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Victor Adair - USD Poised To Rise

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Posted by Victor Adair for Money Talks

on Monday, 23 October 2017 05:16

Global stock markets were higher again this week, after a brief dip Thursday following a “warning” from the Peoples Bank of China about “too much debt and too much leverage.” The major American indices hit All Time Highs again this week with the DJIA up about 18% YTD.

DJI-Oct21

 

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Real and nominal US interest rates rose this week and, not surprisingly, so did the US Dollar. Markets are pricing in an 80% chance that the Fed raises s/t rates again in December (up from about a 20% chance in early September.)

Tax cuts in the US took a step closer to fruition this week (but there’s still a long way to go) adding upward pressure on interest rates and the US Dollar. In some respects the USD rally of the past 6 weeks is a continuation of the “Trump trade” that took the USD to 14 year highs following his election on anticipation that he would accomplish “great things” only to fall 12% over the next several months as the narrative became “he can’t get anything done.” Trump, in other words, was extremely “oversold” by September 8!

Fed Chair: President Trump is expected to announce his nomination for Fed Chair within the next few weeks. Governor Powell may be the “safe middle pick” between maintaining the status quo by re-appointing Yellen and “shaking thing up” by picking Taylor, Warsh, Cohn or someone else. See last week’s comments for more on this issue.  

The Chinese Communist Party Congress continues. Last week I was asking, “What kind of Fed does Trump want?” This week I’m asking, “What kind of China does Xi want?” given that he seems to be “very much” the man in charge. Broadly speaking it would seem he’d like to see China as more of a “world player” with less pollution, less financial speculation and with less money leaving the country. Last week I wondered if something might “bust loose” following the Congress but maybe the “first derivative” trade is just to play his move to clean up pollution. There is apparently something like 200 million cars in China and only 1% of them are electric. He wants to see 20% of all cars electric in 7 years. Given that Europe and India are also pushing for less diesel and gasoline powered cars and more electric cars maybe we should look into buying copper against the sale of crude?

September 8 was a Key Turn Date: American bond yields hit their lowest level since Trump’s election on September 8 and turned higher while the US Dollar Index hit its lowest point in nearly 3 years and turned higher against nearly all other currencies and gold. Key Turn Dates have a lot of “power” because they happen simultaneously across several markets and mark a significant shift in market psychology and are therefore are a sign of a real reversal, not just a brief correction in an on-going trend.

The Canadian Dollar: Hit a 16 month low on May 5 and began to rally. At that time the Canada/US 2 year interest rate spread was about 65 points in favor of the US. In June the Bank of Canada accelerated the CAD rally by doing a “180” on interest rate policy and over the next couple of months raised Canadian short rates by 50bps. CAD rallied 5% in 6 trading days into the September 8 Key Turn Date and at that time the Canada/US 2 year spread was 25 points in Canada’s favor and the markets were pricing an 80% chance of another 25bps increase in s/t rates from the Bank of Canada by December. From the May lows to the September highs futures market speculators had swung from being hugely short CAD to being hugely long. The current huge net long position held by futures market speculators may become an “albatross” around the neck of the CAD market if it continues to fall.

CAD-Oct21

 

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The US Dollar Index daily chart may be developing a 3 month head and shoulders bottom. A break of the 94 cent “neckline” would project a move to 97 cents. Speculators in the futures markets hold a record net short position against the USD (they are net long the other currencies except the Yen.) If the USD continues to rally these speculators may cover their positions adding to upward pressure on the USD.

DXE-Oct21

 

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Short term trading positions: Drew and I both expect to see USD move higher against other currencies and we are therefore short CAD, EUR, YEN and MEX.

Front month WTI crude oil has trade mostly between $49 and $52 for the past 6 weeks. It has traded mostly between $42 and $54 for the past 12 months producing a relative “equilibrium” after the huge disequilibrium created by the fall from $110 to below $30 between mid-2014 and January 2016. I have traded WTI almost exclusively from the short side but currently have no position.

 

PI Financial Corp. is a Member of the Canadian Investor Protection Fund. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or the authorize someone else to trade for you, you should be aware of the following. If you purchase a commodity option you may sustain a total loss of the premium and of all transaction costs. If you purchase or sell a commodity futures contract or sell a commodity option  or engage in off-exchange foreign currency trading you may sustain a total loss of the initial margin funds or security deposit and any additional fund that you deposit with your broker to establish or maintain your position.  You may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position.  If you do not provide the requested funds within the prescribe time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult to impossible to liquidate a position. This is intended for distribution in those jurisdictions where PI Financial Corp. is registered as an advisor or a dealer in securities and/or futures and options. Any distribution or dissemination of this in any other jurisdiction is strictly prohibited. Past performance is not necessarily indicative of future results.



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Currency

Victor Adair: This Tremendous Rally in Share Prices

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Posted by Victor Adair - Polar Futures Group

on Tuesday, 17 October 2017 10:38

Global stock markets keep making new highs with total capitalization now around $80 Trillion. Since US markets are so “richly priced” investors are “reaching out” to other countries, and other markets, in search of “cheaper” valuations. Volatility is at record lows (selling vol is apparently the no-brainer path to financial freedom) and credit spreads are amazingly narrow. Reaching for yield has been handsomely rewarded...and I’m the guy who thought reaching for yield was a big mistake! (I still think it’s a big mistake...one of these days there’s going to be a real penalty for taking on an unknowable level of risk in exchange for a marginal pickup in yield.)

This tremendous rally in share prices has been fueled by a $15 Trillion tsunami of Quantitative Easing from the Big Four central banks (and who knows how much “accommodation” from the People’s Bank of China) and even though the Fed has announced a very modest program of “Quantitative Tightening” the ECB and the BoJ will continue with their “stimulative” programs.

The new Fed: There may soon be a wholesale change of personnel at the Fed that could have a big impact on markets. Yellen’s term as Fed Chair ends in February and since I believe President Trump loves to be “the disruptive boss” my bet is that Yellen doesn't get reappointed. Vice-Chair Fisher has already resigned so Trump will have the opportunity to “re-shape the Fed” with as many as 6 nominations to the FOMC over the next year. (Who says he can’t get anything done?)

The Big Question is, “What kind of Fed does Trump want?” Perhaps the easy answer, given his personal success with borrowed money, is a Fed that will maintain an “easy money” policy. Such a policy would probably weaken the US Dollar...which the President seems to thinks is a good thing. But I’m thinking that his vision of “Make America Great Again” requires throwing out the old ways and going with something dramatically different. His nomination for Fed Chair will give us an insight into how he wants to re-shape the Fed...and if there are big changes coming at the Fed there could be big changes in the financial markets too. (Maybe S+P puts catch a bid?)

NAFTA: If indeed President Trump relishes the opportunity to be “disruptive” then markets should anticipate NAFTA will get wacked. Mexico seems more at risk than Canada with the Peso down ~8% over the last 4 weeks while CAD is down only ~3%.

The Canadian Dollar: has been relatively quiet this past week...with a little bounce from last week’s lows. The Bank of Canada Business Outlook Survey is scheduled for October 16 and a weak survey could bring positioning risk into focus given that futures markets speculators are holding their largest net long position in 5 years. I was wondering why the specs have added to their net long position for the past 4 weeks even as CAD fell 3 cents. That seemed counter-intuitive! So I took a close look at what the specs did following the major low this past May. It was interesting to see that following the May 5 low the spec net short position actually increased for 4 weeks while CAD rallied about 2 cents. The specs started cover their short positions after that but remained net short until early July...9 weeks after the May low...by which time CAD had rallied at least 6 cents. So what? My deduction is that the people behind these trades are operating on a longer time horizon than me...they initially see a reversal as only a set-back in the major trend, and therefore an opportunity to add to their position. They clearly don’t reverse their positions “on a dime” but if the market continues to go against them they will gradually unwind their position. So what? If the Sept 8 high was the major reversal I think it was, and if CAD trends lower from here I want to be short CAD while those spec longs are liquidating their positions!

CAD-Oct14

larger chart

The US Dollar Index: was also relatively quiet this past week...giving up about 1/3 of the rally from its September 8 low. I’ve got a bullish bias. I’m seeing a possible “head and shoulders” bottom forming on the daily USD Index chart (left shoulder end of July / early August.) An upside breakout through the 94 cent “neckline” would complete the H&S bottom pattern and confirm the break of the trend line that has defined the USDX decline since March. Classic chart analysis of the H&S bottom would project a target price of around 97 cents. Positioning risk is also a significant factor since the aggregate USD spec short position in the futures market is at a 5 year high.



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Currency

Silver: Short Term Vulnerable To US Dollar Rally

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Posted by Clive Maund

on Tuesday, 17 October 2017 06:41

Like gold, silver gapped out of its downtrend last week, but volume was lacking on this move, which, given the now bullish outlook for the dollar, may turn out to be a “pop” that will be followed by renewed decline. This breakout was predicted in the last update, when it was pointed out that silver’s COTs were still far from outright bullish. You are referred to the parallel Gold Market update to read the reasons why the dollar may be shaping up for a sizable rally back to the 97 area on the index, before turning and heading south again. Needless to say, this can be expected to knock gold and silver back down again.On its latest 6-month chart we can see how silver gapped higher last week, after breaking out of its recent downtrend a few days before. As mentioned above, due to the immediate outlook for the dollar being positive, with a sizable “swansong” rally in prospect, this breakout by silver may well turn out to be a “pop” to be followed by renewed decline. How far might it drop? – a logical target, given that gold would probably drop to the $1200 - $1215 area, would be somewhere in the vicinity of its July lows, i.e. somewhere in the $15 area.

silver6month151017

....continue for 2 more charts and commentary HERE



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Currency

US Dollar Outlook

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Posted by Jordan Roy-Byrne

on Friday, 13 October 2017 07:02

The US Dollar Index (USDI) bottomed in September a hair below 91.00 and has recently rallied up to 94. We were skeptical Gold would break its 2016 highs as it failed to show strong performance in the wake of the USDI’s decline to new lows. The market was discounting a coming rebound in the USDI and/or future weakness in Gold. In any event, although the USDI broke key levels which leave its bull market in question, it became quite oversold and was due for a sustained rebound. 

First let’s look at the big picture with a monthly bar chart and the 40-month moving average. As you can see, the 40-month moving average has been an excellent trend indicator and especially since the mid 1990s. The USDI lost that support in July and in addition, made a lower low. Neither happened during the previous two bull markets. 

Oct122017USDm

When comparing the bull market to the recent two bull markets we find that the recent correction began at the point at which the other two bull markets advanced toward their inevitable peaks. 



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Currency

The US Dollar reserves the right to grow

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Posted by RoboForex

on Tuesday, 10 October 2017 06:34

The US Dollar is still interesting and attractive to investors, despite the statistical fluctuations.

The US labor market statistics in September was surprising, but not as impressive as it might have been.

Improvements in the Unemployment Rate and the Average Hourly Earnings will allow the US Federal Reserve to tighten its monetary policy.

The first October week was quite effective for the American Dollar. The main currency pair updated the low at 1.1668 it reached on August 17th and then was corrected bit, but made perfectly clear that there might be more declines. If there is a reason, the “bears” will come quickly.

The US labor market statistics in September is astonishing. The numbers were expected to be quite high, but the market was really surprised by the readings it saw. The Unemployment Rate was 4.2% in September after being 4.4% the month before. This is the lowest value of the indicator since 2001, over 16 years. It’s highly unlikely to be a mistake: the Participation Rate increased up to 63.1% against 62.9% in August. It appears that the labor market is really feeling good.

Another positive thing is the growth of the Average Hourly Earnings. In September, it expanded by 0.5% m/m after adding 0.2% m/m in the previous month and against the expected reading of 0.3% m/m. On YoY, the indicator increased by 2.9%. That’s a very good result.

However, this is where good news ended. The Non-Farm Payrolls decreased by 33K, although it was expected to expand by 82K after adding 169K the month before. The report says that the decline in some industries likely reflected the impact of hurricanes Irma and Harvey, which made the country nervous last month. But if one takes a closer look at the NFP numbers published in July and August, one can see that the indicator was revised downwardly twice. If one adds the September reading to this period of time, the overall picture won’t be very promising. Still, the fact that the US labor market is usually pretty stable makes all above-mentioned numbers look not so horrible. It means that the September decline will be eliminated in October or November, unless there are some serious stresses of course.

The Unemployment Rate and the Average Hourly Earnings data shows that the inflation in the USA is rising. This, in its turn, supports the Federal Reserve in its intentions to tighten the monetary policy. After they published the September reports on the employment, expectations relating to the key rate increase in December 2017 increased up to almost 80%, according to the CME futures. This was the reason why the USD rose.

EURUSDH4

 Click Image For Full Size

The best way to see investors’ attitude to the USD is the EUR/USD pair behavior. Let’s take a look at the H4 chart, which shows the downtrend. The key element of the current movement is the price’s consolidating around the support level, and one of the most possible scenarios implies that it may return to the upside border of the descending channel. One of the targets close to the resistance level is the retracement of 61.8% at 1.1875. If this scenario continues, we can expect the price to rebound from the upside border and resume falling to reach 1.16. also, we shouldn’t exclude a possibility that the instrument may break the current resistance level and start forming a new rising impulse. The main short-term target of this impulse will be the local high at 1.2092.

Author: Dmitriy Gurkovskiy, Senior Analyst at RoboForex

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Attention!

Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.



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