Reality sinks in; interest rate hike hopes look weaker and the US Dollar longs retreat for an introspective 1-2 months ahead on the back of weak US jobs growth.
With all this sudden implied weakness the question begs of itself - Why are US employers all of a sudden looking at cutting back on hiring after all the recent additions to the labor market? The answer has nothing to do with seasons. Very clearly the answer is that US firms demand to see more evidence of sustained US economic growth before they contemplate a a sustained monthly increment to the labor force - what? at almost zero per cent rates still the doubting Thomas? What does it take for the normalization of the market in a classical sense of interest rate theory? Being weaned of cheap credit has almost become a nonsensical exercise.
So where does that leave us? Equities are sanguine and grateful from a respite from the Dollar march. Bonds traders are content to go long on prices implying rates will not go up. 7 years its been since the US housing market collapse and if markets are supposed to be rational then why on earth is the US economy still nervous about adding increments to the labor force at almost zero per cent interest rates? The answers are frightening and memories of Japan languishing in the 1990's are still vivid. Were markets rational then investors and firms would be rational in their classic implementation of land labor and capital with the movement of interest rates and contraction and expansion of the economic cycle over time. But the fact that we now may observe employment stagnation after years of Neo Keynesian type government intervention is frightening and perhaps the markets have become irrational after all.
With all this sudden implied weakness the question begs of itself - Why are US employers all of a sudden looking at cutting back on hiring after all the recent additions to the labor market? The answer has nothing to do with seasons. Very clearly the answer is that US firms demand to see more evidence of sustained US economic growth before they contemplate a a sustained monthly increment to the labor force - what? at almost zero per cent rates still the doubting Thomas? What does it take for the normalization of the market in a classical sense of interest rate theory? Being weaned of cheap credit has almost become a nonsensical exercise.
So where does that leave us? Equities are sanguine and grateful from a respite from the Dollar march. Bonds traders are content to go long on prices implying rates will not go up. 7 years its been since the US housing market collapse and if markets are supposed to be rational then why on earth is the US economy still nervous about adding increments to the labor force at almost zero per cent interest rates? The answers are frightening and memories of Japan languishing in the 1990's are still vivid. Were markets rational then investors and firms would be rational in their classic implementation of land labor and capital with the movement of interest rates and contraction and expansion of the economic cycle over time. But the fact that we now may observe employment stagnation after years of Neo Keynesian type government intervention is frightening and perhaps the markets have become irrational after all.
In truth picture this scenario- The specs ran ahead laying railroad tracks to blast a path for the almighty Dollar charge but all the while the engine and the bulk cargo coming along on the tracks that specs built, they got left somewhere behind somewhere far in the distance!
Irrational exuberance?
Irrational exuberance?
After the jobs report came out immediately bond prices leaped with glee at the prospects that this year could well turn out to be a great bull market for bonds as no one dared to predict. Bond market differentials are sound yes and demand for government and corporate US denominated debt remains solid. But as the engine of bond market cargo remains on track - stalled, the US Dollar specs have clearly raced too far ahead in the anticipation of continuous incremental employment to the legendary point of full employment (approx 5.5 % unemployment rate) and now we certainly expect currency traders to stall their insatiable demand and even pull back for the moment on some of their Dollar investments.
Choppy markets ahead because a prolonged Dollar reversal on the USDX to 90 is now all of a sudden on the table. Such a pullback for the rest of the year could easily translate into a roaring Bond market, crude oil to punch to the 60 mark and gold to march back up to 1400! If the specs pushed the Dollar and the macroeconomic data on the major pairs doesn't really seem to justify spec action then the next hunch is that the bond markets may see considerable price action over the months to come because this USD market needs to shake itself off for the next 3-6 months at least .
How much damage in so little time since the first Dollar sprinted in Q2 and Q3 2014. The calls for Dollar EUR parity have turned on a dime just like that. Expect higher range trading, increasing volatility and pick your stop losses very well to accommodate greater uncertainty because if major bank analysts have got it wrong with their currency value predictions then the room has suddenly grown to 110 economic theories from 100 economists. The math simply does not add up. Currency funds, especially the most recent longs of Q1 2015, that went USD long are now about to get slaughtered as the USD march slows and retraces the Fibonacci. Even the giants get it wrong.
Choppy markets ahead because a prolonged Dollar reversal on the USDX to 90 is now all of a sudden on the table. Such a pullback for the rest of the year could easily translate into a roaring Bond market, crude oil to punch to the 60 mark and gold to march back up to 1400! If the specs pushed the Dollar and the macroeconomic data on the major pairs doesn't really seem to justify spec action then the next hunch is that the bond markets may see considerable price action over the months to come because this USD market needs to shake itself off for the next 3-6 months at least .
How much damage in so little time since the first Dollar sprinted in Q2 and Q3 2014. The calls for Dollar EUR parity have turned on a dime just like that. Expect higher range trading, increasing volatility and pick your stop losses very well to accommodate greater uncertainty because if major bank analysts have got it wrong with their currency value predictions then the room has suddenly grown to 110 economic theories from 100 economists. The math simply does not add up. Currency funds, especially the most recent longs of Q1 2015, that went USD long are now about to get slaughtered as the USD march slows and retraces the Fibonacci. Even the giants get it wrong.
Always look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.
USDX
97.814 -0.093 -0.12%
Support 96.662 Resistance 98.952
EUR
1.082240 -0.011835 -1.08%
Support 1.07203 Resistance 1.10243
Crude Oil
52.99 -0.99 -1.90%
Support 50.13 Resistance 56.05
Gold
1209.615 -2.265 -0.19%
Support 1,202.9 Resistance 1,219.7
Pieter Bergli - DeLoren Trust Holdings
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