Forex Market Commentary
Technically speaking the USD economy should be on the floor done and out for the count. But it isn't. In technical trading the golden cross and death cross form two very important signals (the 50 and 100 or 200 day moving averages) to indicate when a market is rising and falling in the medium term. In the last 26 years in the SP500 only on 2 occasions did the 50 day moving average sink below the 200 day moving average on the death cross formation and on both those occasions in 2000 and 2008 we had a massive crash in US equities markets. We have now hit the death cross on the nail. But what on earth is going wrong? The technical charts on the SP500 are screaming collapse; but reality is in the present and not necessarily in a chart and on the CBOE the equity options are being priced to reflect an upwards pricing probability. So what on earth is going on?
The difference between 2000 and 2008 lies in the shape of US Fed monetary policy. In the year 2000 free market economic ideas reigned and the markets were left alone to price money and risk. In the year 2008 for the first time in decades we saw the arrival of Quantitative Easing and artificial manipulation of the pricing of money and risk. So since 2008 the Dow and the SP500 stormed up to the heavens always knowing that the US Fed will continue with it's Neo-Keynesian interference in the pricing of money and risk. Thus coming back to the ominous sign of the death cross; remarkably the markets are shrugging it off because they know that the US Fed is there to interfere with the pricing of money and risk and also because the whole world is flat on it's face in any case. In a free market economy the government should not step into the money markets to determine the price of money; a central bank would look to the Treasuries and price money along the forward yield curve according to the demand and supply of money and risk. Europe and Japan and China are all engaged in various methods of artificially pricing money and risk and look where they have all ended up. So the sooner that the US Fed goes back to following the bonds markets then the better for the free market economy. That USA did not go the way of Japan in view of this major policy of interference is astonishing.
Set against this backdrop of government interference in the pricing of money and risk is the valuation of the USD. When journalists were writing about the impending collapse of the US Dollar and the next great gold train just by glancing at a few charts they either had vested interests or had a poor grasp of monetary economics.
At the heart of any economy is the banking and insurance sector which lends to corporations and individuals to build better companies and help people find houses to buy. If banks take customer deposits at say 3% and lend at 6% like in the good old days then banks would be regarded as profitable mainstay of the economy. But what would happen if US banks were forced to lend to companies and individuals at near zero interest rates? How on earth would banks make a profit given their costs of operation? The truth is that lower bond yields cause unemployment in the banking and insurance sectors which then ripples across the entire economy. Then that would open the door for the hideous specter of asset price deflation. Knowing this US Fed cannot allow US bond yields to sink any lower. Just look at the stock charts of some of the major US banks and see how their profitability has been driven lower and lower as bond yields sank last year. Given this fundamental understanding then the trade logic is for the value of the USD to stabilize this year and gently appreciate next year.
The difference between 2000 and 2008 lies in the shape of US Fed monetary policy. In the year 2000 free market economic ideas reigned and the markets were left alone to price money and risk. In the year 2008 for the first time in decades we saw the arrival of Quantitative Easing and artificial manipulation of the pricing of money and risk. So since 2008 the Dow and the SP500 stormed up to the heavens always knowing that the US Fed will continue with it's Neo-Keynesian interference in the pricing of money and risk. Thus coming back to the ominous sign of the death cross; remarkably the markets are shrugging it off because they know that the US Fed is there to interfere with the pricing of money and risk and also because the whole world is flat on it's face in any case. In a free market economy the government should not step into the money markets to determine the price of money; a central bank would look to the Treasuries and price money along the forward yield curve according to the demand and supply of money and risk. Europe and Japan and China are all engaged in various methods of artificially pricing money and risk and look where they have all ended up. So the sooner that the US Fed goes back to following the bonds markets then the better for the free market economy. That USA did not go the way of Japan in view of this major policy of interference is astonishing.
Set against this backdrop of government interference in the pricing of money and risk is the valuation of the USD. When journalists were writing about the impending collapse of the US Dollar and the next great gold train just by glancing at a few charts they either had vested interests or had a poor grasp of monetary economics.
At the heart of any economy is the banking and insurance sector which lends to corporations and individuals to build better companies and help people find houses to buy. If banks take customer deposits at say 3% and lend at 6% like in the good old days then banks would be regarded as profitable mainstay of the economy. But what would happen if US banks were forced to lend to companies and individuals at near zero interest rates? How on earth would banks make a profit given their costs of operation? The truth is that lower bond yields cause unemployment in the banking and insurance sectors which then ripples across the entire economy. Then that would open the door for the hideous specter of asset price deflation. Knowing this US Fed cannot allow US bond yields to sink any lower. Just look at the stock charts of some of the major US banks and see how their profitability has been driven lower and lower as bond yields sank last year. Given this fundamental understanding then the trade logic is for the value of the USD to stabilize this year and gently appreciate next year.
Please turn to Bloomberg - global bond yields
http://www.bloomberg.com/markets/rates-bonds
This week on the US data front the Sales of existing U.S. homes for April 16 rose more than anticipated. following he FOMC minutes last week there is strong evidence that the US economy continues to gather pace. Q1 is always about winter weather disruptions and April always catches the tail end of that and marks the real changes from winter to spring. The National Association of Realtors said that existing home sales increased 1.7 percent to an annual rate of 5.45 million units. This is higher than March's sales at 5.36 million units and February sales at 5.33 million units. With a strong property and retail market we know that we have a strong base for US economic growth this coming summer.
In my global macro analysis the major barometers I am look at for 2016 are as follows:
USDX 95.279 -0.027 -0.03%
USD is set to stabilize 95-93 I would look to temporary short 96 as I do not see a climb above 96 until after July 16.
EUR/USD 1.12220 +0.00154 +0.14%
Neutral outlook with a view to go long at 1.10 or short at 1.15 again knowing that the ECB is comfortable
with the 1.10-1.12 region.
GBP/USD 1.450650 -0.008850 -0.61%
The vote is coming and anything can happen it is best to wait and observe and trade the aftermath.
10 yr US T-Notes 129.765625 +0.093750 +0.07% 16:58
Shorts are now in play.
Crude Oil 48.44 -0.23 -0.47%
Shorts are in play at 50 we should see crude slip back to 40 given higher reported US stockpiles and then finish the year at the 50-55 region. So shorts at 50 and long entries at 40.
Gold 1252.33 -2.04 -0.16%
Shorts in play in the 1280s region and longs come into play at the 1230 region. Given a stabilizing USD this year there's little ammunition left to propel gold upwards and the onus is more upon support.
SP500 2052.32 +12.28 +0.60%
We are still eying the 38.2% Fib retracement to the 2000 level with a view for a serious upwards momentum to 2100 come this summer with strong data in Q2 being the fuel to propel. I am neutral the market is still undecided but another 1 or 2 strong data reports could well lift the upwards momentum.
Dow 17500.94 +65.54 +0.38%
Consolidation is the key word now. neutral outlook for next 4 weeks.
VIX 17.35 -0.62 -3.48%
Options volatility in the equities markets is very important to understand; the lower the VIX the higher the potential for underlying price growth.
Always use your own better judgment and try to build a picture of trade logic combining both technical and fundamental understanding.
http://www.bloomberg.com/markets/rates-bonds
This week on the US data front the Sales of existing U.S. homes for April 16 rose more than anticipated. following he FOMC minutes last week there is strong evidence that the US economy continues to gather pace. Q1 is always about winter weather disruptions and April always catches the tail end of that and marks the real changes from winter to spring. The National Association of Realtors said that existing home sales increased 1.7 percent to an annual rate of 5.45 million units. This is higher than March's sales at 5.36 million units and February sales at 5.33 million units. With a strong property and retail market we know that we have a strong base for US economic growth this coming summer.
In my global macro analysis the major barometers I am look at for 2016 are as follows:
USDX 95.279 -0.027 -0.03%
USD is set to stabilize 95-93 I would look to temporary short 96 as I do not see a climb above 96 until after July 16.
EUR/USD 1.12220 +0.00154 +0.14%
Neutral outlook with a view to go long at 1.10 or short at 1.15 again knowing that the ECB is comfortable
with the 1.10-1.12 region.
GBP/USD 1.450650 -0.008850 -0.61%
The vote is coming and anything can happen it is best to wait and observe and trade the aftermath.
10 yr US T-Notes 129.765625 +0.093750 +0.07% 16:58
Shorts are now in play.
Crude Oil 48.44 -0.23 -0.47%
Shorts are in play at 50 we should see crude slip back to 40 given higher reported US stockpiles and then finish the year at the 50-55 region. So shorts at 50 and long entries at 40.
Gold 1252.33 -2.04 -0.16%
Shorts in play in the 1280s region and longs come into play at the 1230 region. Given a stabilizing USD this year there's little ammunition left to propel gold upwards and the onus is more upon support.
SP500 2052.32 +12.28 +0.60%
We are still eying the 38.2% Fib retracement to the 2000 level with a view for a serious upwards momentum to 2100 come this summer with strong data in Q2 being the fuel to propel. I am neutral the market is still undecided but another 1 or 2 strong data reports could well lift the upwards momentum.
Dow 17500.94 +65.54 +0.38%
Consolidation is the key word now. neutral outlook for next 4 weeks.
VIX 17.35 -0.62 -3.48%
Options volatility in the equities markets is very important to understand; the lower the VIX the higher the potential for underlying price growth.
Always use your own better judgment and try to build a picture of trade logic combining both technical and fundamental understanding.
Pieter Bergli - Trader X16
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