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$ For The Week of 11/6-With Trade Ideas

  • #1
  • First Post: Edited 11:19am Nov 4, 2006 10:37am | Edited 11:19am
Where does the $ go from here?


My opinion? Now is the perfect time when you need to sit back and see how all this NFP stuff is gonna work out and how the market is gonna be interpeting it. Yes I know the $ gained yesterday, but I'm not so sure we've seen the final "judgement".

The market has thrown out the validity of the monthly number; it's reacting strictly off the revisions. My question is that if the monthly number is so bad, are the revised numbers really any better? Just because the BLS has had more time to work on them? I'm not so sure and at this point, until I see further market reaction i'm not sure that the various markets (bonds, currencies, equities) feels certain either.

What should you do as a person trading the currency market? Research. Follow up on BB, Reuters the NY Times and everywhere else you can. Do the due diligence. Watch the bond market, especially the 3 month and 10 yr notes carefully. Most importantly, watch the Sunday open.


Remember that people vote with their "$'s". If the $ strengthens further (to the lower 8700's vs the GBP, about where it was prior the the last FOMC), that tells me the market firmly believes in these numbers. If it stays relatively the same, that tells me that there is serious doubt and if it starts to weaken, that tells me that more and more people in the markets don't really believe in the NFP numbers the gov't is putting out.


I know there are plenty of technical indicators that say the $ is still overbought and it is, if the NFP numbers are correct. I'm just not so sure that they are and i'm not sure are how the eventual thinking is gonna play out. But i'm not trading in this enviorment until I see a clear-cut move one way or the other. If you have a clear technical indicator and a faith in the NFP numbers, maybe you have a good set-up for shorting the pound.

Remember that unemployment (according to the BLS) and the GDP are at very low levels. That means more and more workers are out-putting less and less goods and services.

From Reuter's: Analysts said the jobs data adds to confusion about the economy's direction, since it comes just a week after the government reported the weakest expansion in more than three years in the third quarter. Gross domestic product slowed to a 1.6 percent annual rate of growth from 2.6 percent in the second quarter.

If all the numbers are correct, that situation can't last for very long. Let's see what happens.
  • #2
  • Nov 5, 2006 12:53am Nov 5, 2006 12:53am
Contradicting numbers huh?

Is low GDP correct?
Is low unemployment correct?
Is high NFP correct? (last 3 months were revised WAY high!)
Is high labor cost correct?
Is low productivity correct?

IF i were to buy the numbers here is what I would interpret them:
US is hiring expensive lazy workers!
And that should be bad for the US economy!

I wont trade GBPUSD on monday. Its a wait and see how Asia and London would react without US trader's interference. I personally prefer to short USD vs GBP in light of the expected UK rate Hike come Nov 8. But hmmm... US Election is another factor.
  • #3
  • Nov 5, 2006 1:20am Nov 5, 2006 1:20am
How is bond price related to USD? If 10 year note down, that means USD bond is cheaper, more people buy bonds? Then cause USD to trend up?
  • #4
  • Nov 5, 2006 10:33am Nov 5, 2006 10:33am
I've changed my mind on trading in this enviorment. I think now could be an excellent time to trade, but it should be based on the market's perception of what the NFP numbers really mean. The thing to do is to watch the markets first, then trade accordingly.

If the market believes in the numbers, further $ buying will be seen and there could be 100-150 pips of buying in this case, down to or close to where the GBP was at the FOMC.

If the market does not believe in the numbers, with the GBP rate incr an apparent certainty, we could see the GBP up close to the recent resistance levels in the lower 9100's.

My suggestion would be to watch the open today and see what the market thinking is. I would be thinking about a 25 pip "mental stradddle"-let the price move 25 pips either way, take a small position with the trend and perhaps add to it as the trend gets established.

I think the 2 best pairs to follow are the GBP/USD and AUD/USD-based on the fact that both the GBP and AUD are tipped to be raising their rates this week and that the $ strengthened into that on friday. I personally don't follow the Yen, but it's definately a good idea to watch how Asian traders feel about things.

There isn't very much US data this week. The Trade Bal will probably be the most significant US number, but that's not until the 9th. The interplay between the NFP and the GBP/AUD interest rate increases should be very interesting.
  • #5
  • Edited 8:04am Nov 6, 2006 6:49am | Edited 8:04am
London Calling

Some early buying of the GBP was not sustained in London this morning and a "mental straddle" of 25 pips or so should have gotten you about 15-20 pips/profit. It was worth watching as the potential for a large movement was there (considering the strength of the NFP revisions), but that didn't happen.

A stronger $ trend may be brewing. I tend to think that NY will basically follow London's lead on the GBP, but I don't really see a huge amount of movement for today either way absent any surprise fundamentals. If you see it differently you're seeing something I can't, so it'll be a quiet day of watching for me. Don't neglect watching the bond markets, especially the 3 month and 10 yr notes to see how the thinking is there. Perhaps this will be of some help: ``We're in a range where it doesn't make sense to make big bets,'' said Webman of OppenheimerFunds. ``We're kind of neutral.''

Full article:http://bloomberg.com/apps/news?pid=2...1YA&refer=home

We had some basically flat production info from the UK. This weeks BoE rate incr was likely traded already and traders may actually be paring their bets for a 2nd B0E rate incr. You just have to watch it as the data unfolds. Here's some data that should be very interesting:

Manufacturing Unexpectedly Stagnated in September as Pound Hurts Exports U.K. manufacturing production unexpectedly stagnated in September as a U.S. slowdown and a strengthening pound eroded overseas sales of goods such as electrical parts.

Most traders look at support and resistance levels, but you need an understanding of the fundamentals to gain insight as to why those levels may be there. The fundamental law of supply and demand always holds; A free market will always price goods and services according to what the demand will bear. Conversely, if demand had still continued to pick up as the pound rose, it's likely those resistance levels would have been broken, but that didn't happen. Demand slowed and the price of the pound was not allowed to appreciate further.
  • #6
  • Nov 6, 2006 7:45am Nov 6, 2006 7:45am
Moskow is spreadin' a little dollar love.
Profit is where readiness meets Opportunity
  • #7
  • Nov 6, 2006 7:58am Nov 6, 2006 7:58am
Quoting FXopportunist
Moskow is spreadin' a little dollar love.
he must have started to spread the love about 30 minutes after he started to speak ? thats when the currencies started to see it
Ghost Swoopen in for my pips while no one is lookin !!
  • #8
  • Nov 6, 2006 8:07am Nov 6, 2006 8:07am
Quoting Ghostpipper
he must have started to spread the love about 30 minutes after he started to speak ? thats when the currencies started to see it
LOL, he said further increases may be needed. So far, the market has not cared.
Profit is where readiness meets Opportunity
  • #9
  • Nov 6, 2006 8:16am Nov 6, 2006 8:16am
Quoting NewstraderFX
London Calling

Some early buying of the GBP was not sustained in London this morning and a "mental straddle" of 25 pips or so should have gotten you about 15-20 pips/profit. It was worth watching as the potential for a large movement was there (considering the strength of the NFP revisions), but that didn't happen.

A stronger $ trend may be brewing. I tend to think that NY will basically follow London's lead on the GBP, but I don't really see a huge amount of movement for today either way absent any surprise fundamentals. If you see it differently you're seeing something I can't, so it'll be a quiet day of watching for me. Don't neglect watching the bond markets, especially the 3 month and 10 yr notes to see how the thinking is there. Perhaps this will be of some help: ``We're in a range where it doesn't make sense to make big bets,'' said Webman of OppenheimerFunds. ``We're kind of neutral.''

Full article:http://bloomberg.com/apps/news?pid=2...1YA&refer=home

We had some basically flat production info from the UK. This weeks BoE rate incr was likely traded already and traders may actually be paring their bets for a 2nd B0E rate incr. You just have to watch it as the data unfolds. Here's some data that should be very interesting:

Manufacturing Unexpectedly Stagnated in September as Pound Hurts Exports U.K. manufacturing production unexpectedly stagnated in September as a U.S. slowdown and a strengthening pound eroded overseas sales of goods such as electrical parts.

Most traders look at support and resistance levels, but you need an understanding of the fundamentals to gain insight as to why those levels may be there. The fundamental law of supply and demand always holds; A free market will always price goods and services according to what the demand will bear. Conversely, if demand had still continued to pick up as the pound rose, it's likely those resistance levels would have been broken, but that didn't happen. Demand slowed and the price of the pound was not allowed to appreciate further.

I went short yesterday evening on the pound, and closed @ 1.8960 where i went long...
But I see a stubborn quantity of short traders trying to catch any up move to resell again...
I think the downtrend is not exhausted
But I wonder : is the UK interest hike already priced in ?....
a good US payroll revision and ism...is just a good way to change the mood for buying $, but I still believe US economy is not getting better at the moment..

is a 150k revision something possible ?
  • #10
  • Nov 6, 2006 8:40am Nov 6, 2006 8:40am
My opinion is that this week's BoE incr has been traded back and forth several times already. The trading now will hinge around expectations for the meeting after that. Of course, a big surprise either way (incr by 50 basis points or no incr at all) will send the GBP spinning off into new territory. I will definately be watching the announcement, but only trade off a surprise.

If the pound is sitting about where it is now and the B0E doesn't raise, a 150-200 pip sell off could be seen. In the unlikely event of a 50 basis point incr-those upper 9000 to lower 9100 resistance levels could get shattered. Again, these movements are not what the market expects, but it doesn't cost me anything to watch and see what happens so why not do it? There could be an excellent trade there...

Just as an experiment-let's watch the EURO. It peaked in London at about 2715 and is now (9.45 EST) about at that level in NY. Let's see if the same thing happens again.
  • #11
  • Nov 6, 2006 9:05am Nov 6, 2006 9:05am
A trader interview on bloomberg just stated that money is coming out of bonds and into equities. What do you serious fundemental guys think this means for the dollar?
Profit is where readiness meets Opportunity
  • #12
  • Nov 6, 2006 9:37am Nov 6, 2006 9:37am
Quoting FXopportunist
A trader interview on bloomberg just stated that money is coming out of bonds and into equities. What do you serious fundemental guys think this means for the dollar?
I think what it means is that investors see more profit potential in equities then in bonds. Doesn't necessarily mean that equities are goin up though-traders can make bets either way...
  • #13
  • Nov 6, 2006 9:44am Nov 6, 2006 9:44am
I wonder how much of that money is Johnny come late to the party guys excited by the dows perfoprmance
Profit is where readiness meets Opportunity
  • #14
  • Nov 6, 2006 10:01am Nov 6, 2006 10:01am
Quoting FXopportunist
I wonder how much of that money is Johnny come late to the party guys excited by the dows perfoprmance
I don't trade these markets myself-but I plan to in the future. There's just nothin gonna happen in currencies today. The action is in equities and indexes. If you're lookin to make a buck trading, it's not gonna happen in forex today.

If you're looking for numbers to hang your hat on-perhaps $70 oil is an important number:

EU Raises 2007 Growth Forecast, Cuts Inflation Prediction to 2.1 Percent The European Commission raised its forecast for economic growth next year and cut its inflation prediction as oil prices hold below $70 a barrel in the dozen nations sharing the euro.

Now I really don't plan on missin that BoE announcement-maybe I'll get very lucky there...
  • #15
  • Nov 6, 2006 3:16pm Nov 6, 2006 3:16pm
Are we seeing the "Revenge of the Dollar"?
  • #16
  • Nov 6, 2006 5:34pm Nov 6, 2006 5:34pm
From my B0E thread-

The NIESR has a GDP estimate to be released @ 19.01 EST-it will probably be the last word on this week's and the nest B0E rate policy. It could be a good report to trade. It's estimated to come out .5% MoM basis-a reading above this might really stimulate some GBP buying. The Sept reading was .4% MoM
  • #17
  • Edited 9:04am Nov 7, 2006 7:48am | Edited 9:04am
There's always a New Reality in Play

Yeah, that's right. I was in a small short position in the GBP, based on the fact that it closed lower then it opened. I was thinking traders might be discounting the possibility of a 2nd BoE hike. There was some negative UK data and an article in BB saying how a higher pound had hurt their exports. Then things changed.

The new reality set in. The NIESR said growing GDP and a 2nd hike. That's the new thinking. That's how fast things change. Close out the short position and get long. Don't get your feelings hurt because u took a position and it went against you. Don't sit around moping and feeling sorry for yourself, cursing your luck or the "trading gods" who always seem to be against you. There's always a new reality and another trade. The tide turns so turn with it.

How might you want to trade the GBP?USD from here? Well I could get all technical on you and talk about "support" and repeating patterns-but I don't know much about any of that so I won't. I trade off the fundamentals and how the market percieves them. Right now London traders feel very certain that early next year, the BoE will raise the rate to 5.25.

We do have the mid term elections to get thru. Personally, I plan to stay on the sidelines thru that.

Once the election fall out passes (if there is any) I would look for a 30-50 point sell off in the GBP. I said look and not trade-I'm not predicting this will happen. I'm only noting that I've seen this pattern repeat over and over in the last 2 weeks or so. If a sell off to this level is seen, I think there's an excellent chance London will buy again, but that of course depends on the present fundamentals (2 BoE rate increases and no significant US data) holding. If the sell off occurs and the fundamentals hold, that sell off represents an excellent chance to get long in the pound again.

If no sell-off occurs and London continues to buy...you may want to think about buying right along with them.

I can't think of a better time to be a bull-you have one currency who's rate is going up 2 times and on that isn't going up at all-

http://www.bloomberg.com/apps/news?p...LTM&refer=home
  • #18
  • Nov 7, 2006 8:20am Nov 7, 2006 8:20am
Update: Bloomberg Fed Watcher, Berry, notes in an article today, citing an analysis by Stone and McCarthy Research Associates, that most of the 810,000 workers that were added as upward revisions to payrolls in Sept. for the period March '05 to March '06 appeared on payrolls in the first three months of the year and many in three states, California, Texas and Louisiana - Stone and McCarthy argues that many of the 810,000 workers were foreign-born and probably had been working all along.

- Stone and McCarthy said that policymakers should be very cautiouis in interpreting almost all this year's labor market data

11/07/2006 09:17:13
These too shall pass away.
  • #19
  • Edited 9:11am Nov 7, 2006 8:51am | Edited 9:11am
I agree with what your sayng-these BLS numbers are, at best, incompetent and at the worst, a deliberate manipulation of the numbers. For whatever reason, the market has totally thrown them out-as well they should have.

Wow the GBP and EURO have gone thru the ROOF!! Way past where they were prior to the NFP-hitting GBP resistance levels in the low 9100's. Amazing...

Here's some info on how the markets may be seeing the elections:

From BB:
The dollar may extend losses before congressional elections today in which the Democrats may take control of one or both houses from the ruling Republicans, said some analysts.

Democrats need a net gain of 15 seats in the 435-member House, and six seats in the 100-member Senate, to win majorities. They last controlled the House in 1994, and the Senate in 2002.

``If the Democrats do gain control in both houses there's the risk of rising protectionism,'' said Gavin Friend, a currency strategist at Commerzbank AG in London. ``That certainly could be dollar-negative.''

Further $- fundamentals: Companies that build houses are reporting losses and are projecting a further housing slump. This is pretty much what the Fed wants-so everything seems to be pointing to the Fed holding...if not cutting...
  • #20
  • Nov 7, 2006 9:23am Nov 7, 2006 9:23am
well what i feared the most has just taken place kinda expected it would happen once we got down to 8950, we are back to the previous crap zone... lol enjoy...
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