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  • #221
  • Oct 21, 2013 2:18am Oct 21, 2013 2:18am
Quoting PipTrapper
{quote} {quote} Venzen and Numbnuts, I though you might be interested in the HSBC view on the current market trend drivers. In a nutshell, their view is that RoRo for the most part is diminished and instead is being replaced with the Carry Trade of Pre 2008 (For G10) and the Balance of Payments paradigm (For EM). I found the analysis very interesting and eye opening. I'm not a big fan of HSBC's projections, but I think their view on market paradigms is bang on. Here it is. Enjoy. {image}
An interesting read, thanks for that. I agree with HSBC's take on how and why each market paradigm works the way it does - but creating three groups and then lumping each currency into a specific "bucket" I think is oversimplifying things. I tend to think that each currency has unique characteristics, influenced to differing degrees at different times by all three market paradigms mentioned. Categorizing currencies into buckets A, B and C is an attempt to impose artificial constructs on the market, to 'dumb down' a very complex subject to a level the reader can grasp and understand. Still very educational though - most analysts medium/long range forecasts are bullish euro and GBP, bearish JPY - it is always good to read an intelligent case for the opposite.
si hoc legere scis nimium eruditionis habes
  • #222
  • Oct 21, 2013 2:50am Oct 21, 2013 2:50am
I am struggling for direction this week - it seems every currency gives me as many reasons to buy as to sell.

USD - Definitely trending down, and likely to continue down as capital flows once again after US govt hit the calm button. Investors pouring back into stocks, bonds and commodities invariably push USD down as it is almost always on the other side of their trades. What concerns me is SPX500. It is hitting an upper trendline and volatility is increasing, meaning a retracement is highly likely. If SPX does retrace this week it is likely to stall USD's decline.

JPY, similar to USD, is also bearish on investment flows - but can also rally if equities pull back.
EUR and GBP are both fundamentally bullish in the near term but are both close to strong resistance in the form of two year highs.
AUD seems to be going from strength to strength, and trading above support indicating a good level to buy, but Glenn Stevens' speech on Friday was very bearish. RBA wants the aussie dollar lower, and I have no doubt it will slash interest rates if it doesn't start dropping by itself. It wont do much this week though, next week some speculation of a rate cut might start creeping in.

I will buy a small amount of A/U if it retraces towards its support at 0.9525, but will be out of it by the end of the week.

What I am hoping for in the medium term is G/U to clear its resistance at 1.6300, then retrace and use the level as support. By this time it will be back in the lower part of its trend channel. By the time this plays out, SPX will hopefully have completed its pullback and be ready for the next rally, leaving me with an ideal G/U long opportunity.
Attached Image(s) (click to enlarge)
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si hoc legere scis nimium eruditionis habes
  • #223
  • Oct 21, 2013 4:23am Oct 21, 2013 4:23am
Quoting numbnuts
I am struggling for direction this week - it seems every currency gives me as many reasons to buy as to sell. USD - Definitely trending down, and likely to continue down as capital flows once again after US govt hit the calm button. Investors pouring back into stocks, bonds and commodities invariably push USD down as it is almost always on the other side of their trades. What concerns me is SPX500. It is hitting an upper trendline and volatility is increasing, meaning a retracement is highly likely. If SPX does retrace this week it is likely to...

hi numbnuts,

the way you lay out the inter-relations is logical and a welcome correlation refresher!

a question: you're looking to long GU despite the case for weakening made in the HSBC document?

I think the GU could continue rallying but it is on thin ice given the pressure on BoE to raise rates. Eventually they will have to. Perhaps you are planning to complete your trade in the interim?
cryptocurrency everytime
  • #224
  • Oct 21, 2013 4:26am Oct 21, 2013 4:26am
Quoting numbnuts
{quote} An interesting read, thanks for that. I agree with HSBC's take on how and why each market paradigm works the way it does - but creating three groups and then lumping each currency into a specific "bucket" I think is oversimplifying things. I tend to think that each currency has unique characteristics, influenced to differing degrees at different times by all three market paradigms mentioned. Categorizing currencies into buckets A, B and C is an attempt to impose artificial constructs on the market, to 'dumb down' a very complex subject...

As you say, every framework is an over-simplification, but this helped me better understand the macro-economic dynamics pertaining to forex. I had been trading for several years before comprehending RoRo, so at least now I'm in with the "in" thing while it's "in"!

And, yes, discretion should be applied, since the buckets A,B and C are not hermetically isolated.

Good read.
cryptocurrency everytime
  • #225
  • Oct 21, 2013 6:16am Oct 21, 2013 6:16am
Quoting numbnuts
{quote} An interesting read, thanks for that. I agree with HSBC's take on how and why each market paradigm works the way it does - but creating three groups and then lumping each currency into a specific "bucket" I think is oversimplifying things. I tend to think that each currency has unique characteristics, influenced to differing degrees at different times by all three market paradigms mentioned. Categorizing currencies into buckets A, B and C is an attempt to impose artificial constructs on the market, to 'dumb down' a very complex subject...
Although I agree that HSBC laid it out in such a way that it appears to over-simplify the different market behaviour paradigms, if you read between the lines, it is not that hard to realize that they were in fact implying the dominant paradigm rather than suggesting that certain currencies belong to one particular paradigm exclusively... or at least that is how I read it.
Those who say it cannot be done should not interrupt those who are doing it
  • #226
  • Oct 21, 2013 2:37pm Oct 21, 2013 2:37pm
I'm short USD for the short/medium term. I suspect credit agencies will have to react to the recent debacle in the coming weeks resulting in a downgrade to US debt and dollar confidence.

Quoting numbnuts
I am struggling for direction this week - it seems every currency gives me as many reasons to buy as to sell. USD - Definitely trending down, and likely to continue down as capital flows once again after US govt hit the calm button. Investors pouring back into stocks, bonds and commodities invariably push USD down as it is almost always on the other side of their trades. What concerns me is SPX500. It is hitting an upper trendline and volatility is increasing, meaning a retracement is highly likely. If SPX does retrace this week it is likely to...
  • #227
  • Oct 21, 2013 3:20pm Oct 21, 2013 3:20pm
Quoting TranceTrader
I'm short USD for the short/medium term. I suspect credit agencies will have to react to the recent debacle in the coming weeks resulting in a downgrade to US debt and dollar confidence. {quote}
The last time US paper was downgraded, the dollar rallied. I'm not saying anyone should be dollar bullish in the short term. I'm just saying that if the USD falls further, it would not be due to any downgrade, but rather due to a bid on risk assets caused by weaker than expected US economic data which would compel the Fed to keep printing. Such outflows into risk (in search for yield) would probably be to the benefit of emerging market currencies (primarily) and other G10 currencies (secondarily)
Those who say it cannot be done should not interrupt those who are doing it
  • #228
  • Oct 21, 2013 3:39pm Oct 21, 2013 3:39pm
Quoting PipTrapper
{quote} The last time US paper was downgraded, the dollar rallied. I'm not saying anyone should be dollar bullish in the short term. I'm just saying that if the USD falls further, it would not be due to any downgrade, but rather due to a bid on risk assets caused by weaker than expected US economic data which would compel the Fed to keep printing. Such outflows into risk (in search for yield) would probably be to the benefit of emerging market currencies (primarily) and other G10 currencies (secondarily)
A downgrade would result in higher yields (more risk). As Decemeber/Janurary hits and the debt ceiling is remembered with round 2 looming, it should compound the bearish sentiment and signal the start of the worst for the USD to then pick up going into 2014 when the Christmas & New Year seasons earnings are redistributed.
  • #229
  • Edited 4:29pm Oct 21, 2013 4:09pm | Edited 4:29pm
Quoting TranceTrader
{quote} A downgrade would result in higher yields (more risk). As Decemeber/Janurary hits and the debt ceiling is remembered with round 2 looming, it should compound the bearish sentiment and signal the start of the worst for the USD to then pick up going into 2014 when the Christmas & New Year seasons earnings are redistributed.
The US will not default and the market knows it, so it is not seen as a risk.

The risk is in whether or not the Fed will taper in December or in Q1 2014 and that is all data driven.

The US Republicans have shown that their threat to cause a default is just that... an empty threat and was only done in the spirit of political grandstanding. This way when the Tea Party constituents scream "Why didn't you manage to get rid of ObamaCare", they can say "Hey... we put up a good fight, but we lost"

It was quite obvious in the price action that the market did not believe the US would default, and in round 2, it will be even more obvious.

I posted this on October 15th and nothing has changed since then.

Quoting PipTrapper
{quote} Why assume that the US is going to default? That is the least likely scenario. By now we should all know that politicians exhibit more drama than bored insecure housewives. This is all political brinkmanship... like spoiled kids protesting because they don't want to go to sleep while it is still daylight outside, only to fall asleep on the sofa before sunset anyway. There will be no US default... just like there was no Italian government collapse... just like there was no attack against Syria... just like there was no Euro breakup... and the list goes on. In the end, politicians will do whatever gains them the most votes. Allowing the US to default will be very bad for the Republicans and it will pretty much guarantee a democrats victory in the house in the next round of elections in Dec 2014.
By the way. IMO a US downgrade would not do much other than reshape the shorter end of the yield curve a tiny bit. By that I mean that it would shift money away from shorter term debt (6ms or less) and move it to mid term debt (1+ Years)
Those who say it cannot be done should not interrupt those who are doing it
  • #230
  • Oct 21, 2013 4:28pm Oct 21, 2013 4:28pm
I'd agree the chances of the default happening are very small and the market was fairly relaxed about this (apart from the October T-bills whose yields jumped significantly) but mine and your opinion on what "should" happen isn't how credit agencies produce their ratings. There are many reasons for my conclusion and it could well prove to be incorrect, I will find out either way. For now here is some supporting evidence:

http://www.marketwatch.com/story/fit...ate-2013-10-15
http://www.marketwatch.com/story/chi...m-a-2013-10-17
http://www.marketwatch.com/story/why...ded-2013-10-16
http://blogs.marketwatch.com/thetell...h-u-s-jenkins/
  • #231
  • Oct 21, 2013 4:37pm Oct 21, 2013 4:37pm
Quoting TranceTrader
I'd agree the chances of the default happening are very small and the market was fairly relaxed about this (apart from the October T-bills whose yields jumped significantly) but mine and your opinion on what "should" happen isn't how credit agencies produce their ratings. There are many reasons for my conclusion and it could well prove to be incorrect, I will find out either way. For now here is some supporting evidence: http://www.marketwatch.com/story/fit...ate-2013-10-15 http://www.marketwatch.com/story/chi...m-a-2013-10-17...
Yes I agree that rating agencies can do as they wish, but at the end of the day, it is the market that decides on the Treasury rates and not the rating agencies. As I mentioned earlier, the last time when S&P downgraded the US in 2011, the dollar actually rallied... as if the market was telling S&P to stuff it. Therefore, the only way the USD would take a hit over the debt ceiling issue is if the US actually defaults, or if the gov shuts down again and causes further damage to economic growth, because if such a default or shutdown were to take place, the Fed would likely keep its finger firmly planted on the print button.

Anyway, as always, time will tell.

I have to hit the sack now, but I thank you for participating in this interesting discussion.

Cheers mate, and good night.
Those who say it cannot be done should not interrupt those who are doing it
  • #232
  • Oct 21, 2013 8:25pm Oct 21, 2013 8:25pm
Quoting PipTrapper
{quote} The last time US paper was downgraded, the dollar rallied. I'm not saying anyone should be dollar bullish in the short term. I'm just saying that if the USD falls further, it would not be due to any downgrade, but rather due to a bid on risk assets caused by weaker than expected US economic data which would compel the Fed to keep printing. Such outflows into risk (in search for yield) would probably be to the benefit of emerging market currencies (primarily) and other G10 currencies (secondarily)

bang. spot-on. that makes a whole lot of sense.
cryptocurrency everytime
  • #233
  • Oct 21, 2013 8:34pm Oct 21, 2013 8:34pm
Quoting TranceTrader
I'd agree the chances of the default happening are very small and the market was fairly relaxed about this (apart from the October T-bills whose yields jumped significantly) but mine and your opinion on what "should" happen isn't how credit agencies produce their ratings. There are many reasons for my conclusion and it could well prove to be incorrect, I will find out either way. For now here is some supporting evidence: http://www.marketwatch.com/story/fit...ate-2013-10-15 http://www.marketwatch.com/story/chi...m-a-2013-10-17...

Hi TranceTrader,

I agree with PipTrapper on this issue. I also think it's worth noting how during the recent US Govt debacle, the market did not really flinch and herd into Risk-Off mode. Participants have a good sense of the long term issues and probably see through the smoke and mirrors being conjured by the central banks, rating agencies etc. My own sense is that the rating agencies' say-so is generally perceived to be a hollow relic. Not that it is irrelevant - the market will react to their ratings - but participants have become jaded to bad news and have wisened up to the 'jive'

I think your USD short should be profitable if the current situation coasts out to year end (2 months)

Also, as an aside, I perceive marketwatch to be a mainstream mouthpiece and by necessity they tip the hat to their Wall Street paymasters as well as generating a lot of sensation at every opportunity. Not that I don't read them, but always between the lines.
cryptocurrency everytime
  • #234
  • Oct 21, 2013 11:02pm Oct 21, 2013 11:02pm
I came across this headline on forexlive yesterday, and it got my attention...


"Top macro trader lays out his game plan
14 hours ago | October 21st, 2013 15:00:46 GMT by Adam Button | 1 Comment
This is some essential reading from the FT’s Alphaville. They spoke with hedge fund manager Andrew Law of Caxton Associates, who is one of the best macro traders out there and the former head of fixed income trading at Goldman Sachs.
He doesn’t spell out FX forecasts but he talks about continued disappointing growth in the US, no taper, Japanese stocks continuing to gain and no problems in UK housing. He is bearish on the US dollar and modestly bullish on the euro."

I am always interested in getting inside the head of the guys who trained with legends (in this case Kovner) here is the piece from FT, in its entirety for anyone interested, I have highlighted some interesting points...

“Tapering is off the table”
Sam Jones | Oct 21 13:43 |
Fresh from having made $1bn impeccably timing the putative US recovery in the first half of this year (and Japan, natch), Andrew Law of Caxton Associates – one of the world’s most successful macro traders – has now turned bearish, and in quite a big way.
Caxton, a hedge fund named after the printer (its now-retired founder Bruce Kovner is a billionaire bibliophile), believes the Fed will keep running its presses:
We have been expecting the US economy to reach escape velocity led by housing and corporate capital expenditure… but for whatever reason that just hasn’t happened…tapering is off the table for the foreseeable future.
Caxton is long across the US yield curve (the debt debacle has been a good buying opportunity, if nothing else). Mr Law has spoken extensively with us about his view on the global economy and the state of the hedge fund industry. Tree-based publishing issues mean those thoughts came in truncated form. Below are some extended excerpts from him.
(Background: most people haven’t heard of Andrew Law. So go read our interview. Or, briefly: Mr Law runs Caxton Associates, the hedge fund founded by Kovner three decades ago that can lay some claim to being one of the most successful macroeconomic investors ever. Law has been running trading at the firm since ’08, when his own portfolio notched up a triple-digit gain, putting Caxton in the black for the year, and has been running the whole firm since 2011. By way of Caxton’s record: 15 per cent average annual return with half the vol (roughly 7 per cent) of the S&P 500. One losing year: 1992, -2 per cent.)
On the US economy/debt ceiling
People blamed the government debt negotiations last year for growth falling and no doubt they will blame them again this year… I just don’t see how the economy is going to accelerate in the foreseeable future. We’ve got more budget negotiations to come – what happened [last week] is just another can kicking exercise. It’s a disappointment to anyone who was expecting the US economy to grow and recovery. The problem has not been solved and the hopes for a grand bargain are in tatters… the lack of visibility is very damaging.
But Mr Law believes it’s not just Washington’s errors which are to blame. Caxton, which had been short US bonds in the first half of the year, went neutral as soon as Larry Summers dropped out the Fed chair race — a move that proved timely given the non-tapering decision weeks later. The FOMC minutes from that meeting, though, convinced Mr Law that tapering wasn’t happening any time soon.
Growth has averaged 2.2 per cent for the last 4 years. We have had zero rates and hugely stimulating bouts of QE and growth has not accelerated beyond that. So why now is it going to? Tapering is off the table for the foreseeable future. I think the Fed came to that decision at the last FOMC meeting – they saw that this economy was not standing up to the [then] prevailing interest rate conditions.
Data from the housing market and the corporate world were crucial.
There are no incentives for the corporate world to go out and spend – that, and housing, are critical. In the last few days alone we have seen earnings release statements from companies mentioning shutdown as a reason for a dropoff in orders. Sequester spending cuts have taken a toll and there is uncertainty about how plans for long term deficit reduction are going to prevail.
The Fed is very clearly now seeking to lower interest rates… Keeping rates low to keep the economy going is just another way of saying that the economy cannot be in a self-sustaining recovery.
All of which is not to say that Caxton’s longer-term outlook isn’t for an end to the multi-year bond bull run:
In a much bigger sense the bear market [in bonds] is alive… but today is not the day to bet on that.
Europe
We are not going to get overly excited about it but Europe is looking better – there has been a big investment drawdown and it is now having a bounce from the bottom of that. We view the global economies as less correlated than they were in 2011 and 2012. The ECB’s actions last summer to reduce systemic risk have allowed markets and economies to begin to act independently of each other.
Mr Law’s big question for 2014 will be how the eurozone handles a weakening dollar, which he believes could be a major market move in the coming months.
The marketplace has spent the last 4 years trying to sell the Euro and not quite understanding why it hasn’t collapse to the teens… maybe now people will have their moment [being long].
It will be fascinating to see how the ECB responds if the Euro/dollar exchange rate comes up through 1.40. I think that is probably going to be the least line of resistance in FX. The ECB is not going to be too pleased. … maybe they will lower the refi rate. I imagine they will talk publicly about it.
So, perhaps even a miniature currency war… or at the very least, a gloating series of concerned “letters” from eurocrats to the US, calling for them to get their economic house in order for the sake of global growth.
Japan
Japan was a big theme for Caxton’s trading in Q4 last year and Q1 of this year — the fund was one of the biggest gainers in shorting the yen and being long the Nikkei.
We expect further action in the New Year… we’re moderately bullish from here, having taken risk off earlier in the year. Growth numbers in Japan are broadly encouraging. But it needs to translate into basic wage gains. What we want to see is more concrete signs of Abe firing his third arrow – labour market reforms – thats what it’s more dependent on. We’d want to see that no later than April.
UK
And finally, an issue dear to every UK resident’s heart…
The perception that we are in a housing bubble is inaccurate. House prices are falling in real terms all over the UK – there is no bubble. Supply is what we need. We need another 100,000 homes per year. The market needs to respond to that. My forecast would be that the BoE is not worrying too much about the housing market.


cheers!
90% of people, are wrong about 90% of everything, 90% of the time...
  • #235
  • Oct 21, 2013 11:25pm Oct 21, 2013 11:25pm
Hello DHT

Quiet a bit off chat about 140 level etc

EUR/US 1.367
  • #236
  • Oct 21, 2013 11:37pm Oct 21, 2013 11:37pm
Quoting eliteincome
Hello DHT Quiet a bit off chat about 140 level etc EUR/US 1.367
Hey Elite,

I have not been around much in the last 10 days myself... we had a long weekend last week so I got out of town... waiting for these markets to start making their move... in the mean time catch up on some reading and prep work!

cheers dude
90% of people, are wrong about 90% of everything, 90% of the time...
  • #237
  • Oct 21, 2013 11:38pm Oct 21, 2013 11:38pm
Gibson's paradox
From Wikipedia, the free encyclopedia


Gibson's Paradox is the observation that the rate of interest and the general level of prices are positively correlated.[1] It is named for British economist Alfred Herbert Gibson who noted the correlation in a 1923 article for Banker's Magazine. The correlation had been noted earlier by Thomas Tooke.[2]
The term was first used by John Maynard Keynes, in his 1930 work, A Treatise on Money.[3] It was believed to be a paradox because most economic theorists predicted that the correlation would be negative. Keynes commented that the observed correlation was "one of the most completely established empirical facts in the whole field of quantitative economics."
The Quantity Theory of Money predicts that a slower money-growth creates slower price-rise. In addition, slower money-growth means slower growth of loanable funds and thus raises interest rates. If both these premises are true, slower money-growth should mean lower prices and higher interest rates. However, Gibson observed that lower prices were accompanied by a drop—rather than a rise—in interest rates. This is the paradox that needs to be explained. For instance, in the 1873-96 depression, prices fell considerably while interest rates remained low. Economist S.B. Saul says that Alfred Marshallexplained the paradox by saying that other factors might have been at play: a peace dividend and improving international system of banking and finance.
Economists generally thought that interest rates were correlated to the rate of inflation, whereas Keynes' findings contradicted this view. During the period of gold standard, he concluded that interest rates were correlated to the general price level, and not the rate of change in the prices. In fact, he thought that interest rates were highly correlated to the wholesale price index rather than the rate of inflation.[4]


Gibsons Paradox and the Gold Standard:
http://www.gata.org/files/GibsonsPar...nalVersion.pdf
90% of people, are wrong about 90% of everything, 90% of the time...
  • #238
  • Oct 21, 2013 11:41pm Oct 21, 2013 11:41pm
Hello

I thought the EUR exporters would be pissed
about the strong EUR

I got longs EUR/US out to 138 TP

Wonder when all these big moves will happen

Must get a retrace at some point:nerd:
  • #239
  • Oct 21, 2013 11:46pm Oct 21, 2013 11:46pm
Quoting eliteincome
Hello I thought the EUR exporters would be pissed about the strong EUR I got longs EUR/US out to 138 TP Wonder when all these big moves will happen Must get a retrace at some point:nerd:

I am starting to like this pair to the long side more and more...
I first published this chart a few weeks ago... it looks like the breakout is holding, which paints a bullish case over the intermediate term...
I have no position at this time though, I am waiting for a retrace/entry...
heres an updated chart:

Euro
Weekly
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90% of people, are wrong about 90% of everything, 90% of the time...
  • #240
  • Oct 22, 2013 12:40am Oct 22, 2013 12:40am
an ode to runaway markets:

SPX Monthly
Attached Image (click to enlarge)
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Inserted Video


"...I never thought I'd meet a girl like you...
...and I ran I ran so far away...
I ran all night and day, I couldn't get away..."
Attached Image (click to enlarge)
Click to Enlarge Name: Janet Yellen.jpg Size: 20 KB
90% of people, are wrong about 90% of everything, 90% of the time...
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