigating and limiting United States based firms in their country, the same way that Wawaie was treated by the DOJ.
Yields:
Yields look for the fundamental weight that is the sole reason why the global economy is in and has been in a risk off sentiment. On May 15th, I mentioned in my article regarding the inverted yield curve between the 3m-10yr T-bills. This is why I am doubtful for "risk on" sentiment as seen today.
Today, was the first advance (less of an inverted yield curve) in 10 trading days.
Where to this week? Only time (Trump) will tell.
We just need no more additional negative developments, without fundamental threats, to be able to get some traction for a bullish reversal on the S&P. However, those that are set it and forget it, should be very cautious.
Gold:
if yields are rising, and risk aversion are cooled, this helps to stabilize the safe haven demand of gold. Remember, if the central banks continue the path towards devaluation via QE, gold will rally.
Buy gold, hold it.
Crude Oil:
Trading at Dec. levels, as much as this is a demand speculative result, I expect a boost in the price of Oil, which is around 2000 pips and will be provided to our VIP members only.
Take away:
if your best performers in the best performing market in the world is at risk, there are consequences. The theme that is undisputedly poor was the GDP figures on monday. These were poor. It will have another update in the service sector PMI, and I will be watching it very closely because the US Services PMI - ISM (May) because it accounts about 3/4th of the output of the United States, which accounts for the reliability of forecasts for the most developed economy in the world.
Even though today saw the S&P advance the highest since January of this year, statistically speaking, correlation doesn't result to causation, for all of the complicated factors and independent variable that I've discussed above.
Thanks for your time, and I wish you the best week of trading.
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