In Forex, and specially to this pair, now a days Technical Predicting for next Move in Semi-Long Term is just waste of time. However, I find enough sign here which I was expecting from last two days and could not be better more. Peace.
- #56,621
- Sep 27, 2012 6:04pm Sep 27, 2012 6:04pm
- Joined Oct 2009 | Status: Whn Market Warms u..U keep it Kool | 6,578 Posts
- #56,626
- Edited 3:53am Sep 28, 2012 1:02am | Edited 3:53am
- Joined Aug 2008 | Status: Persist Until Something Happens | 17,898 Posts
Good morning fellow traders.
Not only is today Friday, but it is also the last trading session of the month of September and also the last trading session of the third quarter. As such, on top of any possible impact from today's economic data releases and the results of the anticipated Spanish bank stress tests, we get the added volatility usually associated with month and quarter end flows.
So, what are month and quarter end flows and how do they impact the currency markets? That is a very straightforward question, but unfortunately the answer is not equally straightforward. I will however attempt to answer this from one of the many perspectives and underlying drivers of this phenomenon. The perspective I am about to try and explain will probably be today's biggest driver.
It's all about hedging risk. Assuming I am a huge fund manager (I wish) based in Frankfurt (Or Madrid if you wish), my home currency is Euros. Now assume that on top of my holdings in the European markets, I also have US investments in both cash and equities. These US holdings are hedged against currency exchange fluctuation risk via my holdings in European and other international markets. The reason I have to hedge these holdings is that if my US equities increased in value by 10% and at the same time the US Dollar loses 2% against the Euro, my effective gains in my home currency (Euros) on my US holdings is reduced by 2% for a total gain of 8% (instead of 10%). Worse yet, if the Euro gains 10% on the USD, all my gains in my US equity holdings are wiped out. So, the way I would hedge against that risk is to balance the hedge and the way to do that is to sell some of my US cash holdings. I'm not going to get into the methods (outright cash transactions, Puts on futures or options contracts etc) or calculations (mind boggling stuff) on how this is done, but this should give you an idea of why this happens.
In this quarter (1st July to 30th September), not only have the US equity markets made significant gains, but the US Dollar (thanks in major part to Ben Bernanke and his merry men) has significantly depreciated. Therefore under those conditions, it stands to reason that there will be much USD selling across the board today as fund managers and major banks re-hedge their currency risks. Mind you it does not automatically mean that the E/U pair will definitely rally today because other economic or political events may cause some risk aversion and/or after all the gains we have seen in equity, some managers and banks may decide to take some profit off the table as opposed to hedging their current holdings. If that happens, expect to see very choppy markets today. However, if we get the re-hedge and a risk-on environment, the most likely outcome will be a Euro rally (or rather a USD bashing)
From a technical perspective, there are two events I am watching that may support a rally in this pair today and into Monday. The first one is the fact that the down trend line was breached yesterday on optimism surrounding the Spanish economic reforms announced yesterday in their 2013 budget. The second is the fact that the daily charts are showing a MacD bullish hidden divergence which needs to be relieved before the next leg down.
Taking all the above into consideration, it is quite likely that today we will see the Euro retrace upwards into the mid 1.30xx to low 1.31xx area before a continuation downward into next week. This should give the bears an opportunity to add fresh short positions at a better price which will carve out a new lower top into Monday for a resumption of the eventual move down towards the 2012 lows before the end of the year.
Keep in mind that the results of the Spanish bank stress test are going to be key here. If there is an indication that the banks are in worse shape than anticipated, all bets are off as risk-aversion will most likely set in hard. That being said, my suspision is that the results will be fudged so as to not cause market panic.
As always, be well and trade safe.
Pete Jackson's Order Board:
EUR/USD: Offers from 1.2960 layered up to 1.3000, but buy stops mixed in through 1.2975. Bids 1.2880/1.2900, sell stops through 1.2875 ahead of bids again 1.2850/60, sell stops below. Tech support below (200 day MA 1.2825), through 1.2820 ahead of more bids 1.2800/10 Sell stops through 1.2800 ahead of more bids 1.2785/95
Today's FX Option Expiries @ 14:00 GMT:
EUR/USD: 1.2800, 1.2875, 1.2890, 1.2910, 1.3000
E/U H1
E/U Daily
Not only is today Friday, but it is also the last trading session of the month of September and also the last trading session of the third quarter. As such, on top of any possible impact from today's economic data releases and the results of the anticipated Spanish bank stress tests, we get the added volatility usually associated with month and quarter end flows.
So, what are month and quarter end flows and how do they impact the currency markets? That is a very straightforward question, but unfortunately the answer is not equally straightforward. I will however attempt to answer this from one of the many perspectives and underlying drivers of this phenomenon. The perspective I am about to try and explain will probably be today's biggest driver.
It's all about hedging risk. Assuming I am a huge fund manager (I wish) based in Frankfurt (Or Madrid if you wish), my home currency is Euros. Now assume that on top of my holdings in the European markets, I also have US investments in both cash and equities. These US holdings are hedged against currency exchange fluctuation risk via my holdings in European and other international markets. The reason I have to hedge these holdings is that if my US equities increased in value by 10% and at the same time the US Dollar loses 2% against the Euro, my effective gains in my home currency (Euros) on my US holdings is reduced by 2% for a total gain of 8% (instead of 10%). Worse yet, if the Euro gains 10% on the USD, all my gains in my US equity holdings are wiped out. So, the way I would hedge against that risk is to balance the hedge and the way to do that is to sell some of my US cash holdings. I'm not going to get into the methods (outright cash transactions, Puts on futures or options contracts etc) or calculations (mind boggling stuff) on how this is done, but this should give you an idea of why this happens.
In this quarter (1st July to 30th September), not only have the US equity markets made significant gains, but the US Dollar (thanks in major part to Ben Bernanke and his merry men) has significantly depreciated. Therefore under those conditions, it stands to reason that there will be much USD selling across the board today as fund managers and major banks re-hedge their currency risks. Mind you it does not automatically mean that the E/U pair will definitely rally today because other economic or political events may cause some risk aversion and/or after all the gains we have seen in equity, some managers and banks may decide to take some profit off the table as opposed to hedging their current holdings. If that happens, expect to see very choppy markets today. However, if we get the re-hedge and a risk-on environment, the most likely outcome will be a Euro rally (or rather a USD bashing)
From a technical perspective, there are two events I am watching that may support a rally in this pair today and into Monday. The first one is the fact that the down trend line was breached yesterday on optimism surrounding the Spanish economic reforms announced yesterday in their 2013 budget. The second is the fact that the daily charts are showing a MacD bullish hidden divergence which needs to be relieved before the next leg down.
Taking all the above into consideration, it is quite likely that today we will see the Euro retrace upwards into the mid 1.30xx to low 1.31xx area before a continuation downward into next week. This should give the bears an opportunity to add fresh short positions at a better price which will carve out a new lower top into Monday for a resumption of the eventual move down towards the 2012 lows before the end of the year.
Keep in mind that the results of the Spanish bank stress test are going to be key here. If there is an indication that the banks are in worse shape than anticipated, all bets are off as risk-aversion will most likely set in hard. That being said, my suspision is that the results will be fudged so as to not cause market panic.
As always, be well and trade safe.
Pete Jackson's Order Board:
EUR/USD: Offers from 1.2960 layered up to 1.3000, but buy stops mixed in through 1.2975. Bids 1.2880/1.2900, sell stops through 1.2875 ahead of bids again 1.2850/60, sell stops below. Tech support below (200 day MA 1.2825), through 1.2820 ahead of more bids 1.2800/10 Sell stops through 1.2800 ahead of more bids 1.2785/95
Today's FX Option Expiries @ 14:00 GMT:
EUR/USD: 1.2800, 1.2875, 1.2890, 1.2910, 1.3000
E/U H1
E/U Daily
Those who say it cannot be done should not interrupt those who are doing it
- #56,627
- Edited 3:20am Sep 28, 2012 1:15am | Edited 3:20am
- Joined Jun 2012 | Status: ケンジ | 21,416 Posts
I will just put it here and if it still makes sense when I wake up. Oh good morning to you PT 
I agree technical analysis is important to determine the next supply and demand zone from historical data and swings but, always got caught with the pants down if not supported by fundamentals.
My overall short-term bias now is based on USDX and Market Sentiment. I can not watch too many screens at the same time without confusing myself overwhelmed by visual data so the above is good enough with major pairs such as AUD/USD, GBP/USD and USD/JPY.
It's easier to see a certain pair such as EUR rally is gaining strength or because of USD weakness. The recent gain is USD weakness by comparing the chart with other major pairs. It is also easier to see the correlation if the pair is moving to fill sell/buy orders or USD strength/weakness. The move to fill orders is normally not followed by other pairs at the same time. The tricky part is EUR can move USD as it is the most weighted currency against USD.
The above will keep me away from my wildest imagination 'conspiracy'
CAD is pretty simple. Starting few months back, CAD will rally in sentiment positive environment Risk-On as Crude rally. It will also rally in Risk-Off where the money flows to safe haven CAD. So either ways, CAD wins and I lose 
Expect to see USD/CAD at parity if Crude can stay below $85.
I agree technical analysis is important to determine the next supply and demand zone from historical data and swings but, always got caught with the pants down if not supported by fundamentals.
My overall short-term bias now is based on USDX and Market Sentiment. I can not watch too many screens at the same time without confusing myself overwhelmed by visual data so the above is good enough with major pairs such as AUD/USD, GBP/USD and USD/JPY.
It's easier to see a certain pair such as EUR rally is gaining strength or because of USD weakness. The recent gain is USD weakness by comparing the chart with other major pairs. It is also easier to see the correlation if the pair is moving to fill sell/buy orders or USD strength/weakness. The move to fill orders is normally not followed by other pairs at the same time. The tricky part is EUR can move USD as it is the most weighted currency against USD.
The above will keep me away from my wildest imagination 'conspiracy'
CAD is pretty simple. Starting few months back, CAD will rally in sentiment positive environment Risk-On as Crude rally. It will also rally in Risk-Off where the money flows to safe haven CAD. So either ways, CAD wins
and I lose Expect to see USD/CAD at parity if Crude can stay below $85. - #56,628
- Sep 28, 2012 1:40am Sep 28, 2012 1:40am
- Joined Aug 2008 | Status: Persist Until Something Happens | 17,898 Posts
I will just put it here and if it still makes sense when I wake up. Oh good morning to you PT
I agree technical analysis is important to determine the next supply and demand zone from historical data and swings but, always got caught with the pants down if not supported by fundamentals.
My overall short-term bias now is based on USDX and Market Sentiment. I can not watch too many screens at the same time without confusing myself overwhelmed by visual data so the above is good enough...
Inserted Video
Those who say it cannot be done should not interrupt those who are doing it
- #56,630
- Edited 2:15am Sep 28, 2012 1:57am | Edited 2:15am
- Joined Apr 2007 | Status: Trader | 1,522 Posts
- #56,632
- Edited 2:43am Sep 28, 2012 2:25am | Edited 2:43am
- Joined Aug 2008 | Status: Persist Until Something Happens | 17,898 Posts
Those who say it cannot be done should not interrupt those who are doing it
- #56,634
- Sep 28, 2012 2:34am Sep 28, 2012 2:34am
- Joined Aug 2008 | Status: Persist Until Something Happens | 17,898 Posts
Can you explain why it should be usd negative when stock have been up overall this quarter and the dollar down for the quarter ?
When i look at the previous end of quarter (Friday, 29th June, 2012) trading day i see the exact opposite happening - overall stocks down for the quarter, dollar up and a complete reversal in dollar for that day (dollar bashing). Today's environment is the exact opposite, so all other things equal, shouldn't be see some dollar strength ?
What's more, wouldn't it make more sense that in quarter ends many directional...
It's very hard to nail down exactly how month and quarter end flows will unfold because we don't have access to all the specific trading data for the month/quarter that will give us a proper calculation. If we did, then everybody would know for sure what was going to happen and therefore Month/quarter end wouldn't exist because it would be adjusted on a daily basis in speculation of what was to come.
As for your statement about the Q2 flows, perhaps it is because the US equities lost less than the European and Asian markets, making US equities the gainers in relative terms. It all depends on who the major players are and where they are domiciled. This quarter it was very clear that US equities significantly outperformed both Europe and Asia. As such I expect the reaction to be the same this time... Dollar bashing.
Hey, I could be dead wrong on this. In fact I hope so, because if it is the case we can get right down to the business of sending this pair straight to hell... where it rightfully belongs.
Those who say it cannot be done should not interrupt those who are doing it
- #56,635
- Sep 28, 2012 2:37am Sep 28, 2012 2:37am
- Joined Apr 2007 | Status: Trader | 1,522 Posts
Hey, I could be dead wrong on this. In fact I hope so, because if it is the case we can get right down to the business of sending this pair straight to hell... where it rightfully belongs.
- #56,636
- Sep 28, 2012 2:38am Sep 28, 2012 2:38am
- Joined Oct 2009 | Status: Whn Market Warms u..U keep it Kool | 6,578 Posts
- #56,638
- Sep 28, 2012 2:40am Sep 28, 2012 2:40am
- Joined Aug 2008 | Status: Persist Until Something Happens | 17,898 Posts
Emmmm. Is that a hint? 
Those who say it cannot be done should not interrupt those who are doing it
- #56,639
- Sep 28, 2012 2:57am Sep 28, 2012 2:57am
- Joined Jun 2012 | Status: ケンジ | 21,416 Posts
too mean, bro...too mean
- #56,640
- Sep 28, 2012 2:58am Sep 28, 2012 2:58am
- Joined Apr 2007 | Status: Trader | 1,522 Posts
Yet to see what is cruelty.