It's an Interest Rate Story
29/04/11 09:11
Hello Traders;
We are producing a small series of videos titled, "Essential Qualities of Successful FX Traders." The first was released last week, now in the members area, and we will release approximately one per week. We had some issue with our mail server recently and may have lost some emails. If you have not received correspondence with us recently, it is possible your email has been lost. Simply sign up, again.
While traders endeavor to develop a specific skill and connection with the market they are trading, common roadblocks will impair their ability to succeed. The video series is intended to make aspiring traders aware of specific qualities and skills that absolutely should not be overlooked while engaged in the process of continuing development. The discussions are focused on specific characteristics common among all successful traders, so I hope you find the videos helpful.
When we talk about a "characteristic," we are not simply referring to a quality you can pick off the shelf for $200 or download for free and insert it into our trading. Rather real personal qualities that you must develop while fully engaged and committed to the process of understanding the business of trading and your asset class. It is a commitment to long term development of your core thought processes and habits. An important step to ultimate growth in the trading business is to confront that which you naturally want to deny as being important.
Announcement: We are strongly considering another 3 or 5 (incl live trading) day workshop in Ft Lauderdale Marriote Beach Resort in September. Let us know if you're interested.
******
It's an Interest Rate Story
The USD continues to sell off on what is a full scale interest rate story. At an institutional level, the USD is currently the funding currency for the carry trade. I haven't the time to write my views on US policy, but it appears the FED has willingly inspired one last USD sell off before they have to face the nation on QE2. We are listening closely to hints at policy changes and watching for shifts in yield spreads. I'm not convinced that it will be a vanilla yield spread story that motivates the next USD rally. There is something in the lurch that will emerge as a surprise likely to hit risk on the head. More to come in Pro Traders Club.
We are producing a small series of videos titled, "Essential Qualities of Successful FX Traders." The first was released last week, now in the members area, and we will release approximately one per week. We had some issue with our mail server recently and may have lost some emails. If you have not received correspondence with us recently, it is possible your email has been lost. Simply sign up, again.
While traders endeavor to develop a specific skill and connection with the market they are trading, common roadblocks will impair their ability to succeed. The video series is intended to make aspiring traders aware of specific qualities and skills that absolutely should not be overlooked while engaged in the process of continuing development. The discussions are focused on specific characteristics common among all successful traders, so I hope you find the videos helpful.
When we talk about a "characteristic," we are not simply referring to a quality you can pick off the shelf for $200 or download for free and insert it into our trading. Rather real personal qualities that you must develop while fully engaged and committed to the process of understanding the business of trading and your asset class. It is a commitment to long term development of your core thought processes and habits. An important step to ultimate growth in the trading business is to confront that which you naturally want to deny as being important.
Announcement: We are strongly considering another 3 or 5 (incl live trading) day workshop in Ft Lauderdale Marriote Beach Resort in September. Let us know if you're interested.
******
It's an Interest Rate Story
The USD continues to sell off on what is a full scale interest rate story. At an institutional level, the USD is currently the funding currency for the carry trade. I haven't the time to write my views on US policy, but it appears the FED has willingly inspired one last USD sell off before they have to face the nation on QE2. We are listening closely to hints at policy changes and watching for shifts in yield spreads. I'm not convinced that it will be a vanilla yield spread story that motivates the next USD rally. There is something in the lurch that will emerge as a surprise likely to hit risk on the head. More to come in Pro Traders Club.
Real GDP rose at a 1.8% annual rate in Q1, slightly
below consensus estimates, after a 3.1% pace in Q4.
The deceleration reflected slowing consumer spending
growth, a drag from the government sector and
declines in residential and nonresidential structures
spending. That said, the pace of consumer spending
growth was better than expected and capex spending
rose at a decent 11.6% rate. Nominal data emphasize
how much of the Q1 slowing reflected faster inflation
and UBS economists don't expect the same drag on real
spending from increasing prices in coming quarters.
In other data, jobless claims jumped, which probably
reflected Easter distortions, but the recent trend is
more sideways in Q2 after the downtrend in Q1. It is
going to take a material sting of strong data and a
shift in yields to shake the dollar out of the recent
trend of weakness.
EUR: Sovereign CDS spreads in the Eurozone finally tightened and bond yields moved lower but the euro gave back some recent gains to the dollar as Fed policy and dollar trends remain the driving forces. Portuguese bailout talks continue and there were further headlines from Eurozone officials, denying a Greek debt restructuring.The denial of a need for restructuring means they need time to figure out a way to restructure debt without making it look like they are restructuring debt. This, ironically, actually does fool the market, so we have to be careful not to look too deeply into the facts, because the market won't price it fairly.
ECB's Mersch says ECB will continue its gradual exit from the non-standard measures at an appropriate pace; and stating that it never takes measures aimed at supporting banks in one particular country. Mersch seems to be ruling out the creation of the much-awaited medium-term funding facility for Irish banks, which the Irish government is pushing for to help reduce local banks dependence on short-term ECB liquidity. At the moment CHF is driven by external factors and we question whether current gains are sustainable and the SNB is unlikely to turn hawkish anytime soon given the strong CHF. .
Policy expectations for the RBA and the RBNZ look set to diverge after the RBNZ kept the OCR unchanged noting that the current policy setting will likely be "appropriate for some time". Meanwhile, Australian Q1 CPI was stronger than expected, backing up UBS economists' view that a RBA hike is likely in August and the market continues to underestimate this risk. And attitudes to currency strength by both central banks are also now poles apart. Although the RBA welcomes the strong AUD as a device to fight inflation, RBNZ Governor Bollard signaled he was uncomfortable with kiwi strength. Further rhetorical interventions are likely, which should help limit NZD upside. We called AUDUSD 1.10 in Pro Traders Club and also higher levels EURUSD and GBPUSD.... the levels cannot be too specific, because it will be a time, not price, factor that will influence the next trend shift. The time factor will be the first hint at FED policy shift.... which may come from the bond markets.
We continue to like short JPY leading into H2. We are monitoring our JPY shorts against the crosses, both swing and long term, in the Pro Traders Club
Source: Chris Lori, UBS, Reuters,
EUR: Sovereign CDS spreads in the Eurozone finally tightened and bond yields moved lower but the euro gave back some recent gains to the dollar as Fed policy and dollar trends remain the driving forces. Portuguese bailout talks continue and there were further headlines from Eurozone officials, denying a Greek debt restructuring.The denial of a need for restructuring means they need time to figure out a way to restructure debt without making it look like they are restructuring debt. This, ironically, actually does fool the market, so we have to be careful not to look too deeply into the facts, because the market won't price it fairly.
ECB's Mersch says ECB will continue its gradual exit from the non-standard measures at an appropriate pace; and stating that it never takes measures aimed at supporting banks in one particular country. Mersch seems to be ruling out the creation of the much-awaited medium-term funding facility for Irish banks, which the Irish government is pushing for to help reduce local banks dependence on short-term ECB liquidity. At the moment CHF is driven by external factors and we question whether current gains are sustainable and the SNB is unlikely to turn hawkish anytime soon given the strong CHF. .
Policy expectations for the RBA and the RBNZ look set to diverge after the RBNZ kept the OCR unchanged noting that the current policy setting will likely be "appropriate for some time". Meanwhile, Australian Q1 CPI was stronger than expected, backing up UBS economists' view that a RBA hike is likely in August and the market continues to underestimate this risk. And attitudes to currency strength by both central banks are also now poles apart. Although the RBA welcomes the strong AUD as a device to fight inflation, RBNZ Governor Bollard signaled he was uncomfortable with kiwi strength. Further rhetorical interventions are likely, which should help limit NZD upside. We called AUDUSD 1.10 in Pro Traders Club and also higher levels EURUSD and GBPUSD.... the levels cannot be too specific, because it will be a time, not price, factor that will influence the next trend shift. The time factor will be the first hint at FED policy shift.... which may come from the bond markets.
We continue to like short JPY leading into H2. We are monitoring our JPY shorts against the crosses, both swing and long term, in the Pro Traders Club
Source: Chris Lori, UBS, Reuters,