Tapering Helicopter Ben

Huge developments this morning 4am Melbourne time, Ben Bernanke's FOMC meeting where he announced a more hawkish view than the market was expecting.

The market was looking for the Bernank to be ambivalent in general, maybe focus on the policy settings differences between tapering and interest rate hike, set the scene for eventual tapering in Q4. While these expectations were largely met, Bernanke also gave an optimistic outlook for the US economy, and clarified that 7% unemployment was the trigger level for any tapering to begin. I listened to the end of the FOMC meeting and the Q&A session after, and it was really more-than-expected optimistic tone that made the difference.

The markets roared, the USD soared.

Unfortunately I was not ready and too late to act on the first impulse, but started building USD long positions after the close of the Daily. I've gone long USD vis-a-vis EUR, AUD, GBP and even a little CNY for shits and giggles.

Here's the damage on the DXY:

Looking at the chart, it would seem there is still a fair bit of upside to come, I'm guessing over the next 10 to 15 trading days. The market's attention is now firmly fixed on tapering in September, and it would take some pretty bad USD data to turn this ship around.

Gold got hammered by the FOMC meeting, it cracked $1300 briefly. China too is having some troubles, their overnight repo rate hit 25%...the likes of which haven't been seen since the GFC of 2008. So all in all, everything points to risk off for the next while. I want to test my resolve in holding this trade as a macro trade, scaling in on winning positions. Let's see how far the ship can sail on this one.

New week, no positions after that AUD disaster from last week. Blind luck got me out of that countertrend trade -- I was suffering from 10% drawdown at one stage (just couldn't pull the trigger on those losses). I got the sentiment, the timing, the levels all wrong...very lucky to get out at break even after the markets went spastic.

The Last Week:

* Central banks stick to the script on policy, but the market decides that Draghi is hawkish* USD never recovers from soft early week data* Another bad week for the N225, a good one for the JPY

Alright, new week new outlook. Here we go.

* Calendars slow down in the coming week, and FOMC members stand back ahead of the June meeting* JPY traders will continue to watch the N225, though the intervention threat grows sub 95.00.* 1.33+ was short lived on EUR/USD, but calling a top tends to be expensive

EURO

Barclays

• Euro calm to start the week and feels like it is going to do nothing exciting anytime soon. 1.3300/20 remains good resistance but the lack of selling interest makes it look like we continue to grind higher. Dip buying remains my favorite strategy for the moment
• German constitutional court ECB bond buying hearings, don't expect much but keep an eye out for headlines.
• I will look to buy today on a dip to 1.3230, stop below 1.3170 for a run above 1.33. 

Laidi

• When all is said and done, we expect the Fed to maintain its $85bn monthly purchases unchanged into the middle of the first quarter of 2014, and the ECB to slash interest rates to negative levels by year-end. This may imply a neutral-to-strong US dollar, but with a higher confidence level play in selling the yen against both the dollar and euro.

Goldman

• The EUR whilst sidelined trades pretty well. The alternatives to owning the dollar are currently very limited and the EUR ironically is perhaps at the top of the list. 
• The ECB is not engaging in QE, the notion of negative rates appears to be off the agenda and whilst Draghi will not welcome any currency appreciation the EUR should perform well on a cross basis. 
• Against the dollar though I think it’s a tougher call and expect us to trade within a 1.31/1.34 range until further notice. Whilst flexible I favour buying dips and in terms of today’s parameters expect initial support at 1.3220 and then at yesterdays 1.3177 low, whilst the next resistance hurdle is offered by the 1.3307 post ECB high.

Citi

• The price action says it all. Despite a move positive credit outlook on the US, EURUSD could not sustain sub 1.3200 and we have rebounded sharply to test again the 1.3300 level. 1.3300/1.3320 again remains critical resistance and a break through there looks like we could accelerate towards 1.3435. 
• On the day 1.3245/50 should be good support and for now I believe that should be the buy zone and we are in a short term uptrend. Another very quiet data day both sides of the Atlantic so underlying themes are likely to dominate.

UBS

• EURUSD BULLISH There is a strong resistance at 1.3342. A closing break above which would be positive over the longer term, opening 1.3520. Support is at 1.3178. 

Societe Generale

• If you look at the EA GDP deflator, a broader measure of price pressures in the economy, inflation has not been above 1.5%, never mind 2%, since late 2008... When you have Draghi breezily dismissing the disinflationary trend across the region, you understand that the downside risks to European growth have increased..We therefore expect further down-shifts to EA growth expectations going forward. 
• This would certainly follow the trend we have seen recently. SG economics believes that the response to weaker growth prospects is more likely to be an additional refinancing rate cut, than a negative deposit rate. 
• Consequently, SG economics expects a 25bp refi rate cut to be back on the ECB agenda by year-end. Should the ECB feel the need for further rate action beyond that point, we would expect forward guidance to be explored as a tool. We remain bearish euro."

JP Morgan

• EUR/USD our focus is now on key-Fib-support at 1.3120 (minor 38.2 %) which looks to be the decisive T-junction to distinguish between a still intact recovery to 1.3323/28 (weekly.-daily trend channels) and possibly to 1.3483 (minor 76.4 %) and the completion of a right shoulder top at 1.3305 on Friday. 

USD

Laidi

• When all is said and done, we expect the Fed to maintain its $85bn monthly purchases unchanged into the middle of the first quarter of 2014, and the ECB to slash interest rates to negative levels by year-end. This may imply a neutral-to-strong US dollar, but with a higher confidence level play in selling the yen against both the dollar and euro.

UBS

•  USDJPY BEARISH Upside will be viewed as corrective and unwinding the overextended downside conditions. Resistance is at 99.36 ahead of 100.40. Support is at 99.63 ahead of 

JPY

Barclays

• BoJ disappoints overnight as they don't "over deliver" this morning and make no change to their current easing policy.
• Order book: Now a better net buyer down to 97.00, topside is dominated by light stop loss buying but nothing of significant size.
• Sprint's vote on the Softbank offer (raised by 1.5 bio overnight) pushed back to June 25.
• Market remains fairly choppy and with BoJ out of the way back to data watch mode. Nothing major on the radar today, retail sales and claims Thursday. Preference to buy a dip into mid to low 97.00's..

Citi

• After a stronger close in USDJPY yesterday after S&P upgraded the US outlook, price action has tailed off again after the BoJ announcement where the CB kept monetary policy unchanged. They pledged to increase the monetary base at annual pace of JPY60-70tn and upgraded their assessment of the economy.  
• The knee jerk reaction weighed on both USDJPY and the Nikkei and selling interest ensued with USDJPY, posting a low of 97.78. Since then both have recovered and we open the London session of a firmer footing around 98.25 and net buyers have been noted off the lows and the price action looks more upbeat. The BoJ press conference will begin at 7.30 with nothing untoward expected from Kuroda and USDJPY  is unlikely to break out of the 97.70-99.30 range for the day.

JP Morgan

• Given the massive setback the JPY ran into since Friday the general conviction is certainly that the broader downtrend has been resumed. But for the latter to be confirmed and in order to eliminate the risk of just performing a countertrend B-wave rally it would take decisive breaks above minor 76.4 % retracements at 132.03 in EUR/JPY, at 154.75 in GBP/JPY and at 101.68 in USD/JPY.

BMO

• Disappointment from the BoJ and the subsequent news conference by Kuroda, has seen USD/JPY fall again, along with risk in general. It feels that this is a phase of liquidation/capitulation, which may not be over yet. Further pressure on emerging markets, and equities continue cause pain. Think this is a case of staying nimble and pick your levels on an intraday basis. 
• JPY gamma came off first thing today with the event risk out of the way, although as spot has carved a huge range over the session and continues to push lower everything is coming right back. 1 month was down to 15 from 15.55 before the BOJ, although this has retraced remarkably back to 15.5. It still seems the market is short some downside, and the vols will continue to hold up pretty well as the gamma has been performing. The 1 week was down to 16.5 from 20.5 last night, but these also have retraced now to around 17.25. 

AUD

Barclays

• With Asia EM under pressure and NAB business conditions weaker Aud tries key support under 0.9400 again. Holds for now but with bounces shallow look set for another attempt at some stage.
• There is little reason to buck the trend at this stage so sell rallies remains the strategy of choice.
• Labour force data Wednesday likely the next key determinant of near term direction.

Goldman

• NAB survey shows a mild improvement but not as much as many may have expected given the rate cut and fall in the AUD. Home loans similarly fairly subdued but the underlying trend remains positive. 
• AUD continues to trade very heavily and trades through the 0.9388 2011 lows overnight with stops triggered induced by the fall in AUDJPY. The price action is compelling from a bears perspective but we are mindful still of the scale of positioning into Thursday employment report. 
• Given the streets downward revisions to GDP forecasts and how much is priced for July’s RBA meeting the asymmetric risk remains for a stronger number, and given the volatility of the series that is a possibility so caution warranted. We remain short and a close below 0.9388 would likely encourage a fresh round of model selling. Topside yesterdays highs of 0.9481 the immediate resistance but the market not really looking to stop until the post payroll highs of 0.9675 now.

GBP

Barclays

• The UK housing market is gathering steam with the RICS house price balance showing sales at their highest levels since summer 2009.
• Cbl inches towards last weeks high and eurgbp static.
• We are short eurgbp but with the dollar once again under pressure it might be the case of further gains for cbl, good luck.

Goldman

• Massive move in green short sterling and out yesterday (-20bps at one point) and the move continuing today (greens -7bps now), much of which is some unwind of the Carney received positions but also in sympathy with the broader sell off in fixed income globally as treasuries push to new lows post the S&P upgrade on the US sovereign credit from negative to stable. 
• Interestingly the move has yet to have any notable knock on effect in currency space (this time over a week ago the market was aggressively adding to long dollar positions) but today outside of AUD and JPY very little interest in G10 space. 
• Regardless , the data set from the UK (another better RICS) continues to pick up off a low base and in cable 1.5680 / 1.5700 remains significant through which most of the cable bears would throw in the towel for those that still hold onto residual cash shorts. 
• Intra-day given the inability of GBP to push on, cable should be a sell risking 1.5620 with EURGBP failing to gain any real traction below 0.8480. Orderbook however remains light and while we like the risk reward of being short pounds now it feels like we have one more wash out to come.

Citi

• GBP remains well supported below 1.55, and I continue to see models cutting shorts. I think this demonstrates the extent of USD longs that remain out there, and so cable is a buy on dips for the time. The caveat to this is the data at 9.30, which will be closely watched. Offers now remain at previous post NFP high 1.5605/10 and then up towards the high of the squeeze 1.5685. GBP/commonwealths remain super bid and the trend is very much in place. I advocated buying 1.63 in GBPAUD and we now approach 1.66, and there is no reason to fight the trend. EURGBP remains a valueless wash.  

JP Morgan

• Cable also remains vulnerable, but keeps the door open for a proper test of the main resistance zone between 1.5703 and 1.5784/88 (200DMA/C=A/61.8 %) as long as hourly trend line support at 1.5490 is not broken on hourly close.

EUR/USD scanning

Commerzbank 3 June - spot @ 3025

Please note we have no additional sell signals and currently we suspect we will see further ranging. Current position: Short at 1.3171. Recommended trade: Stop 3075, target at 2750, 2680, 2400.

Citi 3 June

• Market still aggressively long USD
• Citi argues that USD gains maybe less pronounced if exceeding expectations, while data disappointments could lead to unwinding of stretched USD-longs
• "According to Citi economists, it would take several NFP gains in the vicinity of 200K to make the Fed seriously consider tapering in coming months. Such an outcome (not Citi central scenario) could see the dollar bouncing across the board on the back of higher US yields," Citi adds. 

• Euro held up reasonably well recently as investors paring back bets on more aggressive ECB easing on June 6.
• Even if the ECB refrains from any additional easing measures at this meeting, the EUR could still come under renewed selling pressure if the June macro staff projections signal growing concerns about further disinflation in the Eurozone.
• "In particular, midpoint forecasts showing headline inflation heading much lower than the previous projections of 1.6% YoY for 2013 and 1.3%YoY for 2014 could fuel speculations of more aggressive easing down the road. This should make the euro more attractive funding currency and could send it lower across the board," Citi clarifies.

Credit Agricole 3 June

• EUR supported recently by higher than expected German inflation in May and some more muted US labour data. 
• Any EUR/USD levels near to 1.30 should prove unsustainable and that rallies are still a sell.
• Expect the ECB to keep the same dovish monetary policy stance compared to the last meeting. This means that ECB President Draghi will likely continue to leave all options open, including the possibility of cutting the deposit rate to negative territory. This is especially true as the central bank already has a view of balanced inflation risk. Hence the most recent data is unlikely to change their monetary policy stance.
• At the same time growth prospects remain muted and a higher trade weighted EUR may increase concerns about the currency’s impact on prices and export competitiveness again. Accordingly we expect no positive surprises from the ECB. On the contrary they will likely continue to ensure that monetary conditions are not tightening.
• Remain of the view that US growth prospects will continue to improve, which should be especially reflected in further improving consumer strength. Hence, expectations for the Fed to become less dovish on monetary policy should remain in tact, putting a floor below US rates and the USD

Morgan Stanley 31 May - spot @ 3030

Short 3050 as the bank looks for the USD to soon resume its broader recovery, and so sees limited upside for EUR/USD. The bank has a downside target of the November 2012 low at 1.2665, with a protective stop up at 1.3150. Now at 1.3029.

Danske 30 May

Danske fades EURUSD recovery, sells at 2973 looking for a slide to the May 28 low of 1.2852, with a stop up at 1.3035. EUR/USD now at 1.2981 within the day's 1.2986-1.2934 range.

Barclays 30 May

Looks for E/U to keep climbing but says through the 1.3090 trendline daily momentum is likely to become overbought, making further gains more difficult. Now at 1.3019, the bank will look to buy dips against support at 1.2975, looking for a pullback ahead of 1.3150. 

BNP Paribas, Goldman, Citi, Deutshe, Nomura, ANZ, CBA, Westpac, UBS, RBS, Credit Suisse, HSBC, BBH, Scotiabank, Societe Generale

Thursday EURUSD news

Sean at FWXX is thinking USDJPY macro:

Based on present fundamentals and historic levels, EUR/JPY at 140 is too high in my opinion, as indeed is AUD/JPY at 110+, purely on basis of historic levels. On the other hand, from a very long term perspective, seeing USD/JPY back at 110/115 is not a stretch of the imagination at all.

In other words, I think at some stage very soon there will be excellent bearish trading opportunities in EUR/USD or AUD/USD: EUR/JPY at 130 and USD/JPY at 110 would mean EUR/USD back below 120; whilst AUD/JPY at 105 and USD/JPY at 110 would imply AUD/USD trading back near 95 cents. This is what I expect to happen over coming months.

My preferred way to play this strong USD trade is through USD/CHF and I’m hoping to get the timing right to build a long position for a move to 1.10.

EURUSD is basically in a giant shitfight between EZ woes vs QE driven sentiment from USD & JPY.

EURUSD was rejected from the 3110 level last night (a strong confluence level), currently trades 3050-60.

Commerzbank:

CommerzBank $EURUSD Current position: Longs from 1.2908 exited 1.3110 Recommended trade: Sell at market, add 1.3120, 1.3145and place the stop for now at 1.3225. Shorter term (1-3 weeks): Targets the 1.2679/61 zone. Medium term (1-3 months): Targets 1.2400 en route to the 1.2042 2012 low

EURUSD and other market thoughts

EURUSD had an outstanding Thursday (propelled by comments from Draghi indicating ECB was not about to cut interest rates) and Friday last (due to underwhelming NFP results for America), that saw 3 big figures traded. Personally, I was still kinda shellshocked to do anything about it on Thursday by the BOJ announcement, during which EURUSD lay comatose for hours, and was unable to get a grip on it leading into the whipsaw created by Draghi's speech.

Right now, its Monday and the US session is about to come into full effect. EURUSD is trading around 3020-30. From a technical perspective the bulls have taken control at least in the short term. Having already done so for a number of week BNP Paribas continues to talk up their position, suggesting that

EUR/USD to track peripheral spreads, which themselves suggest the spot should be trading closer to the top end of a 1.30-1.32 range.

Fundamentally, nothing has changed. I think upside is limited given that there is still no real solution to a fragile Eurozone, for example:

• Italian elections;
• Portugal budget woes coming back to the front?
• some building concern over Slovenia
• the Cyprus precedent of railroading depositors...fuckin fatal
• Cyprus to get a 2nd bailout, by year end?

On the other hand, the market think the Fed will NOT scale back QE, and this is supporting the EURUSD. Wow, just as Im typing this, comments from the Fed's Painalto indicate otherwise.

From an intraday perspective, I reckon profit takers will be wanting to get out after Thursday & Friday's efforts...and the price action above the 3000 handle has not been particularly explosive throughout Monday. There is some talk of large 3000 option expiries which should dampen the market for a while. Still hearing plentiful offers above:

RT @orderflowforex: #EURUSD offers @ 3040, 3080 & 3100 - buy stops above 3050 #fx #forex 

@orderflowforex: #EURUSD - An Asian central bank noted seller above 1.30 #fx #forex  

I do have to consider that the positioning must be a bit stretched now. We have had 2 months of decline, and   long term shorts must be at least thinking about taking some profits off the table.

Sentiment studies have noted a climax in S&P, and thinks that the macro environment is changing for the worse, and that the smart money are thinking of getting out of the rally.

Overall, I remain  a seller of Euro at present, and will be looking to build shorts between 3000 and 3100 over the coming sessions, for a move down to 2750 if I'm lucky.

And so, to another day of trading...

Thursday update: All about the BOJ

Had been building EURUSD shorts since the start of the week (post Easter break) banking on continuing bearish sentiment over Eurozone difficulties. At the time of writing, the EURUSD is now starting to sell off on dovish comments from Draghi regarding the EZ, particularly:

• extended weak economic activity;
• growth subject to downside risk;
• risk of inflation;
• lack of banking capital and lack of action on structural reforms.
• See here and here.

Wow what a fucking party pooper that man. Anyway, I was building shorts in anticipation of further bearish moves but the playbook went out the window when I got out due to (what I thought were strong bullish) headlines related to Cyprus getting the bailout cheque. The chart below shows what happened.

Around the same time I flipped long, I went long EURJPY. Now in retrospect that first entry was not really a smart one because I was simply trying a correlation move without much further justification. I was eventually punished as the market moved 100 pips against me. Fortunately it stablized  in Asia as the market await for BOJ news. Forexlive and FXWW kept me up to date, announcement was expected around 0330GMT (around mid afternoon Melbourne time).

The chart below shows what eventually happened.  But what is not clear is the sudden 40 pip selloff by trigger happy EURJPY bears around 0320GMT? I was shitting myself at that point because I was already 30-40 pips down from my averaged entry. I wont lie, I felt rising panic to close off the trade early, but I held because I was (a) desperate and (b) unconvinced by that move because of:

1. how broadly the EURJPY was supported evident in the basing price action over NY & Asia, and
2. how quickly the market immediately bought up the currency back to median levels...I estimate probably over the next 5-10 minutes.

Update

Yes, I blew yet another account since the last update, all that +$13,000 went up in smoke over 2 days which is what happens when you trade without stop losses...!  Basically I haven't been updating this blog for the past 2 months as there's nothing good to report -- I've been stuck in neutral gear since then, it's like I've completely lost my touch of the markets and lost my trading mojo for the next 6 weeks.

Presently I've recapitalised the account with another $2,000 and obviously still in a fragile state I'm not wanting to lose that in a hurry.  My experience so far has shown it is possible to turn $2,000 into $13,000 quite quickly, but you really have to be selective in your trades.

At the moment, I'm doing more reading than trading, which can only be a good thing after going on such a wide ride.  Thinking more broadly about market sentiment and orderboard updates through news outlets like Forexlive.com, FXMA, MNI, Ransquawk....seeing how news &/or rumour filtering out throughout the day affect the market, thinking a bit more about trader expectations in relation to these events, thinking about orderflow and liquidity issues and basically trying to get into what is described as the orderflow mindset -- an ever elusive concept.

For example, today I took a simple 30 pips gunning the stops beyond the well-reported option barrier at 3700, which was due for expiry on Friday in 3 days.  I'd lost 30 pips yesterday making this play by the way, so the results netted off.  But the difference is that, once the barrier broke, thin markets resulted in a rush upwards to 3800, and offers eventuated near 3840-50.  Could have held on perhaps? But it's still a new experience to me.