sik-lah-mah?

 

as for usdjpy, i would need to look more into it. however, i do have open gbpjpy (in the black so going to set a stop in) and eursek, the one that could go either way but depending on risk continuation and rsi, should head upwards again…

yay new week, new trading potentials, and a new whole load of uncertainty.

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A New Milestone…

So just got margin called for the 3rd time on the same pair – USDJPY. Lesson? trying to trade this pair (and any other yen pairs) is like a drug – good for the first trades, until it hits you in the face with a bat. And also don’t over-leverage.

Oh well, free margin = change in analysis… and for this debt thing to blow over…

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More rates than food

A bit ago, there was this pointing to New Zealand dollar strength to Chinese demand. Maybe not so much… maybe more to do with rates. After all, that’s the consensus on large, unleveraged players in the market.

My taste: New Zealand dollar should have a bit more to go, though 0.9000 seems to be the largest psychological barrier. Wouldn’t mind getting in for a short swing at 0.8500 or even better, low 0.8000s. Reason behind this is to chase the rates, which at the earliest should be hiked this Sept.

But still, what the correlation with food prices? Still relatively close, especially when looking at this index of Chinese imported food demand, most of which is provided by Australia and New Zealand. Here’s a look at some soft commodities based charts.

And this one for fun as well…

… which don’t really show much.

What does matter, however in this market as of right now and probably until the beginning of next year is the expectations the RBNZ will raise their Central Cash Rate to 3.00%. In fact, Credit Suisse swaps are pricing in a 104bps gain in the next 12 months, a considerable amount considering the runner up is Canadia with only 50bps.

Being forward looking, the markets have already priced in that eventuality. What is even more attractive is that the markets are expecting rates in Aoteara to go up quicker than Australia with their 4.75% (NZ has 2.50%). That does make sense, as the Australian economy is itself slowing down as shown by the weaker manufacturing and construction sectors. Plus, the room for Australia to raise its rates further without severely damaging the economy is decreasing, especially with the now-likely passage of the carbon tax bill.

Hence, the relatively large disconnect as the Australian dollar isn’t so much about rates anymore as is about simply risk sentiment.

Which shows the effects on its libor spread with the US dollar. The libor rates are much more active than the CSSTs based on future maturing bonds. Because a rate cut is not very feasible, as suggested by the CSSTs, the libors have a better correlation with the AUDUSD in this case.

 

… and the focus on NZ rate expectations is why libors don’t work that well…

 

So any final conclusions? The NZDUSD is definitely chaseable because they would need to raise rates at some time or another, especially with higher and higher inflation (core or non-core, it is still connected). They thing is that they will also hike rates earlier than the Fed. Despite dovish commentaries by the gov, the chances of a hike in September or December is almost completely in-the-black.

Would I chase? Yes… but only after the dicks in congress stop fucking around.

Until then, buy yourself a good lager and some fish and chips. To the best of good buys.

Here’s another FRA-OIS chart for fun and the excel: GP07282011

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at least one thing’s certain…

finmin noda says something about the yen… lol he will continue the tradition of being a spineless pm if he becomes it. so… saying the same thing for the past 5 tr days (since 7/22?) a new record.

research tonight… let’s go with the golden boy.

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Some charts…

Haha it pulled back right above the line. Doesn’t show that much though… although Nikkei futures are -1.385% right now, increasing the chances of the BoJ INTERVENINGINGNGNGNGNGNG

Here’s the NZDUSD, the golden boy in basically any market. Nevertheless, this may change pending the RBNZ decision and commentary in 10 minutes…

Keep winding down until the debt problem  is settled. To the best of good buys.

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Dollar Decoupling pt 2

So full of naive analysis it must be split into 2 parts!

My view: there will most likely be a downgrade of US ratings, but unlikely to be a default. This continuation will most likely still continue, with flows out to every other currency possible despite the well-clear risk aversion moves. However, watch for extreme pressure building up in the dollar pairs (which basically is every pair out there).

The US dollar is (up to 2 weeks ago) a safety currency, moving opposite of risk appetite assets, most notably stocks – the S&P500. Thus, when stocks move higher, the greenback moves lower as traders shift money into slightly more risky and higher yielding assets, usually denominated in another currency.

That is, until last week when the uncertainty started to emanate from the US. This is almost a deja-vu with the Euro when the Greek problem was at a fever pitch – moving downwards no matter how much risk sentiment improved.

With the virus effectively shifted from the EU to the US, it’s interesting to take another look at how much the USD has decoupled with its usual “haven” status. /JPY and /CHF pairs correlations haven’t really been hit because of course, the problem isn’t there. This post will focus only on the buck.

===

The first chart to start – EURUSD and S&P500. These two are supposed to be positively correlated, and offer a good insight as it is the most liquid pair in the market. The timescale is also a good view as May/June were the last gasps of Greece, and early July showing our current problem.

k – so the decoupling for this story can be seen for the data at around this week, basically the past 5-10 trading days. The S&P500 and almost every other world index fell – but the Euro strengthened! There is no explanation for this except people were just basically selling the dollar enmasse, putting their cash into anything – including the next best (liquid) thing, the Euro.

All right then, let’s look at the short term correlations between the two…

Nothing much, really to say. The important thing is to look for negative correlation in both weekly and biweekly rollings. errr, not that much… but maybe because they’re rolling.

Here’s a much more… intensely correlated chart.

What we’re looking for here is a daily change over 1% for both assets, in the opposite directions, but more so in EURUSD gain while the S&P500 falls.

ahh… much more instances of EURUSD+ and S&P500- in quite grand scares, especially in the past week.

This decoupling is something to take for real consideration and impact – even with the Euro, a currency with so much fundamental problems of its own, the dollar is losing ground. Even with risk aversion, the dollar still refuses to budge higher, with investors recognizing that the loss is from the USA and trying to get away from it in any way possible.

So what could this mean? The first is that pressure is building up. The currencies markets may be reading into it way too much that the US government may default. Although that is very unlikely as that will basically be an excuse for all of America’s debtors especially this one, to invade, what is almost certain is that a rating agency will downgrade the US credit-worthiness.

There will be almost an immediate shock to the dollar – like what we saw with the Greek downgrades, which could provide for an attractive scalp. However after that? There will probably be higher yields, which would cause the unwinding of dollar-funded carries (and no-one knows how big that pot is right now), thus provoking buying of dollars. Additionally depending on the correlation, the USDJPY may finally see some upside life, though of course after that heavy fall.

One more thing about yields: because many funds and governments (except the Bank of Korea, for one) prevent the holding of any assets rating under AAA, the dumping of US bonds will lead to higher yields. Though the dumping will result in lots of dollars entering the market, the yields and flooding may result in the yields winning out.

So until then, it’s best to stay out of the market. I will definitely consider closing some of my smaller losing trades or depositing more if USDJPY does decide to plummet.

By the way, here’s FRA-OIS/Liquidity for the USD and EURUSD. Same thing as the S&P500 during the past week – higher liquidity but higher EURUSD? Not natural!

Here are a few other charts – including FRA-OIS and the full set for AUDUSD deco2

Until then, don’t expect the congress of morons to do anything much.

To the best of good buys.

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A New Player in the Yen Story

The verbal threats – against both the yen and the government and the BoJ who haven’t done anything much thus far is increasing. of course being a freely traded currency in the world market, the BoJ is almost powerless to do anything – in the fear of criticism and backlash by its trading partners.

But this is a new player in the game, who has joined Noda, Shirakawa, Kan (and just last week, Trade Minister Kaideda). Kamezaki is a not-that-verbal member of the BoJ board, but his statement represents a feeling that could come to Japanese companies very soon – that it’s simply too expensive to do business in Japan.

Despite the high sense of patriotism displayed by the Japanese, the bottom line would still be the most important to those businesses. Although the services industries will stay, the manufacturing will be the first to go – heading towards cheaper Asia. It’s more wise for them too, as not only is the labor cheaper, the stronger yen amplifies that effect.

So what does Kamezaki mean? The Bank of Japan should “proactively” make policies. That, combined with a growing economy could mean that there will be more demand for goods. That could mean a pickup in the Japanese economy, but then the path of least resistance again would be heading overseas to fill that demand if the yen is again too strong when the economy picks up…

So, player #4 has entered the ring. Let’s see how many there can be before they win against the Goliath of the markets.Will the Wantanabes win this case? Hopefully like saraze ishi.

Dollar decoupling pt 2 will be up soon…

Nothing makes sense anymore! But regardless of that, to the best of good buys.

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The Twisting of the Curve

Not really… for a few minutes though at least. But oooooh – look at the swap rates! They moves much more in sync with the market sentiment.

Dollar decoupling pt 2 in the works…

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The critical line has been hit

That’s the critical 76% fib retracement extension on the red chart. If it manages to go lower after a close here, then all bets are off. Wouldn’t seem that insane anymore to start shorting the dollar while Boehner + his congress of morons keep waving their dicks.

Meanwhile if any of my readers are Japanese, please! Take a vacation here in California! I will show you good time! Food is cheap here!

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Dollar Decoupling

In the past few weeks, instead of the dollar resuming its “regular” safe haven status, it has become the ugly woman in the circus. Especially after the Euro left, it has become the only hag in the ring. That’s more or less because of the debt crisis, being blown out of proportion by the media and emanating from the US and A. Te dollar has decoupled from both risk aversion and safe haven flows, as traders move to the Swiss franc and even the Japanese yen.

Meine Maschendratzaun: Stay away from basically all dollar pairs, as other cross-pairs haven’t really been affected by Washington’s debacle. Other than that, keep trading in the risk-on, risk-off, growth pattern. Don’t try to call anything on USDCHF either, since that “question” has been around since $1.20 (it’s pushing $1.25 now).

So here’s a chart to start with, an indexed chart of the risk appetite gauge, the S&P500 with the safety-safety pairs, USDJPY and USDCHF.

This indexed chart shows the change since the beginning of the year, a good way of measuring the longer term relationships between the dollar and the two currencies. The decoupling is obvious already, especially in the Swiss franc. Although that downward trajectory can be attributed to European money flowing into the countryside, the yen also shows that.

So the rule is basically this: the higher the S&P500, the greater risk appetite and buying (also because most can’t short sell), which would result in a faster selling of franc and yen ahead of dollars. However, that hasn’t exactly happened since about February, and has accelerated into the 2nd quarter.

What does this mean? People are still scared – yes, just by looking at the charts. But the fact that the yen and franc have just run away from the dollar also points to the dollar being dumped, aka decoupling from “regular” market actions. The reason? I would think two. The first has been the longer term fear – that the Federal Reserve would once again initiate a round of QE if the economy doesn’t climb out (and it’s getting harder as well). The second is the pool cue that started the catalyst – the debt crisis.

But the US dollar is still tied to the demand of US bonds, as people need to buy dollars in order to buy (what is still at the time of writing) the safest asset in the world. Safe haven flows should have an effect on bond prices/yields, eh?

The lower the yields, the higher the bond price, indicating the more demand for safe assets, etc etc etc. This would mean stronger yen and Swiss francs as yields on US assets will fall (thus the US dollar is yielding less and less people are buying it). This means that people are still scared – continuing their purchases of US assets and safety assets. There is a bit of concern, however, in the near term that will be looked at in a later graph.

Here’s a small tangent – see how since  the start of July the S&P500 has recovered, yet USDJPY and USDCHF keeps going downwards? This decoupling – especially one this close – shows the currency movements due to dollar weakness, not general risk sentiment moves.

And here’s the chart to re-gauge bond trends with the dollar (also since May).

Also looking at the beginning of July – and especially at the turn in mid-July. The bump upwards means a return in some kind of risk appetite (in normal markets), and according to the awesome US 2 year yield – USDJPY correlation, the pair was supposed to move higher.

But it didn’t. And the Swiss franc strengthened as well.

So why for the bump? The most “outrageous” and “unnatural” step would have been a decrease in US bond demand, possibly due to fears that the US was actually going to default and miss interest payments. Would that make sense, in tandem with the Yen and Franc safeties moving higher? Definitely so.

So what can we do with this widening spread? I shall think about that tomorrow…

Stay clear of dollar pairs. To the best of good buys.

The charts for your own enjoyment: DollarWeakness

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