- | Joined Mar 2013 | Status: Resurrection | 225 Posts
Discussion is an exchange of knowledge;argument is an exchange of ignorance
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Dislikedthis 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 {image}Ignored
So if we combine and filter the most evident FX pairs to analyze, we come up with:
Sentiment Analysis on relevant assets
Markets continue to favor the permissive monetary policy stances of the ECB and the FED, carry trades are still in play and risk appetite is still alive. Some analysts see growth starting to improve on a global scale without any signs of inflationary pressure and central banks do not see an urgent need to adjust the very accommodative monetary policy stance. In the past week it has become clear that concerns about financial stability are unlikely to force central banks to remove some of the accommodation. Janet Yellen in a speech at the IMF headquarters this week also argued strongly that monetary policy should be solely focused on price stability and employment while containing financial risk should be left mainly to macro-prudential policies. If you missed the speech, here it is.
Moreover, the BIS has finally caught up to the curve, and has “discovered” something that has been evident for years: it insists on the need to recognize that financial booms and busts have become a major threat to macroeconomic stability. In the short term, because monetary policy has been excessively burdened for too long, the risk of normalizing too slowly and too late must deserve special attention. Well, at least they came out and said it...better late than never...
Since many are talking about it, but few really know what we're talking about and even less have the courage to ask, here's a chart taken from Borio (2003) explaining macro-prudential and micro-prudential. Wikipedia can help with the rest.
http://www.orderflowtrading.com/Port...e002_thumb.png
USD: sentiment is neutral. While US jobs growth was strong, key details like earnings and part-time work are still consistent with the kind of slack in the labor market that will keep the FED cautious. Also, the absence of stronger wage growth suggests that inflationary pressures could remain subdued (to use a term that Draghi is so fond of).
Euro: sentiment is negative. Recent data suggests that the euro area has lost a bit of momentum recently, particularly in France but also in Germany. Growth momentum continues to favor the US and this should continue to cap EURUSD. Draghi is of the same opinion as Yellen regarding the use of monetary policy to address financial stability: Draghi indicated that macro-prudential measures and regulation is the first line of defense, not monetary policy (price and quantity of money). Monetary policy seems to be less effective as an instrument and operates with unpredictable lags. Macro-prudential policy and regulatory efforts are more precise and can be implemented almost immediately. This is part of the new orthodoxy, which is a natural overcompensation after the lack of enforcement that brought us to the 2007 crisis.
CAD: sentiment is positive. Ex-post, there were some diverse drivers of CAD strength for this recent trend: 1) the Canadian domestic story, specifically rising inflationary pressures and encouraging data releases, in particular exports; 2) the U.S. economy, where an improvement in the high frequency data points allowed markets to look through the downward revisions to Q1 GDP; 3) rising oil prices; 4) massive short covering, assessed via COT data. All this dampens the likelihood that CAD may weaken from here. Just watch for any open-mouth ops from BOC that could discourage the markets from singing “O Canada...” for much longer.
GBP: sentiment is positive. The MPC meeting in July is likely to be a non-event, but the recent flow of data has comforted the scenario of continued solid growth in the UK. While upbeat activity data increases the likelihood of a rate hike as soon as this year, it has not been accompanied so far by an increase in wage growth, which is a precondition for monetary policy tightening. As MPC member Martin Weale, historically on the hawkish spectrum of the MPC, pointed out in his recent speech “there is the continuing unusual weakness in wages …should wages growth fail to revive, that will, on its own, tip the scales further in favor of maintaining string monetary policy stimulus”.
For updates on sentiment as it progresses throughout the week, stay active in our Live Trading Floor.
To sum up: best looking charts & comments
http://www.orderflowtrading.com/Port...e004_thumb.png
EURCAD Daily chart – The momentum selection continues to favor EURCAD shorts but common sense warrants caution. We are butting up against the 1.4400/30 zone which has already stopped price.
http://www.orderflowtrading.com/Port...e006_thumb.png
EURGBP Weekly Chart – We have to dial out to a weekly view in order to gauge relevant downside targets.
That's how strong this trend is. Momentum is still down.
http://www.orderflowtrading.com/Port...e008_thumb.png
GBPUSD Weekly Chart – in a similar fashion to EURGBP, we need a Weekly view to gauge upward levels. Just in case momentum dies into the week, keep an eye on the downside hurdle (red) for direction.