.jpg)
Friday, January 10, 2014
KRUGER INSIGHTS FRIDAY, JANUARY 10, 2014
By: Joel Kruger
Even If I Had It.. - A good deal of volatility is expected today with the release of the highly anticipated monthly employment report out of the US. The trouble is, it has become increasingly difficult to project how the market will react even with the knowledge of the result. If you told me right now, ahead of the release, what the result would be, it would give me no added confidence to make a directional call. I can honestly say that at this point, no matter what the result, I would be able to make a solid argument for a move in either direction. The US Dollar could go up on a good print because the data is positive and this would mean the Fed would be more prepared to taper further. The US Dollar could also go down on a good print because market conditions are improving and the economy is stabilizing which should translate into a more stable global economy and incentivize investment into higher yielding currencies. Similarly, US equities could rally on a good print because the economy is improving and Fed policy is still expected to remain ultra accommodative for some time to come, even if there is some insignificant tapering going on. But US equities could also sell off hard on a good number because market participants start to look further ahead and realize that if equities are truly forward looking, then it might be worth booking profits on the anticipated Fed shift.
Trade The Reaction - So I stand here today telling you all that from my perspective, the compelling trade set-ups won't come from the immediate reaction post data, but only once (and if) markets make some initial wild moves. I believe the good opportunities will present if we get some violent swings in one direction or another. When you get into a situation like today where it is difficult to say what the market would do even if you had the knowledge of the release ahead of time, it reflects a high level of uncertainty. As such, any hyperextended moves post release, should present fantastic counter-trend set-ups on the rationale that a compelling argument could just as easily be made for a move in the opposite direction. Over the medium-term, my bias is long US Dollar and short US equities, so for me, I would really get excited with a market reaction that produced a sharp sell-off in the US Dollar and surge in US equities. But the point of all this is that you should worry less about trading the news, and focus more on the opportunities that could arise from the post-news reaction. If you would like me to get more specific with my recommendation for trading post event risk, I would say look for two things and then trade in the opposite direction. 1) Look for the market to be highly overextended on an hourly chart. 2) Look for the market's average daily range to have already been exceeded. If these two criteria are met before 11am NY time, I believe you could get a really nice counter-trend trade. If at the close of Friday trade nothing has happened, walk away and look forward to new opportunities in the week ahead. Have a good one!
Thursday, January 9, 2014
KRUGER INSIGHTS THURSDAY, JANUARY 09, 2014
By: Joel Kruger
Non Event Risk - Market participants will be digesting some central bank event risk on Thursday, although I am not too sure we should expect much at all from the ECB or BOE. Both central banks are widely expected to leave policy unchanged and the only real point of interest is whether or not Mr. Draghi makes any reference to the recently softer than expected inflation data and the potential influence on monetary policy going forward. Overall, everything really still comes down to developments out of the United States and the direction of Fed monetary policy. The recent shift towards a path of tightening, although quite mild, is nevertheless a move in a different direction, and has set the wheels in motion towards higher rates. It all comes down to the economy now and whether or not indicators are supportive of further tightening...sorry tapering. As such, tomorrow's monthly jobs report will be critical. If we see anything like what we saw on Wednesday with the ADP report, the NFP print could further solidify Fed commitment to separate from historic ultra accommodation.
The Grand Rotation - All of this favors the US Dollar over the medium-term, with yield differentials expected to continue to narrow back in favor of the buck. This is now a story of mass rotation, which should see money flow back into the US Dollar. The currencies most at risk going forward will be those currencies that have been heavily reliant on foreign inflows to support growth. In recent years, US Dollars have flown into commodity bloc and emerging market economies on the appetite for yield and comfort of a short-term decoupling from the US crisis. But now everything is coming full circle, and these economies will be highly exposed going forward. While I do believe that even the major currencies will trade lower against the buck, the setbacks here will pale in comparison to the anticipated weakness in the commodity bloc and emerging markets. We have already seen relative underperformance here, with many of these currencies getting hit hard in 2013. But expect more of the same in 2014.
Stubborn Holdouts - Interestingly enough, there are still some currencies that have failed to respond to this anticipated rotation, but I don't expect these currencies to be able to hold out much longer and would be looking for underperformance with these currencies over the coming months. The New Zealand Dollar and Israeli Shekel both stand out to me, and although the fundamentals have arguably been supportive to date, both of these economies have been ignoring the influence of external factors on their local economies. Moreover, both economies are showing some serious discomfort in their respective housing markets, which could only exacerbate the outlook for the currencies, once market participants start to book profits. I have already been trading in and out of short NZD and ILS positions, and will continue to look for opportunities in the weeks ahead. Moving on, keep an eye on EUR/CHF, the USD/JPY and US equities over the coming sessions. Though all of these markets have been very well bid of late, I don't expect this to last much longer. Weakness here will likely act as the catalyst for a sell-off in the other markets already highlighted above.
Tuesday, January 7, 2014
KRUGER INSIGHTS WEDNESDAY, JANUARY 08, 2014
By: Joel Kruger
Jobs, Jobs, Jobs - Moving on, EUR/CHF has catapulted back towards 1.2400 in recent trade, and the SNB is breathing out a bit. However, I am not sure this cross rate is out of the woods just yet, and believe the market will once again find some very decent offers into 1.2400. I still believe we could see another sharp pullback towards 1.2000 in 2014. Elsewhere, GOLD is back under pressure after stalling out around $1250. I had warned that only a break above $1270 would alleviate downside pressures, and for now, it looks like the market could be carving a lower top ahead of the next downside extension back below $1180. Finally, US equities remain as stubborn as ever and refuse to relent, despite the surge to fresh record highs and need for a healthy corrective retreat. The S&P will need to break back below 1820 to trigger some stops and open the door for the anticipated reversal. Until then, there is no good reason to be feeling overconfident with the prospect for the most recent peak at 1850 to stay intact. The market will now start to position for employment data out of the US, and the results could do a good deal to influence price action going forward. ADP data will be digested on Wednesday, initial jobless claims Thursday, with everything culminating on Friday on the monthly NFP report. Market participants will assess these results and then speculate on what they feel this should mean for Fed policy going forward.
Subscribe to:
Posts (Atom)