it might be great if you could share with us your overall sentiment. I find this risk off move just huge, maybe you can give us some other standpoint to see it from a different perspective.
The selloff in the equity markets was strong but the strength of the move in the currency market surprised me quite a lot!
I am also interested to know your opinion on the USD. Besides the really really really good NFP today, it is still losing after the report against the non-commodity currencies. This shows me the weakness of the USD at the moment, maybe it is time to watch out for USD sell signals?
Nothing really big, itās still holiday period, all back to normal on Monday I suppose.
China is difficult, they have a communication problem, probably due to a lack of experienced leadership, the chances are that they will sort themselves out soon, maybe weaker Yuan, then back to stock buying and gold selling.
USD - Iād prob be negative, the NFP from first glance seems great, so traders jumping in on more hikes, itās the wages that count, no big inflation pointers there, so many of the Feds will talk up the report, kinda supporting their voting, even if reluctantly, for a hike - we all like to be proved right.
My biggest joy is Eur/Gbp, had a discussion with a hot shot banker in December, he could see that cross hit .60 by the spring, so we will see how wrong he is.
I am up to #1737 and have just finished the Net Positions Chart. The next chart to do is the Open Interest Chart. It looks like you are using āLongā, āShortā and āOpen Interestā as Legend Entries. Should I make one for non commercial and one for commercial since there is a Long and Short category for both or combine the two long and shorts at the same time. Sorry if this is confusing>
Yeah, the Central Bankers donāt like being wrong either, so likely a few gloomy faces around the table today.
Back in May, after a back-track on estimated growth, Carney put a positive spin, he specifically mentioned energy prices and how he felt that the downward pressure on prices was only ātemporaryā, and would be āshort livedā I think was his words.
If you have a look at the weekly on WTI you can see why his sense of optimism at that time.
The bad news for his outlook was that the weekly peaked about 4 weeks later and has since plummeted.
So not very unlikely that there will be any talk of upward pressure on prices for a while, also they are reducing the number of statements per year, so gives them more space.
Anyways, donāt think Iāll want to buy any GBPās just yet.
Thanks, I will get hold of them. Not had time to read the full thread yet, still making the database but I have nearly finished it now and will start from the beginning of the thread and get up to speed.
I do not think you have to read the whole thread, read some of the historical analysis based on the database you are making. Check out the links from the first page.
I am happy for fresh air and be able to discuss the COT findings again with someone!
Today I was introduced to the term ācommodity super cycleā donāt laugh if Iām late on the term. I also learned that the commodity rally was going on for years started in the early 2000s when China became the new industrial powerhouse.
Now onto the image, if you look at the graph the fall came mid 2008 recovered some from 2009 until 2011 helped by lower rates by Fed but nowhere near its historic high before the financial crisis probably suggested underlying weakness in China.
But China kept it going up and up to a level of unsustainability. And no one wanted to believe. Who doesnāt love a bull market. All this artificial growth probably looked good on paper enough to convince the outsiders that all is well which maybe why AUD,CAD and NZD held its ground until Fed lift off talk came into the picture.
Now the hard truth I think is sinking in finally. Iām surprised that despite decent jobs data no ones (the big guys) buying AUD or any other comm. I guess part of the reason is that they arenāt convinced just yet. After all its only a few months worth of data. But the bigger fear I think is that the fall in the commodity market is nowhere near a bottom, and that thereās a further deterioration.
Iām curious what it means for equities ? As far as I know oil or energy makes up the biggest component in the S&P. If thereās no bottom for oil just yet (could be couple of years or more!) what does it mean for S&P ? Peter ?
Last note, its so easy get lost when youāre day trading and lose sight of the big picture but it helps (thats an understatement) to know the big picture, the forces that are behind everything thats going on. If I was trading back in 2011 and had enough experience to know what commodity super cycle was and inter market relationship I would have shorted comms all the way without any doubt. It would have given me the confidence to stay short regardless of the minor bounces something that a lot of new traders find it hard to manage. Undeniably its an edge, to get ahead you have to not just know but also keep the big picture in mind despite the daily happenings.
If you think (like I did) EUR, Pound pairs have had enough rally up against comms or AUD or NZD had fallen enough against USD think again. Surely thereāre levels to be respected order flow and such but always remember the big picture until things change course.
By the way do we have a buy signal on GOLD yet ? FE , BB, Pipphil ?
Hey Rookā¦
Thanks for that!
All I know is, like I said before, WATCH CHINA. Maybe I have just woke up to that, and everyone else already knows, but itās true. And I think they are whatās behind the whole Commodity era. (as you have stated)
Well, I just have it in my mind that this year we will see a serious, serious change regarding China. Very bad. And therefore also the Comms.
Thanks again for all of that.
Rookie, yeah there is a sense of cycles, but the thing to remember is that cycles live in the past, the market is now.
Back awhile I was trying to get you guys to see the importance of commodities, now that ācycleā is complete, now we are looking for the bottom, and yes, my sense says itās coming to that point.
Sure, China is a commodity user, but the market is changing, business can make profit without regard to energy prices, cheaper energy is becoming the norm, and that norm will last.
Property developers are deep in debt, when things go sour theyāll be hit hard. The year started off with all eyes on China, maybe an indication that the world is fearful of China , a possibility of a crisis led by property market crash. While some is fearful some is optimistic that China will transition without the fallout. As the article says I agree that only time will tell. How long can they (Chinese government) keep its property market on life support.
If the majority knew whatās coming (lets assume that China may crash) I would expect gold to go up in value. But thus far I havenāt seen that happening. Gold is much less the same or a bit lower, (I read somewhere that central bankers buying gold supported gold from falling further) while silver and copper accelerated its fall and treasury bond bull ETF risen. All this means a further fall for S&P, as far as I know.
Peter, if the commodities have (or soon) bottomed then S&P should follow suit. But what troubles me is China (yeah Mike youāve got another one on board). Thatās the new norm for us, cheap commodity :). Murphy said in his book that euro and commodities shared positive correlation. If commodity is to bottom soon , the case for euro rally is further supported I think besides its economic recovery.
Well I want to take part in the exchange between Rookie and Peterma. Iām personally on the side of Peter on this one, I think we are at the final stages of the bottom.
However there is an important part of the story that I havenāt see anyone discuss it. Thatās why I want to write about it here because Iām used to us being ahead of the market.
We have to go back to 1997 for this oneā¦
The US has just started a series of rate hikes that wreaked havoc on the other side of the ocean. Currencies of countries like Thailand, Indonesia and Malaysia were pegged to the Dollar. as the Greenback increased in value, so did those currencies. That led to less competitive exports. It developed current account deficits. And the countries eventually had to break the peg wit the Dollar. And since the US Dollar was the international reserve currency, it meant debts were harder to pay back. Situations deteriorated and risked contagion to the rest of the international community and the IMF had to intervene to accommodate the situation. During that time oil fell 61% and gold fell 51%. But by the end of the crisis everyone managed to contain a threat of āhyper inflationā and not deflation.
So how is that relevant in any way to current markets?
Well to answer that we have to forget completely about the US, Europe and developed market. We have to also block out the analysis we read and hear because its focused on development markets. We also need to understand that there is no threat in China what so ever.
So where is the problem?
Like in 1997, the US is starting to raise interest rates. Now unlike 97, Asian currencies are not pegged to the dollar. In fact the currencies of Emerging Market economies have all been devalued against the dollar.
However, we could still end up with a similar scenario to 1997. This is because of the slowdown in China. If China is going to import less, then Emerging Market economies are going to export less regardless of how weak their currencies are.
This puts countries high debt to GDP and negative current accounts at danger. So not the US, nor China. The threat is facing smaller economies like Australia, Indonesia, Argentina, Nigeria, Egypt and others. Now realistically speaking those countries will not have an effect on the US economy (hence why they raise rates).
But if trouble breaks out in those type of economies and we start to see hints of contagion effect, that will be the trigger for commodities.
Until then the dip in the S&P is a perfect buying opportunity for investors (but not speculators necessarily).
Yep, IMFās Lagarde has been warning about the EM tie to USD since Mar 17 last year. There was a sense that Yellen, one woman to another, sort of pulled back after that speech.
A trader is mindful of these things, but only mindful, a commercial takes a different view, he has to position for what he believes, havenāt read cot, but Iād guess that those guys are positioning for Euro rise. Mostly you will see that positioning on Eur/Gbp first. (commercials use that cross in trade, has quadrupled in last few years).
There is something to think about, FE warns sometimes about the āexpertsā, so mostly we think that the experts in FX are the banks, but are they?
DB said, a few days before Lagarde, that " Deutsche Bank now forecast the euro to dollar (EUR/USD) will move down to 1.00 by year-end 2015, 90cents by 2016 and down to a trough of 85cents by 2017"
So year-end 2015 has been reached, but look at a weekly, they were chart reading.
