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Money Matters
- NZD/EUR & AUD/EUR - The Draghi Put
- Charts of interest - EUR Complex
- NZ Inflation - is this a big deal?
- Bullish failure?
- Bullish Failure?
- The Return of the Reluctant Bull
- US Midwest drought - corn and wheat
- NZD/AUD - Strong NZ GDP should cement higher levels
- USD/JPY - another voyage to the dark side
- Markets littered with reversal signals
- View archive...
Money Matters
Viewing entries tagged with 'Futures'
NZD/EUR & AUD/EUR - The Draghi Put
All
The NZD and AUD have been displaying ‘topping’ signals against the EUR as suggested in my piece of Wed 25th (NZD and AUD – Now the weakest?). Whilst I got the direction of the NZD/USD and AUD/USD spectacularly wrong, the NZD/EUR and AUD/EUR are still displaying all the hallmarks of being exhausted on their upside moves that have occurred over the last 2 ½ months.
With Mario Draghi’s stunning “ECB will do whatever it takes to preserve the euro”, adding, “believe me, it will be enough” comments I’d suggest that the drive to diversify into NZD and AUD will not be there in the near term. Further the EUR currency, given its bleak outlook and low interest rates had been used heavily as a funding currency for the ‘carry trade’. Now surely with these comments this flow will be reversed. In other words we now have the ‘Draghi Put’ where you can buy EUR knowing that the ECB ‘has your back’!!!!
Now the USD pairs have been very difficult of late, think risk on/risk off every other day, so these look like a lovely place to be in right now.
AUD/EUR – Made a ‘reversal’ day Monday after significant uptrend. Should be able to see 0.8300 even if this period only turns out to be a consolidation of the recent up move.
AUDEUR – click here to view chart
NZD/EUR displays very similar traits.
Regards Graham
Charts of interest - EUR Complex
All
A very interesting development in the EUR currency complex overnight. Despite the obvious turmoil in Europe and the Moody’s ‘outlook negative’ ratings change for Germany the EUR has hung very tough. Could Putin’s reaffirmation of the Eurozone as an investment destination have been a catalyst (surely not enough on its own?) or has the EUR bashing simply reached a zenith for now?
Whatever the reasons the chart displays are warning of a change.
Exhibit 1 – The EUR/USD. Despite extreme bear news the EUR/USD is displaying caution in the down move.
EURUSD – click here to view chart
Exhibit 2 – The EUR/AUD. The pair has been trending lower for 1300 points in almost a straight line. However, in potential confirmation of the EUR/USD chart above, the EUR has traced out a key day reversal against the AUD. The two chart developments together strengthen the idea that EUR selling may be exhausted.
EURAUD – click here to view chart
I’ll be buying a dip in the EUR/AUD with a stop loss against the low and watching the next 24 hours for confirmation of the EUR/USD doji.
Regards G.
NZ Inflation - is this a big deal?
All
I find today’s release utterly fascinating and I am somewhat surprised that there isn’t more chatter about the possible implications of this very low reading.
The RBNZ have one main mandate in a contract with the government. And that is to keep inflation, on average, over time, between 1-3%. For the vast part of my career that has been trying to control rampant inflation by raising rates. However now we are at the bottom end of the spectrum which is why I am so interested.
You see, if inflation settles below an annualised 1.0% for more than say a couple of quarters (that the room the ‘on average, over time’ part gives) then the RBNZ, through their contract with government, MUST employ actions to create inflation!
The market is sitting here with muted reaction, happily assuming that this quarter or the next (Q3) will be the bottom of the inflation cycle and that the Canterbury rebuild will squeeze the spare capacity in the economy thus promoting inflation (back into the range).
Certainly the mantra of ‘lower for longer’ as far as the cash rate goes is a lock but could we see something far more dovish evolve this year?
G.
Bullish failure?
All
Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.
However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.
In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.
NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.
NZDUSD – Click here to view chart
S&P500 – The daily chart of the ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.
S&P500 – Click here to view chart
There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.
G.
Bullish Failure?
All
Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.
However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.
In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.
NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.
NZDUSD – Click here to view chart
S&P500 – The daily chart of the ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.
S&P500 – Click here to view chart
There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.
G.
The Return of the Reluctant Bull
All
As an avowed bear this doesn’t come easy, but as John Maynard Keynes was attributed as saying “When the facts change, I change my mind. What do you do, sir? Reluctantly I am now a bull on ‘risk’.
Yes, the EU Summit measures to date only appear to be addressing the symptoms and not the root causes. But when German Chancellor Merkel says on Wednesday “Europe will not have shared total liability for debt as long as I live” and then agrees to concede to a Euro wide bailout fund and the dropping of austerity requirements then I guess the facts have indeed changed. I believe you need a frightening event for policy makers to act in the required fashion and when Italy and Spain’s (both regarded as ‘too big to fail’) borrowing costs approached/went over the 7% bailout zone I think the EU policy makers had stared squarely into the abyss.
Indeed, over the rest of the year I’d expect more positive developments to come out of the Eurozone now.
Further, a major point in the bear case for me has been that the U.S. FED would not delve into their bag of tricks anytime soon as QE3 surely has to be a consideration of ‘last resort’. But last night’s huge fall in the ISM is potentially another game changer. One month’s data won’t be enough to move the FED but another months poor data and the they could be forced into action. One only has to understand ‘Helicopter Ben’s’ background to acknowledge the possibility of more stimulus.
Poster boys for the change story are the NZD/USD and the AUD/USD which are now displaying quite solid bull signals on the charts.
NZD/USD – The NZD/USD has surged out of the upward sloping 10/20 moving average band which were already trending up, as are the Bollingers and the MACD.
NZDUSD – Click here to view chart
Yours, the reluctant bull
G.
US Midwest drought - corn and wheat
All
Things look pretty serious for crop production in the U.S. Midwest. The article below makes that quite clear. Whilst prices have rallied very strongly for both Wheat and Corn (up 25%+ in a few weeks) traders shouldn’t be afraid of jumping on this bandwagon. You see, if the crops are seriously damaged then the global stock piles are going to take years to rebuild.
Heat Wave Wilts Corn as Supply Drops Most Since ’96: Commodities
Jeff Wilson, ©2012 Bloomberg News
Published 02:48 p.m., Wednesday, June 27, 2012
June 27 (Bloomberg) — Corn supplies in the U.S., the world’s biggest exporter, are declining at the fastest pace since 1996 just as a Midwest heat wave damages the world’s largest harvest for a third consecutive year.
Stockpiles were probably 3.168 billion bushels (80.47 million metric tons) on June 1, 47 percent less than on March 1, the average of 22 analyst estimates compiled by Bloomberg shows. The worst Midwest drought in more than a decade is wilting a harvest that the U.S. Department of Agriculture says will be the biggest ever. The agency updates its inventory estimate June 29 and its production forecast two weeks later.
Futures surged 25 percent since reaching a 20-month low June 15, and Morgan Stanley expects prices to advance an additional 11 percent to $7 a bushel in two months if the drought persists. The rally is boosting global food costs that the United Nations estimates dropped 14 percent from a record in February 2011 andwidening losses for ethanol producers including Decatur, Illinois-based Archer Daniels Midland Co.
“We have a potential disaster developing for the U.S. corn supply,” said Peter Meyer, the senior director for agricultural commodities at PIRA Energy Group in New York who cut his corn- crop forecast after surveying fields in Illinois, Indiana and Ohio last week. “This year may be the worst yet.”
Top Commodities
Corn rallied 14 percent this month to $6.33 a bushel today on the Chicago Board of Trade, trailing only wheat and natural gas among 24 commodities in the Standard & Poor’s GSCI Spot Index, which fell 3.2 percent. The MSCI All-Country World Index of equities rose 1.9 percent, and the dollar fell 0.6 percent against a basket of six currencies. Treasuries lost 0.2 percent, a Bank of America Corp. index shows.
The USDA forecast June 12 that pre-harvest stockpiles at the end of August would plunge to a 16-year low of 21.62 million tons. That’s a 50 percent decline in two years, the most since 1990. Standard Chartered Plcforecast yesterday a third-quarter average of $7 a bushel, a record for the period. The cost of an option conferring the right to buy at $7 by the end of November rose fourfold since mid-June, CBOT data show.
While the USDA’s prediction on June 12 was for a 20 percent jump in U.S. output this year to a record 14.79 billion bushels, the harvest is about two months away and dry weather across the main growing region comes as plants begin to pollinate. That’s the most vulnerable period in the growing cycle, so the next two weeks are crucial, Dennis Gartman, the author of the Suffolk, Virginia-based Gartman Letter, wrote yesterday. Meyer expects the crop to total 13.5 billion bushels.
Third Quarter
About 71 percent of the Midwest had abnormally dry soil to extreme drought on June 19, the worst in more than a decade and up from 1 percent a year earlier, according to the University of Nebraska at Lincoln. Crop conditions on June 24 were the worst for that time of year since 1988, with 56 percent rated good or excellent, down from 77 percent on May 18, USDA data show. The National Weather Service said June 21 that unusually warm, dry conditions would probably continue into next month.
Slower growth and rising Brazilian supply may contain the rally, Rabobank International analysts led by Sydney-based Luke Chandler said in a June 21 report. The bank cut its third- quarter forecast to $6.10, from $6.20 a month earlier. Corn demand rose 1.3 percent in 2009 as economies contended with recession, from a 6.6 percent expansion in 2008, USDA data show.
A 21 percent jump in Brazilian production will reduce demand for higher-priced U.S. supplies, Rabobank said. Purchases by U.S. ethanol refiners may also weaken after retail gasoline prices tumbled 14 percent to $3.397 a gallon from a 10-month high on April 4, the analysts said.
Hedge Funds
Losses from ethanol refining increased from about 13 cents to 15 cents a gallon at the start of May to the “high 20s,” Patricia Woertz, ADM’s chief executive officer, told investors at a Deutsche Bank AG conference in Paris on June 19. The company shut a plant because of poor returns, she said.
Hedge funds and other large speculators are still less bullish than over most of the past two years, holding a combined net-long position of 70,715 futures and options in the week ended June 19, U.S. Commodity Futures Trading Commission data show. That compares with a two-year average of 257,000 contracts.
“The number of bushels being subtracted daily from the U.S. crop is running over any worries about a decline in demand,” said Marty Foreman, an economist at Doane Agricultural Services Co., a farm and food-company researcher based in St. Louis. “Until we see significant and widespread rain in the Midwest, no one knows how far yields can fall this year.”
Commodity Research
Global demand for corn has expanded for 16 straight years and will reach a record 865.5 million tons in the 12 months ending Oct. 1, 2012, USDA data show. World inventories on Oct. 1, 2011, were equal to about 15 percent of consumption, the lowest ratio since 1974. U.S. yields failed to keep up, slowing to annual gains of 1.8 percent since 1996, from 4.3 percent in the four decades to 1970, according to government data.
The Midwest drought probably will spur the USDA to cut its estimate for 2012 corn yields next month, Hussein Allidina, the New York-based head of commodity research at Morgan Stanley, wrote in a June 19 report.
Lower yields will boost demand for fertilizers, and investors should buy Potash Corp. of Saskatchewan and CF Industries Holdings Inc., Charles Neivert, a managing director at Dahlman Rose & Co. LLC in New York, wrote in a report June 25. Saskatoon, Saskatchewan-based Potash is the world’s biggest fertilizer producer. Deerfield, Illinois-based CF Industries is the top maker of nitrogen fertilizer in North America.
Smithfield Foods Inc., the largest U.S. hog producer, said costs to raise an animal rose $10 to $64 per 100 pounds of pork in the year ended April 29, Chief Financial Officer Robert W. Manly told analysts on a conference call June 14.
Chicago Board
Stockpile forecasts by analysts and traders missed the USDA’s figures by 215 million bushels on average in the past two years, twice as much as in the previous five years, according to data compiled by Bloomberg. Futures moved by the maximum allowed on the CBOT after seven of the past eight reports, with an average swing of 5.9 percent. Inventories are getting harder to predict as growers build more silos on their land rather than using commercial grain elevators.
Cash prices for corn in central Illinois, the second- biggest producing state after Iowa, rose or fell an average of 6.6 percent the day of the past five quarterly reports, government data show. That compares with an average of 2.7 percent in the previous 17 years.
“Yield growth has slowed at a time when global demand is exploding,” said Steve Nicholson, the chief economist for International Food Products Corp., a distributor and adviser on food ingredients in Fenton, Missouri. “A third year of U.S. crop problems is something the world cannot stand this year.”
–Editors: Steve Stroth, Daniel Enoch
I made the mistake in Orange Juice futures back in 2004. Having bought OJ at 26 year lows I was very excited as 4 consecutive Hurricanes tore through Florida decimating the orange groves. I got out of the trade when the prices had near doubled (about a 10 fold return on my investment) and watched in despair as prices ultimately quadrupled on the basis that you can’t get oranges to maturity in just a year or two.
So while Corn and Wheat are annual crops and differ to Oranges in that regard, the fact remains that stocks are so low, meaning that a rebuild to normal historical levels will be a long time coming.
Regards G.
NZD/AUD - Strong NZ GDP should cement higher levels
All
Fundamentals for a higher NZD/AUD have been lining up very nicely of late.
NZ house prices up, Australian house prices down. Numerous Australian businesses are shifting operations to N.Z. The RBA have been cutting interest rates (1.25% off their cash rate since November) whilst the RBNZ gave guidance last week that their next move is likely to be a hike in Q2 2013. One can now argue this GDP result sets the scene for an earlier rise given anecdotes about Q2 are already strong (ANZ have a new indicator, their ‘Truckometer’. That measure jumped 3.3% in May, the largest in the series (brief) history. The Truckometer should be the earliest of indicators that business and the movement of goods is improving).
NZDAUD – Click here to view chart
Regards
G.
USD/JPY - another voyage to the dark side
All
The USD/JPY jumped sharply in response to the FED’s relative lack of new easing programs, tracing out a simple ‘bullish engulfing day’ in the process. The technical set up simply looks like a break of the recent downtrend, consolidation and then the green shoots of a new uptrend.
USDJPY – Click here to view chart
Regards
G.
Markets littered with reversal signals
All
I am a bear.
Thus I believe this week’s upswing in markets has simply been a correction against the prevailing trend. In that case these daily chart patterns interest me hugely.
S&P500 – Opened on the lows, rallied nicely and closed smack bang down where it started. Suggests good selling pressure resides above current levels. Tonight’s action will be key.
S&P 500 – Click here to view chart
Copper (Dr Copper that is!) – Big range , opening and closing where it started. Reeks of uncertainty. Watch the next day for confirmation.
Copper – Click here to view chart
AUD/USD – Finished lower than where it started the day despite the outstanding local news. Not a good sign.
AUD/USD – Click here to view chart
Cheers
G.
