I suppose at the end of the day the market will decide, although always my focus is to try and see inside what he is thinking.
The TA guys say that the charts tell us this, they are correct in that price behaviour gives us some clues. Recently many exasperated analysts were saying ‘what does it take to knock this Euro down’.
On April 3rd I posted about the phase of either accumulation or distribution:
“I believe that the market is going through one of these phases, but I very much believe that context gives much more indication than recent price analysis. Imo the Euro is being bought (re QE etc), that USD is stalled, and even if there is a hike after the knee jerk will continue to be stalled.”
I didn’t have any price analysis then to back me up, but, now, switching to TA, Eur/Usd daily - April 13 there are more buyers than sellers - despite Greece. Then staying on the daily, there is an apparent push for 1500, then switching to weekly, is there an argument for 1450-1500 becoming support if those numbers are breached.
Would then the chart have all the hallmarks of the classic trend reversal, the bottom, the failed attempt to break that bottom due to lack of sellers and then the rise.
Key to all this lies with the Greece risk - imo that will impact only on timing.
Must post about that, many people equate Grexit with Euro disaster, I wonder does Mr Market think like that also.
And finally, one little piece that caught my attention - the reference in the Fed statement to the IMF and their agreement on the importance of the timing of a rate rise.
FE, remember I mentioned Lagarde at Berlin back in March, she expressed concern for countries and companies that has USD denominated loans and the impact of FX on same - I wonder …
Mike, thought I’d highlight this one for you. I read your post on closing trades early. The context keep that in mind, I don’t think its about one learning to trust his system, price action or anything else but the context. See we’re somewhat forced to view things from an investors point of view. In that way I think you can just set your SL and forget about your trade until it hits either SL or TP target but keeping eye on the market at the same time not the charts or both if you’d like.
“I believe that the market is going through one of these phases, [B]but I very much believe that context gives much more indication than recent price analysis.[/B] Imo the Euro is being bought (re QE etc), that USD is stalled, and even if there is a hike after the knee jerk will continue to be stalled.”
I’m just glad that Peter is with us, sharing all of his wisdom But why would you trade EURUSD Peter ? EURNZD seems like a better setup in that respect, no ? dollar is a tough one to beat at least for now.
By the way, whats up with the underdog Mike ? anything emerging on your watchlist ?
Its funny you should mention levels because I think Euro will go even higher than you think, 1.18. But that’s a retracement. A reversal means breaking 1.4. I’m saying Eurusd after getting to 1.18 will go to below parity, that’s if Euro stays in one piece.
The other thing Peterma in my opinion is you think is that Greece is having a bad impact, and once that is sorted out the Euro will be Ok.
In my opinion its the opposite, the Euro is the one having a bad impact on Greece. In other words what’s happening in Greece is something that is happening all over the Euro. It is just so clear in Greece because it is weaker than the rest. But look at France’s Debt to GDP, its 93%. Britain’s 90%, Germany slightly better but still high at 76%, Italy 130%. People think once we get growth going the problem is solved. Greece had one of the higher growth rates in Europe from but it still fell in a horrible crisis. Because this is about debt.
For this problem to be solved the debt needs to be dealt with. So how is the ECB dealing with the crisis? It is loading more debt on Greece. What a solution. Debt is like everything is in a cycle, it has been going up for far too long and the solution now is to bring it down to complete the cycle. There is no way around it.
Greece is not the thing getting in the way of Euro growth. Greece is the reflection of the cancer that is plaguing Europe and once that second deflationary wave hits you will see the Euro in real trouble.
And its not like we want to wait along time for this. We will see it in the next year or so. Unless the US decides to stay at 0 interest rates for infinity.
Likewise Germany at 74.7 the main engine of EU, Italy and Greece standing over 100. Now tell me how is US better than EU if you add up the numbers of all EU countries and get the average to me it seems like US isn’t in any better position than EU in terms of debt to GDP ratio. Being able to pay up its debt is a different story altogether I think. And there’s a claim that Greece Can Pay Its Debts, It Just Doesn’t Want To - Forbes
And may I add lastly I don’t think FED or US government necessarily has better tools to address the debt issue as opposed to other nations. The policies in which Central Banks are capable to employ is somewhat limited and its not even guaranteed that it’ll work I’ve noticed in my short period of experience. Having said that I think no ones got the upper hand in dealing with debt. So in my logic growth seems like the only feasible way. Why buy EUR now and not USD ? Here’s what investors have to say.
From a technical point of view break of 112.5 would be something for EUR bulls. USD has enjoyed its share of rally since last summer while EUR bottomed out just recently. Peter often says investors usually have an access to information that we don’t. Buying the dip into EUR seems like a better deal to me than buying into the hype of USD , that is if I were an investor. But we could certainly speculate on EUR longs, in fact we all did :13: Not saying USD rally is done and gone, could well be a correction like you said and I won’t think twice about going long if I see it rallying up with follow through with some momentum. But for now it seems like EUR is in the spotlight and not USD. USDJPY for instance is at a level I would think other trades would buy into, but no its not happening. I haven’t read FEDs release just yet but I see EUR crosses making a jump up.
I’m no know it all. Its just my take. And its not about whos right or wrong, funny thing about these kind of analysis is that one can write in a way that can convince anyone to adopt a certain bias. We’re just going have to keep the discussions going to get something out of it.
I’ll let Peter add onto the discussion. I’m sure he’s got a lot more to say than I do.
And onto FEDs release I guess it was the same old story again. Although it doesn’t give any clues as to whats going to happen, it sure saves me from the burden of keeping up with the Central Banks.
Thought I’d share this sum up , I don’t think we should even bother reading the whole thing>
[B][I]“Yellen reverted to using some form of ‘it depends on the incoming data’ to answer questions in at least 13 instances”
Yellen, and other Fed officials keep telling us this. And yet, there are still plenty who believe they won’t raise rates, or they can’t. I guess that’s why she keeps on saying it. Yellen continually using some form of ‘it depends on the incoming data’ … she is trying her darndest to lead the horse to water.[/I][/B]
Both seem to have a lot to catch up on. And the context seems to align with PA. What do you say guys, Mike ? do they qualify as an underdog ? on daily theyve been making higher highs non stop, I’d love to go long if there’s any sign of correction.
It isn’t That is why it must hike rates, because the Fed knows deflation coming and like you said they have no tools to face it.
The difference is the US has a stronger economy and has the international reserve currency. The US would be affected by the crisis, but only after Europe.
This is why I said in an earlier post I said I will be buying physical silver. Because once the deflation end (Dollar tops) we will see gold prices rising.
That’s what I’ve said this past weekend. The current flow with NZD is down.
I think it’s best to realize what the ‘now opportunity flow’ is and go with it until change happens.
That’s what was going through my mind regarding the EUR, leading up to yesterdays announcement. Cause I kept thinking of Philip’s sentiment about holding off until after the announcement.
Other than the fact that I had the EUR trending higher against the USD, I felt I had a better chance with that trade (EUR/USD) if I got into it early on in the week. Plus I’m only wanting to see 100 pips.
This is what I think the current flow of the field is presently. (surely confirmed yesterday)
GBP—very strong and running away with it all. (They were the strongest yesterday, then CHF, then the EUR)
EUR—moving higher with seemingly nothing stopping it.
CHF—the numbers tell it all. ARE the strongest.
COMMS—just taking a beating. With NZD as the front runner.
OK…Captain Obvious speaking here, I know. But that’s the market sentiment.
But, when it comes to the trading aspect of it for me, I’m more concerned about finding 100 pips at a time.
I’m not in it to try to get as many pips as possible (like I used to want).
It’s good for me to know the flow of the field, to help my case.
But my trades must be a result of what’s happening now, rather than what might happen in the future.
It’s a mindset I’m trying to keep, that’s all.
I have a question regarding stock sentiment, especially S&P. Yesterday after the disappointing FED statement obviously S&P was rising. What got my attention though is the gain is already away. This is a strong bearish indicator for me on stocks. What do you think?
Hi Mike,
I respect your strategy by all means. Still, I think Rookie was right, I think there is no reason to limit yourself to your potential gains. I do not say you have to be more greedy but a better exit strategy would just make a lot more gains. You made good analysis so the question is why is it good to limit yourself for 100 pips when maybe with the same setup you could have made 500 pips?
So in your view EU crash is inevitable and at one point or another in the future every nation which has more than 70% of debt to GDP ratio will have to default ? If your reasoning for EU crisis is debt you have discounted the fact that for instance Italy owes most if not all its debt to its own people, according to the writer of the article that I’ve linked earlier is no big deal unlike Greece which owes most of its debt to other EU countries, is a troubling scenario but apparently they may well be able to pay it up. I’m no economist but I don’t think any major EU nation is in such a troubled situation where it won’t be able to pay its debt in due time. Not saying debt is desired, but no ones ahead as far as I know.
And onto Fed rate hike in anticipation of deflation, I think you’re a little ahead of yourself don’t you think ? Its hasn’t even achieved its target inflation. And no economy operates in isolation, everything is interconnected. US could be doing better than most, but that doesn’t necessarily translate into rate hike directly. Fed will have to cooperate with other Central Banks. And I believe earlier Peter linked an IMF article regarding to this very issue. I’m not denying the possibility of Fed hiking rates first, but I’m not sure if that will necessarily spark any bullish sentiment,
I hear ya.
I guess my answer to your question is [I]consistency[/I].
And given the fact of monitoring the market I can spread it out (gains) by capitalizing on a stronger currency than another. I think it’s less risky using multiple vehicles (pairs) than getting lucky on just one.
Lol, I’m under trading, I only have time to get a feel for Eur/Usd at present, just using the Asian session levels for entries - maybe later then the others.
S&P FE, yeah, that’s why I was saying today for a long on that one, have seen that type of reaction to long awaited news before, usually better to wait until the next day - everyone has their own theory as to why.
It’s a very complicated situation Rookie but I’ll try to break it down to the best of my ability.
Look, the % of debt to GDP is only important in relation to revenues or exports. As long as the country is getting revenue in (growth), it is assumed it can keep paying the debt.
The problem now is when you look at the US, Germany, France, Japan, Italy, UK, China, Russian, New Zealand and Australia are all operating with a budget deficit. That means even though there revenues are growing, its needs are growing faster so they borrow more year-on-year.
At some point the there will be an inflection point; the amount of interest paid on the debt will be greater than their ability. Let’s apply it to an individual; let’s say you make $100,000 and you decide to borrow $200,000 to make ends meet. Next year, the $110,000 you make will still not be enough, because in addition to your needs you have to repay some of your debt. So you end up borrowing more. Its a vicious cycle.
What governments used to do in the past t solve this problem is print currency. But that doesn’t solve the problem, let me tell you why.
Let’s assume we are sitting in front of one another. You have a cup of coffee and I have a sandwich. I want a sip of your coffee and you want a bite of my sandwich. We agree to exchange that. That instant saw an exchange of money. But if I give you a piece of paper instead of the bite, you would ever let me have a sip. Yet when I give you a dollar (which is essentially a piece of paper) you would give me that sip. So currency is basically a representation of money, but its not money in itself. The problem that we have now is that the currency circulating is more than the real money is available.
To translate this in an easy way…if we were to collect every currency on the planet and decide to pay out the debt, we would not be able to fully repay the debt. So we keep creating currency (borrowing) indefinitely.
At some point we will not be able to borrow more because of the lack of money. This is what happened with Greece. Now they were already bailed out with more than 300 billion and things are getting worse. Because the problem is with the debt, so it cannot be solved with more debt.The debt has to be restructured. But unfortunately we cannot do that because the banking system in Europe would collapse. Yet you don’t see government’s looking to consolidate the debt, they keep borrow more and eventually they will end up just like Greece. It will just take them longer because they have a stronger economy.
So now as the economy in the US recovers, the Fed will have to raise rates. When the rates will increase the value of the dollar will increase. This would mean that it would take less dollars to buy the same amount of commodities. In return, this would decrease the revenue of all countries (except the US). Because all countries export in their commodities in Dollars, they will be getting less dollars for the same amount of exports.
On the other hand, US companies will be getting more products for the same amount of Dollar paid.
You saw the same thing with New Zealand’s GDP earlier in Asia session.
Now you see the solution to IMF is austerity, lowering government spending. But they can’t lower that spending because they have to repay the loans. So instead they make social cuts and people become angry (like we saw in Greece, Middle-East, Spain,…etc). Not just that, lower government spending means slowing growth and so countries will struggle to pay off its debt in the future.
This will eventually catch up with the US like it always does. Stock market will crash and commodities will start going up and economies of the rest of the world start improving.
Now, like Peterma is suggesting, it is possible that we have seen that already since 2008 until now. It is possible that this is the Dollar top and that the global economy will start improving, commodities will start rising and the US stock market will see an over due fall. That’s the beauty of discussing these matters with you guys is you get a different perspective.
The only thing for me is that with a rate hike coming up and technicals (especially the weekly, I can accept dollar reversal on the monthly) showing further gains in USD in the future, I just think the threat of deflation and debt is real.
Yep, interesting discussion guys, keeps the grey matter alive
You know often you will hear and see long term analysis from myself, but the reality is that it is only me thinking out loud, I don’t use long term analysis in market approach - I believe that Mr Market doesn’t really think that far ahead, I believe that he is very much a ‘context’ guy, living in the now and the immediate future as he sees it.
Back on April 15th FE asked for my overall fundamental view of the UK economy. I answered that post by reflecting what I perceived to be the thinking of Mr Market:
My answer was:
"Hi FE,
UK economy is ‘steady as she goes’ - I’d say no terrible shocks up ahead, would also figure some strengthening against USD, following the Euro on that one."
That was all the far I could see, I suspect that Mr Market is not extremely far sighted, mind you I have taken to wearing glasses as well.
When I say ‘context’ - for example if he smells deflation he gets scared and runs away, if he thinks the threat is diminishing he’ll sneak back, if he sees a rate rise he’ll come running, if he then gets told that the rise is harming the economy, well off he’ll go again in a huff.
Yeah I hear what you’re saying , you couldn’t have been more elaborate. Strong dollar may also in turn impose a negative impact on US economy. We have discussed about that months ago. On top of that FED will have to account in other factors, commodity exporting nations, global economic condition besides labour and wage in deciding how much they want to raise, by the way I’m not expecting much increase.
Nice sum up at the end by the way ! It would be even better if you could do some chart comparison to see if theres any signs of divergence.
Yesterday’s Asian low was 1338, high was 1376, mid Asian - 1355, just entered at break of 1350, because a fair chunk of the news move already gone then target 50pips.
This is my standard method, always early UK time, SL needed was nil, on news momentum I would leverage up.
Btw - price back down to that level now - this is the necessity to day trade, very difficult to get a meaningful position on until the Greek risk is resolved.
Best quote of the decade goes to Christine Lagarde, where she said further dialogue was needed “with adults in the room”.
But why would you trade EURUSD Peter ? EURNZD seems like a better setup in that respect, no ? dollar is a tough one to beat at least for now.
anything emerging on your watchlist ?
That is why it must hike rates, because the Fed knows deflation coming and like you said they have no tools to face it.
Sorry for bombarding you with all these questions, but you are the expert in Currency Strength at the moment