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Monday, June 19, 2017

Upbeat remarks from Dudley

FOMC policymaker William Dudley gave dollar bulls a reason to charge when he struck an optimistic tone during his testimony, underscoring the Fed’s plans to carry on with its tightening timeline.

Dudley mentioned that he is “very confident” with the U.S. economic expansion and that growth is well-distributed across the country. He also highlighted how the U.S. is pretty close to full employment and that wage growth is consistent with productivity.
Aside from that, Dudley also assured that wages will pick up once productivity growth does. He even noted that “halting the tightening cycle would imperil the economy” to hint that he would likely vote for another rate hike before the end of this year.
“Inflation is a little lower than what we would like, but we think that if the labor market continues to tighten, wages will gradually pick up and with that, inflation will gradually get back to 2%,” Dudley said.

Brexit negotiations underway

Today marks Day 1 of what could be a long period of Brexit talks and, true to schedule, the principal negotiators set a timeline for their discussions. The next meetings are set to take place on July 17, September 18, and October 9 so mark your calendars, fellas!
On the agenda are proposals for EU citizens’ rights after the split and that financial settlement, which may or may not involve the hefty bill that the U.K. government is being forced to pay. A source noted that the talks have been “incredibly positive” and that David Davis believes that a “promising start” was made.

Risk appetite in play?

Even with the uncertainty in Europe, U.S. markets seem to be feeling chipper as the tech sector chalked up a rebound and indices are closing at new highs.
  • S&P 500 index is up to 2,447.50 (+0.68%)
  • Nasdaq is up to 5,769.00 (+1.50%)
  • Dow 30 index is up to 21,528.99 (+0.68%)
Commodities are in the red, though, as gold is probably giving up ground while traders dump their safe-haven holdings and crude oil is weighed down by the usual slew of oversupply concerns.
  • Gold is down to $1.244.85 per troy ounce (-0.92%)
  • WTI crude oil is down to $44.33 per barrel (-1.42%)
  • Brent crude oil is down to $46.87 per barrel (-1.10%)

Major Market Mover(s):

EUR & GBP

European currencies were weaker across the board as Brexit-related uncertainties kept gains in check.
EUR/USD is down 48 pips to 1.1149 (-0.43%), EUR/CAD is down 61 pips to 1.4731 (-0.41%), EUR/AUD fell from 1.4711 to 1.4673 (-0.13%), GBP/USD is down 44 pips to 1.2735 (-0.34%), and GBP/CAD dropped to 1.6872 (-0.41%).

Commodity Currencies

In contrast, the comdoll gang was propped up by risk appetite, especially against the yen and European currencies.
AUD/JPY is up 24 pips to 84.73 (+0.28%), CAD/JPY is up from 83.94 to 84.38 (+0.61%), and NZD/JPY is up from 80.43 to 80.60 (+0.30%)

Thursday, April 20, 2017

U.K.’s retail sales report will be released (March)

The retail sales report is important to forex traders and decision makers alike because it is the primary gauge for the level of consumer spending in the U.K. economy. And consumer spending, in turn, has been the backbone of the British economy, as well as one of the main drivers for domestic inflation.
Moreover, the minutes of the March MPC meeting revealed that “some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted.” The retail sales report is also therefore linked to BOE rate hike expectations.

What happened last time?

  • Headline retail sales m/m: 1.4% vs. 0.4% expected, -0.5% previous
  • Headline retail sales y/y: 3.7% vs. 2.6% expected, 1.0% previous
  • Core retail sales m/m: 1.3% vs. 0.4% expected, -0.3% previous
  • Core retail sales y/y: 4.1% vs. 3.1% expected, 2.1% previous
The retail sales report for the February period was actually pretty good, since the headline reading for retail sales volume surged by 1.4% month-on-month, easily exceeding the +0.4% consensus.
Even better, the surge in February is the first positive reading after three straight months of negative monthly readings. Not only that, all store types also reported higher sales volume.
Year-on-year, retail sales jumped by 3.7%, easily beating the +2.6% consensus, as well as the previous month’s 1.0% increase. In addition, the faster increase in February puts an end to the four months of ever weaker year-on-year increases for both the headline and core readings.
However, not all store types reported better sales volume, since household goods stores reported a 1.9% decrease in sales while fuel stations printed a 0.1% decrease in sales volume. Overall, still pretty good, though.
And since the U.K.’s retail sales report was net positive, pound bulls reacted by buying up the pound across the board.

Thursday, April 6, 2017

March 2017 Recovery in Volumes

Forex ECN Hotspot FX reported a 10% month-over-month gain in March trading volumes, amounting to $29.7 billion average daily volume (ADV) and chalking up it second-best month next to the election-driven November 2016 volumes of $30.6 billion. GTX, which is the institutional arm of Gain Capital Holdings, reported record ECN volumes for the same month at $11.8 billion, up 23% from February and a whopping 61% on a year-over-year basis.
As for FastMatch, which is jointly owned by Global Brokerage Inc, Credit Suisse and BNY Mellon Corp, trading volumes jumped 16% on a monthly basis in March to $19.2 billion ADV. This is its best-ever month in volumes, even higher than its November 2016 ADV at $17.1 billion.
For CME Group, forex volumes increased 28% from February to 978,000 contracts per day in March 2017, up 7% from March 2016. This was spurred by higher volumes of Japanese yen futures and options, as well as GBP futures and options.
Over in Japan, the the Tokyo Financial Exchange reported a 12.3% month-over-month gain in trading volumes for March at 2,697,615 contracts on its Click 365 platform, still down 21.5% from the same month last year
Interestingly enough, Japanese online trading firm Monex Group reported a 1.93% dip in monthly trading volumes to 257,717 daily average revenue trades or DARTs, although average trade values in yen ticked higher. The total number of FX accounts also took a hit to 65,175 but the number of active accounts increased during the month.

Monday, February 27, 2017

Major events, reports, and other catalysts for the other currencies:

EUR – Euro bulls and euro bears were both reinforcing their positions. However, the rather drastic increase in fresh euro shorts easily overwhelmed the increase in euro longs. And the substantial increase in euro shorts was very likely due to political jitters in continental Europe, with the April 23 French presidential elections and March 15 Dutch parliamentary election in focus. The increase in euro longs, meanwhile, was likely a reaction to the string of positive reports for the Euro Zone at the time. The PMI readings for the Euro Zone were at multi-year highs, for example.
GBP – Net change in positioning on the pound was only very minimal. And positioning activity was also very minimal, with fresh pound shorts increasing by a mere 38 contracts and pound longs being reduced slightly by 786 contracts. The small decrease in pound longs was probably due to some pound bulls getting spooked by the U.K.’s disappointing jobs report and poor retail sales report were released. However, it’s kinda interesting that only a few pound bulls got scared off by the poor data. Although positioning activity does not yet reflect the U.K.’s revised GDP estimate, wherein the business investment component turned out to be a disappointment.
JPY – The yen took ground from the Greenback for the eighth consecutive week. And demand for the yen likely picked up, thanks to plunging U.S. bond yields, which also dragged the yields of Japanese government bonds (JGBs) lower, leading speculators to believe that the BOJ won’t be buying up JGBs to lower yield of 10-year JBGs close to 0%, as mandated by its monetary policy framework. As for what drove U.S. bond yields lower, safe-haven demand for U.S. bonds because of political uncertainty in Europe is one. Another is the search for higher yields.
CHF – Net bearish bets on the Swissy fell once more, and that was thanks another reduction in Swissy shorts. There wasn’t really much in terms of Swiss data during the week ending on February 21. Although Switzerland’s larger-than-expected trade surplus may have spooked some Swissy bears (CHF4.73B vs. CHF 3.03B expected, CHF 2.69B previous). Other than that, Swissy bears may have been convinced to abandon ship when risk appetite prevailed during February 20-21.
AUD – Non-commercial forex traders really ramped up their bullish bias on the Aussie. And a closer look at positioning activity shows that the net increase in bullish bias was all due to fresh longs, since short bets on the Aussie were essentially unchanged. This very bullish positioning activity on the Aussie was likely a reaction to the RBA’s meeting minutes, which said that the “fall in GDP in the September quarter had reflected some temporary factors.” Moreover, “resource exports were expected to make a significant contribution to growth over the forecast period and the drag on growth from falling mining investment was expected to wane.” This apparently reinforced the idea that the RBA won’t be cutting rates again anytime soon.
NZD – Both Kiwi bulls and Kiwi bears pared their bets. However, slightly more Kiwi shorts got culled, so the Kiwi continued to advance against the Greenback. Although the advance was so minimal that net positioning was essentially unchanged. Anyhow, the reduction in Kiwi longs was probably a reaction to the miss in New Zealand’s quarterly retail sales report, as well as the decline in dairy prices during the latest dairy auction. The fall in Kiwi shorts, meanwhile, was likely due to profit taking after the Kiwi plunged in the wake of the February RBNZ statement.
CAD – The Loonie was pushed deeper into bullish territory, thanks to an increase in fresh Loonie longs. The additional longs bets on the Loonie was likely a reaction to the rise in oil prices at the time. Although it’s also possible that positioning activity reflects optimistic speculation ahead of Canada’s top-tier economic reports, namely CPI and retail sales.
Got any other conclusions you can draw from this latest COT Report? Feel free to share your thoughts in the comments section or if you’re looking for further discussion, community member ForExchange has a lively thread called Trading based on Market Sentiment in the forums awaiting your participation

Sunday, February 12, 2017

Economic Snapshot: Australia

orex mates! If you’re wondering how Australia’s economy is faring recently, or if you just wanna see the “bigger picture” now that the RBA statement is done and over with, then this Economic Snapshot is just for you.

Growth

  • Australia’s Q4 2016 GDP contracted by 0.5% quarter-on-quarter, missing expectations for a 0.2% expectation.
  • This is the first contraction since Q1 2011.
  • In addition, this is the worst reading since Q4 2008.
  • The 10.4% slump in government investment, otherwise known as public gross fixed capital formation, was THE major drag, subtracting 0.5% from Australia’s quarter-on-quarter GDP growth.
  • Back in Q2, the rather large 16.8% increase in government investment was THE main driver, adding 0.7% to GDP growth.
  • In fact, I quipped in my September’s Economic Snapshot for Australia that “Basically, the Australian economy was kept afloat by the government.”
  • The 0.8% fall in private investment was also a major drag, subtracting 0.2% from total GDP growth.
  • Private investment has been contracting for seven consecutive quarters already as of Q3.
  • Investment in residential and non-residential building got hit the hardest.
  • And according to the GDP report, the slide in construction activity “can be partly attributed to high rainfall levels.”
  • That’s right, the Australian Bureau of Statistics (ABS) is blaming the weather.
  • Net trade was also a major drag, subtracting 0.2% from total GDP growth.
  • The negative contribution from trade was due to the 1.3% increase in imports easily overpowering the 0.3% increase in exports.
  • Year-on-year, Australia’s economy grew by 1.8% in Q3.
  • This a drastic slowdown from Q2’s 3.1% annual rate of growth.
  • Moreover, this is the slowest year-on-year expansion since 2009.
  • The drastic slowdown was due to weaker government spending and household spending, but the biggest factor was the much weaker positive contribution from trade.
  • Exports only increased by 6.0% in Q4 (9.6% previous) while imports also increased by 2.3% (-0.5% previous).
  • As a result net trade only added 0.7% to total GDP in Q4 (+2.2% previous).

Employment

  • Australia’s seasonally-adjusted jobless rate worsened from 5.7% to a six-month high of 5.8% in December.
  • This marks the second straight month of deteriorating readings for the jobless rate.
  • But on a slightly more upbeat note, the labor force participation rate improved from 64.6% to 64.7%.
  • This marks the second consecutive month of improvements for the participation rate.
  • The deterioration in the jobless rate therefore isn’t that bad.
  • Still, the number of unemployed people increased from 726.4K to 741.1K, so the Australian economy wasn’t able to absorb the influx of new and/or returning workers.
  • In terms of job growth, the Australian economy saw a net increase of 13.5K jobs in December.
  • Australia has been seeing positive jobs growth for three consecutive months already.
  • The net increase in December was due to 9.3K full-time jobs and 4.2K part-time jobs.
    Australia has been generating full-time jobs for three
    straight months already.
  • However, full-time job creation has been slowing, with the most recent reading being the lowest.

Inflation

  • Q4 2016’s headline CPI rose by 0.5% quarter-on-quarter, slower than Q3’s +0.7%.
  • Year-on-year, CPI grew by 1.5%, accelerating from the previous quarter’s 1.3%.
  • This marks the second month of improvements for the annual reading.
  • The reading is in line with the RBA’s forecast from its November Monetary Policy Statement.
  • It’s still some distance from the lower bound of the RBA’s target range, though.
  • For reference, the RBA’s target range for annual headline inflation is 2-3%.
  • Meanwhile, the annual core reading slowed further from 1.7% to 1.6%, a low not seen since 1998.
  • However, the reading is still a tick higher than the RBA’s forecast of 1.5%.
  • On a quarter-on-quarter basis, 4 out of the 11 sub-components got hit in Q4, with the rest printing increases.
  • In contrast only 3 of the 11 sub-components got hit in Q3.

Business Conditions & Sentiment

  • The National Australia Bank’s (NAB) business confidence index held steady at 6 index points in December.
  • Business sentiment has been positive since September 2013.
  • However, the NAB business conditions index spiked from 6 to 11 index points.
  • Commentary from NAB noted that the spike was due to large gains in profitability and and trading conditions.
  • In addition, NAB warned that the rebound could be temporary, adding that “Weakness in retail conditions is particularly concerning given the importance of household
    consumption to the economic outlook. In addition, we are not seeing any real signs in the Survey of a convincing recovery in non-mining
    investment – crucial to both near-term and longer-term growth prospects.”
  • The NAB labour costs index, meanwhile, showed that wage growth moderated in
  • December, growing by 0.6% quarter-on-quarter (+0.7% previous).
  • Overall, NAB concluded that its survey results are “encouraging” but a closer look “raises some doubts over the sustainability of any rebound.”
  • Moving on, business loans in December grew at a faster pace, increasing only by 1.1% month-on-month (+0.6% previous).
  • This is the biggest monthly increase in business credit since September 2015.
  • Also, business loans have been increasing for six consecutive months already.
  • Year-on-year, business loans increased by 5.6% (+4.9% previous).
  • This is the best reading in four months.
  • Business credit has been growing (on an annual basis) since September 2011.
  • Looking forward, the Australian Industry Group’s (AIG) performance of manufacturing index (PMI) suddenly plunged from 55.4 to 51.2 in January.
  • The slump in the headline reading was due to a broad-based slump across most of the sub-indices, with production, new orders, exports, sales, and deliveries all taking hits.
  • AIG’s performance of services index (PSI) also got hit, diving from 57.7, a high not seen since May 2007, to 54.5 in January.
  • The weaker reading was due to lower readings for 4 out of the 5 sub-indices.
  • As for AIG’s performance of construction index (PCI), it rose from 47.0 to a four-month high of 47.7 in January.
  • The reading is still below the 50.0 stagnation level, though, so the construction sector is still contracting, albeit at a slightly slower pace.
  • AIG’s PCI reading has been below 50.0 for four consecutive months already.

Consumer Sentiment & Housing

  • On a monthly basis, retail trade turnover fell by 0.1% between November and December.
  • This is the first negative monthly reading in four months.
  • Also the monthly readings for retail trade turnover had been trending lower for four consecutive months already.
  • The year-on-year reading, meanwhile, printed a weaker 3.2% increase (3.3% previous).
  • Regarding personal loans, both the monthly and annual readings were in negative territory in December.
  • On a monthly basis, personal credit fell by another 0.1% in December.
  • Aside from October’s flat reading, personal credit has been falling on a monthly basis throughout 2016.
  • Year-on-year, personal loans dropped by 1.3%, the worst reading in three months.
  • As such, it’s no real wonder why retail trade turnover also fell.
  • Housing loans to owner-occupiers, meanwhile, continue to grow at a steady 0.4% month-on-month.
  • Year-on-year, it moderated further, printing a 6.4% pace, which is the lowest reading since October 2015.
  • As for housing loans to investors, they grew by 0.8% month-on-month, accelerating from November’s +0.7%.
  • On an annual basis housing loans to investors grew by 6.2%, which is much faster than the previous month’s 5.6%.
  • The current annual reading is the fastest pace of growth since March 2016.
  • Housing loans to investors have been steadily picking up the pace after bottoming out at an annual pace of 4.6% back in August 2016.
  • This may mean that speculative pressure on the Australian housing market is beginning to pick up again, increasing the chance of a housing bubble, but the reducing the chance of further rate cuts.
  • Trend wise, overall housing credit continued to ease, though, increasing only 6.3% year-on-year, the same pace as previous, and a shared lowest since June 2014.

Trade

  • Australia seasonally-adjusted surplus widened to around $3,510 million in December.
  • That’s in Aussie dollars, by the way.
  • This is the largest trade surplus on record since comparable records began in 1971.
  • In addition, this marks the second month of surpluses after over 30 consecutive months of deficits.
  • The wider trade deficit was mainly due to exports surging by 5.4% to a record high of $32,630 million.
  • This easily overwhelmed the 0.7% rise in imports to $29,120 million.

Monday, January 16, 2017

Forex Watchlist: Where to Short GBP/USD?

I believe that even though the Fed will likely have trouble sticking to their plan to raise interest rates thrice this year, the fact of the matter is that they ARE tightening their policies while other major central banks are busy making stimulus rain for their respective economies.
This is why I got tingles (the good kind) when I saw Cable’s 4-hour and daily time frames. Okay, maybe I was also watching Ryan Gosling gush about “his lady,” but GBP/USD’s setup also looked pretty good to me.
As you can see on the daily chart below, GBP/USD is forming a possible double bottom around the 1.2100 major psychological area with the “neckline” lining up around 1.2700 – 1.2800 zone. Oh, and look at the bullish divergence on the chart!f we zoom in on the 4-hour time frame, we can see that the bulls have actually defended the 1.2100 (which is near the bottom weekly ATR, btw) not once, not twice, but THRICE in the last couple of months. Will the bulls continue to hold the fort? Or is the third time the charm for pound bears?
A quick look at the forex calendar tells me that there are at least three speeches that could push the pound in either direction. I’m seeing scheduled speeches by BOE’s Mark Carney, Fed’s Janet Yellen, and today’s presser by President-elect Trump. Uncle Sam’s retail sales report scheduled on Friday could also fuel any dollar move especially if Trump manages to rock the market boats significantly.
In the U.K.’s camp, I’m counting on more Brexit-related headlines to push the pound lower. Unless Theresa May and/or Mark Carney reassures market players that there won’t be a “hard Brexit,” I believe that market players will continue to equate the Brexit process to uncertainty.f the pound does see a bounce over the next couple of hours, then I’ll be watching the 1.2300 (which lines up with the 100 SMA) and 1.2400 (which lines up with the 200 SMA and last week’s high) areas of interest closely. And if the pound rally gains steam, then I’ll keep close tabs on the 1.2700 area, which is near a previous high.
But if more forex traders price in their uncertainty (like I’m about to do) over Brexit in the next couple of days, then we’ll likely see Cable drop to new lows instead of bouncing. In this case, I’ll be ready to scale in and start building my short orders. Maybe after it breaches the 1.2000 mark?
That’s it for my watchlist today! I’ll add details of my entry and exit strategies depending on the strength and direction of the pound’s move, but for now, I’m looking for ways to start building a long-term short position.

Wednesday, November 30, 2016

Top 3 Life Lessons from Forex Trading

1. Trading encourages discipline

Contrary to the “Get one million pips in a month” ads we’ve seen, trading is far from easy. Just like professional sports and other high performance careers, trading is a craft that must be honed day in and day out. And just like other professions, trading requires discipline.
Developing discipline requires planning, tons of practice, and turning those planned tasks into habits. In trading, discipline is acquired by taking the time to study the fundamentals and charts, sticking to the trading plan, and even logging in trade journals. Remember that there’s a name for trading without discipline – gambling.

2.Trading pushes us to go beyond our comfort zone

For most people, risking money is very uncomfortable because after all, nobody wants to lose their hard earned cash. This leads to common uncomfortable trading scenarios such as “cutting winning trades in fear of them turning into losing ones,” or “not cutting losing trades quickly in hopes that it will turn into a winner.” In other words, it’s more comfortable to hold on to losers and cut winners quickly–the exact opposite of what traders are supposed to do!
As the great trading psychologist, Dr. Brett Steenbarger, once said, “Your growth always lies on the other side of your discomfort. Whether it’s in the weight room or career decisions, you’ll never develop yourself by staying in your comfort zone.

3. Trading teaches us about emotional balance

I’m sure that many of you have gotten burned by overconfidence. You believe that you’re on a roll and that you can’t lose, so you end up taking trades without taking the time for proper analysis. You end up taking dumb trades, or risking way more than you should, and before you know it, your account gets hit with a massive loss.
I’m also sure that more than once, you’ve found yourself paralyzed by the lack of confidence. You spot a great setup that you would normally take, but because you’ve lost your last 5 trades, you decide not to take the trade. And of course, the pair ends up going in your direction and hitting your take profit point. Yikes!
In trading we learn that we can’t get too caught up when we’re winning, nor should we be too hard on ourselves when we’re losing. Eventually, all traders also learn that the best state of mind is one that is both even-tempered and relaxed.
This is true in other aspects of life as well. People make poor decisions when they wear their emotions on their sleeve. They get taken advantage of when they are overconfident, or miss out on good opportunities when they are scared.

Upbeat remarks from Dudley

FOMC policymaker William Dudley gave dollar bulls a reason to charge when he struck an optimistic tone during his testimony, underscoring ...