Showing posts with label FOREX = CURRENCY. Show all posts
Showing posts with label FOREX = CURRENCY. Show all posts

Tuesday, January 5, 2016

The Best And Worst Performing Assets Of 2015

Late in 2015, Germany's Handelsblatt reported, erroneously, that Venezuela was the best performing asset class of 2015.
The Best And Worst Performing Assets Of 2015

It wasn't. The reason this was in error is because if one adjusts the returns into the real currency exchange rate, one which reflects the true implosion of the economy, instead of the government "mandated" one, the result is very different, one which shows that contrary to popular wisdom, during hyperinflation stocks are not a good store of value.
The Best And Worst Performing Assets Of 2015

So what were the real best and worst performing assets of 2015? Here, with the full breakdown in both local currency and USD-redenominated terms, is DB's Jim Reid.
* * *
With markets wrapped up for 2015 now, reviewing the performance of asset classes last year shows that it was one where negative asset class returns were aplenty, while those finishing in positive territory were few and far between.
Indeed, of the 42 assets we monitor in Figure 5, just 9 finished with a positive return in Dollar-adjusted terms over the full year. Of these, the big winner was the Nikkei (+10.4%) - boosted by the accommodative BoJ and relatively stable Yen. In the periphery we saw both Portuguese (+6.5%) and Italian (+3.9%) equity markets also close higher, while in China the Shanghai Comp (+6.2%) finished up for the year but not without some huge volatility over the 12-months and of course ending well off the highs it posted back in June.
The S&P 500 (+1.4%) also closed just about in positive territory for the year on a total return basis although that performance was the worst for the index since 2008 as energy stocks clearly weighed for much of the year, while there was a similar return for US Treasuries (+0.8%).
At the other end of the scale there were some notable losers for us to pick out. In particular it was Oil which stole the limelight with huge falls for both Brent (-44.1%) and WTI (-30.5%) while Copper (-24.4%), Wheat (-20.3%), Silver (-11.7%) and Gold (-10.4%) were also hard hit. Both political and economic fragility saw Brazil (-42.0%) and Greece (-30.3%) fall the most in the equity space while EM equity markets finished with a broad -14.8% decline.
US Dollar strength was a big theme for 2015 as evidenced by the lack of winners above with the Dollar index returning a hefty +9.3% for the full year. This meant there were decent falls for the Euro (-10.3%), Aussie Dollar (-10.7%) and Canadian Dollar (-16.1%).
In local currency terms Russian equities (+32.3%) came out on top along with some of the peripheral markets. In the credit space it was the divergence between European and US credit which was most notable. Reflecting the higher exposure to energy credits, US HY closed with a -5.0% loss for the full year, while US IG was down a more modest -0.4%. In Europe we saw EUR HY finish +0.5% and EUR Sub Fins +1.4%, although EUR IG Corp was down -0.7%. Again converting this into US Dollar terms results in any gains for European credit being wiped out and in turn underperforming US credit for the full year.
The Best And Worst Performing Assets Of 2015

Saturday, October 3, 2015

Number crunching: The impact of China's currency devaluation

In mid-August, China shocked markets by devaluing the yuan.
Today's infographic looks at the impact this had on global currencies using three different time frames:
1 day, 1 week, and 1 month.
Number Crunching: The Impact of China’s Currency Devaluation
In the grand scheme of things, China’s mid-August currency devaluation spree was a drop in the bucket. Since the Financial Crisis, countries have routinely printed money, kept rates pegged artificially low, and found other ways to get temporary competitive advantages with cheaper currency.
While the People’s Bank of China has made some questionable interventions, China’s currency itself has been pegged to the US dollar officially or unofficially since its early history. With the US dollar climbing wildly against most global currencies since mid-2014, the yuan climbed along with it. China’s currency appreciated against all other major Asian currencies, which erased the country’s manufacturing cost advantage and trade surplus. In retrospect, it is almost surprising that they kept the reference rate where it was for this long.
The strong reaction from markets and media was more from the angle that even slightest movement made by China can create a ripple effect on fragile global markets. China, for a better lack of an analogy, is a bull in a china shop. Its economy and currency are seen as important bellwethers and when the PBOC makes an announcement, people listen.
That’s why in mid-summer, markets got volatile in a hurry. China devalued its currency by 1.9% on August 11 and made some smaller changes since then. The country also announced adjustments to how it would calculate its onshore reference rate moving forward.
Today’s infographic looks at the reaction in currency markets in three timeframes after the event: 24 hours, one week, and one month after.
Some currencies, like the euro, appreciated against the Chinese Renminbi right away and maintained that momentum. The euro went up 2.06% in the first day, and then continued to appreciate to 5.73% by the end of 30 days. Others swung back and forth wildly: at first the South African rand was up 0.71%, but then it ended as the biggest loser against the yuan at -4.24% over the course of a month.
Despite the mixed reaction from different currency markets, the reason China did this was clear. The country wanted to promote convergence in its onshore and offshore rates, and it has also been trying to woo the IMF for some time to be included in the IMF’s basket of reserve currencies called Special Drawing Rights. The latter move is a part of China’s posturing to eventually better internationalize the yuan.
As a side benefit of the devaluation, China also gets temporary relief in promoting exports at a cheaper price – though this will only last until the next country takes action in the game of currency war hot potato.
Original graphic by: Inovance

Sunday, August 23, 2015

Carnage: Worst Week For Stocks In 4 Years, VIX Soars Most Ever

Carnage: Worst Week For Stocks In 4 Years, VIX Soars Most Ever
  • China's worst week since July - closes at 5 month lows
  • Global Stocks' worst week since May 2012
  • US Stocks' worst week in 4 years
  • VIX's biggest weekly rise ever
  • Crude's longest losing streak in 29 years
  • Gold's best week since January
  • 5Y TSY Yield's biggest absolute drop in 2 years
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Did you get message Fed?

So let's start with stocks...
Bloodbathery... This was the worst week for global stocks (MSCI World) since May 2012

And the worst week for US equities since Nov 2011...

Futures show the pain started with China PMI, then dumped as Europe collapsed,  then there was no help from the machines as gamma was so imbalanced...

Of course we saw The BoJ in da house to help squeeze stocks with some USDJPY crushing...but that only worked for the small caps (easiest to squeeze)... and then it all collapsed...

Dow enters correction... this was the 9th largest point drop in the history of The Dow...

And The VIX ETF saw its biggest 2-day rise since 2011 (no wonder with 61.7mm shares short against just 60.6mm outstanding)

and before we leave stock-land, her is perhaps the 'spookiest' chart... a Fibonnaci 61.8% extension of the 2007 high to 2009 lows 'nails the top' for now... (h/t @allstarcharts )

FX was a disaster...

Thursday, August 13, 2015

Emerging Market Currencies To Crash 30-50%, Jen Says

Less than 24 hours ago, we argued that although it might have seemed as though Brazil hit rock bottom in Q2 when it suffered through the worst inflation-growth mix in over a decade, things were likely to get worse still.
The country, which is also coping with twin deficits and a terribly fractious political environment, is at the center of what Morgan Stanley recently called “a triple unwind of EM credit, China’s leverage, and US monetary easing” and now that its most critical trading partner has officially entered the global currency war, all roads lead to further devaluation of the faltering BRL. 
And it’s not just the BRL. As Bloomberg reports, former IMF economist Stephen Jen (who called the 1997 Asian crisis while at Morgan Stanley) thinks EM currencies could fall by an average of 30% going forward on the back of the PBoC’s move to devalue the yuan. Here’smore
[The] devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil's real to Indonesia's rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen.

Volatility measures were already signaling rising distress in emerging markets even before China's shock move. An index of anticipated price swings climbed above a rich-world gauge at the end of July, reversing the trend seen for most of the past six months.

Emerging Market Currencies To Crash 30-50%, Jen Says

"If this is the beginning of a new phase in Beijing's currency policy, it would be the biggest development in the currency world this year,'' said Jen, founder of London-based hedge fund SLJ Macro Partners LLP. "The emerging-market currency weakening trend is now going global.''

Latin America is a particular concern because of the region's high levels of corporate debt, said Jen

Jen recommends selling the real, rupiah and South African rand -- all currencies of commodity exporters, which rely on China for a large chunk of their foreign earnings. 

As well as the drop in raw-materials prices, the prospect of higher interest rates in the U.S. has also drawn away investment, pushing a Bloomberg index of emerging-market exchange rates down 20 percent in the past year. A Latin American measure headed for its 13th monthly loss out of 14, while an Asian gauge plunged Tuesday to its lowest in six years.
And a bit more color from WSJ:
If China’s devaluation deepens, pressure to weaken currencies could become particularly intense in other Asian nations that export large amounts to China or compete with Beijing in other markets. Asian currencies tumbled on Tuesday, notably the South Korean won, Australian dollar and Thai baht, as investors bet China’s move could lead to further monetary easing in those nations. Many Asian nations have cut rates this year and could be forced to take further action in coming months.

“A new theme has emerged—one of Asian currency weakness,” said Wai Ho Leong, an economist in Asia at Barclays.
To be sure, it's all down hill from here, and on that note, we'll reprise our conclusion from last week's "Emerging Market Mayhem" piece: Between an inevitable (if now delayed) Fed hike, stubbornly low commodities prices, the entry of the world's most important economy into the global currency wars, and, perhaps most importantly from a big picture, long-term perspective, a seismic shift in the pace of global demand and trade, we could begin to see a wholesale shift in which the markets formerly known as "emerging" quickly descend into "frontier" status and after that, well, cue the "humanitarian aid" packages.
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Here's a look at the damage since Monday, right before the devaluation:
Emerging Market Currencies To Crash 30-50%, Jen Says

Saturday, March 14, 2015

These are the most bullish gold price charts you'll see today

Amid a fresh sell-off on US equity markets (third down week in a row) and another crude oil rout (down 9.6% for the week), gold managed a small gain on Friday with April futures finding a thin cushion against the crucial $1,150 an ounce level.
Gold's resilience is all the more remarkable since it's been into the teeth of a rabid dollar. Gold historically has inverse relationship to the value of the USD and on Friday the greenback jumped back above the 100-mark against the world's major currencies to the highest since early 2003.
That compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce. The first chart from a new research note by Julian Jessop, Head of Commodities Research Capital Economics, shows just how big a gap has opened up between the dollar and the gold price.
While the two do diverge from time to time (look at the pattern at the height of the global financial crisis) all things being equal you could expect gold to be trading closer to $400 an ounce at the moment. That supplies plenty of upside for gold once the dollar retreats from its lofty heights, which eventually it will.
These are the most bullish gold price charts you'll see today

An even closer negative correlation exists between the gold price and US inflation-adjusted interest rates (Treasury Inflation Protected Securities or TIPS).
Some analysts go so far as to say that the correlation is so strong that the gold price can be used as a predictor of interest rates, serving as an early warning system of both the direction and magnitude of the move in rates.
The underlying reason for the relationship is that as US yields rise – as is widely expected – the opportunity costs of holding gold increases because the metal is not income producing. The expectations of higher rates in the US is also a major factor behind the surging dollar.
Taking chart number two at face value, the eventual return of US real yields to more normal levels of around 2% would be consistent with the gold price falling back below $1,000 per ounce. But real yields have remained stubbornly low and the second chart would suggest gold should be scaling $1,400 right now.
A level which Capital Economics predicts we'll reach by the end of the year.
These are the most bullish gold price charts you'll see today

Wednesday, January 28, 2015

The History Of Global Crises Through The Eyes Of The US Dollar

Which is better: a stronger dollar or a weaker dollar? You decide...
The History Of Global Crises Through The Eyes Of The US Dollar

"King Dollar" met Queen Caterpillar this week and awoke the beast of broken narratives that a strong dollar may not be the 'unambiguously good' thing so many proclaim it to be. However, with the rest of the world competitively weakening their currencies (in order to 'help' their economies), we hope the chart above will help readers decide which they prefer... a stronger (US multinational-crushing) dollar or a weak (domestic drag) dollar?

Thursday, January 22, 2015

S&P Surges As ECB's QE Leaked: Board Proposes €50 Billion In Bond Monetization Per Month

And so with less than 24 hours to go, the ECB has decided to leak its deliberations not only to Merkel and Hollande, but Dow Jones. To wit:
More as we see it, but if indeed this will be a program without risk-mutualization and conditional and limited burden-sharing, where the hope was that Draghi would "shock and awe" the world with the size of the bond purchasing program instead, €600 billion per year looks decidedly on the low side of any "surprise" announcement where the whisper number was for €1 trillion per year, and if indeed this is the final formulation may result in a substantial disappointment for stocks after the initial kneejerk reaction.
More from the WSJ which broke the news first, and was followed by Bloomberg and Reuters:
A proposal from the European Central Bank’s Frankfurt-based executive board calls for bond purchases of roughly €50 billion ($58 billion) per month that would last for a minimum of one year, according to people familiar with the matter.

The ECB’s executive board met Tuesday to decide on the proposal, which will form the basis of deliberations by the entire 25-member governing council on Thursday. The final number and details could change after the full board weighs in on the plan.

Still, the executive board’s proposal indicates that the ECB could move more aggressively than financial markets have expected. Forecasts among analysts have recently centered on a figure of around €500 billion or higher for a quantitative-easing program, but the executive board’s proposal suggests that bond purchases could amount to at least €600 billion.

An ECB spokesman declined to comment.
The knee-jerk reaction
S&P Surges As ECB's QE Leaked: Board Proposes €50 Billion In Bond Monetization Per Month

Friday, January 2, 2015

And The Second Best Performing Currency Of 2014 Is... Gold

And The Second Best Performing Currency Of 2014 Is... Gold
Arguing that gold is not a currency?
GREENSPAN: Yes... Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.

Saturday, December 27, 2014

China To Launch Yuan Swap Trading With Russian Rubles On Monday

China To Launch Yuan Swap Trading With Russian Rubles On Monday
The world was slow to wake up to the new reality in which China is now the de facto IMF sovereign backstop, as Zero Hedge described two weeks ago in "China Prepares To Bailout Russia" when we noted that a PBOC swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze, something we first noted over two months ago in "China, Russia Sign CNY150 Billion Local-Currency Swap As Plunging Oil Prices Sting Putin."
In fact, it was only this week that Bloomberg reported that "China Offers Russia Help With Currency Swap Suggestion." But in order to fully backstop Russia away from a SWIFT-world in which the dollar reigns supreme, one extra step was necessary: the launching of direct FX trade involving the Russian and Chinese currencies, either spot or forward - a move away from purely theoretical bilateral FX trade agreements - which would not only enable and make direct currency trading more efficient by sidestepping the dollar entirely, but also allow Russian companies to budget in Chinese Yuan terms. It is no surprise then that this is precisely the missing step that was announced overnight, and will be implemented starting Monday.
From Bloomberg:
China will allow trading in forwards and swaps between the yuan and three more currencies in a bid to reduce foreign-exchange risks amid increased volatility in emerging markets.

The China Foreign Exchange Trade System will begin such contracts with Malaysia’s ringgit, Russia’s ruble, and the New Zealand dollar from Dec. 29, it said in a statement on its website today. That will extend the yuan’s swaps trading to 11 currencies on the interbank foreign-exchange market.

A plunge in Russia’s ruble this month to a record low sparked a selloff in developing nations’ assets, leading to a surge in currency volatility. The new contracts come amid efforts by China to increase the international use of the yuan, as the world’s second-largest economy promotes it as an alternative to the U.S. dollar for global trade and finance. Malaysia and Russia are China’s eighth and ninth biggest trading partners, according to data compiled by Bloomberg.

This will provide companies with better hedging tools, and at the same time, make currency trading more efficient,” said Ju Wang, a senior currency strategist at HSBC Holdings Plc in Hong Kong. “China won’t stop yuan globalization or capital-account opening because of the volatility in emerging market currencies.”

The CFETS is an agency under the People’s Bank of China.
So while the US continues to parade with "destroying" the Russian economy, even if it means crushing the shale industry, aka the only bright spot, and high-paying job-creating industry in the US economy over the past 5 years, Russia and China continue to be nudged by the west ever closer monetarily and strategically, until one day, as we have long predicted, China and Russia will announce a joint currency, one backed by both China's "surprising" gold reserves and Russia's commodity hoard. Then things will get interesting.

Friday, December 26, 2014

Ruble Rallies 34% After Biggest Russian Intervention In 5 Years

Since the Russian Ruble troughed at almost 80 RUB/USD, it has rallied an impressive 34% erasing most of the dramatic devaluation of December. However, as The CBR just announced, this 'strength' came at a price. Russia burned through $15.7 billion of reserves in the week ending Dec 19th - the biggest percentage weekly drop in reserves since Jan 2009, leaving reserves below $400 billion (still a significant amount) for the first time since Aug 2009. While CBR explained much of this will come back as repo trades mature, Vladimir Putin turned inward, blaming the government for "defects" in restructuring the economy.
The Ruble has soared in the last 2 weeks...
Ruble Rallies 34% After Biggest Russian Intervention In 5 Years
On the heels of the biggest intervention in almost 5 years...
Ruble Rallies 34% After Biggest Russian Intervention In 5 Years
But, as Sputnik news reports, it's not just external factors, Putin points his finger internally...
The difficulties in Russia’s economy are not only because of outside factors, including sanctions, but also because the government has not worked out some defects, Russian President Vladimir Putin said Thursday.

“The difficulties that we have run into carry not only an outside factor. They are not solely tied to some sorts of limitations of sanctions or limitations tied with the objective international environment, they are tied to our not working out defects that have accumulated over the years,” Putin said during a government meeting in Moscow.

Putin said the government has taken efforts in order to change the structure of the economy in order to give it a more innovative nature, but said the efforts were below the needed measures.

“Much has been done in this but the latest events have shown that this is insufficient,” Putin added.

Russia is currently facing an economic slowdown, with dramatic fluctuations seen recently in the value of the Russian ruble against the US dollar and the euro.

The weakening of the Russian national currency is attributed to low oil prices. The sale of oil accounts for a significant part of Russian budget revenues. Economic sanctions imposed on Moscow by the West in the wake of the Ukrainian crisis are also cited among the reasons for the economic slump.

During a December 18 televised press conference, the Russian president said that the country's economic situation could begin to improve in the first quarter of 2015, with Russia's economy recovering completely over the next few years.
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Still it's not like $400 billion is going to disappear tomorrow - for those proclaiming Russia's imminent default. (CDS imply a mere 5% probability of default over the next year based on 25% recovery assumptions)

Wednesday, December 17, 2014

The Russian Ruble Is Hereby Halted Until Further Notice

The Russian Ruble Is Hereby Halted Until Further Notice

Earlier, we reported that various currency brokers such as FXCM and FxPro, would - as a result of the soaring liquidity in the USDRUB pair - suspend trading in the Russian Ruble (while other merely hiked margins to ridiculous levels). It appears things have escalated again, and as FXCM just reported, instead of just politely advising clients not to open new USDRUB position tomorrow, it has advised anyone long, or short, the USDRUB that their positions will be forcibly shut in moments.
So for those curious why there appears to be a collapse in Ruble volatility in the past few hours which in turn has sent both stocks and crude soaring, the answer is simple: nobody is trading it!
And this is what happened following the post: as soon as all those short the RUB (long USDRUB) realized they have to take profits, the USDRUB tumbled some 500 pips (!) in the process sending stocks surging.
The Russian Ruble Is Hereby Halted Until Further Notice

Friday, November 28, 2014

CHARTS: Dollar destruction of commodity prices could be ending

The gold price drifted lower on Thursday falling below $1,200 and down nearly $10 overnight, hurt by a 6% slide in the price of oil.
The two commodities often move in tandem because cheaper crude leads to lower inflation, tarnishing gold attractiveness as a hedge against faster rates of price growth.
The fall in the price oil has given another boost to the US dollar. Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency.
The greenback's rise to near five-year highs against a basket of currencies has pressurized not on the price of gold, but everything from copper and cotton to milk and molybdenum.
InvesTRAC passed on this price graph to indicating that the US dollar's stunning run since May may be close to correcting.
The technical research and investment blog notes the advance from the May low has "unfolded in five waves which ought to be followed by a three wave correction":
The top of wave 5 seems to be tracing out a head and shoulders top and a dip through 87.50 would open the way to violate the uptrend and teat the bottom of wave 4 at 84.50. The technical picture shows InvesTRAC's short term direction indicator has turned down from an overbought situation with the forecaster showing weakness could be expected until the last week of December. So the stage is set for declining dollar and rising to soon get underway.
CHART: Dollar destruction of commodity prices could be ending
InvesTRAC believes the dollar chart confirms movements in the CRB Commodities index and that the decline in the broader commodities index from its June high was probably terminating after a 15.5% decline.
The InvesTRAC short term model shows that the OB/OS indicator has just begun to rise with the forecaster showing a rising ternd into early February. The daily chart below shows a 15 percent rise form the January lows which has more than been taken back by the second half slump…the index has ticked up slightly and is encountering the downtrend with a massive divergence on its RSI. My conclusion is that the worst is over and that we should now (or very soon) see the hard hit commodity prices lifting off their lows.
CHARTS: Dollar destruction of commodity prices could be ending

Sunday, November 9, 2014

Speculators Have Never Been More Long The Dollar

After a brief hiatus the previous week, speculators have piled back into the most-over-crowded trade in the world - Long The US Dollar. As Goldman Sachs notes, overall USD speculative net long positioning increased $2.0bn to $45.7bn - a new record high.Speculators Have Never Been More Long The Dollar
However, as JPMorgan reports, there is some divergences in the types of funds who are long or long-er...
We have used two indicators in the past to gauge investor positioning in currencies: 1) spec positions based on CFTC/IMM data as shown above1 and 2) the beta of currency hedge fund returns to daily currency changes as shown in Chart A18 in the Appendix in the case of the US dollar. The latter is calculated as the rolling 21-day beta of currency hedge fund daily returns to daily changes of the JPM Dollar tradable index. We use the Barclay index to proxy currency hedge fund returns.

Speculators Have Never Been More Long The Dollar
Chart A18 shows some recent divergence between the two suggesting that currency hedge fund USD longs are not as extreme as those of CFTC reporting spec investors. This broader universe of spec investors reported by the CFTC includes, beyond currency hedge funds, macro hedge funds and asset managers. In other words, macro hedge funds and asset managers appear to be more overweight the USD than currency hedge funds. With the caveat that the currency hedge fund betas are volatile and are based on a small sample of currency hedge funds, Chart A18 suggests that the message we get from CFTC positions that USD longs are very extreme should be somewhat diluted.
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King Dollar, however, is not all sunshine and rainbows, as SocGen's Michala Marcussen warns, beware the strong dollar paradox...
Recent currency movements have triggered nostalgia of the pre-crisis world when dollar strength was synonymous with a prosperous global economy. Hope today is that a strong dollar will cap US inflation, delay Fed tightening and boost exports to the US. To make an impact on US inflation significant enough to slow the Fed, we estimate, however, that EUR/USD would drop to 1.10, USD/JPY to 120 and USD/CNY to 6.50 to significantly shift Fed expectations. To our minds, moreover, such a scenario would only materialise if the growth gap between the US and the other major economies were to widen further.

Should recent dollar appreciation, moreover, breed complacency amongst policymakers elsewhere, this risk scenario could become a very painful reality. The paradox is thus that a strong dollar tantrum could be a more worrying scenario than a Fed tightening tantrum.


Several EM economies set to growth at a slower pace than the US: While the consensus growth outlook for the US has improved further in recent months, the opposite has been true for several other major economies, including the euro area, Japan and China. Moreover, our own forecasts remain generally below consensus with the exception of the US, where we are above. This view underpins our expectation of further dollar appreciation. Today, moreover, several EM economies are growing at a slower pace than the US. This is a notable difference from the pre-crisis era and has several implications. First, this lower global growth configuration is one reason why we believe that elasticities linking currency depreciation to growth may now be lower. The correlation between commodity prices and the dollar has also shifted. Finally, we note that capital flows are now moving in a very different pattern.

Dollar and commodities: The link between the dollar and commodity prices has seen several shifts over time. Already prior to the latest moves in currency markets, commodity prices were trending lower in parallel with Chinese growth forecasts. More recently, it seems that dollar depreciation may have been an additional factor driving prices lower. For commodity importers, this is helpful; for exporters, this marks yet a headwind.

Fed tightening may be a better scenario than a very strong dollar: Pre-crisis, in a simplified summary, the strong dollar can be described as having been driven by a global savings glut (mainly from the official sector in emerging economies) seeking a home in US Treasuries and, at the same time, US investors seeking risky capital abroad to profit from strong EM growth. It is also worth recalling that QE1 drove the dollar stronger and supported risky US assets as Treasuries rallied. QE2, on the other hand, saw dollar depreciation as US investors sought return in higher yielding asset abroad, and notably in emerging economies. As discussed above, we believe that a significant appreciation of the dollar relative to our baseline would be consistent with much weaker growth elsewhere.

In such a scenario, dollar would equate to further capital outflows, placing further pressure on already vulnerable economies. Indeed, a “dollar tantrum” scenario could well prove more painful than a “Fed tightening tantrum”, assuming the later comes with better growth in the rest of the world.
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The Long USD Trade...
If you are a trend follower, the trend is your friend.
If you are a contrarian, you might want to go short the USD ...

Wednesday, August 6, 2014

Commodity Currencies

Keeping an eye on the currencies of big commodity producing nations not only provides us insight into demand for commodities but the health of emerging markets as well.

Canadian dollar

Canadian Dollar (CAD) was turned back at the 38.2% retracement of the 2012 decline (part of the 2011 bear market). With the break of the bear flag last week it appears the bear market rally is over.
Canadian Dollar Composite Chart
Larger Image

Australian Dollar

Australian Dollar (AUD) has been like watching paint dry since April. As long as support at 0.92 remains intact we have to assume the bear market rally is too. But with the break down in the CAD the Aussie is probably on borrowed time.
Australian Dollar Composite Chart
Larger Image
The secular bear cycle in commodities is due to end near the end of this year.

Get your copy of the July Lindsay Report at SeattleTA

Monday, August 4, 2014

BofA Warns Euro Bank Stocks Are Rolling Over, "Negative For All Risk Assets"

Despite the recent significant weakness in the broader European and US equity indices, European bank stocks are only just beginning to resume their larger downtrend (as the hopes of a Draghi put remained firm until the last few days of BES debacle). As such, BofA's Macenil Curry believes, they are likely to be the catalyst for the next leg of "risk off" and in that environment EURUSD should continue to suffer.

Via BofAML,

Chart of the week: European bank stocks are rolling over
BofA Warns Euro Bank Stocks Are Rolling Over, "Negative For All Risk Assets"
European bank stocks are resuming their downtrend. The 6 month topping formation (Head and Shoulders Top) points to further downside in the sessions and weeks ahead.
Downside targets seen to 130.52/126.83 (approximately 8%/11% lower from current levels) before renewed basing.
Stay bearish EURUSD
BofA Warns Euro Bank Stocks Are Rolling Over, "Negative For All Risk Assets"
While intra-day and daily charts say that €/$ risks a further corrective squeeze higher, bounces must be sold.
The combination of vulnerable European bank stocks and poor price action say that €/$ should continue lower to 1.3104 and below.