Some longer term trades that I am looking at. Short GBPNZD- Structure and 10 year spreads - indicate a sell. Macro - Dairy Index forecasting growth over the remainder of the year & UK inflation dropping faster than expected
So fundamentally - where are we at.
This game is always about confluence of levels
UK:
Employment - getting worse
Inflation -6.8- still too high
Inflation seems sticky
PMIs -getting really bad
No geopolitical news
10 year spreads - bid on the hourly.
Talk of halving inflation by the Chancellor- yet oil destined to hit $100++ a barrel
Risk reversals - look pretty bad against Cable in the months ahead.
BoE governor Bailey talking about inflation falling - and that the BOE are approaching the terminal rate.
The UK needs growth - where is it.
But we are at a key level at atm- plus we had high volume - iro the CAD cash rate meeting.
Reading through their statement - made pretty depressing reading.
They did give the US the thumbs up.
However, traders - trade off levels. And we are aa key level.
Annual VWAP, the POC and the 50 pull-back- all 3 are lined up
Also the 10 year spread on the hourly seemed to get a bid- although they turned south today on the 3m
Price also stopped at 1.2500 a clear round number
Looking at the pound - its sell off appears over-exaggerated
US
Inflation - sticky at 3%
Fed- neutral (ish)
Employment - improved slightly
Business surveys - dropping
CPI data next week- lets see what these estimates are.
ISM services - highest increase in 6 months - odd that this makes the headlines in Trading Economics - but you can't even see it on the FF calendar
In addition - US money supply is shrinking Why the US money supply is shrinking for the first time in 74 years (goldmansachs.com)
In trading should just monitoring the state of each economy- and where it sits in the current cycle, and then notice when it changes
Only then should we be looking at the structure on a chart.
Soley relying on a chart patterns - is what retail traders do - and 95% of them lose.
For instance - I know that the Aus and NZ ones are doing well. I could see that China are trying to address the issues they have.
Does a chart tell me what the GDP is of the UK or the PMI
A chart can tell you if there has been a lot of buying or selling.
People put levels on charts - but time is just as important - the sell off on Gold - only came from the FOMC meeting
Value is often wrong- and can just be viewed through the same lens as structure.
Once price has sold off - it is critical to keep a close eye on the news and structure- as everyone is short.
Here is an example - triple top, value is off on the NZDUSD. Yet we have strong Kiwi data - and a miss yesterday on US GDP and US home sales.
Also there is a cash rate meeting by the RBNZ next week - and in the last meeting they seemed pretty hawkish to me. Since then we have seen some strong data come through.
They say its good to journal - and nothing like doing it in public.
What are traders focused on obviously 3 things next week- the FOMC, UK cash rate meeting and the BOJ potential rate hike
UK:
Consensus is that they are going to cut -but Haldane and Pill have both said they will hold- although they said this before the latest inflation release- June's was 2.0% and has been dropping month by month.
You'd think with interest rates at 5.25% and interest rates dropping each month- it's time to cut. There were other parts that the BOE look at that show resilience in inflation services sector inflation is at 5.7%. Wage inflation is still high and the government seem to be talking up pay deals.
US:
This week's data has been positive- GDP, PCE. but Core CPI and CPI both took a a dive in the latest prints and they have been trending lower
PCE has been dropping - and its only June's figures that bumped up slightly
Also Powell has said that they have to cut before it get's to 2%. Inflation is 3%
Employment data has been moderating. Next week's NFP estimates are 177K- that is the lowest estimate since Oct 23
GDP and retail seem to be doing ok.
Plus the large techs report next week- something to keep an eye on- recent reports have been very strong.
Overall- based on the two metrics that the Fed look at, you'd think they will be talking up a cut next week. FFR is at 5.50%
Powell I think needs to either talk up a cut or actually cut. It's obvious that employment is under pressure and inflation is dropping
Maybe we have got a nice discount in equities going into the FOMC. Prices have definitely pulled back - and we have hit a nice trendline.
Thing is though what are the markets thinking- they are just expecting a normal Fed meeting.
I will be looking to long equities- most likely out of the FOMC - bit concerned about the vix though
Lets see if Bloomberg and Reuters can talk a good game.
Current view though is that they will hold- and cut in September
Also its end of month book balancing...Cable looks as though traders need to short it - need to double check with the banks
I did actually see a bit of that this afternoon- the pound really lagged the other risk currencies
Over the weekend read the Sunday newspapers in respect on any fiscal/monetary interviews
That equity short into the gap fill - what a trade
Current view: Overall you'd expect Cable to under pressure;
Fed are going to hold (inflation is at 3%)
BOE are going to cut (inflation is 2%)
End of month balancing needs to be done
Vix still elevated- so this could keep pressure on risk assets going into the FOMC
Obviously, I don't want to be shorting Cable at Friday's low- so any pullback into last week's POC has got to be a shorting opportunity on Cable.
Need to keep an eye on Gold- as any dovish talk from the Fed - has to be a positive for Gold
Nice sell on Cable -"so any pullback into last week's POC has got to be a shorting opportunity on Cable" perhaps my thinking on a pullback to last week's POC was too optimistic. Something to note. They pulled it back to Thursday's POC and then let rip- and I got into last week's POC. Then took a small long from there.
Will US traders join in - took a small position - but could tell there is a decent buyer there at the POC
Rachel Reeves is going to say how bad are the finances in government. UK national debt is 2.59 trillion.
I think lots of infrastructure projects are going to get cancelled. She speaks today at 3.30 pm.
If she promotes growth and strives to get down national debt -Cable should respond positively to this.
So Cable creeped up...but value is not great. However, the FTSE was pretty flat and though UK gilts seem ok
Rachel Reeves seems a very safe pair of hands.
Looking at tomorrow - US data looks poor and European data is decent.
At least there are some decent buyers there
