What to Watch This Week- Credit Suisse GMP
US: ISM (Tue, Thu), Yellen Lecture (Wed), Employment (Wed, Thu)
We estimate ISM Manufacturing rose to 56.2 from 55.4 (55.8 consensus), which would
mark the fifth straight increase. ADP employment is expected to show job gains of 205k
in June. We expect another solid month of job gains, projecting nonfarm payrolls to
break the 200k threshold for the fifth straight month at 220k (212k consensus). We
expect the unemployment rate to hold steady and for average hourly earnings to rise
0.2%. We expect the ISM-Non Manufacturing reading to moderate slightly to 56. Janet
Yellen will deliver a lecture at the IMF on Wednesday at 11 a.m.
While we continue to favor a stronger USD outlook, we believe this outcome is more
likely against currencies where the central bank is in easing mode, or is likely to turn
dovish. In G10, we think EUR is the prime candidate. Euro Area: Final PMI (Tue, Thu), ECB (Thu), German Orders (Fri)
The German unemployment rate for June is expected to remain flat at 6.7%. We don't
see any major reasons for a revision to the euro area final PMIs in June: manufacturing
PMIs at 51.9 (52.2 in May), services at 52.8 (53.2 in May) and composite at 52.8 (53.5 in
May), in line with consensus. Italian and Spanish PMIs should remain at high levels at
around 54.2 combined. The consensus for the euro area unemployment rate in May is
set at 11.7%, unchanged from the previous figure.
We expect the ECB monetary policy meeting to be a non-event and the rates to be
unchanged; our call is in line with the market.
The consensus for euro area retail sales in May is set at 0.3% mom and 1.8% yoy
(previous at 0.4% mom and 2.4% yoy). In Germany, we expect industrial orders for May
to give up some ground after the strong print last month (+3.1%mom); however, the
momentum should remain high, boding well for a solid Q2 but weaker than the previous
quarter. Our estimates for industrial orders are -1% mom and 6.2% yoy, consensus -
1.1% mom and 6.0% yoy.
With little innovation expected from the ECB, we think EUR will be sensitive to the tone
of this week’s data releases. The ECB’s dovish bias leaves us overall bearish on EUR. UK: Manufacturing PMI (Tue), Services PMI (Thu)
UK manufacturing PMI is expected to move sideways, in line with strong growth. We
expect a June reading of 56.7 (consensus: 56.8), slightly below the May number of 57.
We expect the services PMI in June to remain unchanged at 58.6 (consensus: 58.3).
We continue to project the first BoE hike in November and are bullish GBP, especially
against the EUR. Japan: Tankan Survey (Tue)
Consensus is for the large mfg index to decline from 17 to 15, while outlook rises from 8
to 17. Large non-mfg index is expected to drop from 24 to 19, while the outlook rises
from 13 to 20.
We remain fundamentally bearish on JPY, but acknowledge that a sell-off in US rates
and a more dovish stance from the BoJ might be necessary for this view to play out.
Sentiment in FX
How to find your way around
by JupaFX
At Orderflowtrading we talk a lot about sentiment, and we also talk a lot about the fact that FX is probably the most complex asset class to analyze and trade. In this article, we're going to bring fourth a possible explanation of why this may be, and propose a time-tested routine on how to stay focused and find your way around FX.
1. Sentiment in FX
What drives sentiment in FX? What do we, as traders, need to take into account when asking ourselves “what is driving price”? Market sentiment in FX is driven primarily by economic news and geo-political events, which of course can be related to the short term (like a FOMC meeting) or medium term (like the current tensions in Iraq which have been going on for a few weeks at the time of writing this article). So before even looking at charts and setups (i know, we're all chart junkies up to a certain extent), we need to find out what's going on in the World.
Where can we find out what's going on in the world? Easy.
It's a fact that the key players in FX - Multinationals, Central Banks, Hedge Funds, Investment Banks - don't formulate their ideas off a double top or a 20 moving average or an RSI. Instead, they formulate their trades by analyzing the most recent economic news and geopolitical developments. Sure, technicals are critical for timing and risk management, but they don't drive prices. This means that we actually have an advantage over those big guns: we have more flexibility and can choose whether to participate or not. Having the option to take on certain market conditions or simply sit it out until the tide changes, is where a good all round comprehension (technical & fundamental) of the price chain bears fruit. Us smaller traders can hop on and off the momentum generated by the big guns' order flows.
And now for a note on time frames. Sentiment can often take hours or even days to filter through the pipes, whilst the big guns re-adjust and juggle their books. And of course, when there's some sort of shuffling in positions going around, technicals once again lose their usefulness. How useful is a chart on a triple witching day? How useful is a chart during month-end (especially on EurGbp which in my experience tends to have decent month end flows regularly going through)? These short term flow dynamics sometimes confuse traders that only look at charts and do not stay abreast of other happenings. That's why it makes sense not to get caught up in the hour-to-hour or session-to-session view of the market, but instead take a wider view from a large 4H chart or even a Daily chart.
All this should convey the message that FX is probably the most multifaceted asset class you can choose to trade. Market dynamics demand a consistant yet varied approach, keeping one eye on charts but the other eye & both ears on the fundamentals and sentiment chatter that go around day in & day out. Here's an example taken from the recent past: After the recent FOMC meeting from June 18th 2014, there was a “weak USD” theme going around because of Yellen's dovish remarks and the fact that monetary policy normalization will happen a little further out into the future relative to what was previously discounted. So naturally, all traders were looking to do 2 things the next day: buy EurUsd (selling USD) and buy YM or S&P (because the “lower for longer” rates policy means essentially more free money that can be used to buy stocks). But let us see what happened into the end of the week:
So as you can see, the weak-USD theme continued for equities but very quickly dissipated in FX. So why could a trader choose to focus on FX if sentiment is so difficult to analyze? The rational I would like to put fourth today is this: because FX is more difficult to analyze, confusion leads to more powerful, self-reinforcing price-led trends, creating a greater degree of overshooting. This is good for traders that learn how to read FX because we want trendy prices. So the natual objection to what we've just seen is this: but big players don't care about the day-to-day flavours or price moves; the big players are focused on longer time frames. This is trus: some big money players (namely mutual funds or value seeking funds) work the higher time frames and care very little about anything that's not a Central Bank meeting or the NFP report. But sentiment doesn't run on just one time frame. Sentiment runs on all time frames because Smart Money operates on all time frames. And while all of the chart junkies and price action junkies reading this are starting to go back to their good old 1Min charts because “all time frames are used”, please stop and consider that smart money doesn't however trade exclusively off technicals. They take advantage of the emotional peaks in the market, which are heavily biased around fundamental direction.
As we've said in a previous article, when trying to gather the sentiment around a data print, the actual prints are often of secondary importance. Most of the activity leading into a key number and away from a key number revolves around the market's expectation. And to a large degree, the expectations embedded in the market are based on emotion. So yes, the smart money works on all time frames, but they definitely keep more then one eye on the fundamental chatter going around, so their perspective will never be focused exclusively on the sub-hourly (gambling) time frames. More often than not, it will be a large hourly perspective or a daily perspective.
2. Finding the Flavour of the Day So let's get really practical here. How can we systematically scan the FX universe attempting to find the “flavour of the day” (if there happens to be one)? This is where we need to look at the crosses. At the moment, the Sterling is having a good run. But before taking a position, I want to establish whether Sterling is flavor of the day/week or if something else is stealing the spotlight of late. What's the USD doing? How much weight does Euro have to throw around today? And what about the economic data and the constant stream of data which ticks across the wires ? Is it continuing to confirm one pairs dominance?
By running the ruler across Gbp, Euro, Yen, Usd against their main trading partners, we can quickly determine if any particular currency is dominant or passive across the board or displaying a pattern of unique behaviour. What we're trying to do is make sure that the strength (for example) of GBP is not an exception limited to GbpUsd. Before buying the Gbp, I'd prefer to see it strong across the board. It’s then a case of matching the strongest vs. weakest, to see if an opportunity exists.
So my first observation is the DXY: the dollar index will offer a snapshot of dollar strength vs. weakness. For example, if the USD is weak vs. the basket, we can then shift our focus to the currency which is displaying the dominant behaviour patterns. If, as has recently happened, the Gbp is the strongest looking pair vs. the dollar, then I'll go and see the Gbp crosses to verify whether it's a widespread story of Gbp strength or just an exclusive strength vs. USD.
So in order to properly find the best candidates, it's a good practice if you can routinely set up your workspace with:
Eur vs. Usd, Gbp, Jpy, Chf
Gbp vs. Usd, Eur, Jpy, Chf
Jpy vs. Usd, Eur, Gbp, Chf
Chf vs. Usd, Eur, Gbp, Jpy
and for the comm-dolls, it's usually easier because once you have practiced your world-view time & time again, you will already have the strong/weak in mind and it will only take a glance at the AudUsd or NzdUsd or UsdCad to see what's up and if there's anything interesting going on. Also, sentiment reading for the comm-dolls can actually be easier due to their links with commodities and more evident drivers.
3. Finding the Flavour of the Week In order to trade the Orderflow Game Plan, I go through the exact same procedure as just evidenced, just that I take into consideration daily & weekly views. So you can either extend your practice of the method or you can simply read the game plan!
To sum up: trading FX requires a balance of views. It requires a good pulse of the fundamentals (which shape the sentiment) and a consistent way of working your way around a price chart. In this article, we have explored a systmatic approach to sentiment analysis and currency selection, which can provide an edge over simply watching a handful of pairs. Now, it's only a matter of practicing and making it part of your daily routine. Good Luck!
0755 GMT [Dow Jones] The U.S. bank has seen its sterling take-profit level of $1.71 achieved and will look to buy any setback to $1.7070 for an expected move towards $1.74. The bank says such a dip may be seen if the June UK manufacturing PMI moderates from the 57.0 May print. Data out 0830 GMT, the DJN survey forecast is 57.0.
this guy can write an article..
The Mind-Body Response by JupaFX Trading is a very difficult job, not only because of the technical requirements but also because of the mental toughness and discipline it requires. As traders we are constantly making decisions and we hope for the best ... http://www.orderflowtrading.com/Articles.aspx
