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  • #912,681
  • Jul 27, 2014 1:30am Jul 27, 2014 1:30am
Quoting gatorinla
lots of curve fitting, going on after the fact, explanations, happening.. if one wants to know why the usd weakened, they need to look beyond their trading careers to where it started. a hint would be "all modern recessions in the u.s, started with a spike in oil before." what that tells u is the usd and the u.s. economy is strongly linked to oil. as u.s. oil production goes up, so does the usd. and as it goes up, spikes in oil will have less recession affect then it did in the last 44 years. in the multiple affect of manufactures seeking cheaper...

negativ correlation between Oil and USD

http://www.macrotrends.net/1334/doll...storical-chart

http://in.reuters.com/article/2011/0...58328120110719


short term view from BofA: http://www.businessinsider.com/us-oi...lations-2013-3 (that is from 2013)


Commodity prices and currency movements:

http://www.investopedia.com/articles...currencies.asp


Understanding the Correlation between Oil Prices and the Falling Dollar

http://www.cfr.org/international-fin...-dollar/p16569


What Drives the Oil-Dollar Correlation?
Christian Grisse
Federal Reserve Bank of New York
December 2010

https://www.google.de/url?sa=t&rct=j...,d.ZWU&cad=rja


"Conclusions
Oil prices and exchange rates tend to move together, and appear to have been negatively related in
recent years: during the 2003-2008 oil price boom and during the …nancial crisis, Dollar depreciation
(appreciation) was typically associated with higher (lower) oil prices. This paper investigates the
relationship between oil prices and the US Dollar nominal e€ective exchange rate using a structural
model that is fully identified…ed by exploiting the heteroskedasticity in the data, following Rigobon
(2003). In contrast to the previous literature this allows us to identify the short-run comovements
of oil prices and the Dollar. We control for effects of US and global economic developments on
oil prices and exchange rates by including measures of the surprise component of economic news
releases.
The results indicate that higher oil prices lead to a depreciation of the Dollar both in the short
run –within the same week –and (in line with some of the previous literature) over longer horizons.
We also …found that Dollar depreciation is associated with higher oil prices within the same week. In
the long run, ‡fluctuations in interest rates explain most of the variation of oil prices and exchange
rates."
  • #912,682
  • Jul 27, 2014 1:38am Jul 27, 2014 1:38am
Quoting infinitus
{quote} negativ correlation between Oil and USD http://www.macrotrends.net/1334/doll...storical-chart http://in.reuters.com/article/2011/0...58328120110719 short term view from BofA: http://www.businessinsider.com/us-oi...lations-2013-3 (that is from 2013) Commodity prices and currency movements: http://www.investopedia.com/articles...currencies.asp Understanding the Correlation between Oil Prices and the Falling Dollar http://www.cfr.org/international-fin...-dollar/p16569...
from the czech national bank

http://www.cnb.cz/en/monetary_policy...11_box_II.html
  • #912,683
  • Jul 27, 2014 1:44am Jul 27, 2014 1:44am
Quoting infinitus
{quote} from the czech national bank http://www.cnb.cz/en/monetary_policy...11_box_II.html

http://www.signalfinancialgroup.com/...relationCL.php
  • #912,684
  • Jul 27, 2014 2:05am Jul 27, 2014 2:05am
Quoting Aws1962
{quote} please, please, please tell me you know that /6E is EURUSD! because it is. I can't believe you can not know that. please tell me you know that.

no answer so far from him - so I guess, the kid has gotten new toys to play with
  • #912,685
  • Jul 27, 2014 5:39am Jul 27, 2014 5:39am
Quoting saver0
{quote} Do you mean this? "Conclusion: So, guys, EUR has reached hot point on big picture – edge of YPP, trend breakeven point and support area. Till the end of July we probably should get further direction. Although currently situation stands in favor of USD, but we can’t exclude surprises from Fed. Thus, it is not safe to take strategical positions right now and better to wait for beginning of the August. In short-term situation tactical target at 1.3380 stands relatively close and to be honest our journey on the way to it is coming to an end....
Hi Fellow-Trader : nowhere did I say that IŽll take any new short positions NOW, BUT going long is IMO a very bad decision, like it was during the past 4 weeks too, IŽm not interested to capture a few pips on a pullback (noone really knows when it will happen and how far itŽll go): ItŽs better to stay on the sidelines until the next leg lower will start. Most likely weŽll have sideways-movement for a couple of weeks, maybe only days, weŽll see. There are many other interesting opportunities to trade, why are so many traders focused only on EUR/USD ? I donŽt know.
  • #912,686
  • Jul 27, 2014 6:32am Jul 27, 2014 6:32am
Quoting Vachus
{quote} I think in the grand scheme of things, the Euro will remain range bond between $1.40 - $1.25, while i think $1.50 ( Reachable with inflation above 2% / growth 3% or more) - $1.20 (Reachable in the case of wide Banking problem or sovereign debt) as extremes. Moreover, as Germany continues to transform the European union into Germanization, i think Soros's theory of monetary expansion (TLTRO/Negative rates/ABS/QE) with controlled inflation on the Deutsche Mark back in early 90's, will work on the Euro as well. According to him, as long as...
"with controlled inflation on the Deutsche Mark back in early 90's, will work on the Euro as well."

Yeh I agree that controlling inflation is important, but you have to remember that the EUR/USD has the USD component, and are there any reasons for inflation to veer away from 2%? I highly doubt it!

"The Balance of trade / surplus. Most European Union countries are actually building up surplus"

Yep, true. But the link between a deficit/surplus and a currencies movement is more theoretical than practical. Yes, it heas helped the EUR rise from 1.20 in the past 2 years... but look further back in history... there is a very small relationship.


What are your overall thoughts on the interest rate idea? the Fed will be hiking from next year at this rate, and the ECB are unlikley to budge until 2018/2019... We've already seen loads of real money react to the quick change in short dated swap points / cross currency basis swaps.

Do you not think that will weaken the EUR more?
  • #912,687
  • Jul 27, 2014 6:46am Jul 27, 2014 6:46am
Quoting Vachus
{quote} I think in the grand scheme of things, the Euro will remain range bond between $1.40 - $1.25, while i think $1.50 ( Reachable with inflation above 2% / growth 3% or more) - $1.20 (Reachable in the case of wide Banking problem or sovereign debt) as extremes. Moreover, as Germany continues to transform the European union into Germanization, i think Soros's theory of monetary expansion (TLTRO/Negative rates/ABS/QE) with controlled inflation on the Deutsche Mark back in early 90's, will work on the Euro as well. According to him, as long as...
Bro... from the last posts in which you were stating clearly a short term strong bullish trend and a target to 1.40ish or higher to this post that you made above is a long way , glad to see that you joined the bears boar or at least this is what it seems.
Remember a few weeks ago I said EURUSD 1.30 - 1.33 until October the latest and I still stand by my statement, at that time you were a bit harsh and you were defending the higher targets and I hope that didn't affected your balance too much. I told you that QE1,2 & 3 were very important for the trend of EURUSD and the last point and Higher limit of QE3 was the 1.39ish this year, from that point was no way of turning back, so with that said the target for the next 6 months is 1.30 - 1.33 and going to early 2015 I think we can see the 1.27 - 1.29 range.

Cheers and green pips,
VladG
  • #912,688
  • Jul 27, 2014 7:24am Jul 27, 2014 7:24am
Quoting infinitus
{quote} negativ correlation between Oil and USD http://www.macrotrends.net/1334/doll...storical-chart http://in.reuters.com/article/2011/0...58328120110719 short term view from BofA: http://www.businessinsider.com/us-oi...lations-2013-3 (that is from 2013) Commodity prices and currency movements: http://www.investopedia.com/articles...currencies.asp Understanding the Correlation between Oil Prices and the Falling Dollar http://www.cfr.org/international-fin...-dollar/p16569...
subtract the years since u.s. consumption was over 50%. that is most of our trading years. and before many here were born. using information after shows the point.. the usd suffered as oil prices increased because at the same time less was produced domestically. it has had a multiple negative usd affect for decades. that is slowly changing to less negative or even positive. u.s. increasing oil production will be a catalyst for less taxable income for countries who depend on it for social welfare. then you will have more social unrest in places that depend on it. more arab springs etc. russia's economy is estimated to be heavily weighted to 50% energy. some M.E. countries much more. While those lose production, N.A. gains. watching the usd/cad shows how the 2 in north america are comparatively. the places that have more dependence of oil, from places where its less stable, have a added cost. those trading today and ignoring the "why" of the last 40 plus years. will probably be disappointed. i can easily point to opinion of many social sights are blogs that disagree. i am trying to separate reality from opinions with evidence.

one has to do their own research. i could point out some places. but that would be curve fitting for an opinion. most of history one place attacks another because they want what the other had, or sometimes just to take the eye off whats happening in the kingdom, congregation. some excuse is made up before hand, to rally the kings men. you have to have, a big bad wolf to kill.

some producers of oil are declining..a wolf is needed for a king to stay in power.
those who can, do. those who cant, talk about those who can
  • #912,689
  • Jul 27, 2014 7:49am Jul 27, 2014 7:49am
Quoting infinitus
{quote} negativ correlation between Oil and USD http://www.macrotrends.net/1334/doll...storical-chart http://in.reuters.com/article/2011/0...58328120110719 short term view from BofA: http://www.businessinsider.com/us-oi...lations-2013-3 (that is from 2013) Commodity prices and currency movements: http://www.investopedia.com/articles...currencies.asp Understanding the Correlation between Oil Prices and the Falling Dollar http://www.cfr.org/international-fin...-dollar/p16569...
a discussion was had with Jeremy a while back. about the correlation of oil to the usd then eu rise. all i can say is, on the mornings of the cushion reports. the eu jumped many times hundreds of pips in the direction that oil went. the action was delayed, and it followed oil. (before the crash) later when each and every tankfarm in the u.s. was full of oil, courtesy of goldmen. and there were a thousand tankers idle in the world full of oil. and cushion was full with 147$ oil.. the world farted.. that was july 2008.
those who can, do. those who cant, talk about those who can
  • #912,690
  • Jul 27, 2014 8:25am Jul 27, 2014 8:25am
Quoting Vachus
{quote} Ah, your logic is false to start with ... A) You assumed just like the rest of the broken record players that the Euro has to go down. One of the most annoying questions i have been listening too for the last two years, Why the Euro is rising?! As if the right direction must be it falls down ... Do you even remember the Euro trading at $1.65? Would you like to imagine what would have happened to the EURUSD uptrend, if the financial crisis came just two years later?! I guess the Euro will be trading at $1.70 - if not higher. * Euro index...
There is one simple fact to follow in currency movements, its called currency reserve status - USD.

CPI, Mom, IO, all of that data which you counted above is rather useless for technical trader to include in currency direction analisis, bottom examples of charts are nice way to put it NZD, AUD, EUR, GBP those currencies are tied to completly different data outputs for economics and yet they move 90% in sync against dollar and thats the info that is actually tradeable. So you can wrap your fundamental knowledge into one big wraped turd and lie to yourself that you are actually trying to trade that, or you can pick much simpler perspective and go with dollar flow.


http://prntscr.com/46td7h
http://prntscr.com/46tdjs
http://prntscr.com/46tdz2
http://prntscr.com/46tewm
http://prntscr.com/46tfx7
http://prntscr.com/46tiv9

A DOLLAR DOWN, REST UP
B DOLLAR UP REST DOWN
C DOLLAR DOWN REST UP
D DOLLAR UP REST DOWN
E DOLLAR DOWN REST UP
F DOLLAR UP REST DOWN
G DOLLAR FLAT/DOWN REST FLAT / UP

Obviously dollar itself also moves from moves that come from other currencies but when it comes to trading if you follow the dollar you will known where most of other pieces should go.
  • #912,691
  • Jul 27, 2014 8:27am Jul 27, 2014 8:27am
Inserted Video
  • #912,692
  • Jul 27, 2014 8:42am Jul 27, 2014 8:42am
Quoting Aws1962
{quote} but you have to remember that the EUR/USD has the USD component, and are there any reasons for inflation to veer away from 2%? I highly doubt it! "
Currently, as of today - there are no reasons actually. But by the end 2014, things could take a dramatic turn. In essence, i'm relying more on TLTRO which will help to bring interest rates on private / business loans down, which will kick inflation faster than the majority expects. The chart below is the main reason i don't commit to Draghi's argument ( Lower exchange rate, will hike inflation)

* Inflation / Private loans
Attached Image (click to enlarge)
Click to Enlarge Name: EURO-Inflation-Loans.PNG Size: 123 KB


Short term, Draghi is using the exchange rate to sustain inflation headline till they finish with the AQR and banks go back to full lending capabilities. ( September/ October 2014) Even on the verge of the next 6 month, historical data doesn't support his view. In fact, inflation in Europe has been for the last 10 years positively correlated to the Euro.

Attached Image (click to enlarge)
Click to Enlarge Name: Euro-Inflation-2008.PNG Size: 156 KB


Quoting Aws1962
{quote}What are your overall thoughts on the interest rate idea? the Fed will be hiking from next year at this rate, and the ECB are unlikley to budge until 2018/2019... We've already seen loads of real money react to the quick change in short dated swap points / cross currency basis swaps. Do you not think that will weaken the EUR more?
I admit i'm not an expert on Fixed income, but i still don't understand why the Feds are being rushed into hiking interest rates too quickly. Even their GDP forecast estimate is being revised lower every time we have a press conference, with current growth in 2014 is currently standing at %1.8. The feds mandate is not price stability, but growth and employment - so, i see a dovish argument better being late than sorry. The biggest variable in the room, is the side effects of QE on growth.

Attached Image (click to enlarge)
Click to Enlarge Name: FEDS-Balance-Sheet-2014.PNG Size: 58 KB


IMHO, the biggest effect will be seen on the Feds balance sheet / deposits percentage. The deposits or excess liquidity almost doubled since early 2013 , which provides an evidence if the Feds started a hiking cycle they may kill the USA recovery faster than anyone expects. But all in all, it really goes back to USA GDP growth, so i honestly have no idea. The major question is not to hike first, but how many bullets u have in the gun u can shoot?! So, i'm waiting and will see ...

Quoting Aws1962
{quote}... We've already seen loads of real money react to the quick change in short dated swap points / cross currency basis swaps. Do you not think that will weaken the EUR more?
Isn't that the June rate cut effect? I don't have access to these instruments, so if u can share a chart would help.

What i know is, June's ECB policy is worth roughly 600 - 800 Pips, according to Goldman Sachs calculation.

10 Basis points gives roughly 200 pips,
Every 100 Billion in new loans is worth roughly 100 / 110 pips,
Total should be around 600 - 800 pips give or take,

So, IMHO markets not only priced in the negative rate, but the full 480 Euros in TLTRO which is due between September & December 2014
"It's the Margin, Stupid."
  • #912,693
  • Jul 27, 2014 8:58am Jul 27, 2014 8:58am
Quoting MisterSpread
{quote} Bro... from the last posts in which you were stating clearly a short term strong bullish trend and a target to 1.40ish or higher to this post that you made above is a long way , glad to see that you joined the bears boar or at least this is what it seems.
To be frank, i haven't joined the bears - not because the Euro is not selling, but simply the price is not trade able on my scale ...

Late April, i saw an opportunity of poking the $1.40 briefly to collect the stop losses above it and then retrace to collect the buyers - price came as close as 1.3992 ( So i missed the target by 7 pips) If u actually compare the buying leg on EURUSD September - Late October 2013 , to the current move we had from $1.399 are almost identical. The problem is the data didn't support the rise! So, currently the Euro is rolling over on a bad storm of data and wide market belief the ECB will talk the Euro down ..

In my opinion, the bubble burst at 1.35 and a leg up was developing - but weaker buying momentum / Ukrainian development / Portuguese bank / capital outflows and everyone screaming shorts is working it's magic for now.

I don't expect to sell now, and see $1.30 even in 2014 - so, in my opinion the Euro is in buying territory
"It's the Margin, Stupid."
  • #912,694
  • Jul 27, 2014 9:00am Jul 27, 2014 9:00am
Quoting gatorinla
{quote} subtract the years since u.s. consumption was over 50%. that is most of our trading years. and before many here were born. using information after shows the point.. the usd suffered as oil prices increased because at the same time less was produced domestically. it has had a multiple negative usd affect for decades. that is slowly changing to less negative or even positive. u.s. increasing oil production will be a catalyst for less taxable income for countries who depend on it for social welfare. then you will have more social unrest in...




but then, here another study, which concludes, that USD, oil and gold build a triangular system

http://docs.lib.purdue.edu/dissertations/AAI1490676/

Abstract
This study analyzes the relationship between dollar exchange rate and crude oil price. Unlike previous literature which established a bilateral causal relationship between the two prices, this paper proposes that gold price is likely to be a common driver of the two prices and therefore, the bilateral relationship is a part of a triangular system of gold price, dollar exchange rate and crude oil price. The results show that while in the short run gold price movement does not Granger cause the movement of the dollar exchange rate and crude oil price, it is the Granger causality between the two prices in the long run. Causality is also identified from dollar exchange rate to crude oil price in both short run and long run. But crude oil price is much less influential in its bilateral relationship with dollar exchange rate. As a result, a triangular system of gold price, dollar exchange rate and crude oil price is established. Dollar exchange rate not only has direct impacts on crude oil price, but also functions as an intermediary vehicle through which gold price movement indirectly affects crude oil price. However, the relationship between dollar exchange rate and crude oil price is unstable with multiple structural breaks over the sample period. This partially explains why previous studies have mixed results.^



Also interesting analysis:

Analysis of the Relationship between Oil and Gold Prices

http://www.opf.slu.cz/kfi/icfb/proc2...8_Simakova.pdf


also this:

http://mpra.ub.uni-muenchen.de/31795...2011_yh_th.pdf

Abstract
This study using the monthly data spanning 1986:01-2011:04 to investigate
the relationship
between the prices of two strategic commodities: gold and oil.
We examine this relationship
through the inflation channel and their interaction with the index
of the US dollar. We used
different oil price proxies for our investigation and found that the
impact of oil price on the
gold price is not asymmetric but non-linear. Further, results s
how that there is a long-run
relationship existing between the prices of oil and gold. The fi
ndings imply that the oil price
can be used to predict the gold price.




Next one is USD, Indian Rupee and Oil

Relationship between Crude oil price and Rupee, Dollar
Exchange Rate: An Analysis of Preliminary Evidence

http://www.iosrjournals.org/iosr-jef.../A03220104.pdf



This one is nice:

http://digitalcommons.iwu.edu/cgi/vi...t=econ_honproj

The Effect of Oil Prices on Exchange Rates:
A Case Study of the Dominican Republic
  • #912,695
  • Jul 27, 2014 9:00am Jul 27, 2014 9:00am
I believe that fundamentals complete the technical picture and not the other way around. People in media and such find "reasons" to explain why it went down, and why it will drop more, but it's all really a technical move, If it's technically bearish, it'll go down - even if the news do not agree. FX market is so hard, why EUR traded 1.18 then traded 1.4 then made 1.6x then dropped again, it's like a technical cycle. there's no correlation to what's happening to both economies, market is made of trends, and trading cycles, people habit is to go with the ride, that's why there's no such "price has moved too far".. this is different than stocks where you can analyze company performance and do trades based on that - I have seen in the past 10 years, more than hundreds of times, the price does not the news release even and despite what currency analysts say these are very critical news and bla bla bla. price (for me at least) does not respect the news that much, I've seen it - It has burnt me in the past, trading the NFP and how the EUR kept sliding on very negative USD data, now basicaly EUR should slide on the back of very positive USD data? It may happen, but it'll be only an intended technical move, do not believe the news releases! Just my advice..
  • #912,696
  • Jul 27, 2014 9:04am Jul 27, 2014 9:04am
Quoting gatorinla
{quote} a discussion was had with Jeremy a while back. about the correlation of oil to the usd then eu rise. all i can say is, on the mornings of the cushion reports. the eu jumped many times hundreds of pips in the direction that oil went. the action was delayed, and it followed oil. (before the crash) later when each and every tankfarm in the u.s. was full of oil, courtesy of goldmen. and there were a thousand tankers idle in the world full of oil. and cushion was full with 147$ oil.. the world farted.. that was july 2008.



http://cdn.intechopen.com/pdfs/32411...l_evidence.pdf


very nice study, supports your view


go straight to page 19 for the conclusion
  • #912,697
  • Jul 27, 2014 9:08am Jul 27, 2014 9:08am
http://www.ersj.eu/repec/ers/papers/12_2_p9.pdf

5.
Conclusion
The results, suggest that there is a long run dynamic co integration of oil and
euro /usd exchange, without to determine this relationship from Johansen Co
integration test if it is one way relation or both ways. In the long term period oil
prices follow the appreciation of Euro and are being corrected by a very low
convergence rate. The model used in this case can be further enhanced with the
implementation of Dummy Variable in unstable periods.
Furthermore, Granger causality test answers the initial question for the
direction of this relation of oil prices and exchange
difference. In both case Granger
non causality is being rejected, and the direction change from the one price to
another. This bilateral connection of the two variables maybe suggests that the co
integration scheme proposed is sufficient to manifest any future continuous relation
of the two variables.
The adjustment of Oil prices from a shock in the economy takes longer
period and the changes are drastic. One the other hand the exchange difference of
Euro/Usd is absorbing the shock and radically reduces the effect of the change.
Finally, the relation of the two markets maybe change again in the future,
since the economic policy of United States maybe change to a more restraining
currency policy. Furthermore, there is always the possibility of more efficient
oil production or a radical facilitation of other fuels instead of oil, which will suppress
the prices of oil in the long term.
  • #912,698
  • Jul 27, 2014 9:20am Jul 27, 2014 9:20am
i wonder what else happened in the world about 12 years ago. i wonder what was done after, to boost the economy. is it possible its a 10 year anomaly within a 40 year one? if it isn't so relative, why did it happen. and what happens when the need for it lessons. one can pick any point of time to align with a opinion bias.

here is up to 2012 info.. since then in 2013 the #1/#2 position has changed.

http://www.eia.gov/countries/index.cfm?view=production
those who can, do. those who cant, talk about those who can
  • #912,699
  • Jul 27, 2014 9:22am Jul 27, 2014 9:22am
and a lat one for today

http://www.econstor.eu/bitstream/104.../742451577.pdf

jump top page 24 for conclusion
  • #912,700
  • Jul 27, 2014 9:28am Jul 27, 2014 9:28am
Quoting gatorinla
i wonder what else happened in the world about 12 years ago. i wonder what was done after, to boost the economy. is it possible its a 10 year anomaly within a 40 year one? if it isn't so relative, why did it happen. and what happens when the need for it lessons. one can pick any point of time to align with a opinion bias. here is up to 2012 info.. since then in 2013 the #1/#2 position has changed. http://www.eia.gov/countries/index.cfm?view=production




maybe general problem with fundamental analysis:

all can be explained in the aftermath - there are enough arguments which fits bias (both sides)
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