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Money Matters
- NZD/AUD - Further update
- Last week in equities
- NZD/AUD - Update
- NZD/AUD - Time to buy again?
- Break the bank! Could the EUR/CHF peg break?
- Chart of interest - S&P v CRB
- Coffee - good progress for option holders
- Chart of interest - China stocks and AUD
- Gold - time to re-enter longs
- NZD/USD - The standstill provides opportunity
- View archive...
Money Matters
Viewing entries tagged with 'Futures'
NZD/AUD - Further update
All
Further to my piece NZD/AUD – Time to buy again? (dd 25/05) it has been suggested that it is time to lift stop losses as part of prudent account risk management following on from the overnight low seen on the massive Australian GDP report. If Australian jobs today surprise on the upside, confirming yesterday’s news, then being long NZDAUD may not be warranted.
G.
Last week in equities
All
The sharp declines in global equity markets last week traced out ‘bearish engulfing weeks’ in a number of indices, strongly suggesting that further falls will be seen over coming weeks.
From my observations over the years, the ‘engulfing’ signals, be it bullish or bearish, are one of the more reliable indicators around.
In the case of last week, the markets were already in a multi-week downtrend when they tried to rally early in the week (breaking the run of lower highs – which should be a bull signal) only to collapse and finish on their lows (and making a new low for the trend). That is bearish price action and shows that the sellers are highly motivated.
This price action throws up many trading possibilities including shorting the index’s themselves via CFD’s or Futures contracts or selling the risk currencies like NZD and AUD (AUD the most vulnerable right now?).
The S&P500 – The ‘big board’ as they say.
S&P 500 – Click here to view chart
The Dow, the Nasdaq and the German Dax all made the same pattern.
Regards G.
NZD/AUD - Update
All
A couple of the local banks (WBC, ANZ) have today put out ‘buy’ recommendations out on NZD/AUD in line with my thoughts (NZD/AUD – Time to buy again? – dd 25 May). The ANZ report in particular has some excellent material explaining why the NZD should be higher. Get your hands on it if you can.
However, there is one noticeable development above all, that has caught my eye and screams that the NZD is undervalued against the AUD.
That is, the increasing number of Australian firms closing arms of their business in Australia in favour of increasing operations here in NZ. I heard of another example this morning on the radio but can’t for the life of me recall who it was. However here is an Australian article dd 18 April (a little old) that explores the reasons why Woolworths, Imperial Tobacco and Heinz are part of this trend.
http://www.smh.com.au/business/australian-jobs-on-the-move-to-nz-20120417-1x5jv.html
This trend is developing because the NZD/AUD is so low and the very fact that this is happening will, in due course, bring the cross rate back to higher levels (long term average is 0.8400). Indeed one could argue that if Australian business fully embraced this new trend then the cross would ultimately be 1:1.
Regards G.
NZD/AUD - Time to buy again?
All
There is no doubt that world growth is slowing and early indications are that China too is slowing at a much faster rate than has previously been anticipated.
In this environment, the one currency that looks the most vulnerable to me, is the Australian Dollar (AUD). Over the last 4 years the Aussie has been a huge beneficiary of major investment flows given it’s relatively high yield, its position as a proxy for Chinese growth and its AAA sovereign rating. The ‘long’ positions must be enormous.
In November the RBA started cutting interest rates. To date they have cut a full 1% off the cash rate from 4.75% to 3.75%. During this time the RBA have remained relatively upbeat stating that although the economy was clearly ‘two speed’ (East Coast retail, finance and housing industries very weak – West/North mining booming) the spend from on-going mining investment (capex) would hold the economy in good stead. However, in the last speech on record, the RBA noted that the flow through from mining hadn’t supported the economy quite as much as they expected. Hot on the heels of that significant statement the giant corporate BHP advised that their proposed $80 billion capex program was to be pared back as they saw demand for their products waning. Not good, the last bastion of Aussie growth being undermined (pun intended).
Thus more rate cuts look likely in Australia over time. Contrastingly, whilst the data out of New Zealand has been soft of late, the hurdle to a RBNZ rate cut from the already ‘emergency’ setting of 2.5% looks very high. The likely fillip from the Canterbury situation certainly a major factor in that view. The NZD/AUD is historically very sensitive to a narrowing interest differentials. And this cross is a nice diversification away from pure AUD/USD if you’re already on that trend lower.
Technically the chart looks supportive of this view. The uptrend line off the ‘double bottom’ low of late last year looks to have held nicely this week.
NZDAUD – Click here to view chart
Cheers G.
Break the bank! Could the EUR/CHF peg break?
All
Recall George Soros and how he ‘broke the Bank of England’ with his US$10 billion bet that they couldn’t hold GBP at US$2.00 ? If you don’t then I can tell you, he made his fortune, see here…..
http://en.wikipedia.org/wiki/George_Soros
Well the Swiss National Bank made a similar undertaking to that of the BoE last year effectively ‘pegging’ the CHF to a level of 1 EUR = 1.2 CHF
Here’s a chart. As you can see the market has slumped to the defence level of 1.2000 for the last couple of months (finger in the dyke stuff???).
EURCHF Daily Candlestick – click here to view chart
Ok, so as one of my well-travelled and experienced clients wrote to me this week:
Graham
Desperate is the word. The ULTIMATE safe haven is the Swissy and gold, not the USD.
Especially when there is now a strong likelihood of civil unrest in Greece, and probably France a little later down the track.
Anarchy puts a new slant on the value and accessibility of cash.
We have never since George Soros nearly rolled the BOE 30 years ago seen a government beat the market.
My money is still on the Swissy being overpowered with buyers.
So it was with considerable interest that I noted this piece from my subscription to Thomson IFR Markets today…..
BUZZ-Talk of large EUR/CHF sales overnight
May 23 8:29pm
- Trader chatter of 8 yards of EUR/CHF sold overnight @ 1.2010
- Likely that the flow contributed to 1.2620 in EUR/USD breaking
- SNB working overtime these days
So that chatter is that some fund or funds sold 8 billion EUR and bought CHF. The Swiss National Bank (SNB) do not want the CHF stronger as it hurts their exports (just like NZ). The question is why are these funds doing this if they think the SNB can defend the line?
My understanding over the years is that the market is ALWAYS bigger.
Regards G.
Chart of interest - S&P v CRB
All
Quite an enlightening chart here of the breakdown of the previously highly correlated relationship between U.S. shares (S&P) and commodities (CRB). Since the onset of the GFC the two asset classes have been highly correlated as the FED’s non-traditional monetary policy moves (read – Quantitative Easing programs) supported both. The last 6 months however have seen a distinct breakdown of the relationship.
My fear is that commodities are telling us that all is not well with the world and that equities are going to fall (play catch up).
Anyone out there got a different spin? I’d be interested to hear.
Cheers G.
Coffee - good progress for option holders
All
Coffee has eked out some excellent technical signals in the last 2 days, rising 4% over that period. Those that purchased the highly speculative Call options should be excited!
News (source Reuters) - * Market digested Brazil’s official 2012/13 crop estimate, which was lower than many private forecasts – traders.
* Brazil’s agriculture ministry said on Thursday it estimated its 2012/13 coffee crop at 50.45 million 60-kg bags, compared with a range of 49 million to 52.3 million bags forecast in December.
Coffee Daily Chart – click here to view
P.S. It is not too late to get on this trade as we are only returning to levels where the early movers got in.
Regards G.
Chart of interest - China stocks and AUD
All
Chinese shares have been heavily beaten down over the last 2 years. However yesterday’s action looks to me to be a potentially significant break higher.
Chinese Shares – click here to view chart
Taking a look at AUD/USD I have the AUD/USD testing, and rebounding, off CRUCIAL support at 1.0280 last night.
AUDUSD – click here to view chart
I wonder if the China stock move may come into play going forward (U.S. shares of course are doing very well too with the Dow at 4.5 year highs) overriding the recent focus on the big RBA rate cut which is somewhat old news (and the accompanying statement was, well….. rather neutral).
Regards G.
Gold - time to re-enter longs
All
Gold has been somewhat out of the market focus in recent months. Indeed, the views that have been coming across the wires have largely been of the bearish variety, which is a huge turnaround from the sentiment prevailing over the last 5/7 years.
If we view Gold from the context of being the 3rd currency, rather than a commodity, then the case for owning Gold over EUR and USD is once again strong. Euroland continues to be fraught with danger whilst the recent upswing in U.S. data earlier in the year appears to be fizzling out.
So under the umbrella of the old contrarian market quote “when they’re yelling you should be selling and when they’re crying you should be buying” I’m suggesting buying Gold here and now.
The charts as I interpret them look quite compelling.
Fig 1 – Gold weekly Chart. Bullish reversal week where Gold pushed lower than the previous week but ended above the same week. Typically a sign of significant buying pressure.
Gold Weekly Chart – click here to view
Fig 2 – Gold daily Chart. In 3 of the last 8 trading days Gold has looked to push lower only to rebound and finish on its highs. Again this is typically a sign that the sellers have run into significant buying interest.
Gold Daily Chart – click here to view
Fig 3 – Gold Hourly Chart. Overnight an unusual selling event occurred in the Gold market which culminated in a brief trading halt on the Comex Exchange (see article pasted below). Interestingly the sharp selloff stopped at my (BRILLIANTLY PERFORMING !!!!) proprietary model which is pushing up, suggesting to me that Gold is indeed building a base here for higher.
Gold Hourly Chart – click here to view
DJ CME Group: Gold’s Slide Triggered Brief Trading Halt
By Tatyana Shumsky
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)–CME Group Inc. (CME) instigated a brief trading halt in gold futures Monday morning amid a violent downdraft in gold prices, the exchange told Dow Jones Newswires.
A so-called Stop Logic trading halt kicked in at 8:31 a.m. Monday, pausing trade in the Comex June-delivery gold contract for 10 seconds, a CME spokesman said.
“The market is given a short period to recalibrate and in this instant it was for 10 seconds,” he said.
“It only happened in gold futures, in the June gold contract,” the spokesman added.
Gold prices fell around $15 in that minute of trading, as 7,500 gold futures contracts worth around $1.24 billion changed hands.
Stop Logic is software which detects when market movement triggers stop-price orders and introduces a short pause in order matching, according to CME’s website. This means that buyers and sellers can continue to enter their bids and asks into CME’s systems, but these orders won’t be cross-matched and won’t result in any trades.
-By Tatyana Shumsky, Dow Jones Newswires; 212-416-3095; tatyana.shumsky@dowjones.com
(END) Dow Jones Newswires
April 30, 2012 15:43 ET (19:43 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.
Tuesday 01 May 2012 05:43:00.000 AEST
There are two significant supports close at hand providing very good risk/reward setups for those with an inherently bullish view on Gold. Those interested should call in so that we can tailor a trade to your personal needs.
Regards Graham
NZD/USD - The standstill provides opportunity
All
The NZD/USD pair has been in a particularly tight range for the last 7 weeks. This lack of direction in the pair is presumably down to conflicting forces competing but no one factor prevailing.
NZDUSD – click here to view chart
Whilst this activity can frustrate the active trader it does present significant opportunity for those with a longer term horizon in mind. You see, as the ranges dwindle, the core input for pricing options, the volatility measure, declines accordingly. This phenomenon provides scope to prepare break out strategies at very good prices.
This is nothing other than abiding to the No1 core trading rule………………………. ‘BUY LOW, SELL HIGH’.
In this case we are buying FX options very cheaply and when inevitably, volatility returns to the NZD, the options increase in value.
Whilst I have a very downbeat view of global economic prospects (and thus the NZD) I cannot, as a trader, sit here arrogantly suggesting that the range breakout will certainly occur to the downside. Thus a simple two-directional break out strategy is suggested (there are many but I profile the most simple of them here – the Straddle).
I am going to buy both ‘the right to buy’ and ‘the right to sell’ NZD/USD at 0.8165 (current market rate) into the future.
1 month – Cost is 0.0199 points. So I need the pair to be above or below 0.8364/0.7966 in 1 month
2 month – Cost is 0.0291 points. I need above/below 0.8456/00.7874
3 month – Cost is 0.0376 points. I need above/below 0.8541/0.7789
Now invariably options look expensive on the day you look at them but the number of times my clients have thanked me only a matter of days after we’ve written them is significant.
Obviously for those traders that do have a strong directional bias, the low volatility measure will have a beneficial effect on those wishing to buy one directional options.
Regards G.
