We continue to look to sell risk rallies
30/05/10 23:03
Hello Traders;
Leading into Fridays trading, we saw a host of institutional orders stacked on AUDUSD .8540 and above. Efforts to move above .8540 were weak showing limited buy flows. We expect more sellers, as we are, at levels above .8500 on AUDUSD and the corresponding levels for AUDJPY. Running tight correlations, we are watching equities patterns for signs of withdrawal.
After the turmoil across markets in May, the week ahead is a good test to see if fundamentals come back into focus. But it still might be premature for backward-looking data to help the Eurozone. US labour data is expected to remain strong and though the RBA will likely remain on pause, the BoC decision will be much closer. G20 finance ministers and central bank governors meet in Korea and we think financial sector regulation will dominate the conversations, with Eurozone worries and Korean Peninsula tensions serving as the backdrop.
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Leading into Fridays trading, we saw a host of institutional orders stacked on AUDUSD .8540 and above. Efforts to move above .8540 were weak showing limited buy flows. We expect more sellers, as we are, at levels above .8500 on AUDUSD and the corresponding levels for AUDJPY. Running tight correlations, we are watching equities patterns for signs of withdrawal.
After the turmoil across markets in May, the week ahead is a good test to see if fundamentals come back into focus. But it still might be premature for backward-looking data to help the Eurozone. US labour data is expected to remain strong and though the RBA will likely remain on pause, the BoC decision will be much closer. G20 finance ministers and central bank governors meet in Korea and we think financial sector regulation will dominate the conversations, with Eurozone worries and Korean Peninsula tensions serving as the backdrop.
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We Remain Risk Negative
26/05/10 08:29
We remain risk negative and continue to recommend to
sell on risk rallies. We become buyers of risk at key
levels discussed in Pro Traders Club and accumulate
using our volatility measure. Todays target sell
levels on GBPUSD and EURUSD discussed in PTC reviews
were hit within 20 pips. As well, AUDUSD and AUDJPY
order flow continues at high vol shifting from BF
levels. We have not seen a convincing flow back into
risk and view upside potential to be limited.
With much investor focus still centered on the euro, we occasionally get questions as to what can reverse the recent decline. It is a difficult question as it is much easier in the current environment to identify what policymakers can do to exacerbate, rather than improve, the situation, and we still think the euro remains a sell on rallies.
In a recent UBS Multi-Strategy Asset conference call, chief UBS economist and strategist, Larry Hatheway, said there are two opposing forces to the macro backdrop. There are negative concerns emanating from insolvency issues and growth worries while on the positive side, the global economic backdrop is still somewhat robust. Another positive factor he identified was that the recent decline of the euro should confer trade benefits to the Eurozone. Data of Euro Area 16 exports to the rest of the world does show a marked pick up in export volume amid the euro's recent decline. Though we do not have a dollar or euro figure on how much of an effect the weaker euro is having on trade, the improving trade should mitigate some of the negative concerns on the Eurozone.
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With much investor focus still centered on the euro, we occasionally get questions as to what can reverse the recent decline. It is a difficult question as it is much easier in the current environment to identify what policymakers can do to exacerbate, rather than improve, the situation, and we still think the euro remains a sell on rallies.
In a recent UBS Multi-Strategy Asset conference call, chief UBS economist and strategist, Larry Hatheway, said there are two opposing forces to the macro backdrop. There are negative concerns emanating from insolvency issues and growth worries while on the positive side, the global economic backdrop is still somewhat robust. Another positive factor he identified was that the recent decline of the euro should confer trade benefits to the Eurozone. Data of Euro Area 16 exports to the rest of the world does show a marked pick up in export volume amid the euro's recent decline. Though we do not have a dollar or euro figure on how much of an effect the weaker euro is having on trade, the improving trade should mitigate some of the negative concerns on the Eurozone.
Read More...
Risk Aversion Takes Root
20/05/10 17:48
PTC Members Warned and Aware of Impending
Correction
It is no surprise to Pro Traders Club members that full scale risk aversion has taken root, as the negative outlook for risk has been shared well in advance by its host. We are choosing our trades carefully on AUDJPY strategies as we wait for market's to re balance. I anticipate that this may take a few months. In the meantime, we will adjust our models to accommodate the increased vol. The overall market pullback is a welcome event we have been waiting for and I believe some very good opportunities will result in the risk class. This correction is a result of the weak foundation and deflated life preservers thrown at the market following the 2008 crisis. We have said in countless PTC episodes that risk on such weak footing is not sustainable. Our job as traders is to trade based on how we anticipate the market will perceive information flow.
I love this market because everyone has the ability to find their niche. We have outperformed PHD economists and are proud of it. I have to say that the views shared in PTC have been quite accurate over the years. We miss a few trends, but we can't see everything. The EURUSD for example; post crisis, the pair was trading at 1.2500 to 1.3000 and we were bearish because we felt the EMU and it's constituents were beginning to disintegrate with weak and non producing regions being weighed down by the impact of the crisis. It never made any sense to us. We missed the EURUSD rally to 1.5000+ and the fundamentals we anticipated finally set in and have taken us to where we are today, so we were right on our fundamental view, but wrong on timing. We can live with it, since we we called a long AUD against a basket when AUDUSD was at .6500.
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It is no surprise to Pro Traders Club members that full scale risk aversion has taken root, as the negative outlook for risk has been shared well in advance by its host. We are choosing our trades carefully on AUDJPY strategies as we wait for market's to re balance. I anticipate that this may take a few months. In the meantime, we will adjust our models to accommodate the increased vol. The overall market pullback is a welcome event we have been waiting for and I believe some very good opportunities will result in the risk class. This correction is a result of the weak foundation and deflated life preservers thrown at the market following the 2008 crisis. We have said in countless PTC episodes that risk on such weak footing is not sustainable. Our job as traders is to trade based on how we anticipate the market will perceive information flow.
I love this market because everyone has the ability to find their niche. We have outperformed PHD economists and are proud of it. I have to say that the views shared in PTC have been quite accurate over the years. We miss a few trends, but we can't see everything. The EURUSD for example; post crisis, the pair was trading at 1.2500 to 1.3000 and we were bearish because we felt the EMU and it's constituents were beginning to disintegrate with weak and non producing regions being weighed down by the impact of the crisis. It never made any sense to us. We missed the EURUSD rally to 1.5000+ and the fundamentals we anticipated finally set in and have taken us to where we are today, so we were right on our fundamental view, but wrong on timing. We can live with it, since we we called a long AUD against a basket when AUDUSD was at .6500.
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More Risk Aversion Likely in the Coming Months
13/05/10 23:11
More risk aversion is likely to unfold throughout the
summer months. In my view, equities have rallied on
lower volume. The fund managers simply do not have
the pre crisis leverage available. The banks have
tightened lending across the board to protect
themselves. If we are to compare equity prices to pre
crisis levels, the volume does not support current
prices under which the foundation would be weak and
vulnerable to spikes in volatility. Any fear
injections into the market will cause a significant
fall. We welcome this to build more longs in our
AUDJPY strategies covered in Pro Traders Club.
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China Tightens Reserve Ratio
02/05/10 20:54
This week we will be hosting a live Open Pro Traders
Club event. This event will cover some aspects of
risk management, fundamental and technical views of
the market and serve as an opportunity for member
Q&A. Don't be alarmed, it is not a sales pitch
event, nor are any of our events. If you want to
learn from us, great! If not, that's fine too. The
event will be recorded for viewing at a later time.
We hope to see you there.
China Tightens Reserve Ratio
China tightened its required reserve ratio by another 50bp, to 17%, over the weekend. This is the third 50bp increase this year and newswires suggest the measure will drain about CNY300bln of cash from the economy. This move comes right on the heels of a series of measures aimed at cooling down the property market and the wider economy. As such, expect risk FX to be affected by the news as fears grow over additional tightening measures to come, not only in China, but across emerging markets. Hong Kong is open today despite Japan and China begin closed for holidays.
This step will once again stoke CNY revaluation expectations, and UBS economists believe that a Q2 move is still on the cards. The next major deadline is the Sino-US strategic and economic dialogue, due to be held in Beijing on May 24-25. If there is still no action or commitment on CNY revaluation by that time then tensions could resurface. Geithner cannot delay the Treasury report on currencies indefinitely, and trade disputes with China are bound to be a point of contention at the US mid-term elections. Significantly perhaps, China's finance minister commented overnight that China will not let the CNY rise sharply, but there was no ruling out of a gradual move.
Read More...
China Tightens Reserve Ratio
China tightened its required reserve ratio by another 50bp, to 17%, over the weekend. This is the third 50bp increase this year and newswires suggest the measure will drain about CNY300bln of cash from the economy. This move comes right on the heels of a series of measures aimed at cooling down the property market and the wider economy. As such, expect risk FX to be affected by the news as fears grow over additional tightening measures to come, not only in China, but across emerging markets. Hong Kong is open today despite Japan and China begin closed for holidays.
This step will once again stoke CNY revaluation expectations, and UBS economists believe that a Q2 move is still on the cards. The next major deadline is the Sino-US strategic and economic dialogue, due to be held in Beijing on May 24-25. If there is still no action or commitment on CNY revaluation by that time then tensions could resurface. Geithner cannot delay the Treasury report on currencies indefinitely, and trade disputes with China are bound to be a point of contention at the US mid-term elections. Significantly perhaps, China's finance minister commented overnight that China will not let the CNY rise sharply, but there was no ruling out of a gradual move.
Read More...