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Bored while scalping so lets share some Ideas (m1 mostly) 19 replies

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$ For The week of 10/23-With Some Trade Ideas

  • #1
  • First Post: Edited 10:43am Oct 21, 2006 10:11am | Edited 10:43am
I want to start off by making a suggestion for the calender when posting results. Take the core PPI for example; the result is listed in green, indicating the number was better then expected. Being that PPI is an inflation number and that it came out higher, I think they should list it in red as this number being higher is actually a worse result. I do want to say thanks to whomever runs this whole thing though-FF is a great place to share ideas and I'm sure it takes quite a bit of effort to run it.

I have alot of questions about some of the results we've seen this week and the overall tone (negative) of the $. The bulls have run out of gas and I'm not sure why. To my thinking, there were a lot of $+ (inflationary) indicators.

The week started out with the Empire Index 2x as good as expected. The core PPI was 3x higher then consensus. The TIC report showed a vast amount of foreign capitol being invested in US gov't paper ($+ in the short term, foreigners have to buy $'s to buy the bonds). New jobless claims were down. Most curious to me was the reaction to the market off the core CPI; while the number was on consensus, it shows that number as being higher then the Fed has stated it wants it to be and the y/y rate is the highest for several years. Then off of last weeks higher NAHB reading (a shocker even though it's still way below 50), we had the gov't saying that housing starts increased. Bernanke has stated plainly that the Fed is depending on a continued slowing in the construction of new houses to slow the economy...the only real $- reports were leading indicators and the Philly Fed.

On the other hand, the market is convinced there will be no US hike next week and this is why we saw gains in the GBP, EUR, AUD and NZD. In GBP,NZD, and AUD especially, we have markets where traders are convinced rates will go up at their next meetings. So what's happening in the immediate short term is traders getting into those currencies.

The big thing next week will be the tone of the Fed statement following the rate announcement. The market will be focusing on this intensely. For the life of me I can't see how it will be anything but hawkish. Personally i'm preparing to see a 180 in the markets perception about what the Fed is going to be doing next time. Don't forget about the NFP and the upward revisions. There are a lot of jobs in the economy.

I took a longer term mini postion in the GBP/USD (long) based on the markets perception of no raise for the FED and a raise from the BoE. I'm gonna watch this carefully because perception can change quickly. If i'm lucky enough that $- sentiment remains until the FOMC, I'm definately gonna be out of it prior to the release.

How do you see the statement? To my thinking, it can't be anything but quite hawkish. Your opinion?
  • #2
  • Edited 6:31pm Oct 21, 2006 10:23am | Edited 6:31pm
When good numbers fail to raise/support the USD, i was so fed up, I started selling USD. GBPUSD was king last week and joined the ride.

Can anyone comment on this:
http://www.dailyfx.com/story/special...271023583.html
EURUSD is showing USD strength because more are buying the pair?
GBPUSD is showing USD weakness because more are shorting the pair?
From this contrarian FXCM SSI studies, when a pair has more LONG position than SHORT, the pair actually moves the other direction?



IF there was no rate hike, will any "Hawkish" tone prevent people from selling the USD ??? Judging the screwed up reactions of people from these speeches, I'd enter the market as early as 2AM EST when London session starts. Last FOMC, it was here when the GBPUSD uptrend started - I could go long and take another ride up.

Based on the last 2 FOMC responses (chart attached), USD actually strengthen after the speech. After some carefull thought, I'd agree that the speech will deliver a hawkish note. No way Ben be stupid to say "no rate hike because we see the economy weaken..." Surely he will try to appeal to the market by trying to paint a "hawkish" tone...

However, Asia session dont buy the speech. I'd expect another long run from here starting 7PM EST.

The other heavy weight news for the week are Durable Goods, New Home Sales and GDP. I'll look for GDP for trend reversal. Anyone knows how GDP is computed? I read that Retail Sales is 70% GDP, so perhaps, I could predict GDP with other data such a retail sales, ppi, cpi, employment?
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  • #3
  • Oct 21, 2006 3:58pm Oct 21, 2006 3:58pm
I like what you are saying News.

I think we have eliminated the speculation of rate cuts in the near term and will be looking for evidence of hawkishness. While I thought the last few statements had hawkish tones, the market was not equally impressed. At least not immediately. The only question I have is what will happen with the current shift in short term sentiment to the dollar negative. While we had a nice move down for the dollar on thursday, Friday did not retrace much or follow through. I will be watching to see if there is much pre release speculation or if it is a wait and see attitude.
Profit is where readiness meets Opportunity
  • #4
  • Oct 21, 2006 10:28pm Oct 21, 2006 10:28pm
I would really like to hear everyone's opinion on this. The reason I think it could be such a good report to trade is that with some hawkish tone, a nice long run-up in the $ would be seen.

My reasoning behind a hawkish statement is two-fold.

1. The Fed really wants to do nothing and be able to temper the markets with some tough talk. I'm not sure if this is really possible, but the data will allow them to do so this time and probably the next as well, unless the core PCE and other indicators dictate a move.

2. To my way of thinking, the fundamentals mostly show a need for a hawish tone. What especially strikes me is the up tick in housing starts coming with an 8 month inventory of unsold houses. On the other side of this is the lowering of some comodity prices and the continued easing of energy. While the Fed does no include energy in any of the core readings, some pass-thru might eventually take place to the categories that make up the core numbers.

I hope to see a lot of input on this over the next couple of days. The statement has the potential to be big trade-with the $ sell off this past week, a really hawkish tone will set up a great long trade in the $.
  • #5
  • Oct 21, 2006 10:48pm Oct 21, 2006 10:48pm
Quoting NewstraderFX
I want to start off by making a suggestion for the calender when posting results. Take the core PPI for example; the result is listed in green, indicating the number was better then expected. Being that PPI is an inflation number and that it came out higher, I think they should list it in red as this number being higher is actually a worse result.
when the actual is green it means "better for the currency". like the higher the PPI the stronger the currency becomes (theoretically, of course). sounds like you are suggesting we make it mean "better for the country"? but then we would have to debate on whether inflation is good or bad for a country
Relax and be happy.
  • #6
  • Oct 21, 2006 10:54pm Oct 21, 2006 10:54pm
Quoting NewstraderFX
What especially strikes me is the up tick in housing starts coming with an 8 month inventory of unsold houses. On the other side of this is the lowering of some comodity prices and the continued easing of energy.
my take is that this "easing" (aka freefall) of energy prices will overshadow this small glimmer of hope we saw for the housing market. CPI was contained within the "normal" band of 2% y/y and the fed looks comfortable at 5.25.

so i would be surprised by a hawkish statement, maybe thats why this trade idea is a good one newstrader.
Relax and be happy.
  • #7
  • Oct 21, 2006 11:07pm Oct 21, 2006 11:07pm
Quoting NewstraderFX
I took a longer term mini postion in the GBP/USD (long) based on the markets perception of no raise for the FED and a raise from the BoE.
how long have you been in this? did you catch that rally that was hurting my position

if the EURUSD can rally above 1.27 by tuesday that says to me dollar is rangebound for a while longer and i have to give up on this one...
Relax and be happy.
  • #8
  • Oct 22, 2006 8:27am Oct 22, 2006 8:27am
Quoting merlin
when the actual is green it means "better for the currency". like the higher the PPI the stronger the currency becomes (theoretically, of course). sounds like you are suggesting we make it mean "better for the country"? but then we would have to debate on whether inflation is good or bad for a country
Okay, here is another view: Green for above consensus. Red for below consensus. This is simple, and makes things very explicit from the FF perspsective. Price indicators such as inflation are not necessarily 'good' or 'bad', as Merlin mentions. It depends on from whose perspective you are talking about. Also, you only need to look at the historical USD reponse to US CPI to see the inconsistent responses - there is a non-linear relationship, or at the very least it is subjective to what else is happening in the economy. For example, higher inflation = higher rates = equities sell off and bonds sell off = if the sell off is extreme and US assets are disposed of en mass (see what happened in 1994) the USD may depreciate.
"Always bet on black"
  • #9
  • Oct 22, 2006 8:40am Oct 22, 2006 8:40am
I'm with newstrader in thinking the FOMC could surprise the mkt with slightly more USD positive rhetoric. The real side of the economy seems to be holding up reasonably well, while on the prices side headline inflation measures have come down but core measures remain worryingly high. The other risk related to lower energy prices is the potential feed through to demand, which, if mentioned, could also be USD bullish. I don't see the FOMC necessarily moving to a more hawkish stance but at the same itme I don't see them signalling a move to a more dovish position, which I think some market participants may be expecting.

It will interesting to see how the Fed are interpreting the recent batch of ambiguous data.
"Always bet on black"
  • #10
  • Oct 22, 2006 9:00am Oct 22, 2006 9:00am
Quoting merlin
when the actual is green it means "better for the currency". like the higher the PPI the stronger the currency becomes (theoretically, of course). sounds like you are suggesting we make it mean "better for the country"? but then we would have to debate on whether inflation is good or bad for a country
I'll go with Merlin here...green means go and red means stop-just like back in 2nd grade!
  • #11
  • Edited 9:35am Oct 22, 2006 9:09am | Edited 9:35am
Quoting merlin
how long have you been in this? did you catch that rally that was hurting my position

if the EURUSD can rally above 1.27 by tuesday that says to me dollar is rangebound for a while longer and i have to give up on this one...
I've been in this (GBP) trade since 8770-based simply on one rate not goin up vs. one that is. I'm hopin this trade stays good for another couple of days-if it does i'll be watchin the Wed London session for a sell-off prior to the FOMC.

I'm currently long AUD and NZD for the same reason, but i'll be watchin reports out of there as well, starting with tonight's AUD PPI...Actually I'll probably close before that release and then try a straddle-straddles are still workin OK in the AUD and NZ reports...of course that may change...

Actually I'm trying to poll as many financial writers (BB, Reuters etc) as I can regarding their opinion on the Fed statement...I've sent out a bunch of emails and i'll be posting some of the opinions as I get them. Here's a response I got from Thomson:

"The Committee is strongly favored to keep the Funds rate unchanged at 5.25% at Wednesday s meeting. Wording of the policy statement should be explicitly hawkish, however, and the number of dissents may rise. In addition to the Richmond Fed at the August and September meetings, the Philadelphia and Dallas Feds had asked for increases in the discount rate in August and September, respectively."

What I would love to be able to do is take a position prior to the statement being made IF I get a good reading on what they might say...my own opinion is that the statement will be hawkish. Something else that occurred to me is that since the Fed must know the core PCE number, a hawkish statement Wed. likely indicates a higher readng there...so if the statement comes out hawkish, a good chance exists that the $ will rally right up to that announcement. The opposite works as well...
  • #12
  • Oct 22, 2006 10:13am Oct 22, 2006 10:13am
Quoting abobtrader
Price indicators such as inflation are not necessarily 'good' or 'bad', as Merlin mentions. It depends on from whose perspective you are talking about.
yes i understand your point abo, but surely we can agree that, theoretically, higher inflation is "better" for the currency?

btw, i agree with you and newstrader that we could improve on this green/red scheme. i fear the suggestions you guys have made are just as complicated as our current scheme, we need something totally different i am feeling. let me do some thinking and see what i can come up with.
Relax and be happy.
  • #13
  • Oct 22, 2006 10:18am Oct 22, 2006 10:18am
Quoting NewstraderFX
I've been in this (GBP) trade since 8770-based simply on one rate not goin up vs. one that is.
good call! i was so wrapped up in my bullishness that i never considered this trade.

Quoting NewstraderFX
"The Committee is strongly favored to keep the Funds rate unchanged at 5.25% at Wednesday s meeting. Wording of the policy statement should be explicitly hawkish, however, and the number of dissents may rise. In addition to the Richmond Fed at the August and September meetings, the Philadelphia and Dallas Feds had asked for increases in the discount rate in August and September, respectively."
if the dissenters "rise", the dollar is in for one hell of a rally! lacker is the only nutcase calling for a hike now, if his camp grows then surely that will give the dollar strength.

Quoting NewstraderFX
Something else that occurred to me is that since the Fed must know the core PCE number, a hawkish statement Wed. likely indicates a higher readng there...
WOW great call here man. you really have your thinking cap going!!! if you are right, and i think you are, this makes for a butter trade pre-PCE release.
Relax and be happy.
  • #14
  • Oct 22, 2006 10:22am Oct 22, 2006 10:22am
Quoting abobtrader
but at the same itme I don't see them signalling a move to a more dovish position, which I think some market participants may be expecting.
i am one of these market participants

but even though i expect the doves to start soaring, im still holding this dollar long position for a little while longer. right now i believe the dollar can overcome the dovishness that i expect, until the price action tells me otherwise.
Relax and be happy.
  • #15
  • Oct 22, 2006 10:26am Oct 22, 2006 10:26am
Seems the sediment will be hawkish from everything I'm reading , so in the past, alot times with that in everyones minds, it seems most of the time it will correct itself after a day like friday up to and just before the annoncment. But in this crazy world of FX their is no question that its a coin toss at times.........................I would be careful with the longs.



Quoting NewstraderFX
I've been in this (GBP) trade since 8770-based simply on one rate not goin up vs. one that is. I'm hopin this trade stays good for another couple of days-if it does i'll be watchin the Wed London session for a sell-off prior to the FOMC.

I'm currently long AUD and NZD for the same reason, but i'll be watchin reports out of there as well, starting with tonight's AUD PPI...Actually I'll probably close before that release and then try a straddle-straddles are still workin OK in the AUD and NZ reports...of course that may change...

Actually I'm trying to poll as many financial writers (BB, Reuters etc) as I can regarding their opinion on the Fed statement...I've sent out a bunch of emails and i'll be posting some of the opinions as I get them. Here's a response I got from Thomson:

"The Committee is strongly favored to keep the Funds rate unchanged at 5.25% at Wednesday s meeting. Wording of the policy statement should be explicitly hawkish, however, and the number of dissents may rise. In addition to the Richmond Fed at the August and September meetings, the Philadelphia and Dallas Feds had asked for increases in the discount rate in August and September, respectively."

What I would love to be able to do is take a position prior to the statement being made IF I get a good reading on what they might say...my own opinion is that the statement will be hawkish. Something else that occurred to me is that since the Fed must know the core PCE number, a hawkish statement Wed. likely indicates a higher readng there...so if the statement comes out hawkish, a good chance exists that the $ will rally right up to that announcement. The opposite works as well...
  • #16
  • Oct 22, 2006 12:30pm Oct 22, 2006 12:30pm
Quoting merlin
yes i understand your point abo, but surely we can agree that, theoretically, higher inflation is "better" for the currency?

btw, i agree with you and newstrader that we could improve on this green/red scheme. i fear the suggestions you guys have made are just as complicated as our current scheme, we need something totally different i am feeling. let me do some thinking and see what i can come up with.
Purely theoretically, inflation is an outright negative for a currency (UIP)! Of course, reality is a different matter.
"Always bet on black"
  • #17
  • Oct 22, 2006 9:39pm Oct 22, 2006 9:39pm
Perhaps this article suggests a hawkish tone to the statement:

http://bloomberg.com/apps/news?pid=2...&refer=economy

There's just nothing out there to suggest a dovish tone to the statement that I can find...but I welcome any input regarding this...
  • #18
  • Oct 23, 2006 12:50am Oct 23, 2006 12:50am
Are we in Contrarian Trades?

The trend is very USD short vs EUR, GBP, yet many are seeing a USD bull run soon. FXCMTR is suggesting a short for GBPUSD @ 1.8846, short EURUSD @ 1.2623. Long [email protected]..... I receive almost the same from a broker:
Quote
Buy USD vs CAD at 1.1253, stoploss 1.1190. Objective 1.1350
Buy USD vs Yen at 118.61, stoploss 117.90. Objective 119.70
Sell Euro at 1.2619, stoploss 1.2718. Objective 1.2500
Sell GBP at 1.8827, stoploss 1.8910. Objective 1.8700
Buy USD vs CHF at 1.2580, stoploss 1.2500. Objective 1.2680

All pivoting around a bullish/hawkish FOMC?
  • #19
  • Oct 23, 2006 5:35am Oct 23, 2006 5:35am
From ING:

Little should change with the view that growth is “moderating” remaining in place, however, the sharp drop in energy prices and the fall in headline inflation from 3.8% to 2.1%, may lead to a more dovish interpretation of the inflation threat. Nonetheless, the Fed will be cautious about giving the green light to lower bond yields, fearing a pick-up in activity and core inflation, and is unlikely to be too effusive at this point.

While I agree with this in terms of what the Fed is broadly thinking - after all, it follows from the data we have experienced - I have difficulty seeing the Fed making any dovish comments at this stage. Of course, if we do see a dovish angle, it will surely be offset about concerns regarding core inflation. So, is the energy component going to make trading the Fed report as difficult as it has made trading the economic data? Quite possibly.
"Always bet on black"
  • #20
  • Oct 23, 2006 6:58am Oct 23, 2006 6:58am
Commerzbank Daily currency breifing:


The EUR view:

Ahead of the FOMC meeting, a 1.2525-1.2720 range is

likely to prevail in EUR/USD, with positions being squared going into the

meeting. Should the Fed signal more concerns on the economy than

inflation, rate cut expectations will be fueled again and hurt the dollar.

However, so far inflation seems the main concern of the Fed, with CPI and

PPI core rates edging higher, leaving less room for a change of wording.

While that may add some support to the dollar, the FX market will need to

fell confident growth is not at risk. Indeed, with other data this week

including existing and new home sales, which should continue to reflect the

slowing of the US housing market, the dollar may well take a hawkish Fed

more negatively. Later in the week, US Q3 GDP will clearly indicate the

economy is slowing from Q2. Overall, probably not a positive mix for the

dollar, but 1.2720/50 should prove strong resistance for now.
Profit is where readiness meets Opportunity
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