jing

By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter

COT_Commodities_OI

Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC).

The latest COT data is updated through Tuesday May 3rd 2022 and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets.

Highlighting the COT metals data is the recent decline in the Copper futures bets. The speculative net position in the Copper futures has fallen for two consecutive weeks and by a total of -19,408 contracts over that time-frame. This weakness has dropped the current standing for Copper net positions into a bearish position for a second straight week. Last week was the first time Copper has been in a bearish position since June 2nd of 2020, a span of ninety-nine weeks. This week’s further decline in speculator bets brings the current net standing (-15,623 contracts) to the

Intraday Market Analysis - USD Sees Limited Rebound

Intraday Market Analysis - USD Sees Limited Rebound

Jing Ren Jing Ren 26.10.2021 13:18
The US dollar inched higher after Fed Chairman Jerome Powell commented that it was time to taper. A bearish MA cross on the daily chart weighs on overall sentiment. Nonetheless, the pair has found some buying interest in the short-term over the daily support at 0.9150. A bullish RSI divergence was the first sign that the downward pressure might have eased for now. A break above 0.9200 would prompt sellers to cover, opening up the path to the key resistance at 0.9250. A bearish breakout would send the price to 0.9100. NZDUSD seeks support The US dollar recovers across the board thanks to rising Treasury yields. The Kiwi’s breakout above the daily resistance at 0.7150 may have put it back on a bullish trajectory. However, a repeatedly overbought RSI and its bearish divergence indicate that the bulls have struggled to follow up. Buyers are likely to be waiting on the sidelines and a pullback towards 0.7080 could be an opportunity. 0.7020 would be the second line of defense in case of a deeper correction. A rebound above 0.7185 may resume the rally. NAS 100 aims at an all-time high The Nasdaq 100 bounced higher as investors hope to see solid earnings from the Big Tech companies. The index has consolidated its recent gains after it broke above the daily resistance at 15400. The bulls have pushed above the major step at 15550 which was the origin of the September sell-off. This would take out the selling interest and put the uptrend back on track. The all-time high at 15700 is the next resistance. An overbought RSI may cause a temporary pullback to 15280 where the bulls may look to accumulate.  
November Monthly

November Monthly

Marc Chandler Marc Chandler 03.11.2021 15:17
Three main forces are shaping the business and investment climate:  Surging energy prices, a dramatic backing up of short-term interest rates in Anglo-American countries, and the persistence of supply chain disruptions.  The US and Europe have likely passed peak growth.  Fiscal policy will be less accommodative, and financial conditions have tightened. Japan appears to be getting a handle on Covid and after a slow start.  Its vaccination rate has surpassed the US.  The lifting of the formal state of emergency and a hefty dose of fiscal stimulus is expected to be delivered in the coming months. Many developing economies have already lifted rates, some like Brazil and Russia, aggressively so.  They will likely finish earlier too.      US light sweet crude oil rose nearly 12% last month, even though US inventories rose last month for the first time since April.   The price of WTI rose almost 10% in September.  Statistically, the rise in oil prices is strongly correlated with the increase in inflation expectations.  OPEC+ will boost supplies by another 400k barrels a day at the start of November and is committed to the same monthly increase well into 2022.   At the same time, new Covid infections in several Asia-Pacific countries, including China, Singapore, and Australia, warn of the risk of continued supply-chain disruptions.  In Europe, Germany and the UK recently reported the most cases since the spring. Belgium is tightening curbs.  Bulgaria is seeing a rise in infections, and Romania was at full capacity in its intensive care facilities.  The fact that Latvia lags the EU in vaccination at about 50% leaves it vulnerable.  The US may be lagging behind Europe, and the next four-six weeks will be critical.  Roughly 40% of Americans are not fully vaccinated.   The rise in price pressures and the gradual acknowledgment by many central bankers that inflation may be more persistent have helped spur a significant backing up of short-term rates in the Anglo-American economies. The ultimately deflationary implications of the surge in energy prices through demand destruction and the implications for less monetary and fiscal support still seem under-appreciated. Yet, the market has priced in aggressive tightening of monetary policy over the next 12 months.   The focus of the foreign exchange market seems squarely on monetary policy.  From a high level, the central banks perceived to be ahead in the monetary cycle have seen stronger currencies. The likely laggards, like the Bank of Japan, the Swiss National Bank, and the ECB, have currencies that underperformed.  Norway and New Zealand have already raised rates and are expected to do so again in November.    Of course, as you drill down, discrepancies appear.  In October, the Australian dollar was the top performer among the major currencies with a 4% gain.  It edged out the New Zealand dollar and the Norwegian krone, whose central banks are ahead of the Reserve Bank of Australia.  The RBA has pushed against market speculation that has 90 bp of tightening priced into 12-month swaps.  The Australian dollar outperformed sterling by about 2.5% in October even though the Bank of England has been so hawkish with its comments that the market had little choice but to price in a high probability of a hike as early as the November meeting.  In fact, the market has the UK's base rate above 50 bp by the end of Q1 22.  This is important because in its forward guidance that BOE has identified that as the threshold for it to begin unwinding QE by stopping reinvesting maturing issues.  Interestingly enough, when the BOE meets on March 17 next year, it will have a sizeable GBP28 bln maturity in its portfolio.   In an unusual quirk of the calendar, the Federal Reserve meets before the release of the October jobs report.  All indications point to the start of the tapering process.  It is currently buying $120 bln a month of Treasuries ($80 bln) and Agency Mortgage-Backed Securities.  The pace of the reduction of purchases is a function of the duration, and the Fed has clearly indicated the tapering will be complete around mid-year. That suggests reducing the purchases by about $15 bln a month.  Chair Powell indicated that unlike the Bank of England, the Fed will stop its bond purchases before raising rates. A faster pace of tapering would be a hawkish signal as it would allow for an earlier rate hike.  The gap between when the tapering ends and the first rate hike does not appear predetermined. Powell has talked about the economic prerequisites, which emphasize a full and inclusive labor market in the current context. The Fed funds futures entirely discount a 25 hike in July, with the risk of a move in June.  Comments by several officials hint that the Fed may drop its characterization of inflation as transitory, which would also be understood as a hawkish development.   Partly owing to the extended emergency in Japan, it is marching to the beat of a different drummer than the other high-income countries. Inflation is not a problem.  In September, the headline rate rose to 0.2% year-over-year, the highest since August 2020.  However, this is a function of fresh food and energy prices, without which the consumer inflation stuck below zero (-0.5%).  In December 2019, it stood at 0.9%.  In addition, while fiscal policy will be less accommodative in Europe and the US, a sizeable supplemental budget (~JPY30 trillion) is expected to be unveiled later this year.   After expanding by 1.3% quarter-over-quarter in Q2, the Chinese economy slowed to a crawl of 0.2% in Q3, which was half the pace expected by economists. Some of the decline in economic activity resulted from the virus and natural disasters (floods). Still, some of it stemmed from an effort to cut emissions in steel and other sectors.  The problems in China's property development space, accounting for a large part of its high-yield bond market,  unsettled global markets briefly.  Talk of a Lehman-like event seems a gross exaggeration. Still, given the sector's importance to China's economy (30% broadly measured) and the use of real estate as an investment vehicle, it may precipitate a structural shift in the economy.   The Communist Party and the state are reasserting control over the economy's private sector and the internet and social network.  It has also weighed in on family decisions, like the number of children one has, how long a minor should play video games, the length of men's hair, what kind of attributes entertainers should have, and appropriate songs to be played with karaoke.   It seems to be reminiscent of part of the Cultural Revolution and a broader economic reform agenda like Deng Xiaoping did in the late 1970s and Zhu Rongji in the 1990s.  At the same time, Beijing is wrestling with reducing emissions and soaring energy prices, which also dampen growth. Even though consumer inflation is not a problem in China (0.7% year-over-year in September), Chinese officials still seem reluctant to launch new stimulative fiscal or monetary initiatives. Moreover, new outbreaks of the virus could exacerbate the supply chain disruptions and delays fuel inflation in many countries.  The aggressiveness in which investors are pricing G10 tightening weighed on emerging market currencies in October.  The JP Morgan Emerging Market Currency Index fell by almost 0.8% last month after falling 2.9% in September, the largest decline since March 2020.  The continued politicization of Turkey's monetary policy and the aggressive easing saw the lira tumble nearly 7.5% last month, which brings the year-to-date depreciation to 22.5%.   On the other hand, Brazil's central bank has aggressively hiked rates, and the 150 bp increase in late October brought this year's tightening to 575 bp and lifting the Selic to 7.75%.  Yet, it is still below the inflation rate (10.34% October), and the government has lost the confidence of domestic and international business.  The Brazilian real fell nearly 3.5% last month to bring the year-to-date loss to almost 7.8%.   Our GDP-weighted currency basket, the Bannockburn World Currency Index, snapped a two-month decline and rose by 0.35%.  The rise in the index reflects the outperformance of the currencies against the dollar.  The currencies from the G10 countries, including the dollar, account for about two-thirds of the index, and emerging markets, including China, the other third.  The yen was the weakest of the majors, falling 2.3%.  It has a weighting of 7.5% in the BWCI.   Among the emerging market currencies in our GDP-weighted currency index, the Brazilian real's 3.4% decline was the largest, but its 2.1% weighting minimizes the drag.  It was nearly offset by the Russian rouble's 2.5% advance.  It has a 2.2% weighting in our basket.  The Chinese yuan, which has a 21.8% share, rose by 0.6%.      Dollar:   The market is pricing in very aggressive tightening by the Federal Reserve.  As recently as late September, only half of the Fed officials anticipated a hike in 2022.  The December 2022 Fed funds futures are pricing in a little more than two hikes next year. More than that, the market is discounting the first hike in June next year, implying a transition from completing the bond-buying to raising rates with no time gap.  The disappointing 2% Q3 GDP exaggerated the slowing of the world's largest economy.  We note that the supply-side challenges in vehicle production halved the growth rate.  Growth is likely to re-accelerate in Q4, but we continue to believe that the peak has passed.  While inflation is elevated, the pace of increase slowed in Q3.  Consider that the PCE deflator that the Fed targets rose at an annualized rate of 4.0% in Q3 after a 5.6% pace in Q2.  The core rate slowed to an annualized pace of 3.3% last quarter, half of the speed in the previous three months.  The infrastructure spending plans have been reduced, and some of the proposed tax hikes, including on corporations, appear to be dropped as part of the compromise among the Democratic Party.   Euro:  For most of Q3, the euro has been in a $1.17-$1.19 trading range.  It broke down in late September, and was unable to recapture it in October.  Instead, it recorded a new low for the year near $1.1525.  A convincing break of the $1.1500 area could signal a move toward $1.1300. The single currency drew little support because growth differentials swung in its favor in Q3:  the Eurozone expanded by 2.2% quarter-over-quarter while the US grew 2% at an annualized pace.  The ECB is sticking to its analysis that the rise in inflation is due to transitory factors while recognizing that energy prices may prove more sticky.  That said, news that Gazprom may boost gas sales to Europe after it finishes replenishing Russian inventories after the first week in November, natural gas prices fall at the end of October.  After the Pandemic Emergency Purchase Program ends next March, decisions about the asset purchases next year will be announced at the December ECB meeting along with updated forecasts.   (October indicative closing prices, previous in parentheses)   Spot: $1.1560 ($1.1580) Median Bloomberg One-month Forecast $1.1579 ($1.1660)  One-month forward  $1.1568 ($1.1585)    One-month implied vol  5.1%  (5.1%)         Japanese Yen:  The dollar rose 2.3% against the yen in October to bring the year-to-date gain to nearly 9.5%.  The Bank of Japan will lag behind most high-income countries in the tightening cycle, and the higher US yields are a crucial driver of the greenback's gains against the yen.  Japan's headline inflation and core measure, which only excludes fresh food, may be rising, but they are barely above zero and, in any event, are due to the surge in energy prices. In response to the weakening yen, Japanese investors appear to have boosted their investment in foreign bonds, while foreign investors increased their holdings of Japanese stocks.  The LDP and Komeito maintained a majority in the lower chamber of the Diet. A sizeable stimulus supplemental budget is expected to help strengthen the economic recovery now that the formal emergencies have been lifted.  In Q3, the dollar traded mainly between JPY109 and JPY111.  It traded higher in the second half of September rising to nearly JPY112.00.  The dollar-yen exchange rate often seems to be rangebound, and when it looks like it is trending, it is frequently moving to a new range.  We have suggested the upper end of the new range may initially be the JPY114.50-JPY115.00.  The four-year high set last month was about JPY114.70.  A move above JPY115.60 could target the JPY118.50 area.     Spot: JPY113.95 (JPY111.30)       Median Bloomberg One-month Forecast JPY112.98 (JPY111.00)      One-month forward JPY113.90 (JPY111.25)    One-month implied vol  6.4% (5.6%)   British Pound:  Sterling rallied around 4 1/3 cents from the late September low near $1.34.  The momentum stalled in front of the 200-day moving average (~$1.3850).  After several attempts, the market appeared to give up.  We anticipate a move into the $1.3575-$1.3625 initially, and possibly a return toward the September low. The implied yield of the December 2021 short-sterling interest rate futures rose from 22 bp at the end of September to 47 bp at the end of October as the market.  It was encouraged by Bank of England officials to prepare for a hike at the meeting on November 4, ostensibly while it is still providing support via Gilt purchases.  If there is a surprise here, it could be that, given the unexpected softening of September CPI and the fifth consecutive monthly decline in retail sales, rising Covid cases, that the BOE chooses to take the more orthodox route.  This would entail ending its bond purchases, as two MPC members argued (dissented) at the previous meeting and holding off lifting rates a little longer.        Spot: $1.3682 ($1.3475)    Median Bloomberg One-month Forecast $1.3691 ($1.3630)  One-month forward $1.3680 ($1.3480)   One-month implied vol 6.8% (7.1%)      Canadian Dollar:  The three drivers for the exchange rate moved in the Canadian dollar's favor in October and helped it snap a four-month slide against the US dollar.  First, the general appetite for risk was strong, as illustrated by the strength of global stocks and the record highs in the US.  Second, the premium Canada pays on two-year money more than doubled last month to almost 60 bp from 25 bp at the end of September.  Third, commodity prices in general and oil, in particular, extended their recent gains.  The CRB Index rose 3.8% last month, the 11th monthly increase in the past 12, to reach seven-year highs.  The Bank of Canada unexpectedly stopped its new bond purchases and appeared to signal it would likely raise rates earlier than it had previously indicated.  The swaps market is pricing 125 bp of rate hikes over the next 12 months, with the first move next March or April.  Still, the US dollar's downside momentum stalled near CAD1.2300.  There is scope for a corrective phase that could carry the greenback into the CAD1.2475-CAD1.2500 area.     Spot: CAD1.2388 (CAD 1.2680)  Median Bloomberg One-month Forecast CAD1.2395 (CAD1.2580) One-month forward CAD1.2389 (CAD1.2685)    One-month implied vol 6.2% (6.9%)      Australian Dollar:  The Aussie's 4% gain last month snapped a four-month, roughly 6.5% downdraft.  Despite RBA Governor Lowe's guidance that the central bank does not anticipate that the condition to hike rates will exist before 2024 is being challenged by the market.  Underlying inflation rose above 2% in Q3. The central bank's failure to continue defending the 10 bp target of the April 2024 bond spurred speculation that it would be formally abandoned at the November 2 policy meeting.  The RBA's inaction unsettled the debt market.  The two-year yield soared almost 70 bp last month, and the 10-year yield rose nearly 60 bp.  Although the RBA could have handled the situation better, New Zealand rates jumped even more.  Its two-year yield jumped 80 bp while the 10-year yield surged by 58 bp.  Last month, the Australian dollar's rally took it from around $0.7200 to slightly more than $0.7550, where it seemed to stall, just in front of the 200-day moving average.  We suspect the October rally has run its course and see the Aussie vulnerable to a corrective phase that could push it back toward $0.7370-$0.7400.  The New Zealand dollar has also stalled ($0.7220), and we see potential toward $0.7050.       Spot:  $0.7518 ($0.7230)        Median Bloomberg One-Month Forecast $0.7409 ($0.7290)      One-month forward  $0.7525 ($0.7235)     One-month implied vol 9.1  (9.0%)        Mexican Peso:  The peso eked out a minor gain against the dollar last month.  However, the nearly 0.4% gain understated the swings in the exchange rate last month.  The dollar's recovery seen in the second half of September from almost MXN19.85 to nearly MXN20.40 at the end of the month was extended to a seven-month high around MXN20.90 on October 12.  It then proceeded to fall to almost MXN20.12 before the greenback was bought again.  A move above the MXN20.60 area now would likely signal a test on last month's high and possibly higher. Recall that the dollar peaked this year's peak set in March was near MXN21.6350. The economy unexpectedly contracted in Q3  by 0.2% (quarter-over-quarter).  Nevertheless, with the year-over-year CPI at 6% in September, Banxico will see little choice but to hike rates at the November 11 meeting. The market expects a 25 bp increase.  A 50 bp hike is more likely than standing pat.       Spot: MXN20.56 (MXN20.64)   Median Bloomberg One-Month Forecast  MXN20.42 (MXN20.41)   One-month forward  MXN20.65 (MXN20.74)     One-month implied vol 9.6% (11.0%)      Chinese Yuan: Our starting point is the yuan's exchange rate is closely managed.  The fact that the yuan rose to four-month highs against the dollar and a five-year high against the currency basket (CFETS) that the PBOC tracks imply a tacit acceptance.  While it is tempting for observers to link the appreciation to securing an advantage as it secures energy supplies and other commodities, we note that the yuan's gains are too small (0.6% last month and less than 2% year-to-date) to be impactful.  We suspect that the dollar's recent weakness against the yuan will be unwound shortly.  The US government continues to press its concerns about the risk for investors in Chinese companies listed in the US and American companies operating in China. At the same time, the FTSE Russell flagship benchmark began including mainland bonds for the first time.  China's 10-year government bond is the only one among the large bond markets where the yield has declined so far this year (~16 bp).  On the other hand, Chinese stocks have underperformed.  That said, some investors see this underperformance as a new buying opportunity.  The NASDAQ Golden Dragon Index that tracks Chinese companies listed in the US fell by 30% in Q3 and gained 5% in October, its best month since February.  Lastly, the Central Committee of the Chinese Communist Party meets November 8-11 this year, a prelude to the important National Party Congress in 2022 that is expected to formally signal the third term for President Xi.     Spot: CNY6.4055 (CNY6.4450) Median Bloomberg One-month Forecast  CNY6.4430 (CNY6.4470)  One-month forward CNY6.4230 (CNY6.4725)    One-month implied vol  3.5% (3.4%)    Disclaimer
Bitcoin is climbing undeterred higher

Bitcoin is climbing undeterred higher

Korbinian Koller Korbinian Koller 02.11.2021 11:02
Bitcoin is volatile and nosedives in some of these attacks. A historical look back illustrates how bitcoin each time is climbing higher right after: 2009 traded for free (zero value) between enthusiasts 2010 worth US$0.08 2011 from US$1 up to US$32 back down to US$2 2012 from US$4.80 up to US$13.20 2013 from US$13.40 up to US$1,156 and down to US$760 2014 – 2016 down to US$315 2017 up to US$20,089 2018 down to US$3,122 2019 up to US$13,880 2020 up to US$34,800 2021 up to US$67,016 And these last three years, bitcoin has been climbing higher, undeterred. BTC in US-Dollar, Monthly Chart, bitcoin, a true winner: Bitcoin in US-Dollar, Monthly chart as of November 2nd, 2021. The monthly chart above illustrates bitcoin’s winning characteristics. We can see harmonious swings. Retracements are substantial, but bitcoin shows a persistent tendency to outperform previous all-time highs. BTC in US-Dollar, Weekly Chart, explosive recent history: Bitcoin in US-Dollar, Weekly chart as of November 2nd, 2021. The weekly chart points towards more explosive moves recently. After a breakout of a multi-year range, we can see that bitcoin has started to move substantially due to more widespread adoption. Swing behavior is getting more harmonious. At the moment, we are in the midst of a battle between bears and bulls at a double top formation. Consequently, the following days to weeks will show who will come out ahead. The fact that bulls cling to their winnings for this long gives price in this pat situation a slight edge for the bullish corner.   BTC in US-Dollar, Daily Chart, stepping away from the noise: Bitcoin in US-Dollar, Daily chart as of November 2nd, 2021. The daily chart can be pretty volatile. These smaller time frames are advised only to be traded if you are a professional. This applies particularly to struggle zones like the one we are currently in, for instance. Intraday swings can get substantial. In addition, once these battles between bears and bulls resolve, daily percentage moves can be staggering. Luckily, one doesn’t need to fear such challenging trading environments. To clarify, step up to larger time frames and reduce trade frequency and position size. Accept the risk based on adequate position size to your individual psychology and risk appetite. Consequently, buying for the long term will become much easier. It is essential as such to be familiar with a trading object’s typical behavior and, in bitcoins case, not to forget its ability to shine after a major setback. Bitcoin is climbing undeterred higher: Overall, bitcoins’ technical personality makes it an easy choice for one’s wealth preservation portfolio. Especially when options for wealth preservation investments are limited! This year’s strength towards gold and silver price performance had us increase bitcoins percentage allocation within the long-term portfolio. It fulfills two valuable functions to firmly find its place under historically much longer established counterparts. Scarcity for stability, and a more considerable performance potential necessary to protect against inflation. Feel free to join us in our free Telegram channel for daily real time data and a great community. If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can subscribe to our free newsletter. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting.
Will Evergrande Make Gold Grand?

Will Evergrande Make Gold Grand?

Arkadiusz Sieron Arkadiusz Sieron 12.11.2021 18:57
  Evergrande’s debt issues are a symptom of China’s deep structural problems. If the crisis spills over wider, gold may benefit, but we are still far from such a scenario. Beijing, we have a problem! Evergrande, one of China’s largest real estate developers and biggest companies in the world, is struggling to meet the interest payments on its debts. As the company has more than $300 billion worth of liabilities, its recent liquidity problems have sparked fears in the financial markets. They also triggered a wave of questions: will Evergrande become a Chinese Lehman Brothers? Is the Chinese economy going to collapse or stagnate? Will Evergrande make gold grand? The answer to the first question is: no, the possible default of Evergrande likely won’t cause a global contagion in the same way as Lehman Brothers did. Why? First of all, Lehman Brothers collapsed because of the run in the repo market and the following liquidity crisis. As the company was exposed to subprime assets, investors lost confidence and the bank lost its access to cheap credit. Lehman Brothers tried to sell its assets, which plunged the prices of a wide range of financial assets, putting other institutions into trouble. Unlike Lehman Brothers, Evergrande is not an investment bank but a real estate developer. It doesn’t have so many financial assets, and it’s not a key player in the repo market. The exposure of important global financial institutions to Evergrande is much smaller. What’s more, we haven’t seen a credit freeze yet, nor an endless wave of selling across almost all asset classes, which took place during the global financial crisis of 2007-2009. Given that the Lehman Brothers’ bankruptcy was ultimately positive for gold (although the price of the yellow metal declined initially during the phase of wide sell-offs), the fact that Evergrande probably doesn’t pose similar risks to the global economy could be disappointing for gold bulls. However, gold bulls could warmly welcome my answer to the second question: the case of Evergrande reveals deep and structural problems of China’s economy, namely its heavy reliance on debt and the real estate sector. As the chart below shows, the debt of the private non-financial sector has increased from about 145% of GDP after the Great Recession to 220% in the first quarter of 2021. So, China has experienced a massive increase in debt since the global financial crisis, reaching levels much higher than in the case of other economies. The rise in indebtedness allowed China to continue its economic expansion, but questions arose about the quality and sustainability of that growth. As Daniel Lacalle points out, The problem with Evergrande is that it is not an anecdote, but a symptom of a model based on leveraged growth and seeking to inflate GDP at any cost with ghost cities, unused infrastructure, and wild construction. Indeed, the levels and rates of growth of China’s private debt are similar to the countries that have experienced spectacular financial crises, such as Japan, Thailand, or Spain. But the significance of China’s real estate sector is much higher. According to the paper by Rogoff and Yang, the real-estate sector accounts for nearly 30% of China’s GDP. On the other hand, China has a relatively high savings rate, while debt is mostly of domestic nature. China’s financial ties to the world are not very strong, which limits the contagion risks. What is more, the Chinese government has acknowledged the problem of excessive debts in the private sector and started a few years ago making some efforts to curb it. The problems of Evergrande can be actually seen as the results of these deleveraging attempts. Therefore, I’m not sure whether China’s economy will collapse anytime soon, but its pace of growth is likely to slow down further. The growth model based on debt and investments (mainly in real estate) has clearly reached its limit. In other words, the property boom must end. Rogoff and Yang estimate that “a 20% fall in real estate activity could lead to a 5-10% fall in GDP”. Such growth slowdown and inevitable adjustments in China’s economy will have significant repercussions on the global economy, as – according to some research – China’s construction sector is now the most important sector for the global economy in terms of its impact on global GDP. In particular, the prices of commodities used in the construction sector may decline and the countries that export to China may suffer. Given that China was the engine of global growth for years, it will also slow down, and, with lower production, it’s possible that inflation will be higher. Finally, what do the problems of China’s real estate sector imply for the gold market? Well, in the short term, not so much. Gold is likely to remain under downward pressure resulting from the prospects of the Fed’s tightening cycle. However, if Evergrande’s problems spill over, affecting China’s economy or (a bit later) even the global economy, the situation may change. Other Chinese developers (such as Fantasia or Sinic) also have problems with debt payments, as investors are not willing to finance new issues of bonds. In such a scenario, the demand for gold as a safe-haven asset might increase, although investors have to remember that the initial rush could be into cash (the US dollar) rather than gold. Unless China’s problems pose a serious threat to the American economy, the appreciation of the greenback will likely counterweigh the gains from safe-haven inflows into gold. So far, financial markets have remained relatively undisturbed by the Evergrande case. Nevertheless, I will closely monitor any upcoming developments in China’s economy and their possible effects on the gold market. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Half a Dozen Things You Should Know about FX

Half a Dozen Things You Should Know about FX

Marc Chandler Marc Chandler 12.11.2021 13:11
1.  The market is still digesting the implications of Wednesday's CPI shock. The dollar has strengthened, yields have risen, the stock market wobbled after a long advancing streak, and in any event, stabilized in light trading during the US and Canadian holidays. However, given the low year-ago reading, there is a significant risk that inflation (including the core rate) will accelerate over the next few months. As a result, the Federal Reserve needs greater flexibility to raise rates sooner than it has envisioned.   The main restraint now is the pace of tapering.  The FOMC committed to reducing its bond-buying by $15 bln in November and December.  Its statement indicated that it anticipated maintaining the rate afterward, but the FOMC also reserved the right to adjust the pace if necessary. Thus, accelerating the tapering is the most likely course of action.  Bullard had suggested completing the tapering by the end of Q1.  If this is to become the majority view, there may be some effort to prepare the market.   Recently a rally in US bonds was attributed to talk that Governor Brainard could replace Powell as Fed chair.  The argument was that Brainard was more dovish.  Is this really relevant now?  Does it count as a strike against her?  With Yellen's apparent support, Powell is most likely to get re-appointed, and given that CPI is at 30-year highs, conventional thinking favors maintaining a stable hand at the helm. 2.    The dollar's gains accelerated since the higher than expected CPI report.  The euro was in a $1.15-$1.17 range last month and broke out on Wednesday.  Follow-through selling Thursday brought to about $1.1445.  We have suggested the next target is a little below $1.1300.   The jump in yields helped lift the greenback from below JPY112.80 above JPY114.00.  The five-year high set on October 20 was around JPY114.70, while we project the upper end of the likely range closer to JPY115.00. 3.  Disappointing economic data contributed to the losses of sterling and the Australian dollar.   Economists (Bloomberg survey) expected Australia to have created 50k jobs in October, but, instead, it lost 46.3k jobs for the third consecutive monthly decline.  The bulk of the loss (40.4k) were full-time positions, which reversed the 26.7k increase reported in September.  The unemployment rate jumped to 5.2% from 4.6%, the highest since April.  The Australian dollar peaked near $0.7550 in late October and fell below $0.7300 on Thursday, for the first time in a month.  The next target is around $0.7240-$0.7260.   The UK reported a significant slow down in Q3 GDP to 1.3% from 5.5% in Q2. Expectations for a 1.5% quarter-over-quarter expansion  (Bloomberg survey) seemed on the high side.  However, the September monthly GDP rose 0.6%, and the better than expected rise was offset but a reduction in the August GDP to 0.2% from 0.4%. The industrial output contracted in September. The trade deficit deteriorated after a dramatic revision in the August balance (to -GBP1.880 bln from -GBP3.716 bln, while services accelerated (0.7% from a revised 0.1% gain that had initially reported at 0.3%).  Sterling, which had been pushing near $1.36 before the Bank of England's meeting and slipped to a marginal new low for the year on Wednesday but still held above $1.34 (barely).  It fell to $1.3360 on Thursday. The next chart support area is seen around $1.3165-$1.3185. 4.  The joint US-China statement at COP-26 is promising.  It was the key to the Paris Agreement in 2015.  There was a commitment to boost efforts to cut emissions and illegal deforestation.  The gap between current policies and what is necessary was acknowledged, and there appeared to be an agreement in principle to reach an agreement on climate finances and rules for a carbon market.  The joint statement must have been in the works even as Biden criticized Xi for the lack of commitment for not attending COP-26.  There is still much speculation about a "virtual summit," which is supposed to signal something more than two phone calls the leaders have held this year.  The environment was also recognized where cooperation was possible.  Still, Beijing refused to join the US-EU commitment to cut methane admissions and opted for its own plan.   The geopolitical competition is unaffected by the joint statement. Meanwhile, the more pressing geopolitical threat is coming from the movement of Russian forces to the Ukraine border.  Reports suggest the US has briefed Europe on a possible Russian invasion of Ukraine.  Hostilities are said to have escalated recently.  Recall that Russia had amassed forces (~100k soldiers, tanks, and aircraft) in the Spring too.  It triggered a flurry of talks, and Moscow removed (redeployed) its forces.  Russia defended the troop movement within the country as an internal affair but has accused the US of provocation for sailing warships into the Black Sea, close to its territory last week.  Putin also reportedly was critical of Ukraine's alleged use of drones, which violated a previous agreement.  Meanwhile, tensions on the Polish-Belarus border remain tense.  Merkel sought Putin's help recently to defuse the situation, but he refused.   Belarus is thought to be instigating a migration crisis and has threatened to shut down a critical gas pipeline to the EU if Poland keeps its border closed.  These developments may have contributed to some pressure on the euro.   5.  The Mexican peso fell by around 0.5% after the central bank lifted the overnight rate to 5.00%. It is the third quarter-point move in the cycle that began in June.   The swaps market has nearly 90 bp of tightening discounted over the next three months and almost 220 bp in the next 12 months.  Banxico lifted its Q4 inflation forecast to 6.8% from 6.2%.  The one dissent (Esquivel, again) was to stand pat.  There was no vote for a 50 bp move, which contributed to the dovish read of the rate hike.  October CPI, reported earlier this week, is at 6.24% year-over-year,  6.   Friday's economic calendar is light.  Little new data from the large Asia Pacific and European countries.  The North American calendar is minimal.  The US JOLTS report on job openings and the University of Michigan's preliminary estimate of November sentiment and inflation expectations.   NY Fed's Williams is the lone speaker from the central bank and may not address monetary policy directly.  There are three sets of chunky options that expire tomorrow that may be relevant:  1.23 bln euros at $1.1460, $1.75 bln at JPY114.00, and GBP690 mln at $1.3320.   Disclaimer
The Greenback Slips at the Start the New Week

The Greenback Slips at the Start the New Week

Marc Chandler Marc Chandler 15.11.2021 12:19
Overview:  While the Belarus-Poland border remains an intense standoff, there have been a couple other diplomatic developments that may be exciting risk appetites today.  First, Biden and Xi will talk by phone later today.  Second, reports suggest the UK has toned down its rhetoric making progress on talks on the implementation of the Northern Ireland Protocol.  Equities in the Asia Pacific region were mostly firmer, with China a notable exception among the large markets, even though the October data was generally stronger than expected.  Europe's Stoxx 600, which has fallen only once this month, is edging higher to new records, while US futures are enjoying a firmer bias.  Benchmark 10-year yields are 1-2 bp lower, which puts the Treasury yield near 1.55%.  The European periphery is outperforming the core.  The dollar is soft.  The Scandis and Antipodeans lead the move, while the euro, yen, and British pound are little changed.  Emerging market currencies are also mostly stronger.  Here the Philippine peso is notable as it falls the most in seven weeks as corporates bought dollars.  After falling by 0.65% last week, the JP Morgan Emerging Market Currency Index is edging higher today.  Gold is snapping a seven-day rally, stalling near $1868.  Support is seen in the $1842-$1845 area.  January WTI  was sold again as it poked above $80.  It is pinned near last week's lows (~$78.65) as the US response is awaited.  European natural gas futures are firm as the capacity auction results are awaited, and Europe faces its first cold snap of the season.  Iron ore and copper prices are posting small losses.   Asia Pacific Japan's Q3 GDP disappointed, but it is old news and will likely spur Prime Minister Kishida to support a large supplemental budget, which could be unveiled by the end of the week.  Economic growth in the world's third-largest economy contracted for the fifth quarter in the past eight.  The 0.8% loss of output in Q3 was more than the 0.2% expected by the median forecast in Bloomberg's survey.  Consumption (-1.1%), business spending (-3.8%), and public investment (-1.5%) did the most damage.  The GDP deflator was unchanged from Q2 at -1.1%.  The Japanese economy is recovering here in Q4.  Talk of the size of the supplemental budget has increased to around JPY40 trillion (~$350 bln) from JPY30 trillion.  It is expected to include a cash payment for 18-year olds and younger, a tax break for companies that boost wages, a new subsidy for domestic travel, snd pay hikes for caregivers. China's October data was stronger than expected but does not shake off concern that the world's second-largest economy is struggling.  The year-over-year pace of retail sales rose for the second consecutive month in the face of expectations for a decline.  The 4.9% increase follows the 4.4% gain in September and 2.5% in August. In October 2020, it rose 4.3% year-over-year.  Industrial output rose 3.5% from a year ago. It was the first increase since March. Last October, it had increased by 6.9%. The surveyed joblessness was steady at 4.9%.  Fixed asset investment and property investment slowed.  Chinese officials have not addressed the economic slowdown with large-scale fiscal or monetary initiatives.   We have suggested that the dollar-yen exchange rate has entered a new range after trending higher from mid-September through mid-October.  That new range is likely JPY113-JPY115, and to find the floor, the dollar briefly traded below JPY112.80 last week. After spiking back to JPY114.00 on the US CPI surprise, the greenback continues to hover around there, the middle of the range.  Tomorrow's expiring options ($830 mln at JPY113.40 and $1.6 bln at JPY114.30) may mark the near-term range.  The Australian dollar is building on its pre-weekend recovery.  It saw a low slightly above $0.7275 on Friday and settled on its highs (a little above $0.7330).  It has risen to $0.7365, and the intraday momentum is getting stretched.  Look for resistance near $0.7375.  The greenback edged slightly lower against the Chinese yuan to record a new six-month low (~CNY6.3785) before recovering within a narrow range.  It is trading slightly above CNY6.3830 in late dealings. The PBOC set the dollar's reference rate at CNY6.3896, a little below the median forecast of CNY6.3896 (Bloomberg survey).  The PBOC rolled over in full the policy loans (CNY1 trillion) coming due this month, and the overnight repo rate fell by seven basis points to 1.78%, the lowest in three weeks.   Europe Tensions between the UK and EU appear to have taken a step away from the brink.  A deal on medicine supplies from other parts of Great Britain to Northern Ireland may have been the critical catalyst.  Reports suggest a de-escalation of UK rhetoric threatening to invoke Article 16, which allows for unilateral over-riding of the Northern Ireland Protocol under certain circumstances of serious economic, environmental, or societal risks.  Separately, two polls have begun showing Labour is edging ahead of the Tories. The Opinium poll (published in the Guardian) gave Labour a one percentage point lead, the first since January.  The Savanta Com Res poll (for the Daily Mail) put Labour ahead by six percentage points at 40%.  The main issue appears to be Prime Minister Johnson's handling of several ethics issues.  His personal support has also waned.    The US was warning at the end of last week that Russian may be preparing to invade Ukraine. Moscow seems to be acting out of fear, fear of the US and Europe creeping presence in Ukraine.  If Ukraine is going to remain independent, Russia insists it can only be a (weak) buffer state.  US rhetoric seemed aggressive in Moscow.  Last month US Defense Secretary Austin argued that no third country [i.e., Russia] has a veto over NATO membership decision[i.e., Ukraine].    Poland, Lithuania, and Latvia are considering formally requesting NATO consultations, while the EU is expected to announce new sanctions on Belarus later today.  Separately, we note reports that India has begun taking delivery of the S-400 air defense missile system from Russia (part of a $5.5 bln deal), which is the same that earned Turkey American sanctions.   The euro edged above the pre-weekend high, but the tone remains fragile, and for the third consecutive session has been unable to resurface above old support at $1.1500.  Since the US CPI report in the middle of last week, it has fallen, and the sideways movement could alleviate the overextended technical condition.  Sterling extended its pre-weekend recovery to reach $1.3440 before sellers reemerged to knock it to the session low of almost $1.3400.  We suspect it can move higher in North America today and target the $1.3480 area.   America The US seems more eager for the Biden-Xi call than Beijing  Expectations should be low, and with no actionable outcome likely (not even a statement), there appears to be little reason to spin it as a virtual summit. The top officials and the senior staff of the two largest economies should talk.  Previously, there were high-level meetings regularly.  Since their last call, a new US-UK-Australian alliance was announced that will result in Australia acquiring nuclear-powered submarines, and it was confirmed that the US has had military personnel in Taiwan since last November.  China continues with its intimidation campaign of repeatedly entering Taiwan's air-identification zone. China's assessment of the US is unlikely to have changed.  Beijing sees the same thing many others do.  Biden's approval rating has fallen to near 41%, and less than that has a favorable view of his handling of the economy.  At the end of last week, the Univerity of Michigan's consumer sentiment measure (preliminary November) fell to its lowest in a decade.  Surveys continue to point to the likelihood that the Democratic Party will lose both houses of Congress in next year's mid-term.  And to underscore the pressure on Biden, the US Court of Appeals (5th Circuit) sustained a block on OSHA's ordered vaccine mandate (or weekly test).  With the sixth plenum over,  Xi has, by all accounts, confirmed his ascendancy and domination of Chinese politics for years to come.   The week's economic calendar for the US begins off slowly.  The November Empire State manufacturing survey is on tap.  It has been in a sawtooth pattern, alternating between gains and losses for the past five months.  It fell sharply (19.8 from 34.3) in October and is expected to have turned up in November.  The US reports October retail sales and industrial production figures tomorrow. Fed officials begin taking to the public stage starting tomorrow.  Over the course of the week, around 11 officials are scheduled to speak.  In addition to US bills, the Treasury Dept sells 20-year bonds, whose auctions have been among the most challenging for coupons, and 10-year TIPS at the end of the week.   Canada reports September manufacturing and wholesale sales today, but the October existing home sales may be more important.  Tomorrow Canada reports housing starts, but the highlight of the week is Wednesday's October CPI.  Price pressures are accelerating in Canada, and the headline CPI is likely to move toward 5% (4.4% in September).  The swaps market is pricing in about 65 bp of tightening in six months.  This week, Mexico has a light economic diary after last week's higher than expected CPI (6.24%) and Banxcio's 25 bp rate hike (to 5%).  Brazil also has a light economic calendar this week.  Last week featured a further rise in (IPCA) CPI (10.67% vs. 10.25%) and weak September retail sales (-1.3% vs. -0.6% median forecast in Bloomberg's survey after a revised -4.3% fall in August). Last week's US CPI shocker saw the greenback jump from around CAD1.24 to slightly above CAD1.26, roughly the 50% retracement of the slump from CAD1.2900 on September 20.  It settled last week on a soft note, and some follow-through selling has seen the US dollar eased to about CAD1.2525.  A break here sees CAD1.2500 and then possibly CAD1.2470.  Since last September, the greenback has moved into a new and higher range against the Mexican peso.  It has not traded much below MN20.12.  Nor has it spent much time above MXN20.90.  It is in the pre-weekend range (~MXN20.45-MXN20.72).  Look for the consolidative day to continue through the local session.  The Brazil real was the strongest emerging market currency last week, rising almost 1.6% against the US dollar.  The US dollar found support around BRK5.40. Trendline support (from June, August, and September lows) and the 200-day moving average are near BRL5.36.   Disclaimer
Biden-Xi "Summit" Leaves Markets Unmolested, While Bailey Continues to Blame Investors for Misunderstanding Him

Biden-Xi "Summit" Leaves Markets Unmolested, While Bailey Continues to Blame Investors for Misunderstanding Him

Marc Chandler Marc Chandler 16.11.2021 14:03
Overview: The much-heralded Biden-Xi meeting left little impression on the capital markets.  Equities in the region were mixed, and China's main markets fell, alongside Australia, South Korea, and India.  European equities continue their upward market, with the Stoxx 600 gaining for a fifth consecutive session. US futures are softer.  The bond market is quiet, with the US 10-year yield softer slightly below 1.60%.  European benchmark yields are 1-2 bp lower and the periphery is outperforming the core.  Encouraged by a strong employment report, sterling is the strongest of the majors, gaining about a third of one percent.  Most major currencies are trading with a heavier bias, and the euro is pinned near 19-month lows.  The dollar is gaining against most emerging market currencies.  The Turkish lira is off more than 1.5% as the market prices in a 100 bp cut on Thursday.   Hungary's disappointing Q3 GDP (0.7% vs. 1.0% forecasts) may limit the aggressiveness of the central bank today.  A 30 bp hike after two 15 bp moves was expected.  Gold is extending its rally and has taken out the downtrend drawn off the January and June highs (found ~$1872 today).  The next target is around $1900.  Oil is firm, and the January WTI contract is straddling the $80-level.  European natural gas is rising as new supplies are low, and there is a further delay in the certification process of the Nord Stream 2 pipeline.   Yesterday's 9% advance has been extended by another 8% today.  Iron ore has steadied, while copper is struggling after falling 1% yesterday.   Asia Pacific There is not much to say about the Xi-Biden "virtual summit."  The call reportedly lasted three hours.  The one concrete thing to emerge is that US business executives will have an easier/quicker time entering China.  Separately, Hong Kong's Chief Executive used her regular briefing to justify the decision to allow JP Morgan's CEO to skip the city's 21-day hotel quarantine because of the size of the bank's operations.  This speaks to the difference between the rule of law and the rule by law that some observers make.  Returning to regular meetings between the senior officials from both countries seems to be the logical way forward, but both sides appear to draw domestic benefits from demonizing the other.  In the US, the Biden administration uses the threat of China to justify building a 21st-century infrastructure. At the same time, Beijing plays the nationalistic chords to strengthen the loyalty to the Communist Party even as its delivery of improved living standards slows or stalls.   The minutes from the recent Reserve Bank of Australia meeting contained no surprises.  The exit from the yield curve control policy seems clumsy, but the RBA seems adamant that a rate hike next year is unwarranted.  The market remains convinced officials are wrong.  The swaps market has about 75 bp discounted over the next 12 months, with the hikes and risks increasing beginning in late H1 22. In a speech after the minutes were released, Governor Lowe referred to a hike in 2024 as "still plausible," but this seemed like a slight climb down from it being the "central case."  On the other hand, elevated price pressures and border controls have driven the unemployment rate to 3.4%, its lowest level since 2008, and lifted the participating rate to match record highs. The Reserve Bank of New Zealand will likely hike rates again next week.  The swaps market is pricing in nearly 50 bp of tightening by the RBNZ over the next three months and almost 140 bp in the following nine months.  It is difficult to see a more hawkish outlook.  The five basis point jump in the US 10-year yield helped lift the greenback to JPY114.30, matching its best level since November 1 (JPY114.45).  There is an option for $1.6 bln at JPY114.30 that expires today.   The four-year high was set on October 20 near JPY114.70.  The Japanese economy is recovering after a larger than expected contraction in Q3.  A large supplemental budget is expected as early as the end of the week but before month-end in any event.  As if confirming the lack of new insight from the RBA minutes, the Australian dollar is trading within yesterday's range (~$0.7320-$0.7370).  A break of the $0.7300 area would weaken the technical tone, while a move above $0.7380 signals a stronger recovery after finishing last month near $0.7550.  The Chinese yuan rose to new five-month highs today before pulling back.  The dollar fell to CNY6.3670 and rebounded to a new session high slightly above yesterday's high near CNY6.3850.  The PBOC set the dollar's reference rate at CNY6.3924, a little above the (Bloomberg survey) median projection of CNY6.3920. Ironically, the yuan's high was recorded as the Biden-Xi call got underway.  It trended lower through the rest of the session.   Separately, the PBOC boosted its liquidity injection via seven-day repos to CNY50 bln from CNY10 bln on Monday and rolled off its full medium-term lending yesterday, easing technical pressure in the money market.   Europe The UK's employment data is especially important in light of the BOE concerns about the labor market now that the furlough program has ended.  Around one million workers were on the program when it ended. The BOE surprised the market by not raising rates at the meeting earlier this month. Governor Bailey continues to blame the market for misconstruing his remarks and expressing his unease with the "inflation situation."  He said he wanted to see what happens now that the furlough program ended before hiking, but it is not clear that today's data is sufficient.  However, the preliminary indications suggest the UK labor market is normalizing quickly.  October payrolls rose by 160k. Jobless claims fell by nearly 15k after a revised decline of almost 86k in September (initially estimated at -51.1k).  In the three months through September, the UK employment rose by 247k, and the ILO measure of unemployment fell to 4.3% from 4.5%.  Of note, the next employment report will be issued two days before the next MPC meeting (December 16).     Governor Bailey acknowledged that his decision not to hike rates earlier this month was close.  The swaps market has a little more than a 55% chance of a hike in December and has it fully priced it in for the first meeting next year (February 3). The central bank's chief economist, Pill, said there was no evidence yet that higher inflation was seeping into general pay levels.  Starting salaries appear to be increasing, but it may not be lifting the pay for existing workers.  Separately, a technical glitch with an internet-based order system caused the BOE to postpone a bond purchases operation until Thursday.  The QE operations take place three times a week at a pace of slightly more than GBP3 bln a week, with an eye toward finishing them by year-end.   There is another twist to the saga of the controversial Nord Stream 2 pipeline.  Hopes that the completed pipeline could become operational soon were dealt a fresh blow by the German regulator, who suspended the certification process.  The technical issue was a change in the legal form of the operating company.  Nord Stream 2 AG established a subsidiary that would own and operator the German section of the pipeline.  There is some thought that after this delay, the corporate reorganization could expedite the eventual approval.   Coronavirus deaths spiked in Germany to the six-month highs, and the government is debating how to control the fourth pandemic wave. Ironically, Japan now has the highest inoculation rates among the G7. It reported the lowest number of new infections in 18 months. The euro was sold below $1.1400 yesterday and has been unable to resurface above there.  Since the $1.15 level broke, we have suggested the next target is near $1.1290-$1.1300. The ECB's dovish rhetoric contrasts with the prospect of a more hawkish posture by the Federal Reserve.   We continue to see an acceleration of the Fed's tapering as the most likely outcome of the December FOMC meeting, while next month's ECB meeting is more about extending the bond-buying after the Pandemic Emergency Purchases Program ends next March.  The prospects of a rate hike next month lifted sterling to four-day highs near $1.3475, but there does not look like there is the interest to test the $1.35 area, which holds a GBP407 mln option that expires today.  Initial support is now seen in the $1.3400-$1.3420 area. The euro is sliding for the third consecutive session against steering and looks poised to test the year's low near GBP0.8400 in the coming days. The UK reports October CPI figures tomorrow, and they are expected to have accelerated.    America The US economic growth is improving this quarter after the disappointing 2% annualized pace in Q3.  It will be reflected in the consumption and production data.  Today sees October retail sales, a little more than 40% of overall consumption, and industrial production, including factories and utilities, mining, and drilling.  Headline retail sales will likely be lifted by the first increase in auto sales in six months.  The core components, which exclude autos, gasoline, building materials, and food services, are forecast (Bloomberg, median) to rise a solid 0.9%.  It would be the third consecutive monthly gain, the first since Q3 20.  Consumer spending rose 2% at an annualized rate in Q3 and is expected to grow closer to 5% this year, having peaked in Q2 at 6.7%.  Industrial production fell in August and September but is expected to have snapped back in October as the recovery from Hurricane Ida took hold.  The median forecast (Bloomberg survey) is for a 0.8% gain.  The rig count rose by 23, matching the most since January.  According to the recent jobs report, manufacturing employment rose by 60k in October.  Few have noted it, but if confirmed, it would be the largest monthly increase since August 1998.  That said, the Markit manufacturing PMI and ISM manufacturing index fell.   The Biden administration's $1.75 trillion "Build Back Better" bill is in the balance.  Some argue that the surge in inflation has been spurred by the government's spending and transfer payments and are opposed to new large-scale spending.  However, the bill's defenders argue that it has been scaled back, and much of the expenditures will be covered by new revenue.  The non-partisan Congressional Budget Office, the arbiter of such scoring, will publish its full cost estimate on Friday.  Meanwhile, expectations that an announcement will be made shortly on the Fed's leadership were fanned by comments from the Senate Banking Chairman (Brown), who said he was told a decision was "imminent."  It was widely expected before the end of next week.  Reports suggest that Treasury Secretary Yellen has opined that Brainard would be a credible pick, but she is recommending Powell, emphasizing continuity and avoiding the politicization of the post.   Meanwhile, the Fed's Bullard, Barkin, and Daly speak today.  Note that Daly was interviewed for a Board of Governor slot but appears to have turned it down. Canada reports October housing starts today ahead of the October CPI figures tomorrow.  The headline rate is expected to approach 5% though the underlying measures are lower.  The market is positioned for a hike in the March-April period next year.  Recall that the jump in US CPI sent the greenback up from just below CAD1.2400 to slightly above CAD1.2600 at the end of last week.  It reversed lower before the weekend and slipped briefly below CAD1.2500 today, roughly the (50%) retracement of the CPI-inspired gains, before rebounding. Initial resistance is seen in the CAD1.2535-CAD1.2560 area.  Mexico's economic diary is light, and the movement of the peso may reflect broader forces.  For the past three sessions, the dollar has been consolidating in a broad range against the peso (~MXN20.45-MXN20.72). Within that range, initial support may be in the MXN20.55 area.   Disclaimer
European Gas Jumps, while the Euro and Yen Slump

European Gas Jumps, while the Euro and Yen Slump

Marc Chandler Marc Chandler 17.11.2021 15:31
Overview: The prospects that the 6.2% CPI will prompt the Fed to move quicker continue to underpin the dollar.  The euro fell to about $1.1265, its lowest level since last September, and the Japanese yen slumped to a fresh four-year low.  The JP Morgan Emerging Market Currency Index tumbled 1% yesterday, the largest decline since February.  A more stable tone is evident in Europe, as the euro has recovered above $1.13, and the JP Morgan Index is paring yesterday's losses.  The dollar is holding just below JPY115.00.  Asia Pacific equities did not fare well.  Only China and Taiwan markets, among the large regional markets, managed to rise.  Europe's Stoxx 600 is edging higher for the sixth consecutive session.  Recall it has fallen only once since October 27.  US futures are narrowly mixed. The bond market is quiet, with the US 10-year hovering around 1.62%.  European yields are a little softer.  Gold slid below $1850 yesterday but has snapped back today to test the $1860 area.  Crude oil is heavy, with the January WTI contract around $78.80, unable to resurface above $80 amid talk that the US and China may coordinate the release of strategic holdings.  Gas prices are up another 7% in Europe today after surging 16% yesterday and 9% on Monday. Due to "unplanned maintenance," a Belarus pipeline to Poland has been shut down, which may last three days.  Iron ore prices are giving back around half of yesterday's 1.2% gain, for the third loss in four sessions.  Copper is off for a third session, losing after dropping 2.2% in the past two sessions.   Asia Pacific Japan's October trade data disappointed.  Exports and imports were weaker than expected, and this resulted in a smaller deficit. Exports slowed to 9.4% year-over-year, down from 13% in September, defying expectations for a small double-digit increase.  Imports were up 26.7% from a year ago, off the heady 38.2% pace seen in September and below the 31.8% projected.  The resulting trade deficit of JPY67.4 bln was about a fifth of what economists anticipated (Bloomberg survey).  It is the third consecutive monthly deficit.  In the first seven months of the year, Japan recorded two deficits.  A year ago, Japan recorded a JPY840 bln surplus.   Reports suggesting that the possibility that the US and China coordinate the drawdown of strategic oil reserves are light on details, but the suggestion itself is enough to weigh on prices.  Still, the International Energy Agency yesterday echoed the broad assessment of America's EIA in anticipating that the tightness of the oil market could ease shortly.   Increased output in the US, Saudi Arabia, and Russia may account for half of the 1.5 mln barrel a day anticipated increase in supply. Nevertheless, the acting head of the EIA warned tapping the US Strategic Petroleum Reserve would have a short-term impact, for which other dynamics would quickly overshadow it.  Separately, note that the API estimated a slight build of 655k barrels in US stocks this past week, while gasoline inventories fell.   In other regional developments, Australia's wage price index rose a modest 0.6% in Q3 for a year-over-year pace of 2.2%.  This was in line with expectations.  It would seem to support the RBA's argument that it need not be in a hurry to raise rates.  The June 2022 T-bill yield settled last month at 69 bp and is now near 40 bp.  Separately, China appears to be allowing "high quality" property developments to return to the asset-backed securities market to raise capital after a three-month hiatus. Lastly, reports suggest Beijing is moving ahead with its import substitution plans to reduce dependency on foreign technology.    The dollar approached JPY115.00, where an option for almost $610 mln expires today.  The dollar has not traded above there since March 2017.  Since the dollar broke above JPY112.00, we have suggested that JPY114.50-JPY115.00 may mark the top of the new range.  While this has worked for the past month, the risk is on the upside.  A convincing break of around JPY115.50 would target the JPY118.00 area.  Initial support is now seen near JPY114.70.  Note that the upper Bollinger Band is slightly below JPY114.80.  The Australian dollar is trading near its lowest level since October 6, near $0.7265.  It is holding above a trendline connecting the August and September lows, which is found near $0.7250 today, but little stands in the way of a test on the $0.7200 in the coming days.  An option for a little more than A$800 mln at $0.7300 is set to expire today.  After posting a key upside reversal yesterday, the US dollar consolidated against the Chinese yuan today, and no follow-through buying materialized.  Instead, it seemed that the local market took advantage of the pop above CNY6.39 to sell the greenback, which is straddling CNY6.38 in late dealings.  The reference rate was set at CNY6.3935, just below the bank projections (CNY6.3936, according to the median in the Bloomberg survey).  We note that the yuan is also at its best level since 2015 against the trade-weighted CFETS basket the PBOC uses.   Europe On the heels of a strong employment report, the UK reported a larger than expected increase in the October CPI.  The preferred measure, which includes owner-equivalent housing costs, jumped to 3.8% from 2.9%.  The older measure rose to 4.2% from 3.1%.  On the month, consumer prices rose 1.1% rather than the 0.8% economists forecast (Bloomberg median). Flattered by increasing gas and electricity prices.  Core prices rose 3.4% year-over-year, accelerating from 2.9% in September and defying forecasts for a 3.1% pace.  Separately, producer prices, both input and output, also rose more than expected.  Lastly, UK house prices rose 11.8% year-over-year in September, up from a revised 10.2% in August.  The recent peak was 12.6% in June, which was the highest since 2004.    European gas prices are at one-month highs.  Belarus has stopped its pipeline to Poland, claiming unplanned maintenance issues, while the border tensions and earlier threats raise suspicions of a political move.  Separately, the German regulator suspended the certification process of the controversial Nord Stream 2 pipeline as corporate assets are rearranged.  Separately, a German court yesterday dismissed an environmental challenge to the pipeline.  Lastly, we note that the virus flare-up continues in Europe, and Germany and the Czech Republic reported a record number of cases. The euro surpassed our $1.1290 Fibonacci target and did not find bids until the $1.1265 area in Asian turnover.  The single currency has been in a tight range in Europe, holding above $1.1300.  Initial resistance is seen around $1.1330 now.  A move above yesterday's high, near $1.1385, is needed to lift the tone. We suspect the near big target is closer to $1.10.  Sterling slipped to a three-day low, slightly below $1.34, but shot up to the session high near $1.3375 on the inflation news. However, the momentum was not sustained, and sterling is little changed in late morning European turnover near $1.3430. The euro briefly traded below GBP0.8400 for the first time since March 2020 but snapped back.  An 840 mln euro option at GBP0.8445 expires today and another for about 620 mln euros at GBP0.8450 expires tomorrow.   America US retail sales surged last month, and the 1.7% rise was the best since March.  After slowing in Q3, consumption is off to a strong start in Q4.  Industrial production was also much stronger than expected, rising 1.6% compared with the 0.9% gain anticipated by economists (median, Bloomberg survey).  The US reports October housing starts today, and they are expected to have recovered from the 1.6% decline seen in September. Housing starts fell in Q3 but are seen rising in Q4, encouraged by an easing of some supply chain issues.   In fact, on several fronts, there are preliminary signs that the disruptions are dissipating.  Some reports suggest that the shortage of semiconductor chips may be passed, and US auto sales rose in October for the first time in six months.  Both the EIA and IEA have forecast a more balanced oil market, and some measures of shipping costs have moderated. The Los Angeles port has reportedly reduced the number of empty containers by around a quarter this month as six new sweeper ships have been brought into operation.  In addition, we note that the re-opening of US borders means immigrant workers may begin returning.  There is still much debate, of course, on the extent that the elevated price pressures are the result of supply chain disruptions.  A report by the Bank for International Settlements estimates that without the supply problems, US inflation would be closer to 2.5% and eurozone inflation near 1.5%. President Biden is expected to make his Fed announcements in the next few days, according to reports, but it could slip into early next week.  Powell is still the favorite, and he has Treasury Secretary Yellen's in support.  Yellen warns that action is needed soon on the debt ceiling.  Her efforts may be exhausted early next month.  Lastly, San Francisco Fed President Daly opined she was more bullish on the economy than a year ago.  This seems backward to us.  A year ago, the vaccine was announced, and fiscal stimulus was anticipated after the US election. Going forward, there will be less monetary and fiscal stimulus.  The pent-up demand ("excess savings") is projected to be exhausted by early next year, and, as we have noted, the doubling of the price of oil has preceded the last three recessions in the US. We suspect that there is sufficient stimulus and need to rebuild inventories to sustain reasonably strong growth for the next few quarters, but by the second half of next year, sub-3% growth will return as the norm.  Canada reports October CPI figures today.  The headline is likely to rise to 4.7% from 4.4% in September (Bloomberg median).  However, the base effect points to a further rise this month and December, when in 2020, the CPI rose 0.1% and fell 0.2%, respectively.   The underlying core rates are also increasing.  The Deputy Governor of the Bank of Canada cautioned about the high degree of uncertainty around potential structural shifts in the labor market that make it challenging to gauge full employment with any degree of confidence.  He pointed to economic areas that still show slack.  The market is expecting the first hike next March/April.  Note that tomorrow, the "Three Amigos" (Biden, Trudeau, and AMLO) meet in the US amid concern that the US "Build Back Better" has strong nationalistic elements, including for electric vehicles.     The US dollar posted an outside up day against the Canadian dollar yesterday, and follow-through buying has lifted it to around CAD1.2585.  At the end of last week, the high set was slightly above CAD1.2600, which close approximates the (50%) retracement of the greenback's decline since the September 20 high near CAD1.29.  The next retracement (61.8%) is found by CAD1.2665.  Still, we expect that a firm CPI report will lend the Loonie some support.  The session low, set in late Asia, near CAD1.2540, may be protected a CAD1.2545 option for $600 mln that expires today.  The greenback is consolidating against the Mexican peso today after rallying yesterday from about MXN20.56 to nearly MXN20.85.  The high from earlier this month was near MXN20.98.  It has not been above MXN21.00 since March.  Initial support is seen around MXN20.60.   Disclaimer
Monthly Macro Outlook: The transitory narrative continues to fall apart

Monthly Macro Outlook: The transitory narrative continues to fall apart

Christopher Dembik Christopher Dembik 19.11.2021 09:25
Summary:  The economist consensus anticipates inflation will start falling from early next year. We disagree. We consider the market to be too complacent regarding upside risks to the inflation outlook. The great awakening of workers and the steady rent increase (for the United States) are two of the factors which are likely to maintain inflation uncomfortably high into 2022, in our view. October CPI figures released earlier this week confirm that inflationary pressures may last longer than initially expected. Inflation reached levels which have not been seen for decades in the United Kingdom (+4.2% YoY), in the eurozone (+4.1% YoY) and in Canada (+4.7% YoY). In Canada, the jump in inflation is the strongest recorded in 18 years. For now, investors are confident. They believe the U.S. Federal Reserve and European Central Bank’s narrative that inflation will start to fall from early next year. This is far from certain, in our view. From supply chain bottlenecks to energy prices, everything suggests that inflationary pressures are far from over. Expect energy prices to continue increasing as temperatures will drop in Europe from next week onwards. This will weigh on November CPI data which will be released next month. The peak in inflation has not been reached. We fear investors are too complacent regarding upside risks to the inflation outlook. Every economic theory says inflation will be above 2% next year : ·         The Phillips curve is alive and well : workers are demanding higher salaries, amongst other advantages and their expectations are rising. ·         Monetarism : the global economy is characterized by large deposits, desire to spend and to convert cash into real assets. ·         Commitment approach : the U.S. Federal Reserve (Fed) and the European Central bank (ECB) have a dovish bias. This is confirmed by their new inflation strategy (symmetric 2% inflation target over the medium term for the ECB and inflation of 2% over the longer run for the Fed). ·         Fiscal approach : high public debt and fiscal dominance (central banks need to remain dominant market players in the bond market to avoid a sharp increase in interest rates). ·         Supply-side approach : supply bottlenecks due to the zero Covid policy in China and central banks’ trade off higher inflation for a speedier economic recovery (the ECB especially). ·         Green transition : this is basically a tax on consumers. What has changed ? The wage-price spiral has started. In countries where the labor market is tight, workers are asking for higher salaries. In the United States, the manufacturer John Deere increased salaries significantly : +10% this year and +5% in 2023 and in 2025. It also agreed to a 3% bonus on even years to all employees, for instance. But this is happening in countries where the unemployment rate is high too. In France, the unemployment rate is falling. But it remains comparatively elevated at 7.6% in the third quarter. Earlier this week, the French Minister of Economy, Bruno Le Maire, called for higher salaries in the hospitality industry. A survey by the public investment bank BPI and the pro-business institute Rexecode show that 26% of small and medium companies are forced to propose higher salaries to find employees. Those which are reluctant choose to reduce business activity. The pandemic has fueled a great awakening of workers, in our view. They are demanding more : better job conditions, higher wages, more flexibility and purpose from work. This is more noticeable in countries facing labor shortage. But it is also visible in all the other developed economies to a variable extent.   U.S. steady rent increase is a game-changer. Until now, supply bottlenecks were the main driver behind the jump in prices. Now, housing costs (which represent about a third of living cost) and prices in the service sector are accelerating too. The rental market is tight, with low vacancy rates and a limited stock of available rentals. Expect rents to move upward in the coming months. According to official figures, owner’s equivalent rent, a measure of what homeowners believe their properties would rent for, rose 3.1% YoY in October. This certainly underestimates the real evolution of rents. Based on data reported by real estate agents at national level, the increase is between 7% and 15% YoY. All in all, this reinforces the view that inflationary pressures are proving more persistent than expected. The moment of truth : Expect investors not to question much the official narrative that inflation is transitory, for now. But if inflation does not decrease from 2022 onwards, investors will have to adjust their portfolio to an environment of more persistent inflation than initially anticipated. This may lead to market turmoil. In the interim, enjoy the Santa Claus rally which has started very early this year. The new inflation regime in the United States
We Might Say Next FED Moves Are Not Obvious As Some Factors Differentiate Circumstances

Silver, shrugging off attacks

Korbinian Koller Korbinian Koller 20.11.2021 13:32
Weekly chart, Silver in US-Dollar, strong along gold: Silver in US-Dollar, weekly chart as of November 20th, 2021. The weekly chart illustrates price behavior over the last 15 months. Silver prices are trading near the center of the sideways range. Gold in US-Dollar, weekly chart, rumors shrugged off: Gold in US-Dollar, weekly chart as of November 20th, 2021. The weekly chart of gold isn’t much different from where prices stand. In short, there is no evidence that gold has lost its luster. Otherwise, we would see silver trading in a relationship much lower. Rumors are just that – rumors! Silver is shrugging them off. Silver in US-Dollar, quarterly chart, room to go: Silver in US-Dollar, quarterly chart as of November 20th, 2021. A historical review with a quarterly chart over the last eighteen years reveals that silver prices can sustain extreme extensions from the mean (yellow line) for extended periods. Using the extreme of the second quarter in 2011 as a projective measurement (orange vertical line) for an upcoming target would provide for a price target more than 10% above all-time highs at US$56. In addition, the chart shows that we find ourselves in a strong quarter so far, which is in alignment with cyclical probabilities. Silver in US-Dollar, weekly chart, prepping the play: Silver in US-Dollar, weekly chart as of November 20th, 2021. Trade setup Let us return to the weekly time frame for a possible low-risk entry scenario with this target in mind.We find a supply zone based on fractal transactional volume analysis near the price of US$24.11 and US$22.65. Both attractive entry zones for excellent risk/reward-ratio plays.   Phase 1 drilling program at Guigui discovered not only the largest intrusive ever found in the district, but it’s the first mineralized skarn ever seen in Guigui! Silver, shrugging off attacks: It will not be rumors, doubts, and speculations that will be the catalyst for silvers’ success or failure. It isn’t a question of “if,” but just a question of “when” we will see the next massive price advance in this precious metal. The odds are stacked too much in favor of a continued price movement up that the long-term investor should let doubts allow for diverging from a splendid opportunity to partake in wealth preservation and a very profitable way to participate in a chance rarely presented this prominent. Feel free to join us in our free Telegram channel for daily real time data and a great community. If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can also subscribe to our free newsletter. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting. By Korbinian Koller|November 20th, 2021|Tags: Crack-Up-Boom, Gold, Gold bullish, Gold/Silver-Ratio, inflation, low risk, Silver, silver bull, Silver Chartbook, silversqueeze, technical analysis, time frame, trading principles|0 Comments About the Author: Korbinian Koller Outstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent. Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.
Waking Up the Giants

Waking Up the Giants

Monica Kingsley Monica Kingsley 24.11.2021 16:03
S&P 500 recovered from session lows, and is likely to keep chopping around in a tight range today. Tech found solid footing in spite of sharply rising yields, which value (finally) embraced with open arms. The riskier end of credit markets doesn‘t yet reflect the stabilization in stocks, which is a first swallow. Make no mistake though, the fresh Fed hawkish talking games are a formidable headwind, and animal spirits aren‘t there no matter how well financials or energy perform. These are though clearly positive signs, which I would like to see confirmed by quite an upswing in smallcaps. All in all, this is still the time to be cautiously optimistic, and not yet heading for the bunker – that time would probably come after the winter Olympics (isn‘t it nice how that rhymes with the post 2008 summer ones‘ price action too?). Market reaction to today‘s preliminary GDP data will likely be a non-event, and we‘ll still probably make fresh ATHs before stocks enter more turbulent times. In spite of the cheap Fed talk still packing quite some punch, let‘s keep focused on the big picture and my doubts as to the Fed‘s ability to carry out the taper, let alone (proactive? No, very much behind the curve) rate raising plans – as said the prior Monday or yesterday: (…) the Fed is still printing a huge amount of money on a monthly basis, and it remains questionable how far in tapering plans execution they would actually get – I see the risks to the real economy coupled with persistently high inflation as rising since the 2Q 2022 (if not since Mar already, but most pronounced in 2H 2022. (…) True, the bullish argument for the dollar stepped to the fore as yields differential between the U.S. and the rest of the world got more positive, and at the same time, various yield spreads keep compressing. That‘s a reflection of less favorable incoming economic data. Just as much as Friday‘s reaction was about corona economic impact projections, yesterday‘s one was about monetary policy anticipation. Inflation expectations though barely budged – the decline doesn‘t count as trend reversal. CPI isn‘t done rising, and the more forward looking incoming data (e.g. producer prices) would confirm there is more to come. All in all, it looks like precious metals (and to a smaller degree commodities), are giving Powell benefit of the doubt, which I view to be leading to disappointment over the coming months. Should Powell heed the markets‘ will, the real economy would weaken dramatically, forcing him to make a sharp dovish turn – and he would, faster than he flipped since getting challenged in Dec 2018. Inflation expectation indeed held up during the day, marking modest, lingering doubts about Fed‘s ability to execute. Its credibility isn‘t lost, but would be put to a fresh test over the nearest weeks and months. The real economy can still take it, and not roll over – we are in the very early tapering stage so far still. Commodities are pointing the way ahead, and it‘s time for precious metals to shake off the inordinately high levels of fear, which mark capitulation more than anything else. Just when I was writing that it‘s as if the PMs bulls didn‘t trust the latest rally... Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bulls stepped in, the volume is semicredible. I like the lower knot, and would look for increasing market breadth to confirm the short-term reversal. It‘s my view we haven‘t made a major top on Monday. Credit Markets It‘s too early to call a budding reversal in credit markets – HYG needs to pull its weight better. Gold, Silver and Miners Precious metals haven‘t yet regained footing, but that moment is quickly approaching – in spite of the above bleak chart. Compare to the Jun period – Fed‘s talk was more powerful then. Crude Oil Crude oil bulls have made a good move, and more strength did indeed follow. The bottom is in, and many countries tapping their strategic reserves, proved an infallible signal. I look for consolidation followed by further strength next. Copper Copper springboard is getting almost complete, and I think the drying up volume would be resolved with an upswing. The daily indicators are positioned as favorably as the CRB Index is. Bitcoin and Ethereum Bitcoin and Ethereum are still correcting, and the upcoming Bitcoin move would decide the direction over the next few weeks. The takeaway from cryptos hesitation is that real assets can‘t expect overly smooth sailing yet. Summary S&P 500 bulls would ideally look to value outperforming tech on the upside, confirmed by HYG at least stopping plunging. A brief yields reprieve would come once the Fed steps away from the spotlight, which is another part of the bullish sentiment returning precondition set. Overall, the very modest S&P 500 moves keep favoring the bulls within the larger topping process. Keep in mind that the Fed isn‘t yet in a position to choke off the real economy through slamming on the breaks, it‘s just the forward guidance mind games for now. We are waiting for the bit more seriously than last time meant, but still a bluff, getting questioned again, as inflation expectations haven‘t broken down, and are facilitating the coming PMs and commodities runs. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Santa preparing to take back the reins of the market! | MarketTalk: What’s up today? | Swissquote

Silver on Christmas gift list

Korbinian Koller Korbinian Koller 26.11.2021 11:06
Monthly chart, Silver in US-Dollar, favorable timing: Silver in US-Dollar, monthly chart as of November 26th, 2021. Timing for a physical acquisition is in alignment as well. The monthly chart shows a high likelihood for November’s candle closing as an inverted hammer. Consequently, it provides for silver prices approaching the low end of the last 17-month sideways range near US$22. The white line assumes a potential price projection for 2022. Even if we are wrong with our assessment, a gift of silver for a long-term horizon is highly likely to appreciate from momentary levels to a much higher price target. Silver in US-Dollar, weekly chart, silver on Christmas gift list: Silver in US-Dollar, weekly chart as of November 26th, 2021. The value of a gift like this doesn’t stop there. Numismatics provides for children and teenagers a way to study history. Beautiful coins and bars inspire us to hold on to value for future times and encourage saving. The weekly silver chart shows in a bit more detail possible price expansion from a time perspective. This would be our most conservative picture of the future. The green bordered box is an entry zone for a potential reversal to the upside. With a high likelihood of an interest rate change by the Federal Reserve Bank in the second quarter of 2022, the inner yellow curve supersedes in probability for the expected time frame for a price increase. Silver in US-Dollar, daily chart, physical only, spot to risky: Silver in US-Dollar, daily chart as of November 26th, 2021. If you look at the daily chart above, you will find that we have seen a swift downward move in the past. Under our beauty principle, there is a good likelihood that this might occur again. If so, reaction times are much longer with a physical purchase than with spot price trading. Meaning there is no need to precision trade (precision purchase) physical silver, but be not spooked if a swift, extended decline might happen. Consequently, we are pointing this purchase out for physical acquisition only but do not advise taking a spot price position based on the risk.   Phase 1 drilling program at Guigui discovered not only the largest intrusive ever found in the district, but it’s the first mineralized skarn ever seen in Guigui! Silver on Christmas gift list: In this bargain hunting season around Black Friday, we find it is especially sensible to refocus and ask different questions. The human psyche is prone to give in to instant gratification, especially after the hard time the last two years provided. But with this much at stake for 2022, possibly being a year that sets a mark in history, it might be more prudent to look for wealth preservation in a longer time horizon to invest one’s fiat currencies rather than short-lived pleasures. After all, a careful look for generations to come, your children, is a view most valuable in general. Feel free to join us in our free Telegram channel for daily real time data and a great community. If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can also subscribe to our free newsletter. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting. By Korbinian Koller|November 26th, 2021|Tags: Crack-Up-Boom, Gold, Gold/Silver-Ratio, inflation, low risk, Silver, silver bull, Silver Chartbook, silversqueeze, technical analysis, time frame, trading principles|0 Comments About the Author: Korbinian Koller Outstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent. Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.
Saxo Bank 2022 Outrageous Predictions: Here comes a revolution!

Saxo Bank 2022 Outrageous Predictions: Here comes a revolution!

Saxo Bank Saxo Bank 02.12.2021 14:35
Saxo Bank has today released its 10 Outrageous Predictions for 2022. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across financial markets: The plan to end fossil fuels gets a rain check Facebook faceplants on youth exodus The US mid-term election brings constitutional crisis US inflation reaches above 15% on wage-price spiral EU Superfund for climate, energy and defence announced, to be funded by private pensions Women’s Reddit Army takes on the corporate patriarchy India joins the Gulf Cooperation Council as a non-voting member Spotify disrupted due to NFT-based digital rights platform New hypersonic tech drives space race and new cold war Medical breakthrough extends average life expectancy 25 years While these predictions do not constitute Saxo’s official market forecasts for 2022, they represent a warning against the potential misallocation of risk among investors who might typically assign just a one percent chance of these events materialising.  It’s an exercise in considering the full extent of what is possible, even if not necessarily probable, and particularly relevant in the context of this year’s unexpected Covid-19 crisis. Inevitably the outcomes that prove the most disruptive (and therefore outrageous) are those that are a surprise to consensus. Commenting on this year’s Outrageous Predictions, Chief Investment Officer at Saxo Bank, Steen Jakobsen said:   “The theme for 2022 Outrageous Predictions is Revolution. There is so much energy building up in our inequality-plagued society and economy. Add to that the inability of the current system to address the issue and we need to look into the future with a fundamental view that it’s not a question of whether we get a revolution but a more a question of when and how. With every revolution, some win and some lose, but that’s not the point—if the current system can’t change but must, a revolution is the only path forward. A culture war is raging across the globe and the divide is no longer simply between the rich and the poor. It’s also the young versus the old, the educated class versus the less educated working class, real markets with price discovery versus government intervention, stock market buy-backs versus R&D spending, inflation versus deflation, women versus men, the progressive left versus the centrist left, virtual signalling on social media versus real changes to society, the rentier class versus labour, fossil fuels versus green energy, ESG initiatives versus the need to supply the world with reliable energy—the list go on. We collaborated globally on Covid vaccines in 2020 and 2021. Now we need a new Manhattan Project–-type endeavour to set the marginal cost of energy, adjusted for productivity, on the path to much lower levels while eliminating the impact of our energy generation on the environment. Such a move would unleash the most significant productivity cycle in history: we could desalinate water, make vertical farms feasible almost anywhere, increase computer powers to quantum states, and continue to explore new boundaries in biology and physics.” Remember that the world is forever evolving if at varying speeds, while business and political cycles are always finite.” The Outrageous Predictions 2022 publication is available here with headline summaries below: 1. The plan to end fossil fuels gets a rain check Summary: Policymakers kick climate targets down the road and support fossil fuel investment to fight inflation and the risk of social unrest while rethinking the path to a low-carbon future. Realising the inflationary threat from surging commodities prices and the risk of an economic train wreck due to the unrealistic timeline for the green energy transition, policymakers kick climate targets down the road. They relax investment red tape for five years for oil production and ten years for natural gas production, to encourage producers to ensure adequate and reasonably priced supplies that bridge the gap from the energy present to the low-carbon energy future. This development has already jacked up prices and price volatility, not only for energy, but also for industrial metals, most of which are needed in greater quantities for the green transformation push. On top of this, surging energy prices have spiked prices for diesel and especially fertiliser, important farming costs that raise concerns about the production of key food crops. Market impact: The iShares Stoxx EU 600 Oil & Gas ETF (Ticker: EXH1:xetr) surges 50 percent as the whole energy sector gets a new lease on life 2. Facebook faceplants on youth exodus Summary: The young abandon Facebook’s platforms in protest at the mining of personal information for profit; the attempt by Facebook parent Meta to reel them back in with the Metaverse stumbles. Facebook has gone from being a vibrant hub of young people, to a platform for older “boomers” as young people would say. Young people are increasingly turned off by Facebook’s algorithms turning their social media experiences into that of homogenous feedback loops of identical content, or even worse, hateful and disinforming content. Facebook’s own research suggests that teens spend 2 to 3 times longer on TikTok than on Instagram (which is Facebook’s youngest social media asset), and that Snapchat is the preferred way to communicate with friends. A new company name (Facebook is now called Meta) and brand identity to separate and shield Instagram (its most valuable current asset), together with creating a new product tailored towards young people, is the exact same playbook tobacco companies have used for years. But in 2022, investors will realise that Meta is rapidly losing the young generation and thus the future potential and profitability of the company. In a desperate move, Meta tries to acquire Snapchat or TikTok while throwing billions of dollars into building the creepy Metaverse, which is aimed at surveilling users more directly than ever before and getting young people back into Meta’s universe of social media platforms, in the perceived wisdom that being a first mover is always best in technology. The plan struggles to take off as the young generation fails to sign up. Market impact: Facebook parent company Meta struggles, down 30 percent versus the broader market and is urged to spin off its components as separate entities, shattering Zuckerberg’s monopolistic dreams. 3. The US mid-term election brings constitutional crisis Summary: The US mid-term election sees a stand-off over the certification of close Senate and/or House election results, leading to a scenario where the 118th Congress is unable to sit on schedule in early 2023. The chaotic 2020 US Presidential Election was a scary moment for many US institutions. The sitting president Donald J. Trump initially refused to conceded defeat in the election and complained that the election was stolen, a claim that was never seriously challenged in a court of law but one which had widespread sympathy among the Trump base. A crowd of hard-core believers in the stolen election conspiracy was encouraged by the President’s rhetoric to a sufficient degree to storm Capitol Hill and “stop the steal”, i.e., to prevent the election result from being made official on January 6, 2021, in a scene unprecedented in US history. Prior to this, and then again later in the hotly contested Senate run-off elections in Georgia, dedicated election officials—many of them Republican—were doing their duty to tally the real results while risking their life amidst threats—even death threats—from extremists. In 2022, the Republicans ensure that no such traditional duty-bound officials are in the “wrong” place, with all election-related positions filled by toe-the-line partisans ready to do anything to tilt the results to suppressing voter turnout. In the wake of the 2022 election, a handful of key Senate and House races come down to the wire and one or both sides move against certifying the vote, making it impossible for the new Congress to form and sit on its scheduled first day of January 3, 2023. Joe Biden rules by decree and US democracy is suspended as even Democrats also dig in against the Supreme Court that was tilted heavily by Trump. A full-blown constitutional crisis stretches over the horizon over the stand-off as 2023 gets under way. Market impact: extreme volatility in US assets, as US treasury yields rise and the USD drops on hedging against the existential crisis in the world’s largest economy and issuer of the world’s reserve currency of choice. 4. US inflation reaches above 15% on wage-price spiral Summary: By the fourth quarter of 2022, the wages for the lower half of US incomes are rising at an annualised 15% clip as companies scramble to find willing and qualified workers who are increasingly selective due to a rising sense of entitlement as jobs are plentiful relative to the meagre availability of workers at all skill levels. The official US CPI reached a peak at 11.8% in February 1975. It wasn’t until the recession of 1980-82 and brutal policy rate increases to levels as high as 20% that inflation was finally killed. In 2022, the Federal Reserve and Fed chair Jerome Powell repeats the same mistake all over again as the post-Covid outbreak economy and especially the labour market are severely supply constrained, making a mockery of the Fed’s traditional models. Powell believes millions of Americans will return to work and fill some of the 10.4 million open job positions as Covid-19 fades. But this is plain wrong. Some have retired early due to the crisis and thus have permanently left the US workforce. The big difference between today and yesterday is that the pandemic has fuelled a great awakening of workers. Across sectors and income classes they realise they are now more empowered than ever. They demand a better experience: better job conditions, higher wages, more flexibility and a sense of purpose from work. Coupled with persistent inflationary pressures coming from the production side, the energy crisis and labour shortage, this results in unprecedented broad-based double-digit annualised wage increases by Q4. As a consequence, US inflation reaches an annualised pace above 15% before the start of 2023, for the first time since WWII. This prompts the Federal Reserve into a too-little, too-late move to tighten monetary policy faster in a desperate effort to tame inflation. But the central bank has lost credibility; it will take time to regain it. Market impact: extreme volatility in US equity and credit markets. The JNK high-yield ETF falls as much as 20% and the VIXM mid-curve volatility ETF soars as much as 70%. 5. EU Superfund for climate, energy and defence announced, to be funded by private pensions Summary: To defend against the rise of populism, deepen the commitment to slowing climate change, and defend its borders as the US security umbrella recedes, the EU launches a bold $3 trillion Superfund to be funded by pension allocations rather than new taxes. The security umbrella provided by the US during the Cold War and afterwards over much of Eastern Europe is rapidly fading and threatens to fail entirely in the years ahead as the US looks east at far more serious economic and military rivals. French President Macron, backed by a Draghi moving to stave off Italy’s own rise of the populists, rolls out a vision for an “EU Superfund” that will address the three-fold priorities of defence, climate and the related clean energy transition. Given the EU’s aging population and heavy tax burdens, policymakers know that it will be impossible to finance the Superfund with higher taxes on incomes or other traditional tax revenues. Instead, France has a light-bulb moment as it seeks to overhaul its pension system and looks at Europe’s enormous pensions. It decides that all pensions for all workers above the age of 40 must allocate a progressively larger portion of their pension assets into Superfund bonds as they age. This allows new levels of fiscal stimulus in the EU even with the sleight-of-hand trick of hiding the spending in inflation and negative real returns on low-yielding Superfund bonds that are actually EU bonds in disguise. At the same the younger generation enjoys a stronger job market and less unfair tax burdens as the system proves such a success that income taxes are lowered progressively. Market impact: Bond yields harmonise across Europe, leading to German Bunds underperforming. EU defence, construction and new energy companies are some of the best performers. 6. Women’s Reddit Army takes on the corporate patriarchy Summary: Mimicking the meme stock Reddit Army tactics of 2020-21, a group of women traders launch a coordinated assault on companies with weak records on gender equality, leading to huge swings in equity prices for targeted companies. Women are not willing to wait any longer. Tired of the lack of progress, 2022 sees a massive grass-roots effort based on social media platforms to force companies that break civil rights laws to address unfair and sexist, racist, ageist and ableist practices. Although women have been struggling with lower salaries, they have higher saving rates than men. Those savings will now come in handy as they decide to take the situation into their own hands and throw their considerable influence around in a #metoo movement in financial markets. In contrast to the often-nihilistic original Reddit Army, the Women’s Reddit Army will be more sophisticated, with women traders coordinating a long squeeze by shorting stocks of selected patriarch companies. At the same time, they will direct funds to companies with the best metrics on female representation in middle management and among executives. Instead of condemning the development, politicians worldwide welcome and support their cause, putting even more pressure on companies with outdated patriarchal attitudes, poor gender equality in pay, and under-representation of women on boards and in management to address the errors of their ways. Market impact: The movement gets real results as the broader market catches on to the theme and joins in, forcing targeted company prices sharply lower, which sees companies scrambling to change their ways. It marks the beginning of a gender parity renaissance in markets. 7. India joins the Gulf Cooperation Council as a non-voting member Summary: The world’s geopolitical alliances will lurch into a phase of drastic realignment as we have an ugly cocktail of new deglobalising geopolitics and much higher energy prices. Countries reliant on imports for the majority of their energy inputs in a rapidly deglobalising world will need to move fast to strategically reorientate strategic alliances and secure long-term energy supplies. One such alliance could involve India, with its mighty technology sector, joining the Gulf Cooperation Council (GCC) as non-voting member, or in some sort of free trade zone. This alliance would see a reduction in India’s energy insecurity as it secures long-term import commitments. Interregional trading zones will secure “closer to home” production and investment, combined with the security of reliable supplies from India’s point of view, and a reliable destination market from the GCC’s point of view. The alliance helps lay the groundwork for the GCC countries to plan for their future beyond oil and gas and for India to accelerate its development via huge new investments in infrastructure and improvements in agricultural productivity together with fossil fuel imports, bridging the way to a post-carbon longer-term future. Market impact: The Indian rupee proves far more resilient than its EM peers in a volatile year for markets. The bubbly Indian stock market corrects with other equity markets in early 2022 but proves a strong relative performer from the intra-year lows. 8. Spotify disrupted due to NFT-based digital rights platform Summary: Musicians are ready for change as the current music streaming paradigm means that labels and streaming platforms capture 75-95 percent of revenue paid for listening to streamed music. In 2022, new blockchain-based technology will help them grab back their fair share of industry revenues. While the early days of NFTs have looked chaotic and dangerous for asset buyers, the outlook is bright for NFT technology. Not only does an NFT-based platform offer a new way to verify the ownership of rights, but also a way to distribute rights without intermediaries, i.e., a completely decentralised system obviating the need for a centralised platform. The use case for NFTs could prove particularly compelling in the next step for the technology for content generators in the music industry as musicians feel unfairly treated by the revenue sharing models of the current streaming platforms like Spotify and Apple Music. These models don’t guide individual subscribers’ fees to the actual music an individual subscriber listens to. Rather, all subscription fee revenues are aggregated and distributed based on every artist’s share of total streams. In addition, the platforms take a substantial cut, which together with the cut paid to labels is some 75 percent or more of the total revenue. In 2022, an NFT-based service takes hold and begins offering music from notable stars – perhaps the likes of Katy Perry, The Chainsmokers and Jason Derulo, all of whom have recently backed an effort to create a new blockchain-powered streaming platform. Other well-known artists begin pulling their music from the now “traditional” streaming platforms, which suddenly find themselves terminally disrupted. Investors see the eventual writing on the wall for podcasts, movies and other forms of digitisable contents as well. Market impact: Investors recognise that Spotify’s future is bleak, sending its shares down 33 percent in 2022. 9. New hypersonic tech drives space race and new cold war Summary: The latest hypersonic missile tests are driving a widening sense of insecurity as this tech renders legacy conventional and even nuclear military hardware obsolete. In 2022 a massive hypersonic arms race develops among major militaries as no country wants to feel left behind. In 2022, it is clear from funding priorities that hypersonics and space are the heart of a new phase of the deepening rivalry between the US and China on all fronts—economic and military. Other major powers with advanced military tech join in as well, likely including Russia, India, Israel and the EU. Hypersonic capabilities represent a game-changing threat to the long-standing military strategic status quo, as the technology brings asymmetric new defensive and offensive capabilities that upset the two massive pillars of military strategy of recent decades. The first is the potential for devastating hypersonic tech defence against the conventional attack capabilities of long-range bombing aircraft, as well as the so-called “deep water” navy of ships that can bring the fight to any corner of the globe without refuelling. The second pillar of the old Cold War era was the principle of mutually assured destruction (MAD) in the event of nuclear war, under which it was pointless to launch a nuclear war as long as there was still time for the opponent to launch an equally destructive ICBM counterattack from land- and submarine-based ballistic missiles. But the speed and agility of hypersonic tech introduces the belief that superior defence could thwart an attack entirely and even allow for new first-strike capabilities. Market impact: massive funding for companies like Raytheon that build hypersonic tech with space delivery capabilities and underperformance of “expensive conventional hardware” companies in the aircraft and ship-building side of the military hardware equation. 10. Medical breakthrough extends average life expectancy 25 years Summary: Young forever, or for at least a lot longer. In 2022, a key breakthrough in biomedicine brings the prospect of extending productive adulthood and the average life expectancy by up to 25 years, prompting projected ethical, environmental and fiscal crises of epic proportions. The year 2022 sees a breakthrough from a multi-factor approach, as a cocktail of treatments is put together that tweaks cell-level processes in order to extend their life and thus the life of the organism composed of those cells. It’s not cheap, but it’s effective and has already been demonstrated on laboratory mice containing human DNA, extending their lives some 30% and more. The prospect of a massive leap in human quality of life and life expectancy are huge wins for mankind but bring an enormous ethical and financial quandary. Imagine that almost everyone can look forward to living to an average age of 115 and more healthily. What would this mean for private and government pensions, or even the ability or desire to retire? And what about the cost to the planet if it is set to support billions more people, not to mention whether or not there is enough food to go around? And then there is the ethical question of whether it is humane to not make the cocktail available to everyone. In short, how would our value systems, political systems and planet cope?
December Monthly

December Monthly

Marc Chandler Marc Chandler 02.12.2021 15:00
December 01, 2021  $USD, Macro The pandemic is still with us as the year winds down and has not yet become endemic, like the seasonal flu.  Even before the new Omicron variant was sequenced, Europe was being particularly hard hit, and social restrictions, especially among the unvaccinated, were spurring social strife.  US cases, notably in the Midwest, were rising, and there is fear that it is 4-6 weeks behind Europe in experiencing the surge.  Whatever herd immunity is, it has not been achieved.  Moreover, despite plenty of vaccines in high-income countries, inoculation efforts in many low-income countries won't begin in earnest until next year.   That said, the new variant has injected a new element into the mix, and it is with a heightened degree of uncertainty that we share our December outlook.  Given the unknowns, policymakers can choose the kind of error they are willing to make. They are trying to minimize their maximum regret.  The utmost regret is that the mutation is dangerous and renders the existing vaccines and treatment significantly less effective.  This will leave them vulnerable to accusations of over-reacting if the Omicron turns out to be a contagious but less deadly variation.   Meanwhile, there has been some relief to the supply chain disruptions.  Covid-related factory closures in Asia, the energy shortage, and port congestion are easing. Large US retailers have stocked up for the holiday shopping season, some of which chartered their own ships to ensure delivery. There are also preliminary signs that the semiconductor chip shortage may be past its worst.  Indeed, the recovery of the auto sector and rebuilding of inventories will help extend the economic expansion well into next year, even though fiscal and monetary policy are less supportive for most high-income countries.  The flash November US manufacturing PMI saw supplier delivery delays fall to six-month lows.   We assume that the US macabre debt ceiling ritual will not lead to a default, and even though it distorted some bill auctions, some resolution is highly probable.  The debate over the Build Back Better initiative, approved by the House of Representatives, will likely be scaled back by moderate Democratic Senators and Republicans.  Besides assessing the risks posed by the new variant, the focus in December is back on monetary policy.  Four large central banks stand out.  The Chinese economy has slowed the People's Bank of China quarterly monetary report modified language that signals more monetary support may be forthcoming.  Many observers see another reduction in reserve requirements as a reasonable step.  Unlike in the US and Europe, which saw bank lending dry-up in the housing market crisis (2008-2009), Beijing is pressing state-owned banks to maintain lending, including the property sector.   The Federal Reserve meets on December 15.  There are two key issues.  First, we expect the FOMC to accelerate the pace of tapering to allow it to have the option to raise rates in Q2 22.  The Fed's commitment to the sequence (tapering, hikes, letting balance sheet run-off) and the current pace of tapering deny the central bank the needed flexibility.  The November CPI will be reported on December 10.  The headline will likely rise to around 6.7%, while the core rate may approach 5%.  Second, the new "Summary of Economic Projections" will probably show more Fed officials seeing the need to hike rates in 2022.  In September, only half did.  The rhetoric of the Fed's leadership has changed.  It will not refer to inflation as transitory and is signaling its intention to act.  The European Central Bank and the Bank of England meet the day after the FOMC.  The ECB staff will update its forecasts, and the key here is where it sees inflation at the end of the forecasting period.  In September, it anticipated that CPI would be at 1.5% at the end of 2023.  Some ECB members argued it was too low.   It may be revised higher, but the key for the policy outlook is whether it is above the 2% target.  We doubt that this will be the case.  While the ECB will likely announce that it intends on respecting the current end of the Pandemic Emergency Purchase Program next March, its QE will persist. The pre-crisis Asset Purchase Program is expected to continue and perhaps even expand in Q2 22.  The "modalities" of the post-emergency bond-buying program, size, duration, and flexibility (self-imposed limits) will be debated between the hawks and doves.  With eurozone inflation approaching 5% and Germany CPI at 6%, the hard-money camp will have a new ally at the German Finance Ministry as the FDP leader Linder takes the post.  On the other hand, the Social Democrats will name a Weidmann's replacement at the head of the Bundesbank, and nearly anyone will be less hawkish.   While we correctly anticipated that the Bank of England would defy market expectations and stand pat in November, the December meeting is trickier.  The decision could ultimately turn on the next employment and CPI reports due 1-2 days before the BOE meeting.  The risk is that inflation will continue to accelerate into early next year and that the labor market is healing after the furlough program ended in September.  On balance, we suspect it will wait until next year to hike rates and finish its bonds purchases next month as planned.   Having been caught wrong-footed in November, many market participants are reluctant to be bitten by the same dog twice. As a result, the swaps market appears to be rising in about a 35% chance of a 15 bp move that would bring the base rate up to 25 bp.  Sterling dropped almost 1.4% (or nearly two cents) on November 4, the most since September 2020 when the BOE failed to deliver the hike that the market thought the BOE had signaled.   The combination of a strong dollar and the Fed tapering weighed emerging market currencies as a whole.  The JP Morgan Emerging Market Currency Index fell by about 4.5% in November, its third consecutive monthly decline, bringing the year-to-date loss to almost 10%.  It fell roughly 5.7% in 2020.  Turkey took the cake, though, with the lira falling nearly 30% on the month.  It had depreciated by 15% in the first ten months of the year.  This follows a 20% depreciation last year.  Ten years ago, a dollar would buy about 1.9 lira.  Now it can buy more than 13 lira.  The euro's weakness was a drag, and the geopolitical developments (e.g., Ukraine, Belarus) weighed on central European currencies. The central bank of Hungary turned more aggressive by hiking the one-week deposit rate by 110 bp (in two steps) after the 30 bp hike in the base rate failed to have much impact.  The forint's 3.1% loss was the most among EU members.   Colombian peso was the weakest currency in Latam, depreciating by almost 5%. It was not rewarded for delivering a larger than expected 50 bp rate hike in late October.  Bannockburn's GDP-weighted global currency index (BWCI) fell by nearly 1% in November, the largest monthly decline since June.  It reflected the decline of the world's largest currencies against the dollar.  Three currencies in the index proved resilient  On the GDP-weighted basis, China has immense gravity, with a 21.8% weighting (the six largest EM economies, including China, account for a 32.5% of the BWCI). It appreciated by about two-thirds of a percent. The Brazilian real managed to rise (~0.25%) too.  Since the day before the Omicron variant was sequenced, the Japanese yen gained a little more than 2%, reversing the earlier decline that had brought it to four-year lows.  It rose by  0.7% in November, making it the strongest currency in the index.  Among the major currencies, the Australian dollar fell the most, declining about 5.2%.  The Canadian dollar was next, with around a 3% loss.   As it turns out, the dollar (Dollar Index) recorded its low for the year as shocking events were unfolding in Washington on January 6.  The bottomed against the yen and euro the same day.   The greenback did not bottom against the Australian dollar until February, but it took it until early June to put in a low against sterling and the Canadian dollar.  The BWCI peaked in early June and, by the end of last month, had retreated by about 2.7%.  We suspect it may decline by another 2%, which would return it the levels of late 2019.  That, in turn, implies the risk of a stronger dollar into the first part of next year.     Dollar:  The jump in US CPI to above 6%, and a strong sense that it is not the peak, spurred speculation that the Federal Reserve would likely accelerate the pace of tapering at the December meeting. Several Fed officials seemed sympathetic, including San Francisco President Daly, who is perceived to be a dove. The minutes of the November meeting underscored the central bank's flexibility over the pace of tapering.  At the same time, most of the high-frequency data for October came in stronger than expected, lending credence to ideas that after a disappointing Q3, the world's largest economy is accelerating again in Q4.  The divergence of monetary policy and the subsequent widening interest rate differentials is the primary driver of expectations for dollar appreciation against the euro and yen.  The market had been leaning toward three rates hikes in 2022 before news of the new Covid mutation emerged and trimmed the odds.  Powell was renominated for a second term at the helm of the Federal Reserve, Brainard was nominated to be Vice-Chairman.  There is still the Vice-Chair for supervision and an empty governor seat for President to Biden to fill.  In addition to the changes in leadership, the rotation of the voting members of the FOMC brings in a somewhat more hawkish bias next year.   Euro:  In contrast with the US, eurozone growth is set to slow in Q4. After two quarters that growth exceeded 2% quarter-over-quarter, growth is likely to moderate to below 1% in Q4 21 and Q1 22.  Food and energy are driving inflation higher.  The EC continues to negotiate with the UK over changes to the Northern Ireland Protocol.  The dispute over fishing licenses and migrant crossing of the channel are also unresolved sources of tension with the UK. Tensions between the EC and Poland/Hungary over the rule of law, judicial independence, and civil liberties have also not been settled.  As was the case in the spring, Russia's troop and artillery movement threatened Ukraine, though the tension on the Poland/Belarus border has eased.  The ECB's leadership continues to maintain the price pressures are related to the unusual set of circumstances but are ultimately temporary.  Its December 16 meeting, the last one before Bundesbank President Weidmann steps down, is critical. In addition to confirming the end of the Pandemic Emergency Purchase Program in March 2022, and the expansion of the Asset Purchase Program, the ECB staff will update its inflation forecasts.  The focus here is on the 2023 CPI projection of 1.5%.  There was a push back against it in September, and a slight upward revision is likely. Nevertheless, it will probably remain below the 2% target.  The swaps market is pricing in a 25 bp hike in 2023.   (November indicative closing prices, previous in parentheses)   Spot: $1.1335 ($1.1560) Median Bloomberg One-month Forecast $1.1375 ($1.1579)  One-month forward  $1.1350 ($1.1568)    One-month implied vol  7.1%  (5.1%)         Japanese Yen:  Japan has a new prime minister who has put together a large fiscal stimulus package that will help fuel the economic recovery that had begun getting traction since the formal state of emergency was lifted at the end of September.  After a frustratingly slow start, the inoculation efforts have started bearing fruit, with vaccination rates surpassing the US and many European countries.  Unlike most other high-income countries, Japan continues to experience deflationary pressures.  Food and energy prices may be concealing it in the CPI measure, but the GDP deflator in Q2 and Q3 was  -1.1%. However, the BOJ does not seem inclined to take additional measures and has reduced its equity and bond-buying efforts.  The exchange rate remains sensitive to the movement of the US 10-year note yield, which has chopped mostly between 1.50% and 1.70%. With a couple of exceptions in both directions, the greenback has traded in a JPY113-JPY115 range.  The emergence of the new Covid mutation turned the dollar back after threatening to break higher.  A convincing move above the JPY115.50 area would likely coincide with higher US rates and initially target the JPY118 area.    Spot: JPY113.10 (JPY113.95)       Median Bloomberg One-month Forecast JPY113.30 (JPY112.98)      One-month forward JPY113.00 (JPY113.90)    One-month implied vol  8.2% (6.4%)   British Pound:  Sterling never fully recovered from disappointment that the Bank of England did not hike rates in early November.  Market participants had understood the hawkish rhetoric, including by Governor Bailey, to signal a hike.  The implied yield of the December 2021 short-sterling interest rate futures plummeted by 30 bp by the end of the month, and sterling has not seen $1.36, let alone $1.37, since then.  Indeed, sterling chopped lower and recorded new lows for the year in late November near $1.3200.  Growth in the UK peaked in Q2 at 5.5% as it recovered from the Q1 contraction.  It slowed to a 1.3% pace in Q3 and looks to be slowing a bit more here in Q4.  The petty corruption scandals and ill-conceived speeches by Prime Minister Johnson have seen Labour move ahead in some recent polls.  An election does not need to be called until May 2024, but the flagging support may spur a cabinet reshuffle.  The next important chart point is not until around $1.3165 and then the $1.30 area, which holds primarily psychological significance.       Spot: $1.3300 ($1.3682)    Median Bloomberg One-month Forecast $1.3375 ($1.3691)  One-month forward $1.3315 ($1.3680)   One-month implied vol 7.5% (6.8%)      Canadian Dollar:  The Canadian dollar appreciated by almost 2.4% in October and gave it all back, plus some in November.  Indeed, the loss was sufficient to push it fractionally lower for the year (-0.4%), though it remains the best performing major currency against the US dollar.   The three major drivers of the exchange rate moved against the Canadian dollar last month.  First, its two-year premium over the US narrowed by 17 bp, the most in four years.  Second, the price of January WTI tumbled by around 18.2%.  Commodity prices fell more broadly, and the CRB Index snapped a seven-month rally with a 7.8% decline.  Third, the risk appetites faltered is reflected in the equity markets. The Delta Wave coupled with the new variant may disrupt growth.  Still, the swaps market has a little more than two hikes discounted over the next six months.   The government is winding down its emergency fiscal measures, but the spring budget and election promises mean that the fiscal consolidation next year will be soft.     Spot: CAD1.2775 (CAD 1.2388)  Median Bloomberg One-month Forecast CAD1.2685 (CAD1.2395) One-month forward CAD1.2770 (CAD1.2389)    One-month implied vol 7.2% (6.2%)      Australian Dollar:  The Australian dollar fell by more than 5% last month, slightly less than it did in March 2020.  It did not have an advancing week in November after rallying every week in October.  Australia's two-year premium over the US was chopped to less than 10 bp in November from nearly 28 bp at the end of October.  The Reserve Bank of Australia pushed back against aggressive rate hike speculation.   The unexpected loss of jobs in October for the third consecutive month took a toll on the Australian dollar, which proceeded to trend lower and recorded the low for the year on November 30, slightly below $0.7065.  A break of $0.7050 would initially target $0.7000, but convincing penetration could spur another 2-2.5-cent drop.  The 60-day rolling correlation between- changes in the Australian dollar and the CRB commodity index weakened from over 0.6% in October to below 0.4% in November. The correlation had begun recovering as the month drew to a close.       Spot:  $0.7125 ($0.7518)        Median Bloomberg One-Month Forecast $0.7195 ($0.7409)      One-month forward  $0.7135 ($0.7525)     One-month implied vol 9.7%  (9.1%)        Mexican Peso:  The broadly stronger US dollar and the prospects of more accelerated tapering weighed on emerging market currencies in November, but domestic considerations also weighed on the peso.   The Mexican peso fell by around 4.1%, the most since March 2020.  The economy unexpectedly contracted by 0.4% in Q3.  There is little fiscal support to speak of, while monetary policy is becoming less accommodative too slowly compared with some other emerging markets, such as Brazil.  Price pressures are still accelerating, and the bi-weekly CPI rose above 7% in mid-November. The swaps market discounts nearly a 25 bp hike a month for the next six months.  The government's policies, especially in the energy and service sectors, are not attractive to investors.  President AMLO dealt another blow to investor confidence by retracting the appointment of former Finance Minister Herrera for his deputy to head up the central bank starting in January.  This is seen potentially undermining one of the most credible institutions in Mexico.  Lastly, Mexico's trade balance has deteriorated sharply in recent months and through October has recorded an average monthly trade deficit of nearly $1.2 bln this year.  In the same period, in 2020, it enjoyed an average monthly surplus of almost $2.5 bln, and in the first ten months of 2019, the average monthly trade surplus was a little more than $150 mln.     Spot: MXN21.46 (MXN20.56)   Median Bloomberg One-Month Forecast  MXN21.23 (MXN20.42)   One-month forward  MXN21.60 (MXN20.65)     One-month implied vol 14.9% (9.6%)      Chinese Yuan:  The Chinese yuan has been remarkably stable against the US dollar, and given the greenback's strength, it means the yuan has appreciated sharply on a trade-weighted basis.  Going into the last month of the year, the yuan's 2.6% gain this year is the best in the world.  Chinese officials have signaled their displeasure with what it sees as a one-way market.  At best, it has orchestrated a broadly sideways exchange rate against the dollar, mainly between CNY6.37 and CNY6.40. The lower end of the dollar's range was under pressure as November drew to a close.   Even though the Chinese economy is likely to accelerate from the near-stagnation in Q3 (0.2% quarter-over-quarter GDP), it remains sufficiently weak that the PBOC is expected to consider new stimulative measures.  It last reduced reserves requirements in July, and this seems to be the preferred avenue rather than rate cuts.  Yet, given the interest rate premium (the 10-year yield is around 2.85%), record trade surpluses ($84.5 bln in October), portfolio inflows, and limited outflows, one would normally expect a stronger upward pressure on the exchange rate.    Spot: CNY6.3645 (CNY6.4055) Median Bloomberg One-month Forecast  CNY6.38 (CNY6.4430)  One-month forward CNY6.3860 (CNY6.4230)    One-month implied vol  3.5% (3.5%)    Disclaimer
Ready, set, silver, go

Ready, set, silver, go

Korbinian Koller Korbinian Koller 03.12.2021 12:56
The most obvious first step is: “How much?” Depending on your time horizon and if your approach is purely diversification for your overall portfolio, a percentage of total investment capital needs to be set. This percentage should be higher on a more aggressive wealth preservation strategy and higher expected returns on beating inflation. Another aspect is if silver is traded as the only hedge or alongside other precious metals. Silver already has a leverage factor in relationship to gold. For example, gold’s response to covid was a 37% up move, while silver moved up 80%. This volatility leverage works both ways, increasing the risk for silver if not purchased on low-risk entry points and traded with appropriate money management. We have pointed out various reasons why we find silver an extremely attractive play long term in this year’s chart book releases. Monthly chart (a week ago), Silver in US-Dollar, ready: Silver in US-Dollar, monthly chart as of November 26th, 2021. The above chart was posted in our last week’s publication. We wrote:” The monthly chart shows a high likelihood for November’s candle closing as an inverted hammer. Consequently, it provides for silver prices approaching the low end of the last 17-month sideways range near US$22.” Monthly chart, Silver in US-Dollar, set: Silver in US-Dollar, monthly chart as of December 3rd, 2021. We were spot on. The anticipated entry zone has been reached. We added to our physical holdings and shared the trade live in our free Telegram channel. Silver in US-Dollar, weekly chart, silver: Silver in US-Dollar, weekly chart as of December 3rd, 2021. We asked, “how much?” and in what diversification, which leaves us with the question of what denomination. The rule of thumb is that the smaller the weight amount is and the more recognizable the brand, the higher the cost. In addition, valuable numismatic collector’s coins have premiums as well. Generally, we find the added cost of brand items (Canadian maple leaf, American eagles, Austrian Philharmonic, and alike) to be of value since it adds to liquidity at a time of sale. While we would stay away from the added cost of numismatic collectible coins, we find there to be value to have a mix of coins and larger bars to arrive at a reasonably low-cost basis with a high degree of liquidity at the time of sale (larger bars are harder to sell than one-ounce coins). The weekly chart above illustrates that as much as we have entered the “shopping zone” for silver, there is a probability that we might see a quick spike down as we have seen at the end of September. As pointed out in the previous chart book, the goal of physical acquisition should not be the ultimate lowest price but availability and execution itself. We make a point of this, especially since we noticed that physical acquisition prices have in percentage retraced much less than the spot price right here, and once the turn is complete, could proportionally faster jolt up. Silver in US-Dollar, quarterly chart, go: Silver in US-Dollar, quarterly chart as of December 3rd, 2021. It is essential to have an exit strategy in place before entry. These exit projections are necessary to measure risk/reward-ratios. Moreover, with the entire plan clear, there will be no debate while in the trade. This part of exit psychology is often overlooked, but a low-risk entry point alone does not provide a good strategy. We expect a price advance on silver within the next six to eight quarters to a price target of US$74.40! Significant profits allowing for an outstanding risk/reward-ratio. Ready, set, silver, go: Last week, we anticipated the market’s direction correctly and find ourselves now at the desired low-risk entry zone. With possible additional questions about physical acquisition answered today, we might have reduced doubt. The devil is in the details, and due to the various countries, their taxation law, and the wide variety of official precious metal dealers, we did not dive into the details on where to take possession of your possibly desired purchase.  Nevertheless, our multinational membership in our free Telegram channel might provide helpful information to your specific situation. We hope we have provided enough knowledge to erase doubt. We encourage participation since we see procrastination towards a wealth preservation strategy as the poorest choice in this challenging time for your hard-earned money. Feel free to join us in our free Telegram channel for daily real time data and a great community. If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can also subscribe to our free newsletter. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting. By Korbinian Koller|December 3rd, 2021|Tags: Crack-Up-Boom, Gold, Gold/Silver-Ratio, inflation, low risk, Silver, silver bull, Silver Chartbook, silversqueeze, technical analysis, time frame, trading principles|0 Comments About the Author: Korbinian Koller Outstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent. Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.
Semblance of Stability Returns though Geopolitical Tensions Rise

Semblance of Stability Returns though Geopolitical Tensions Rise

Marc Chandler Marc Chandler 06.12.2021 12:39
December 06, 2021  $USD, China, Currency Movement, EU, Hungary, Italy, Russia Overview:  The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week.  Asia Pacific equities traded heavily, and among the large markets, only South Korea and Australia escaped unscathed today.  Europe's Stoxx 600 is trading higher, led by energy, financials, and materials.  US futures are narrowly mixed.  Similarly, Asia Pacific bonds played a little catch-up with the large Treasury rally ahead of the weekend.  The US 10-year had approached 1.30% but is now up almost four basis points to almost 1.39%.  European yields are also a little firmer, though Italian bonds are outperforming after the pre-weekend credit upgrade by Fitch. The dollar is mixed.  The yen and Swiss franc are the heaviest, while the Scandis lead the advancers.  Among the emerging market currencies, most liquid and freely accessible currencies are higher, while India, Indonesia, and Turkey are trading lower.  The JP Morgan Emerging Market Currency Index has a four-week drop in tow and is starting the new week with a small gain.  Gold initially moved higher but is now little changed.  Iron ore and copper remain firm.  January WTI is trading firmly within the pre-weekend range, while natural gas, which collapsed by 24% in the US last week, extended its sell-off today.  European natural gas (Dutch benchmark) is trading lower after rising for the past five weeks.   Asia Pacific As tipped by Chinese Premier Li last week, the PBOC cut reserve requirement by 0.5%.  This frees up an estimated CNY1.2 trillion.  Many market participants had anticipated the timing to help banks pay back borrowing from the Medium-Term Lending Facility.  Banks owe about CNY950 bln on December 15 and another CNY500 bln on January 15.   Separately, several property developers have debt serving payments due and Evergrande is at the end of a grace period today.  Lastly, the US and a few other countries are expected to announce a diplomatic boycott of the Winter Olympics.  This is seen as largely symbolic as few diplomats were going to attend due to the severe quarantine imposed by Chinese officials.   China needs bargaining leverage if it is going to influence US policy.  It might come from an unexpected source.   While recent press reports focused on China's attempt to project its power into Africa, they have missed a potentially more impactful development.  Consider the Caribbean, which the US often acts as if it is theirs.  Barbados became a constitutional republic last week, though it is still a member of the UK Commonwealth.  The left-of-center government is friendly toward Beijing.  Under the Belt Road Initiative, Barbados and Jamaica have received several billion dollars from China.  Moreover, a recent US State Department report found that the two countries have voted against the US around 75% of the time at the UN last year.   This week, the regional highlights include the Reserve Bank of Australia (outcome first thing tomorrow in Wellington) and the Reserve Bank of India (December 8).  The RBA may revise up its economic outlook, yet, it is likely to continue to push against market expectations for an early hike.  The derivatives market appears to have the first hike priced in for late next summer.    India is expected to be on hold until early next year but could surprise with a hike.  China is expected to report trade figures tomorrow and the November CPI and PPI on Wednesday.  Lending figures may be released before the weekend.  Japan's highlights include October labor earnings and household spending tomorrow, the current account, and the final Q3 GDP on Wednesday.   The dollar's range against the yen on November 30 (~JPY112.55-JPY113.90) remains dominant.  It has not traded outside of that range since then.  The rise in US yields and equities has helped the dollar regain a toehold above JPY113.00.  The pre-weekend high was near JPY113.60, which might be too far today.  The Australian dollar traded below $0.7000 before the weekend and again today, but the selling pressure abated, and the Aussie has traded to about $0.7040. A band of resistance from $0.7040 to $0.7060 may be sufficient to cap it today.   The dollar has been in essentially the same range against the Chinese yuan for three sessions (~CNY6.3670-CNY6.3770).  If the dollar cannot get back above CNY6.38, a new and lower range will appear to be established.  The PBOC set the dollar's reference rate at CNY6.3702.  The market (Bloomberg median) had projected CNY6.3690.   Europe Germany's new government will take office in the middle of the week.  It has three pressing challenges.  First is the surge in Covid, even before the Omicron variant was detected.  Second, the economy is weak.  Last week's final PMI reading picked up some deterioration since the flash report and the 0.2 gain in the composite PMI more than 10.0 point fall in the previous three months. Third, today Germany reported dreadful factory orders.  The market had expected a slight pullback after the 1.3% gain in September.  The good news is that the September series was revised to a 1.8% gain.  However, this is more than offset by the 6.9% plummet in October orders.  If there is a silver lining here, it is that domestic orders rose 3.4% after falling in August and September.  Foreign orders plunged 13.1%, and orders from the eurozone fell by 3.2% (after falling 6.6% in September).  Orders outside the euro area collapsed by 18.1%.  The sharp drop in factory orders warns of downside risk to tomorrow's industrial production report.  Industrial output fell by 3.5% in August and 1.1% in September. Before today's report, economists were looking for a 1% gain.  Germany also reports the December ZEW survey tomorrow. Again, sentiment is expected to have deteriorated.  The third issue is Russia.  Reports suggest the US has persuaded Europe that Russia is positioned to invade Ukraine early next year.  US intelligence assessment sees Russia planning a multifront offensive.  Putin and Biden are to talk tomorrow.  Meanwhile, Putin makes his first foreign visit today in six months.  He is in India.  India is buying an estimated $5 bln of Russian weapons, including the S-400 anti-aircraft system that Turkey purchased to the dismay of Washington, which banned it from the F-35 fighter jet program.  India is a member of the Quad (with the US, Japan, and Australia), a bulwark against China.  A Russian official was quoted in the press claiming India sent a strong message to the US that it would not tolerate sanctions against it.  The regional alliances are blurry, to say the least. The US maintains ties with Pakistan.  India has had border skirmishes with China.  Russia and China have joint military exercises.   Before the weekend, Fitch upgraded Itay's credit rating one notch to BBB.  It cited the high vaccination rate, increased public and private spending, and confidence in the Draghi-led government's ability to spend the 200 bln euro funds from the EC prudently.  Recall that last week's composite PMI rose to 57.6 to snap a two-month decline.  The market (Bloomberg median) sees the Italian economy as one of the strongest in Europe this year, expanding around 6.3%.  The IMF sees it at 5.8%. The euro has been confined to about a quarter-cent range on both sides of $1.1300.  It is within the pre-weekend range (~$1.1265-$1.1335).  It was offered in Asia and turned better bid in the European morning.  Still, the consolidative tone is likely to continue through the North American session.  A move above the 20-day moving average (~$1.1335), which has not occurred for over a month, would help lift the technical tone.  Sterling tested $1.3200 before the weekend, and it held.  The steadier tone today saw it test the $1.3265 area.  It will likely remain in its trough today, though a move above the $1.3280-$1.3300 area would be constructive.   America Today's US data includes the "final" look at Q3 productivity and unit labor costs.  These are derived from the GDP and are typically not market-movers.  The US also reported that the October trade balance and improvement have been tipped by the advance merchandise trade report.  October consumer credit is due late in the session, and another hefty rise is expected ($25 bln after nearly $30 bln in September.  Consumer credit has risen by an average of $20.3 bln this year.  It fell last year and averaged $15.3 bln in the first nine months of 2019.  No Fed officials speak this week, and the economic highlight is the November CPI report at the end of the week.   Canada reports October trade figures and IVEY survey tomorrow.  The highlight of the week is the Bank of Canada decision on Wednesday.  It is not expected to do anything, but officials will likely be more confident in the economic recovery, especially after the very strong jobs report before the weekend.  The Canadian dollar's challenge is that the market has five hikes already discounted for the next 12 months.  Mexico reports November vehicle production and exports today.  The economic highlights come in the second half of the week.  November CPI on Thursday is expected to see the headline rate rise above 7%.  Last month alone, consumer prices are projected to have risen by 1%.  On Friday, Mexico is expected to report that industrial output rose by 0.9% in October after falling 1.4% in September.  Brazil reports its vehicle production and exports today and October retail sales on Thursday before the central bank meeting.  A 150 bp increase in the Selic rate, the second such move in a row, has been tipped and will put the key rate at 9.25%.  Ahead of the weekend, the IPCA measure of inflation is due.  It is expected to have ticked up closer to 11% (from 10.67%).  Lastly, we note that Peru is expected to deliver another 50 bp increase to its reference rate on Thursday, which would lift it to 2.5%.   The US dollar posted an outside up day against the Canadian dollar ahead of the weekend.  The risk-off mood overwhelmed the positive implications of the strong jobs data.  There has been no follow-through selling of the Canadian dollar today.  The pre-weekend US dollar low near CAD1.2745 is key.  Last Wednesday's range remains intact for the greenback against the Mexican peso (~MXN21.1180-MXN21.5150).  So far today, it has been confined to the pre-weekend range.   Initial support is seen near MXN21.16.  The cap around MXN21.50 looks solid.  Meanwhile, the US dollar closed above BRL5.60 for six consecutive sessions coming into today.   Disclaimer
Awaiting US CPI And Speaking Of Disney and Uber. SEK And PLN As Central Banks Moves

COT: Specs exit commodities on Omicron and Fed worries

Ole Hansen Ole Hansen 06.12.2021 12:33
Commodities 2021-12-06 10:50 Summary:  Futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 30. A week that encapsulated the markets very nervous reaction to the Omicron virus news as well as Jerome Powell's increased focus on combatting inflation. While global stocks and US long end yields dropped, a 7% correction in the Bloomberg commodity index helped trigger the biggest and most widespread hedge fund exodus since February 2020. Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 30. The reporting week encapsulated the markets very nervous reaction to the Omicron virus news as well as Jerome Powell confirming inflation is no longer being transitory. His comments to the Senate banking committee raised expectations for faster tapering with the first full 0.25% rate hike now priced in for July next year. The US yield curve flattened considerably with virus related safe-haven demand driving down the yield on 10-year US treasury notes by 22 basis point. Global stocks slumped with the VIX jumping 8%. Hardest hit, however was the commodity sector after the Bloomberg commodity index slumped by 7%, thereby triggering the biggest and most widespread hedge fund exodus since February 2020. Commodities Hedge funds responded to heightened growth and demand concerns related to the omicron virus, and the potential faster pace of US tapering, by cutting their net long across 24 major commodity futures by 17% to a 15-month low at 1.8 million lots. This the biggest one-week reduction since the first round of Covid-19 panic in February last year was triggered by net selling of all but three livestock contracts. Energy: Hardest hit was the energy sector where renewed demand concerns sent the prices of WTI and Brent down by more than 15%. In response to this, hedge funds accelerated their pace of futures selling with the combined net long slumping by 90k lots to a one-year low at 425k lots. The loss of momentum following the late October peak has driven an eight-week exodus out of oil contracts, culminating last week, and during this time the net length has seen a 35% or 224k lots reduction. Potentially setting the market up for a strong speculative driven recovery once the technical and fundamental outlook turns more friendly.Latest: Crude oil (OILUKFEB22 & OILUSJAN21) trades higher following its longest stretch of weekly declines since 2018. Today’s rise apart from a general positive risk sentiment in Asia has been supported by Saudi Arabia’s decision to hike their official selling prices (OSP) to Asia and US next month. Thereby signaling confidence demand will be strong enough to absorb last week's OPEC+ production increase at a time when mobility is challenged by the omicron virus. For now, both WTI and Brent continue to find resistance at their 200-day moving averages, currently at $69.50 and$72.88 respectively.  Metals: Gold was net sold for a second week as speculators continued to reduce exposure following the failed breakout attempt above $1830. With Fed chair Powell signaling a change in focus from job creation to fighting inflation, sentiment took another knock, thereby driving a 13.7k lots reduction to a four-week low at 105k lots. Industrial metals also suffered with the net long in HG copper slumping by one-third to a three-month low at 13.4k lots. Copper’s rangebound trading behavior since July has sapped hedge funds involvement with the current net length a far cry from the 92k record peak seen this time last year.Latest: Gold (XAUUSD) received a small bid on Friday following mixed US data, but overall, it continues to lack the momentum needed to challenge an area of resistance just above $1790 where both the 50- and 200-day moving averages meet. Focus on Friday’s US CPI data with the gold market struggling to respond to rising inflation as it could speed up rate hike expectations thereby putting upward pressure on real yields which are inverse correlated to gold's performance.  A full 25 basis point rate hike has now been priced in for July and the short-term direction will likely be determined by the ebb and flow of future rate hike expectations. Agriculture: The whole sector with the exception of livestock took a major hit, just one week after funds had increased bullish bets on grains and softs by the most in 15 months. Both sectors suffered setbacks of more than 5% with recent highflyers like wheat and cotton taking big hits. As mentioned, selling was broad and led by corn, soybeans, sugar and cocoa, with the latter together with palladium being the only two contracts where speculators hold an outright short position.This week the grain market will be focusing on weather developments in Australia and its potential impact on the wheat harvest, as well as the monthly World Agriculture Supply & Demand report (WASDE) from the USDA.  Forex In forex, speculators reacted to renewed virus concerns by increasing bullish dollar bets against ten IMM currency futures and the Dollar Index to an 18-month high at $27.9 billion. Speculators were buyers of JPY (18.4k lots or $2 billion equivalent) but sellers of everything else, including euros (6.8k) and the two commodity currencies of AUD (16.9k) and CAD (10.9k). These changes resulting in the aggregate dollar long rising by $2.3 billion. In terms of extended positioning, a euro short at 23k lots was last seen in March 2020, the GBP short at 39k lots was a two-year high while the 60k lots MXN short was the highest since March 2017. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming
Animal Spirits Roar Back

Animal Spirits Roar Back

Marc Chandler Marc Chandler 07.12.2021 16:47
December 07, 2021  $USD, Canada, China, Currency Movement, Germany, Hungary, Japan, Mexico, RBA, Russia, US Overview:  A return of risk appetites can be seen through the capital markets today, arguably encouraged by ideas that Omicron is manageable and China's stimulus.  Led by Hong Kong and Japan, the MSCI Asia Pacific rose by the most in three months, while Europe's Stoxx 600 gapped higher, leaving a potentially bullish island bottom in its wake.  US futures point to a gap higher opening when the local session begins.  The bond market is taking it in stride.  The US 10-year Treasury is slightly firmer at 1.44%, while European yields are 1-3 bp higher.  The dollar-bloc currencies and Norway are leading the move higher among most major currencies.  The yen and euro are softer.  Sterling struggles to sustain upticks. Among emerging markets currencies, the Turkish lira is bouncing, while most central European currencies are being dragged lower by the weaker euros.  The JP Morgan Emerging Market Currency Index is slightly higher after four consecutive losses.  Gold is trading within yesterday's narrow range.  Oil continues to recover, and the January WTI contract is up around 2.5% (after yesterday's 4.9% advance) and is above $71.50 a barrel.  US natgas prices dropped 11.5% yesterday and have come back firmer today, while the European benchmark (Dutch) is up 7% today (~+0.5% yesterday) to near last week's highs.  Iron ore prices jumped 7.7% today after 2.5% yesterday, perhaps encouraged by strong Chinese import figures.  Copper prices are also firm.    Asia Pacific The Reserve Bank of Australia stuck to its stance. It may take two years to reach the 2-3% inflation target, and the uncertainties surrounding the Omicron variant also favor a cautious approach. This was in line with expectations.  The swaps market still has about 75 bp of higher rates discounted next year.   The Australian dollar's gains reflect the risk-on mood.   Japan's economy is on the mend.  Household spending rose 3.4% month-over-month in October.  Paradoxically, outlays on medical care actually fell (-5.7%) year-over-year in October.  Meanwhile, Labor cash earnings rose by 0.2% year-over-year, the same as in September, but less than expected.  Households headed by a worker rose 0.5% year-over-year.   China's trade surplus fell to $71.7 bln in November from $84.5 bln in October.  The US accounted for a little more than 50% of the surplus (~$37 bln).  Exports rose by 22% year-over-year, less than the 27.1% increase in October.  But, what really stood out were China's imports.  They surged, jumping 31.7% from a year ago after a 20.6% increase in October.  Commodity imports were robust.  The 35 mln tons of coal imported was the most this year. Oil imports were at three-month highs.  Iron ore imports reached a 13-month high,  Gas purchases were the highest since January.  Copper imports appear to be a record.  Separately, China reported that the value of its foreign exchange reserves rose by a minor $4.7 bln to $3.222 trillion.  Economists (Bloomberg survey median) had expected around an $11 bln decline.   The dollar has forged what appears to be a solid base now around JPY112.55.  So far, today is the first session since November 26 that the greenback has held above JPY113.00.  It has been confined to a narrow range between JPY113.40 and JPY113.75.  The dollar looks poised to move higher but may stall around JPY114.00, where an option for around $865 mln expires today.  The Australian dollar rose about half of a cent yesterday and is up around another half-cent today to test $0.7100.  An option for A$1.04 bln expires today there ($0.7100).  It is also the (61.8%) retracement objective of last week's drop.  A move above there would target the $0.7130 area and possibly $0.7200.  The reduction in Chinese banks' reserve requirements and the divergence with the direction the Fed appears headed did not deter the yuan from strengthening.  The dollar held CNY6.38 yesterday and is near CNY6.3660 now.  The low for the year was set at the end of May near CNY6.3570.  The dollar's reference rate was set at CNY6.3738, a touch higher than the models (Bloomberg survey) projected of CNY6.3734.   Europe According to the proverb, for want of a nail, a kingdom was lost.  US intelligence warns that Russia is poised to invade Ukraine.  Beijing continues to act as a bully in the South China Sea.  US President Biden is hosting a "Summit for Democracy" December 9-10.   Reportedly 110 countries will be represented, even Taiwan, which the US officially does not recognize as a country.  All of the EU members have been invited but Hungary.  Hungary, like Poland, is in a serious fight with the EC over the rule of law.  It is being fined for failing to comply with the European Court of Justice over its harsh treatment of asylum seekers.  Poland, which is invited to the summit, is also being fined a record 1 mln euros a day for deviations from the EU standards of the rule of law.   Yet Hungary's exclusion is needlessly antagonistic.  Hungary will hold parliamentary elections in April (though possibly May), and the opposition is united behind the center-right Marki-Zay.  Most polls show him ahead of Orban.   It is an insult to the EU, and Orban used his veto to block the EU from formally participating and prevented it from submitting a position paper.  It is a vulnerable position for the US to be the judge and jury about democracy and the rule of law.   Laura Thorton, director of the Alliance for Securing Democracy of the German Marshall Fund of the United States, expressed shock and dismay in a recent Washington Post op-ed over developments in Wisconsin. She wrote, "If this [where the GOP is seeking to replace the bipartisan oversight of elections with just its party's control] occurred in any of the countries where the US provides aid, it would immediately be called out as a threat to democracy.  US diplomats would be writing furious cables, and decision-makers would be threatening to cut off the flow of assistance."  Separately, the US embassy in Tokyo warned Japan about "racially profiling incidents" following the closure of its borders to new foreign entries into the country.   The US response to the Russian aggression in Georgia in 2008 and the annexation of Crimea in 2014 was soft.  Despite bringing NATO to Russia's door in the Baltics, the US recognized by its actions that it is difficult to defend what Russia calls its near-abroad. Ukraine is different.  When Ukraine gave up its nuclear weapons, the Budapest Memorandum  (1994), Russia, the US, and the UK committed to respecting its independence and territorial integrity.  Russia clearly violated the agreement, but the US says it is not legally binding.  Nevertheless, reports indicate that the Biden administration is contemplating new sanctions against Russia and Putin's inner circle.  Reportedly under consideration is removing Russia from the SWIFT payment system and new sanctions of Russia's energy companies, banks, and sovereign debt.  In late April, the European Parliament approved a non-binding resolution to exclude Russia from the SWIFT if it attacked Ukraine.  Russia is a heavy user of SWIFT, as few foreign banks, including the Chinese, are willing to use Russia's own payment system.  After a dismal factory orders report, the market had been prepared for a poor industrial output report today.  Instead, Germany surprised with its strongest gain for the year.  Industrial output surged 2.8% in October.   It is only the third monthly gain this year.  Moreover, September's decline of 1.1% was halved to 0.5%.  It appears auto production (capital goods) may be behind the improvement in activity.  Separately, the ZEW survey was mixed.  The expectations component was stronger than expected, but still, at 29.9, lower than November's 31.7 reading.  The assessment of the current situation deteriorated sharply to -7.4 from 12.5.  It has been declining since September, but this is the lowest since June.  On November 30, the euro spiked higher and has subsequently worked its way lower.  Today, it reached almost $1.1250, its lowest level since November 30, low near $1.1235. The 20-day moving average (~$1.1320) continues to block the upside.  It has not closed above it for a little more than a month.  The low for the year so far was recorded on November 24 near $1.1185.  For its part, sterling remains in its trough. The low for the year was set on November 30, slightly below $1.32.  Before the weekend, it was in a roughly $1.3210-$1.3310 range and remains well within that range yesterday and today.  It has been blocked ahead of $1.3300.  There is an option for about GBP450 mln at $1.3250 that expires today.   America The US is expected to report that productivity fell in Q3 by 4.9% rather than the 5% that was initially reported.  Productivity increased by 2.4% in Q2 and 4.3% in Q1.  It averaged 2.6% last year and 2.3% in 2019.  Unit labor costs are the most holistic measure, including wages, benefits, and output.  Looking at a four-quarter moving average, unit labor costs rose 1.6% in 2018 and 1.45% in 2019.  They jumped to 6.25% last year and fell by an average of 0.85% in H1 21.  The initial estimate for Q3 was an 8.3% surge.   The US also reports the October trade balance.  The preliminary goods balance signaled a likely improvement from the $80.9 bln deficit in September.  The median forecast (Bloomberg) sees a deficit of slightly less than $67 bln.  Through September, the monthly average was nearly $71 bln, up from $53.3 bln in the same period last year and less than a $50 bln average in the first nine months of 2019. Late in the session, the US reports October consumer credit, and another substantial increase is expected.  It jumped almost $30 bln in September.  It has averaged $20.275 bln a month through September.  Last year was too distorted, but in the first three quarters of 2019, consumer credit rose by an average of $15.3 bln a month.    Canada reports its October merchandise trade figures today, ahead of the Bank of Canada meeting tomorrow  The median forecast in Bloomberg's survey call for a C$2.08 bln surplus, which, if accurate, would the be third largest surplus since 2008.  The June surplus was larger at C$2.26, as was the December 2011 surplus of C$2.12 bln.   Canada's goods trade balance through September swung into surplus with an average of C$703 mln.  In the same period in 2020, the monthly deficit averaged C$3.1 bln and  C$1.4 bln in 2019.  The merchandise surplus may be sufficient to lift the current account too.  Canada has been running a current account deficit since 2009.   The OECD forecasts a surplus this year of 0.3% of GDP and projects it to be in balance next year.  Canada and Mexico have expressed concerns about the credits for electric vehicles in the Build Back Better US initiative.  They claim it violates the USMCA.  Europe has expressed similar problems, and the EU Trade Commissioner Dombrovskis has reportedly sent a formal letter warning that the Biden administration's efforts may also violate WTO rules.  Meanwhile, there is talk that the initiative may be blocked this year.  If this is the case, the odds of passage next year seem even slimmer.  On a different front, Mexico's controversial energy reforms, which expand the state sector, over some objections by US energy companies, look to be delayed due to lack of support.  The US dollar posted an outside up day against the Canadian dollar before the weekend, despite Canada's strong employment report.  There was no follow-through yesterday, and the greenback recorded an inside day and settled on its lows.  The US dollar has been sold to around CAD1.2700 today.  Initial support is around CAD1.2675, but the more significant test is near CAD1.2640.  A break would strengthen the conviction that a high is in place.  Meanwhile, the greenback continues to consolidate against the Mexican peso.  It remains within the range set last Wednesday (~MXN21.1180-MXN21.5150).  Thus far today, it is holding above yesterday's low (~MXN21.1720), which was- above the pre-weekend low (~MXN21.1625).            Disclaimer
Markets Calmer, Awaiting Fresh Incentives

Markets Calmer, Awaiting Fresh Incentives

Marc Chandler Marc Chandler 08.12.2021 13:51
December 08, 2021  $USD, Bank of Canada, Currency Movement, Germany, India, Japan, Poland, Russia Overview:  The capital markets are calmer today, and the fear that was evident at the end of last week remains mostly scar tissue. Led by gains in Japan, China, Australia, New Zealand, and India, the MSCI Asia Pacific Index extended yesterday's gains.  Europe's Stoxx and US futures are firm.  The US 10-year yield is softer, around 1.43%, while European yields are mostly 1-2 bp lower.  The Norwegian krone and euro lead major currencies higher against the greenback, but the New Zealand dollar and sterling are underperforming. Most of the emerging market currencies are enjoying an upside bias. The Turkish lira is giving back a little more than half of yesterday's 2.25% bounce.  Gold is edging higher and is near the 200-day moving average (~$1792).  January WTI is off $1 around  $71 after rallying around 8% in the past two sessions.  API reported a three million barrel drawdown in inventories but a big jump in Cushing.   US natural gas is consolidating and paring Monday's 11.5% drop.  Europe (Dutch) natural gas prices are rising for the third consecutive session and around 10% this week.  Iron ore has extended this week's rally and is at the highs since October.  Copper is flat.   Asia Pacific Australia has joined the US in the diplomat boycott of the winter Olympics in Beijing.  South Korea and Japan have not formally decided yet.  China's quarantine policies made it difficult for many diplomats to attend in any event, and many apparently will not attend.  Beijing threatens unspecified retaliation.   Japan reported an increase in its October current account, rising to JPY1.18 trillion from JPY1.03 trillion in September.  The swing in the trade balance from a JPY230 bln deficit to a JPY167 bln surplus more than accounted for it.  Japan also revised Q3 GDP to a 0.9% contraction (from -0.8%).  The composition changed.  Consumption was a greater drag (-1.3% quarter-over-quarter rather than -1.1%), and inventories contributed less (0.1% vs. 0.3%) and net exports were flat (rather than contribute 0.1 percentage points).  Business investment was less a drag (-2.3% vs. -3.8%).  Still, there is reason to be more optimistic about the outlook for the world's third-largest economy.  Social restrictions have eased, the vaccination rate is among the best, and the government is providing fresh stimulus.  The Kishida government is expected to finalize its fiscal efforts toward the end of the week. A key issue is the tax incentive (subsidy) for companies that boost wages by 3%, which has not happened since 1997.   India left its key rate corridor on hold today.  The repo rate is 4%, and the reverse repo rate is 3.35%.  Some observers saw the possibility of a hike in the reverse repo rate.  The monetary policy committee voted unanimously to keep the repo rate steady.  The reverse repo rate is a broader issue decided by the central bank, not the MPC.  The emergence of Omicron may have encouraged the central bank to maintain a steady hand, while the cut in the excise duty and VAT for petrol and diesel may help ease price pressures.  It made some technical changes in its liquidity management, which some see as a prelude to a hike in February 2022, when the central bank meets again.   The dollar is consolidating in a narrow 30-point range above JPY113.35 against the Japanese yen.  Yesterday's high was just below JPY113.80.  An option for about $550 mln will roll off today at JPY114.25, while there is a nearly $1.5 bln option at JPY114.00 that expires tomorrow.  The JPY114 area also holds the 20-day moving average, which the dollar has not closed above since November 25. The Australian dollar began the week flirting with the $0.7000 area.  It is rising for its third consecutive session and has reached almost $0.7145 today.  Last week's highs were set a little above $0.7170.  Despite words of caution by Chinese officials and the cut in reserve requirements, the yuan continues to march higher.  It is at new three-year highs today.  The dollar has been sold down to almost CNY6.3455.  Local dollar bonds and bonds below investment grade have rallied as officials signal a focus on supporting the economy.  Today the rate for re-lending to rural and small businesses was cut by 25 bp.  The PBOC has also been generous with its liquidity provisions.  The reference rate for the dollar was set at CNY6.3677, a little firmer than expected (CNY6.3665, Bloomberg survey).    Europe An era is formally over today as Germany's new government takes office.  The challenges it faces are profound.  The virus was surging even before the Omicron variant was detected.  The economy has been hobbled.  Inflation is high (6% on the harmonized measure in November) and without the fiscal stimulus seen in the US, where CPI is up 6.2% from a year ago (October).  This year, the German deficit is estimated to be about 5.8% and seen falling to 2.5% next year.  The US deficit is around 12.5% this year and is expected to fall to around 6.5% in 2022. Russia is amassing troops, and fears that it will invade Ukraine early next year are running high.  Germany reportedly will nix the controversial Nord Stream II pipeline if Russia carries through with its threat as part of the economic sanctions being considered.  Italy's Draghi has had a bit of a honeymoon, but that will change.  Two of the three largest unions will strike on December 16 to protest Draghi's budget, which must be passed by the end of the month.   Moreover, the selection of a new Italian president in January may mark the beginning of the political process that will lead to a new parliamentary election by the middle of 2023.  The president of Itlay is chosen by the Italian Parliament and regional representatives.  The current president, Mattarella, has declined to run for a second term.  Draghi does lead any political party, but the latest surveys show the center-left Democratic Party is in first place, polling a couple percentage points higher than it got in the last election at 21.4% support.  The Brothers of Italy on the right are in second place with slightly less than 20% support.  The Five Star Movement has seen its fortunes slip to about 15%.  Poland's central bank is set to hike its base rate today.  It will be the third consecutive increase.  The base rate was slashed from 1.50% last year to 10 bp.  It was hiked by 40 bp in October and 75 bp last month to stand at 1.25%. The headline CPI surged from 2.4% at the end of last year to 7.7% in November. Czech and Hungary have been more aggressive in raising rates.  Last month, Czech's central bank delivered a 125 bp increase to lift its key two-week repo rate to 2.75%.   It was at 25 bp to start the year.  Its CPI is near 6%.  Hungary has raised its base rate every month since June and taken it from 60 bp to 2.10%.  It has also taken its one-week deposit rate from 75 bp to 3.10%, with 130 bp delivered in the past three weeks. Earlier today, it reported that CPI rose to 7.4% last month from 6.5%.  Most look for a 50 bp increase from Poland's central bank today.   The euro briefly dipped below $1.1230 yesterday but recovered in the North American afternoon.  It is extending the recovery today and traded $1.1300 in the European morning.  The $1.1310-$1.1320 offers nearby resistance.  The UK government is being embarrassed by reports about its holiday party a year ago in violation of the social restrictions in place at the time.  It adds to the sleaze factor that has weakened it.  The latest polls show that the Labour Party is extending its lead.  Also, ideas that the BOE could raise rates next week have diminished and been pushed into next February.  Sterling is heavy, near $1.3200.  We have warned of near-term risk toward $1.3165, the (38.2%) retracement objective of the rally from the March 2020 low near $1.14.   America A deal appears in the works to lift the US debt ceiling.  The maneuver requires 60 votes to allow the debt ceiling to pass with a simple majority.  The Republican leadership appears willing to go along with this.  It will likely set a new precedent that will be used and possibly expanded when control of Congress changes.  PredictIt.Org shows that the Republicans are favored to win control of both houses in next year's mid-term election.   The US calendar today features the JOLTS report on job openings.  The week's highlight, the November CPI, is out on Friday, and both the headline and core rates are expected to accelerate.  Fed officials are in the blackout period ahead of next week's FOMC meeting.  Today's North American feature is the Bank of Canada meeting.  No one expects a change in rates.  It is more about the rhetoric.  Despite the uncertainty surrounding the Omicron variant, Bank of Canada officials are likely to be more confident about the strength of the recovery.  Last week's jobs data adds to the positive impulses.  Moreover, the government is providing more fiscal support.  The biggest challenge is that the market has discounted five hikes over the next 12 months.  This is aggressive and difficult for the central bank to get ahead of market expectations. Even after the strong Canadian jobs data at the end of last week, the US dollar closed firmly above CAD1.28, showing the Loonie's vulnerability to the risk-off wave.  However, as cooler heads have prevailed, the Canadian dollar has bounced back.  The US dollar closed below the 20-day moving average yesterday (~CAD1.2670) for the first time in a month and was sold to about CAD1.2620 today. The (38.2%) retracement of the greenback's rally since the October 21 low (below CAD1.23) is found near CAD1.2640. The next retracement (50%) is around CAD1.2570.  Initial resistance now is likely by CAD1.2680.  The greenback also closed below its 20-day moving average against the Mexican peso yesterday for the first time since November 9.  It has slipped below MN21.00 today for the first time in about two-and-a-half weeks.  With today's loss, the US dollar has retraced (61.8%) of its rally from November 9 low (~MXN20.2750). The move seems exaggerated, and consolidation is likely.  Nearby resistance is seen in the MXN20.05-MXN20.10 area.  Disclaimer
Markets Turn Cautious Ahead of Tomorrow's US CPI

Markets Turn Cautious Ahead of Tomorrow's US CPI

Marc Chandler Marc Chandler 09.12.2021 12:34
December 09, 2021  $USD, Brazil, Canada, China, Currency Movement, Germany, Japan, Portfolio flows, UK Overview: The euro has come back offered after its seemingly inexplicable advance yesterday.  The dollar is firmer against most major currencies today, with the yen an exception after JPY114.00 held on yesterday's advance.  Most emerging market currencies are also softer, with a handful of smaller Asian currencies proving a bit resilient.  Most large bourses advance in the Asia Pacific region, except Japan and Australia.  Europe's Stoxx 600 is steady after retreating late yesterday while US futures are pointing to a softer opening.  After rising for the past three sessions (~18 bp), the yield of the 10-year US Treasury is consolidating by hovering a little below 1.5%.  European yields are 3-5 bp softer.   Gold is little change.  This week's quiet tone contrasts with the sharp moves in Bitcoin and Ethereum.  Oil is consolidating after the three-day advance that lifted January WTI by around 8.5%.  US and European natural gas is also softer after the rally over the last few days.  Iron ore, which rallied over 10% in the first two sessions this week, edged lower yesterday and is off 3% today.  Copper's three-day rally is in jeopardy.   Asia Pacific The number of countries participating in a diplomatic boycott of the Beijing Winter Olympics is growing.  In addition to the US, Lithuania, Australia, New Zealand, Canada, and the UK have joined.  While it may annoy Chinese officials, it is symbolic.  Given Chinese quarantine protocols, many diplomats were not going to attend in the first place.  Also, the impact on China's human rights will likely be negligible.  The moral righteousness is signaling to domestic constituencies.  Yet, treatment of the Peng Shuai and the jailing of reporters needless antagonized the already precarious situation.  China's consumer inflation rose less than expected while producer prices rose more.  Owing to a jump in vegetable prices (30.6%), November CPI rose 2.3% from a year ago. The median forecast (Bloomberg survey) was for a 2.5% increase.  It is the fastest pace since August 2020. The decline in pork prices (-32.7% year-over-year) is slowing.  Excluding pork, the CPI would have risen by 3%.  Service prices remain soft.  Excluding food and energy, the core CPI is up 1.2% over the past year (1.3% previously).  Producer price inflation slowed from 13.5% in October to 12.9% in November.  Economists had forecast a 12.1% pace.  Recall officials moved to boost supplies, including coal, helping to ease the strong upside pressures.   Officials have moved to a more pro-growth stance, which means that inflation will not stand in the way of further easing monetary policy (via reserve requirements even if not interest rates) next year. Meanwhile, Evergrande and the Kaisa Group have formally missed debt-servicing payments on dollar obligations. Still, unlike the end of the property bubble in the US and Europe, China is forcing banks to continue to lend. This keeps the proverbial treadmill going.   The lending figures for November, released today, illustrate it.  New yuan loans, which track bank lending, rose by 50%+ to CNY1.27 trillion from CNY826 bln in October.  Aggregate financing, which adds shadow banking activity to bank lending, rose to CNY2.61 trillion from CNY1.59 trillion.  Note that just before publishing this report, the PBOC announced a two percentage point hike in the reserve requirement for foreign currency deposits.  This will likely weigh on the yuan, initially.    Japanese weekly portfolio flows were unusually large last week.  Data from the Ministry of Finance showed that Japanese investors were large sellers of foreign bonds for the second consecutive week.  The JPY1.18 trillion in sales followed the divestment of JPY1.34 trillion the previous week. It was the most selling in a two-week period since February.  From a high level, most of the selling last week did not require net yen buying as Japanese investors essentially shifted into foreign equities, snapping up JPY1.2 trillion.  This is the most since the time series began in 2005.  Separately, foreign investors bought JPY2.0 trillion of Japanese bonds, which appears to be the second-highest on record (after the JPY2.57 trillion bought in early July).   For the third consecutive week, foreign investors were small sellers of Japanese shares.  The dollar approached JPY114.00 yesterday and was turned back, falling to JPY113.35 today.  The JPY114 area is "defended" by a $2.2 bln option at JPY114.10 that expires today and a $1.15 bln option at JPY114.25 that expires tomorrow.  A break of JPY113.25-JPY113.35 could signal a test on JPY113.00, but the market will likely be cautious ahead of tomorrow's US CPI report.  The Australian dollar's recovery faltered earlier today slightly above $0.7185, the 20-day moving average, which it has not traded above since November 4.  The first retracement (38.2%) of this week's bounce is near $0.7115, but initial support is seen in the $0.7140 area.  The greenback edged slightly lower against the Chinese yuan (~CNY6.3430) before steadying and turning marginally higher.  It is caught between two large options expiring today.  One set is for around $2.5 bln at CNY6.34, and another set is for about $950 mln at CNY6.35.  The PBOC's reference rate for the dollar today (CNY6.3498) was the largest gap with the median projection (Bloomberg, CNY6.3467) since the middle of October.   Europe Germany's October trade figures are maybe too dated to have much market impact, but the growth of imports and exports is a constructive development.  The 4.1% rise in exports, the most since July 2020, were well above expectations, as was the 5% jump in imports (most since August 2020).  For Germany, it translates into a smaller than expected trade surplus (12.8 bln euros).  The monthly average surplus this year through October is 15.5 bln euros, which is a little above the average for the same period last year (14.4 bln euros), but off average in 2019 (through October) of 19 bln euros.   On the heels of "party-gate," UK Prime Minister Johnson has announced Plan B in the face of the new infection surge that calls for people to work from home again.  It has created much furor. Businesses have called for more government support, and unions want the furlough program to be re-instituted.  Any lingering ideas of a rate hike next week by the Bank of England have faded.  The short-sterling interest rate futures contract expiring shortly is implying the lowest yield (11 bp) in three months.   Short-covering appeared to lift the euro to $1.1355 yesterday, and it settled above its 20-day moving average for the first time since November 3.  However, this was not a harbinger of a breakout, and the euro's gains are being pared today. Initial support is seen around $1.13 and then $1.1275 area.  Sterling recorded new lows for the year yesterday slightly below $1.3165, the (38.2%) retracement of the rally since March 2020 low.  Today, it is in less than a quarter-cent range capped near $1.3215.  It is consolidating weakly.  There are options at $1.32 that expire today (~GBP370 mln) and tomorrow (GBP600 mln) that are likely neutralized.   America The US reports weekly initial jobless claims, wholesale trade and inventories, and Q3 household net worth. These are not market movers, especially today. Instead, investors' focus will likely be on equities as it waits for tomorrow's CPI.  US inflation is still accelerating, and the headline CPI is likely to move closer to 7%, setting the stage for a hawkish FOMC meeting next week.  An acceleration in tapering and more officials will likely see the need for more hikes.  Recall that in September, the last time officials updated their forecasts, half did not see a need to hike rates next year.  The market has done much of the heavy lifting for the Federal Reserve.  The implied yield of the December 2022 Fed funds futures contract has risen around 50 bp since the September FOMC meeting.  The Bank of Canada left policy on hold yesterday, as widely expected.  However, the market was disappointed that it did not upgrade its forward guidance to reflect the strong data.  The swaps market is pricing in five hikes over the next 12 months, and the central bank said nothing to encourage such an aggressive stance.  This leaves the Canadian dollar somewhat vulnerable, we think.   Brazil did not disappoint.  The central bank hiked the Selic rate by 150 bp for the second consecutive month and signaled another hike of the same magnitude in February when it meets again.  It has lifted the Selic rate by 750 bp this year.  It is being driven by rising inflation, and the economy contracted in Q2 and Q3.  The Selic rate stands at 9.25%.  The IPCA inflation measure is due tomorrow, and it is expected to have risen to 10.9% (Bloomberg survey) from 10.67% in October.   Peru is expected to hike its reference rate by 50 bp to 2.5%. It would be the third 50 bp in a row.   Its November CPI, reported at the start of the month, is slightly above 5.6%.   Mexico reports its November CPI figures today.  It is expected to rise from about 6.25% to 7.25% and set the stage for another 25 bp rate hike next week in the overnight rate to 5.25%.   The US dollar is trading firmly against the Canadian dollar, and the heavier equities may be helping it.  While initial resistance is seen near CAD1.2700, we suspect there is scope toward CAD1.2730-CAD1.2750.  The greenback fell to almost MXN20.8860 yesterday, its lowest level since November 23, and the five-day moving average crossed below the 20-day moving average for the first time since early last month.  The move appears to have exhausted itself, but the dollar needs to resurface above the MXN21.05 area to boost confidence that a low is in place.  Disclaimer
Silver is moving up

Silver is moving up

Korbinian Koller Korbinian Koller 11.12.2021 10:45
So, what are the facts: Monthly chart, Silver in US-Dollar, probabilities: Silver in US-Dollar, monthly chart as of December 10th, 2021. In 2020, silver broke a multiyear sideways range and moved strongly up. It has now consolidated for over a year in a sideways range again. This is a bullish setup! As much as emotions might be weary, from a probability perspective, a general rule is that the longer a congestion is from a time perspective, the more significant will be the subsequent breakout from that range. Statistical probabilities are also clearly pointing to the upside rather than returning into the prior range. Not to forget, buying near the lows of such a range box guarantees the lowest entry risk and highest risk/reward-ratio play to be taken for the long side, even if emotions might tell you otherwise. 2021 silver trades performance: 2021 silver trades performance. Another fact is that one does not need to know when and if a breakout is happening to extract money from the markets consistently. The above chart is this year’s silver trades that we posted in real-time in our free Telegram channel. The systematic approach focuses on low-risk entry points with a risk reduction method through our quad exit strategy. Sideways markets provide an income-producing aspect of one’s trading, and a possible breakout of a range would give a significant bonus. An approach like this keeps emotions in check since one’s labor gets rewarded and allows for significantly higher rewards once ranges do break. Silver in US-Dollar, quarterly chart, silver is moving up: Silver in US-Dollar, quarterly chart as of December 10th, 2021. In short, while waiting is strenuous, and one might feel doubtful, from a probability perspective, silver is an even likelier success story now than it has been six months or a year ago. What should also not be underestimated is the fundamental situation of this wealth preservation play. The extensions of governments playing the inflation game to such length are like adding fuel to the silver play. Widespread problems that are the pillars to this insurance play have, if anything, increased. Consequently, supporting a good likelihood that silver prices go up. When? Well, that is hard to say since no one knows the future, but maybe this question gets proportionally in weight too much attention since insurance isn’t just bought for the next storm to come but in principle acquired to make one feel good and to protect one’s wealth long term. The quarterly chart above shows how silvers inherent volatility can sustain, in times of market turmoil, extended phases of extreme standard deviation levels. Price moves far away from the mean (red line). We are trading near the mean as of now, and the very right green line is a projection of a possible price move up.   S&P 500 in US-Dollar, quarterly chart, Quod erat demonstrandum: S&P 500 in US-Dollar, quarterly chart as of December 10th, 2021. Still, some doubt left? Have a look at the above S&P500 chart, representing the broad market. Does that look like a healthy chart? Baby boomers and general stock-market participants might be in for a rude awakening once they realize how little their fiat currency is still worth when they cash in those stock portfolio investments. Just compare your total living cost from 2020 with 2021. All positions from food to health insurance, from car gas to electricity bills. Calculate the percentage difference from those two numbers and add this percentage to the average acquisition cost of your physical silver, and you have the real value of your silver already now. How does homelessness double to a half million people per day sleeping roofless factor in? Does this chart represent great times when we face supply chain disruptions? Or is it all smoke and mirrors, and once the music stops, there will be countless chairs missing for everyone to sit down? Silver is moving up: The essential principle in play is that markets are counterintuitive. Meaning your feelings might have switched from enthusiasm to uncertainty, even frustration, but probability facts are in direct opposition to one’s feelings. This principle is the underlying reason why moves out of extended congestion zones can result in substantial moves. Once emotionally weak hands are washed out, these breakouts come from an emotional perspective surprising. Bears step aside and bulls chase prices. Feel free to join us in our free Telegram channel for daily real time data and a great community. If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can also subscribe to our free newsletter. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting.
Dollar Starts the Week Bid ahead of the FOMC

Dollar Starts the Week Bid ahead of the FOMC

Marc Chandler Marc Chandler 13.12.2021 13:44
December 13, 2021  $USD, Australia, Canada, China, Currency Movement, FOMC, Japan, Mexico, South Korea, Switzerland, Turkey, UK   Overview: Equities, bonds, and the dollar begin the new week on a firm note.  Japanese, Chinese, Australian, and New Zealand equities advanced in the Asia Pacific region.  Europe's Stoxx 600 is snapping a three-day decline, and US futures are 0.25%-0.35% higher.  The US 10-year yield is a little softer at 1.48%. European benchmark yields are mostly 1-2 bp lower, and near 0.71%, the UK Gilt's yield is at a three-month low.  The dollar is rising against all the major currencies and is 0.3%-0.45% higher against most.  The Canadian dollar and sterling are the most resilient.  Among emerging market currencies, the Chinese yuan continues to defy official signals to eke out a small gain.  The Turkish lira is off more than 2%, after having dropped 4% initially. Intervention at the end of last week failed to have a lasting impact, and the central bank is expected to cut rates again later this week.  The JP Morgan Emerging Market Currency Index is giving back last week's 0.2% gain plus more today.  It was the first weekly gain in five weeks.  Gold is quiet in the upper end of the pre-weekend range, holding above $1780.  January WTI is firm but capped near the 20-day moving average (~$72.80).  US natgas is firm after falling 5% last week.  Dutch gas is up 8% to new two-month highs.  It has a six-week rally in tow, during which time it has gained a little more than 60%.  Industrial metals are higher too.  Iron ore snapped a three-day air pocket and gained it all back and more with its 6.5% rally today.  Copper has steadied after falling almost 2.5% in the last two sessions.   Asia Pacific The results of Japan's Tankan survey were in line with the talk we have picked up that while the new government, vaccination efforts, and fiscal stimulus are helping fuel the economic recovery, businesses are not yet convinced that significant change is taking place.  Sentiment among large manufacturers was steady at 18, and the outlook ticked lower.  The improvement in sentiment among the large non-manufacturers was more pronounced (9 vs. 2). However, the outlook was subdued at 8 (from 3).  Capex plans from the large businesses were softer than expected at 9.3% (from 10.1%).  Sentiment among the small companies improved, but the diffusion index and the outlook remained negative.  South Korea reported strong traded numbers for the first ten days of December (exports 20.4% and imports 42.3% year-over-year).  Seoul was busy.  Its foreign minister met with high Japanese counterpart on the sidelines of the G7 meeting and struck a cooperative tone. South Korea's President Moon met with Australia's Prime Minister Morrison and struck a A$1 bln weapon deal for self-propelled howitzers (which have already been purchased by other countries, including India and Turkey).  South Korea, however, will not be participating in the diplomatic boycott of the Winter Olympics, citing the need for Beijing's cooperation to denuclearize the peninsula.   The US dollar remains within its recent range against the Japanese yen (~JPY113.20-JPY113.95).  The 20-day moving average is at the top of the range, and it has not traded above it this month yet.  An option for almost $400 mln at JPY114.00 expires today.  It is the fifth session that the dollar has not traded below JPY113.20.  The Australian dollar's rally stalled near $0.7185 last week and is testing the lower end of its three-day range (~$0.7130) in the European morning.  Support is seen in the $0.7090-$0.7115 area.  The highlight of the week is the November jobs report, which is expected to show a strong bounce after three months of Covid-related declines.  More problems among China's property developers and activity in the manufacturing hub in Zhejiang were suspended due to an outbreak of the virus that failed to trigger a retreat in the yuan.  The dollar spent most of the local session below the pre-weekend low (~CNY6.3615).  The PBOC set the dollar's reference rate at CNY6.3669.  The market (Bloomberg survey) expected CNY6.3649.   Europe The UK appeared to make two concessions over the weekend.  First, it signaled that it was no longer seeking to exclude a role for the European Court of Justice in enforcing the Northern Ireland protocol.  Second, new fishing licenses were made available to the EU and French fishers. Jersey and the UK issued another 23 licenses, and although Paris was seeking more, it seemed sufficient to de-escalate the situation.   The UK government is under pressure from many sides.  The "partygate" scandal is a culmination of miscues by the Prime Minister, who has struggled with a Peppa Pig speech and a Kermit the Frog speech at the UN.  Several petty sleaze scandals have also marred the government.  Recent polls put Labour ahead of the Conservatives. This Thursday, the special election could see the Tories defeated in a traditional stronghold (ie Lib-Dems a protest vote for disenchanted Tories?).  The UK's stance toward the EU and the risk to the Good Friday Agreement have estranged the US government to some extent, which has not lifted Trump's steel and aluminum tariffs and put much energy into a free-trade agreement between the two special allies.   Turkey reported a large than expected October current account surplus ($3.16 bln) current account surplus.  While the currency's sharp depreciation would be expected to help the trade account, it also scares international investors.  It reported a net outflow of $2.2 bln portfolio capital in October.  Industrial output surprised on the upside in October, rising by 0.6%.  Economists (Bloomberg survey) expected a 0.1% decline after a 1.5% fall in September.  Turkey appeared to intervene in the foreign exchange market at the end of last week.  The dollar held below TRY14 but jumped to almost TRY14.76 today before pulling back.  The Swiss National Bank also looks like it intervened last week.  The euro held above CHF1.04 after having been sold to about CHF1.0375 earlier this month, its lowest level since July 2015.  Swiss domestic sight deposits rose by CHF1.12 bln, the biggest increase in three weeks.  Note that after buying euros against the franc, the SNB is believed to sell euros for dollars to maintain the allocation of its reserves.  The euro peaked last week near $1.1355.  It has been sold to a four-day low of $1.1260 today.    There is an option for 1.44 bln euros at $1.1250 that expires today.  The low for the year was set on November 24 near $1.1185, while last week's low was slightly below $1.1230.  With diverging impulses expected from the Fed and ECB this week, the euro looks vulnerable.  Sterling closed on its highs before the weekend and is on the defensive today.  The market appears to be absorbing bids that might be related to the expiration of a couple of options today (~GBP500 mln at $1.3235 and ~GBP560 mln at $1.3200).  The low for the year was set last week (December 8) near $1.3165, but initial support today is around $1.3220.  The odds of a BOE rate hike later this week have fallen to less than a 1 in 5 chance.   America The highlight of the week is the FOMC meeting.  Nearly everyone expects the Fed to accelerate its tapering and for individual forecasts to shift, matching the more hawkish rhetoric seen since the October CPI print jumped above 6% (November 10).  November's CPI, reported at the end of last week, accelerated to 6.8%.  Before we get to the FOMC meeting, though, this US reports PPI (the heading is expected to accelerate above 9% and the core above 7%) and November retail sales (a solid gain is anticipated of around 0.8% but off the heady 1.7% pace seen in October).  After the mid-week FOMC meeting conclusion, the US reports November housing starts, industrial production, and the Philly Fed's December survey.  The preliminary December PMI estimates are also due Thursday.  The week's data highlight for Canada is the mid-week estimate of November CPI.  Prices may have edged up by 0.2% on the month, but the year-over-year rate is expected to be little changed from the 4.7% pace seen in October.  The underlying measures may have edged up a little.  Price pressures are elevated but do not appear to be accelerating, as seen in the US.  Tomorrow, the new central bank mandate will be announced.  The mandate is reviewed every five years.  The press reports that the 2% inflation target will be retained, but the mandate may include a component of the labor market as it takes what is expected to be a small step toward a dual mandate like the Fed's.   Mexico's central bank meets on Thursday.  It is widely expected to lift the overnight rate target by 25 bp to 5.25%. In Bloomberg's survey of  17 economists, three forecast a 50 bp hike.  It would be the fourth hike in the cycle that began in August.  Chile and Colombia's central banks also are expected to hike rates this week.  Chile, which hiked by 125 bp in October after a 75 bp increase in August, is expected to make another 125 bp adjustment tomorrow.  It would lift the policy rate to 4%. It holds the second round of its presidential election on December 19.  Colombia's central bank meets on December 17.  A 50 bp increase would lift the repo rate to 3.0%.  The first increase in the cycle was 75 bp in October (to 2.5%).  November's CPI was a little above 5.25%.   The US dollar is rising against the Canadian dollar for the fourth consecutive session.  It is poking above CAD1.2750 in the European morning, where an option for almost $450 mln expires today (and another for $515 mln expires tomorrow).  A convincing move above CAD1.2760 could retarget the month's high (~CAD1.2855).  The market has 125 bp of hikes discounted over the next 12 months, but little new encouragement from the central bank.  The greenback fell against the peso in four of last week's five sessions.  It is little changed today, trading above the pre-weekend low (~MXN20.8430).  The next support area is seen closer to MXN20.70.  Still, the market is likely to be cautious extending short US dollar positions ahead of the Fed.   Disclaimer
Intraday Market Analysis – USD In Brief Consolidation

Intraday Market Analysis – USD In Brief Consolidation

John Benjamin John Benjamin 14.12.2021 09:42
USDCHF looks for breakout The US dollar consolidates ahead of the Federal Reserve meeting. The pair is grinding for support above 0.9160 after it gave up most gains from the November rally. Overall sentiment remains positive as long as price action stays above the daily support at 0.9100. The current consolidation is a sign of accumulation from the long side. A close above the immediate resistance at 0.9270 would propel the greenback to the previous peak at 0.9360. On the downside, between 0.9160 and 0.9195 lies an important demand zone. US 30 to test previous peak The Dow Jones 30 inches lower as investors look ahead to Fed’s aggressive tapering. By lifting offers around the psychological level of 36000, a major resistance on the daily chart, the bulls may have turned sentiment around. As the index falls back in search of support, the RSI’s oversold situation may catch buyers’ attention. A break above 36350 may resume the uptrend. Otherwise, 35620 is the closest support where buyers could jump in for fear of missing out. Further down, 34800 would be a second line of defense. GER 40 seeks support The Dax 40 treads water as major central banks are set to update their policies. An initial surge above 15500 has prompted the bears to cover. Then the index found support at the 38.2% (15550) Fibonacci retracement level while an oversold RSI attracted buying interest. And that is a sign of underlying strength in the rebound. A bullish MA cross indicates an acceleration on the upside. A break above 15840 may send the price to the all-time high at 16300. In case of a deeper pullback, 15300 is a critical level to keep the rebound relevant.
A quick story before we start

A quick story before we start

Brent Donnelly Brent Donnelly 16.12.2021 15:18
FAIRFIELD COUNTY, CONNECTICUT May 6, 2010 4:55AM The Connecticut air is cold and damp. The trader moves in silence. He steps quietly through the pitch-black darkness of his Victorian McMansion and toward the door. As he disarms the home security system, the BEEP BEEP BEEP of the keypad code he enters is impossibly loud in the quiet of the pre-dawn morning. He steps out of the house, closes and locks the door, and hops into his car. As he rolls down the driveway and into the foggy morning, he inserts a Deadmau5 CD and blasts it at high volume in an effort to wake up and get pumped for another day of trading. But this will not just be another day of trading. This will be one of the most insane trading days of his career. It has been a frustrating year so far. The Eurozone Crisis has been smoldering for months but the trader’s attempts to sell the euro have been met with massive countertrend rallies as the Fed embarks on another round of USD-negative quantitative easing (QE). They call EURUSD a collision of two garbage trucks. The trader struggles to steer clear of the wreckage. His strongest view recently has been lower USDJPY. There is risk aversion popping up all over the place as markets worry about a domino effect where Greece crashes out of the Eurozone, followed by Spain, Portugal, Ireland and then finally Italy. Everyone is bearish stocks as the S&P 500 rally from 666 in March 2009 to 1050 now is seen as a mirage; the side effect of a money printing magic trick performed by central bankers. Totally unsustainable. EURUSD opened the year at 1.4500 and now trades sub-1.25 so the short trade is hard to stomach. Even when you know it’s the right thing to do, it takes a lot of courage to sell something down >15%. So the trader has shifted his attention to USDJPY and he expects it to go substantially lower as global risk aversion remains elevated and safe haven currencies like the yen should find demand. USDJPY has been inexplicably well-bid given recent risk aversion and the Fed “money printing”. It just rallied from 90 to 94 on air over the last two weeks. Meanwhile, the best leading indicator for USDJPY is always US bond yields and they have been plummeting for a month. USDJPY looks completely wrong. The trader stares at the following chart, which shows US 10-year bond yields and USDJPY. The black bars are USDJPY and the dotted line shows US bond yields. Note they usually follow in lockstep. The divergence is a strong signal to the trader that he should be short USDJPY. USDJPY vs. US 10-year rates November 2009 to May 5, 2010 The chart covers the period up to May 5. This story takes place May 6. Chart courtesy of Refinitiv. If you look in the top right corner, you can see that USDJPY is a bit off the highs, but not much. Two days in a row, the high has been 94.99 and USDJPY is now bouncing aimlessly around 93.80 as he rolls into the hedge fund parking lot. It is still early so there are only three Porsche 911s in the lot right now. More will arrive later. This USDJPY trade has been tiring and painful as the trader got short at 94.00 with a stop loss at 95.05 and those two daily highs mean he has come within a hair (6 pips, or 0.064%) of getting stopped out, two days in a row. Holding on to a trade like this is exhausting as his fight-or-flight stress system remains activated for long stretches. Cortisol overload. Now, he can relax a bit and let things play out. His target is 91.00. Average daily range has been about 1 yen (100 pips) lately so he figures we might get there in the next week or so. 10:45 AM It has been a boring morning with USDJPY in a tight range. The sun comes out and it’s almost shorts weather outside so the trader decides to go for a run before lunch. Less than a mile into his run, he gets his first indication that this is not a random, ordinary day. His Blackberry rings. Bank sales on the line to tell him that USDJPY has just dumped 100 points in 15 minutes. Trading 92.80 now… Odd. He turns around and sprints back to the office, Spidey-sense tingling. By the time he grabs a quick shower and returns to the desk, USDJPY is 91.50. He is short $100 million USDJPY so that puts his profit (aka P&L or profit and loss) around +$2.8 million on the day. That’s more P&L than this trader typically makes in an excellent month. A huge haul. He scans the headlines and Bloomberg chats and finds no good explanation for what is going on. The stock market is down, but not enough to explain the move in USDJPY. This makes no sense. When a trade shows a big profit that makes no sense, he likes to cover it and move on. The trader buys 100 million USDJPY at 91.50. He is back to flat with no position and nearly 3 bucks of P&L in the bank. He sits there calmly and processes what has happened. He allows himself to feel happy, just for a second. He stuck to his plan and had the patience to sit with a decent-sized position for three days. He relaxes and basks in the satisfaction of a job well done. Then… Some dumb voice in his brain says: 2.8 million dollars is an amazing day. But... Maybe I can make 5 million today? And his hands, as if possessed by some mischievous or evil force, move slowly toward the BUY and SELL buttons. For no reason. And like a moron… He goes long USDJPY. First, he buys $50 million at 91.50 and then another $50 million at 91.25. These are impulsive trades with no rationale. His planned stop loss is 90.85 but before he has time to input a stop loss order, he notices S&Ps lurch lower on a huge volume surge. He puts on his headset and fires up the S&P squawk to see what’s going on. [If you want to hear the soundtrack to what happens next, Google “Flash crash stock market 2010 squawk” and select one of the YouTube replay videos] The announcer’s voice is strained as he narrates an unexplained fall in stocks from 1150 to 1120. USDJPY skips through 91.00 and the trader’s P&L shrinks to $2.0 million. He tries to sell at 90.80 and whiffs. USDJPY is suddenly in freefall. 90.10 trades. 90.00 breaks. USDJPY has just dropped more than four percent in a few hours. A monster move. The trader’s eyes flick over to his P&L which has now shrunk back to six digits. Two-thirds of three days’ work, gone in 60 seconds. And then… Stocks sell off hard out of nowhere. Like… REALLY HARD. The S&P squawk guy is losing it. Screaming. 1100 breaks in the S&P. 1080, 1070, 1060. USDJPY is a waterfall. The squawk loses his mind as he yells: “We have some BIG paper sellers here… 7 evens are trading. 6 evens are trading! 5 EVENS ARE TRADING!!! New lows here…” USDJPY breaks 89.00 and the trader has still sold only 23 million USD, leaving him stuck with a position of 77 million USD. It is a fast market, nearly impossible to transact. He picks up a phone to two different banks and neither one answers. He tries to hit the 88.60 and gets a reject notice from the aggregator. The price feed is stale and crossed now; it shows 89.00 / 88.10, which is not possible. The trader is now down on the day. In the red. His face is hot and feels red like his P&L. Urge to slam fist on desk is rising. The trader feels like he is falling, falling::::::::::::::::::::in cinematic slow-mo. USDJPY stabilizes a bit even as the S&P squawk continues to go nuts. “65 even offered! 60 trades… 60 even bid, this is the widest we have seen in years,” his voice cracks, he’s yelling like the announcer at Churchill Downs as the horses turn for the stretch. “60s trading! 50s trading! 50 at 70 now! We are twenty wide!” 1060 trades in S&Ps now, down just about 10% today, on zero news. Nobody knows what the hell is going on and there is panic in the air. The squawk dude continues to scream. He is pouring gasoline on the trader’s agitation. The trader’s P&L is now six figures in the red. Sadness. Anger. He is furious with himself because he had the right trade, waited patiently for almost three days for it to work, caught the move perfectly according to plan … And then flipped the other way on a whim, for no reason and gave everything and more back in half an hour. $2.8 million is a good month for this trader. He just made and lost that much in less than two hours. I am an idiot. How did I get into this mess? He needs to make a decision here and quick but he realizes that he is flooded. It is impossible to make a good trading decision when you’re flooded. He needs a second to clear his mind. He tears off the headphones, drops them on his desk, and stands up. He walks over to the window and tries to find a moment of lucid calm. He has been through these emotional storms before and knows how to get back to shore. He stares over the waters of the Long Island Sound. Gradually, his heart rate lowers. Clarity slowly, slowwwwly returns. His lizard brain retreats and his rational mind takes over. He talks to himself: It doesn’t matter how you got here. What are you going to do about it? 88.00 was the low in March. It’s a massive level. The panic is fading. USDJPY is down 700 points in two days and now bonds are reversing lower. This is the place to buy USDJPY, not sell. He returns to his keyboard, puts his headphones back on. The squawk guy has stopped screaming. He is noticeably more composed. S&P futures have bottomed within a whisker of limit down. They are stable but have not rebounded significantly. The bid/offer is super wide so it’s hard to tell whether they are moving higher or just bouncing along the bottom. The trader looks around the room and sees the panic and electricity levels have dropped. Not as many phones are ringing. Voices in the room are no longer frantic. He buys 50 million USDJPY at 88.85. And another 73 million at 88.95. Max long now, long $200 million USDJPY. But this time it’s thought out, not random, and he feels good about what he is doing. He feels confident but fully in control. He calmly thinks forward: USDJPY could easily rally to 92.50 from here. When you catch a turn like this, you can be greedy. He leaves a stop loss for half his position (sell 100 million USDJPY at 87.94) and then sits back to let things play out. He has his plan and now he knows all he can do is watch and see if it works. There is one more frenetic whipsaw and USDJPY briefly prints to a low of 87.95. One pip from his 100 million USD stop loss. Amazing luck. Seconds later, stocks stabilize, and then it’s like everyone realizes all at once that whatever the heck just happened… It’s over. USDJPY is paid at 88.70, then up through 89.50. It breaks 90.00 and as it hits 90.40, the trader flicks his eyes to the P&L. It is almost exactly back to the level where it peaked earlier: $2.8 million. He praises the trading gods and squares up. NICE! Too bad he didn’t stick with his plan on the way back up, either. A few hours later, USDJPY hit the trader’s original target of 92.50. Here’s the chart of USDJPY that day: USDJPY May 3-7, 2010 (US stock market Flash Crash was May 6) The trader made a multitude of both good and bad decisions in the three hours around the 2010 Flash Crash. The trading described in this story is a microcosm of everything that can go right and wrong in trading. Traders make good, careful decisions and get rewarded, they make bad decisions and get punished … but then sometimes a good decision leads to a bad outcome … or a bad decision is rescued by good luck. Every trader is a steaming hot bowl of bias stew and must maintain self-awareness and lucidity behind the screens as the trading day oscillates between boredom and terror. That story of the 2010 Flash Crash, just like this book, is all about the razor thin line that separates success and failure in trading. Alpha Trader is written to help you understand markets but also, more importantly, to help you better understand yourself as a trader. It is about great decisions and dumb mistakes. It is about how to be rational and why smart people do stupid things. All the time. The book is written for traders at every skill level. I wrote it to be understood by noobs, but I also aimed to write something that will resonate with experienced trading professionals. Alpha Traders are smart, rational, disciplined, flexible, patient, and aggressive… They have the endurance to handle unending ups, downs, hills, and valleys. They come in fired up each day to solve the ultimate puzzle and they get paid incredibly well if they succeed. Alpha Traders work hard (even when they don’t feel like it), seek to continuously improve, and love markets more than they love money. Thank you for taking the time to read my book. I hope you find it entertaining and useful. I hope it helps you unlock your maximum trading potential. By the way, I plan to publish future updates, fresh trading stories and new lessons, tactics and strategies, exclusively for readers of Alpha Trader. If you are interested, please sign up at brentdonnelly.com. Enjoy. /Brent
Creating silver wealth without fear

Creating silver wealth without fear

Korbinian Koller Korbinian Koller 20.12.2021 09:32
Two weeks ago, we posted the following chart in our weekly silver chart book release, after representing a strong case for a bullish silver play: Silver in US-Dollar, Weekly chart from December 3rd, 2021: Silver in US-Dollar, weekly chart as of December 3rd, 2021. We wrote at the time: “The weekly chart above illustrates that as much as we have entered the “shopping zone” for silver. There is a probability that we might see a quick spike down as we have seen at the end of September.” Weekly chart, Silver in US-Dollar, creating silver wealth without fear: Silver in US-Dollar, weekly chart as of December 18th, 2021. We were spot on anticipating how the market would unfold in the future. Furthermore, we followed the principles of consistent analysis of our surroundings, the market, and ourselves. We advanced confidently in the direction of likely probabilities and tried to keep doubt to a minimum. Hourly chart, Silver in US-Dollar, well positioned: Silver in US-Dollar, hourly chart as of December 18th, 2021. This sequence allowed for a low-risk entry on December 15th, 2021 right at the lows. The entry-level of US$21.47 already allowed for a 2.75% partial profit-taking on half of our position size at US$22.06. As always, we use our low-risk quad exit strategy to reduce risk and, as such, fear of losing profits. Now we are well-positioned with the remainder of the position, and a stop raised to break even entry levels. Silver in US-Dollar, monthly chart, worth the effort: Silver in US-Dollar, monthly chart as of December 18th, 2021. The monthly chart above shows our planned following two targets for this trade. With an entry at US$21.47 and an initial tight stop at US$21.22, our risk/reward-ratio towards our first profit-taking target was about 1:2.37. Now for the next target at US$27.35, it is 1:23, and for the final target at US$47.20, it is 1:103. In other words, with extensive planning and stacking of odds, we were able to identify a trade that had about a percent of risk at entry time. In addition, we quickly mitigated risk by early partial profit-taking. And yet, we still have a profit potential of the final 25% of position size, possibly maturing to a 120% profit. Taking only highly likely and highly profitable trades like these is also confidence-building and a fear eliminator. Creating silver wealth without fear: Michael Jordan’s achievement of playing in the present moment only is nothing short of the accomplishment of monks and so-called enlightened beings. It takes a long stretch of a career to achieve such a skill set. It illustrates that trading is more than just pushing a button or extracting a mathematical edge system. Trading is psychology and requires many skill sets combined to produce the necessary consistency to overcome the dilemma that you are only as good as your last action. Luck alone will get you nowhere in this game. It is not our intention to discourage you. Instead, it is quite the opposite. Often trading can be overwhelming and at times one can be down thinking: „Why can’t I do this, why did I betray my own rules again?” Trading is hard, it takes screen time and skill. Do not let fear and doubt dictate your actions. You can do this! Feel free to join us in our free Telegram channel for daily real time data and a great community. If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can also subscribe to our free newsletter. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting. By Korbinian Koller|December 19th, 2021|Tags: bottoming pattern, Crack-Up-Boom, Gold, Gold/Silver-Ratio, inflation, low risk, Silver, silver bull, Silver Chartbook, silversqueeze, technical analysis, The bottom is in, time frame, trading principles|0 Comments About the Author: Korbinian Koller Outstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent. Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.
Bitcoin and Ethereum are staging a daily comeback

Bitcoin and Ethereum are staging a daily comeback

Monica Kingsley Monica Kingsley 30.12.2021 15:49
S&P 500 bulls stood their ground nicely, and the key sectors confirmed little willingness to turn the very short-term outlook more bearish than fits the little flag we‘re trading in currently – it‘s a bullish flag. Given the continued risk-off turn in bonds, the stock market setback could have been more than a tad deeper – that would be the conclusion at first glance. However, high yield corporate bonds held up much better than quality debt instruments, and that means the superficial look would have been misleading. Likewise as regards my other 2 signs out of the 3 yesterday presented ones – tech held up fine, and cryptos have practically erased yesterday‘s hesitation during today‘s premarket. The Santa Claus rally indeed hasn‘t yet run its course, and the slighly better than a coin toss odds of us not facing more than a very shallow correction, look to be materializing. As I wrote 2 days ago – What‘s Not to Love Here – we‘re entering 2022 with great open profits in both S&P 500 (entered aggressively at 4,672) and crude oil (entered with full force at $67.60). Both rides aren‘t yet over, copper is primed to catch up in the short run to the other commodities, gold is well bid at current levels, and together with silver waiting for a Fed misstep (market risk reappreciation) and inflation to start biting still some more while the real economy undergoes a soft patch (note however the very solid manufacturing data) with global liquidity remaining constrained even though the Fed didn‘t exactly taper much in Dec, and nominal yields taking a cautious and slow path towards my 2022 year end target of 1.80-2.00% on the 10-year Treasury. As I wrote prior Monday, we‘re looking at still positive 2022 returns in stocks – of course joined by commodities and precious metals. The path would be though probably a more turbulent one than was the case in 2021. We had a good year of strong gains, and I hope you have benefited. Thank you for all your appreciation and best wishes sent my way throughout all of 2021 and now by email or via Twitter – I would love to wish you a very Happy New Year – may 2022 keep bringing you happiness, success and good health. Enjoy the New Year‘s Eve celebrations, and see you again on Jan 03, 2022! Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 consolidation is still shaping up finely – and does so on solid internals. Particularly the tech resilience is a good omen. Credit Markets HYG could have indeed declined some more, but didn‘t. While I‘m not reading all too much into this signal individually, it fits the (still bullish) mozaic completed by other markets on my watch. That‘s the strength of intermarket analysis. Gold, Silver and Miners Gold and silver got on the defensive, but the bears didn‘t get too far – and the chance they could have, wasn‘t too bad. Rising yields were though countered by the declining dollar. Crude Oil Crude oil is likely to pause today, and will rally again once risk-on returns broadly, including into credit markets. For now, backing and filling above $76 is my leading very short-term scenario – Monday though will be a fresh day. Copper Copper is pausing, but the downswing didn‘t reach far, and was bought relatively fast. More consolidation above $4.40 looks likely, and it would come with a generally bullish bias that‘s apt to surprise on the upside. Similarly to precious metals though, patience. Bitcoin and Ethereum Bitcoin and Ethereum are staging a daily comeback, and as long as mid-Dec lows don‘t come in sight again, crypto prices can muddle through with a gently bullish bias. Summary Santa Claus isn‘t willing to give much ground, and the table is set for this nice rally to modestly continue today – somewhere more pronouncedly (S&P 500, cryptos) than elsewhere (commodities and precious metals). I‘m still looking for a positive first day of 2022 trading to help make up for end of this week‘s headwinds – it has been great that the bears couldn‘t find more strength yesterday. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Considering Portfolios In Times Of, Among Others, Inflation...

Dollar Eases

Marc Chandler Marc Chandler 05.01.2022 13:19
January 05, 2022  $USD, auto sales, Currency Movement, Omicron, PMI, technology Overview:  The tech sell-off in the US yesterday, ostensibly driven by higher rates, carried over into trading today.  South Korea, China, and Hong Kong led the regional sell-off.  News that China's zero Covid tolerance led to a lockdown of the city of Xian with a population of around 13 mln played on fears of more supply chain disruptions.  A second city, Yuzhou, considerably smaller, has also been lockdown.  Japan, India, and several smaller markets gain.  European bourses, where tech is less prominent have edged higher and the Stoxx 600 is extending its gain for the third consecutive session.  US futures are softer.  Asia and most European bonds yields have risen today, while the US 10-year is steady around 1.64%.  Of note, with Italian politics rising as an issue ahead of the presidential contest later this month, maybe helping lift the 10-year BTP to new six-month highs near 1.22%.  The US dollar is seeing its recent gains trimmed against the major currencies.  The Japanese yen is recovering a little after falling to five-year lows yesterday.  The Canadian dollar is the laggard today, amid a sell-off in its bonds.   The emerging market currency complex is mixed, and the JP Morgan EM FX index is recouping about half of yesterday's 0.35% loss.  Gold is firm but remains within Monday's range (~$1798.50-$1832). Among the industrial metals we monitor, iron ore bounced back after yesterday's minor loss and is at its best level since Xmas eve.  Copper is being turned back after yesterday's rally stalled near the $448 cap.  Crude oil is consolidating yesterday's gain and February WTI is near $77.00.  US LNG firm but within the $3.50-$4.00 range, while European (Dutch) is extending yesterday's dramatic gain (31.6%). Asia Pacific While China has moved quickly to impose lockdowns where cases of the virus appear, the tech sector is off to a poor start.  The Heng Seng Tech Index fell 4.6% today, the most since July, and the third consecutive drop.  Tencent is reducing its investments, and this took a toll on companies it backed.  Some link Tencent decision to Beijing's push against anti-competitive practices.  The NASDAQ Golden Dragon Index, which tracks Chinese lists companies fell 4.3% yesterday.  The tech sell-off was also clear in the US where the NASDAQ shed 1.3%.   Japan's "Mothers" gauge weighted toward small and medium-sized software and technology companies fell 5% to its lowest level since May 2020.  In the last hours of trading, after HK tightened social restrictions, the equity loss intensified.   Japan reported that December auto sales were 10.2% lower than a year ago.  Yesterday, the US reported disappointing December auto sales.  Auto sales were expected to have risen to their best level since August but instead fell to a 12.44 mln unit annual pace.  It was the lowest since September and reflects a 23.6% decline from December 2020.  Last year, US auto sales averaged 14.93 mln a month compared with 14.41 mln in 2020 and 16.91 mln in 2019.  Although supply is argued to be a bigger problem than demand, some producers, like GM, have reported a substantial rebuilding of inventories.   The dollar closed above JPY116.00 yesterday but has failed to sustain the upside momentum.  It peaked near JPY116.35 and is approaching support at the previous resistance around JPY115.50.  A break of JPY115.00, which seems unlikely ahead of the US jobs data on Friday, would lend credence to the idea that it was a false breakout.  The Australian dollar is firm near $0.7250 after recovering from the dip below $0.7200.  Still, it needs to resurface above $0.7275-$0.7280 to be notable.  We suspect the Aussie will pullback in North America and see initial support around $0.7220.  Outside of the dramatic year-end session, the Chinese yuan continues to trade quietly in a well-worn range.  The dollar continues to trade mostly between CNY6.3660 and CNY6.3830.  The PBOC set the dollar's reference rate at CNY6.3779.  The (Bloomberg) survey found a median expectation for CNY6.3773.  Note that offshore yuan (CNH) swaps/forward points are at their lowest level since April 2020 amid reports that overseas branches of state-owned banks are continuing to lend out CNH.  Lastly, we note that the China Securities Journal plays up the possibility that the PBOC eases policy ahead of the Spring Festival holiday (January 31).   Europe The main economic news from the eurozone today is the final reading of the December service and composite PMI.  The takeaway is that it is a little softer than the preliminary estimate.  On the aggregate level, the service PMI eased to 53.1 from 53.3 flash estimate and 55.9 in November.  The composite eased from 55.4 in November to 53.4 preliminary estimate and 53.3 final.  It is the lowest since March and is the fourth decline in five months.  While the German services PMI was revised higher, it remains below 50 boom/bust (48.7) and this coupled with the weakness in manufacturing saw the composite revised to 49.9 from 50.0 initially and 52.2 in November.  It is the weakest composite reading since June 2020.   France's service PMI slipped to 57.0 from the 57.1 flash reading and 57.4 in November.  The composite was revised higher to 55.8 from 55.6.  It stood at 56.1 previously.  Italy and Spain disappointed with readings of both the service and composite below expectations.  The Italian composite stands at 54.7 down from 57.6.  Spain's composite is at 55.4 from 57.6 in November.   Intervention by the Swiss National Bank draws attention as the euro traded at six-year lows at the end of last year.  Sight deposits rose by CHF3.37 bln in December after CHF2.27 bln and CHF2.57 bln in November and October, respectively.  Overall, sight deposits rose by CHF18.85 bln in 2021 after surging CHF119.3 bln in 2020.  Denmark also anchors its monetary policy in the exchange rate peg to the euro.  Its central bank sold DKK47 bln (~$7.1 bln) in December to defend the peg.  It was the largest intervention in seven years.  Although inflation is running a little below 4%, there is some speculation that the Danish central bank may have to cut rates as its next defense of the peg.   The euro is trading inside yesterday's (~$1.1270-$1.1320) range.  It is difficult for bulls or bears to find much to like with it hovering around the middle of the two-cent range that has confined it for nearly two months.  The 480 mln euro option at $1.1290 that expires today has likely been neutralized, but there are options at $1.1275 for 1.3 bln euros that expires tomorrow that may be in play still.  Sterling is steady at the upper end of yesterday's range when it briefly poked above $1.3555.  It is the highest it has been since November 10.  An option for GBP375 mln at $1.3505 expires tomorrow.  Initial support is seen near $1.3520, and a break could test support in the $1.3480-$1.3500 area.   America ADP 's private sector jobs estimate is the early feature in the US today.  The median estimate (Bloomberg survey) is for an increase of 410k after 534k in November.  The final PMI will likely draw little attention.  The FOMC minutes from last month's meeting, at which officials announced the acceleration of tapering will be looked upon for insight into the Fed's balance sheet and any signal that it may allow maturing issues to roll-off soon.  Besides the rate hikes, for which the market has priced in three this year, the balance sheet is quickly emerging as the new focus.   Also, on tap today is the EIA inventory data.  The API reportedly showed a large rise in gasoline inventories but another drop (6.4 mln barrels) in crude stocks.   Canada's build permits are not typically a market mover.  Tomorrow it reports the November trade balance, and the highlight is Friday's jobs data.  It is difficult to envision a report as strong as November’s nearly 154k increase.  Proportionately, it would be as if the US nonfarm payrolls rose by around 1.7 mln.  Mexico reports December domestic auto sales.  In November, its auto sales were off about 13.5% year-over-year.  The highlight of the week is Friday's CPI figures.  The year-over-year pace is expected to have edged up from 7.37% in November.   The US dollar is trading inside yesterday's range against the Canadian dollar (~CAD1.2665-CAD1.2765), which was inside Monday's range (~CAD1.2630-CAD1.2780).  It is trading around CAD1.2720 near midday in London.  The intraday technical indicators seem to favor a retest of the greenback's highs.  The US dollar's performance against the Mexican peso is similar.  It is inside yesterday's range, which was inside Monday's range (~MXN20.41-MXN20.65).  The US dollar looks soft and could test the December 31 low near MXN20.33.   The 200-day moving average is near MXN20.27 and the greenback has not traded below it in a little more than two months.    Disclaimer
Market Shrugs Off Chinese Signals and Keeps the Yuan Bid

Market Shrugs Off Chinese Signals and Keeps the Yuan Bid

Marc Chandler Marc Chandler 22.11.2021 13:35
November 22, 2021  $CHF, $USD, BOE, China, Currency Movement, FOMC, Japan, Philippines, Russia Overview:  The US dollar has come back bid from the weekend against most currencies following the talk by a couple of Fed governors about the possibility of accelerating the tapering at next month's FOMC meeting.  The weekend also saw protests against the social restrictions being imposed by several European countries in the face of a surge in Covid cases.  The Swedish krona, yen, and sterling are the weakest, while the dollar-bloc currencies are resisting the greenback's tug. Most of the freely accessible and liquid currencies among emerging market currencies, including Russia, Hungary, South Africa, and Mexico, are heavy. At the same time, the Turkish lira recoups a little of the ground lost last week, and the Chinese yuan shrugged off apparently warnings from the PBOC to post its first gain in three sessions.  Equity markets in the Asia Pacific area mostly fell, though China and South Korea were notable exceptions.  Europe's Stoxx 600 snapped a six-week advance last week but has begun the news week with a small gain through the European morning.  US futures are trading higher.  The bond market is heavy, with the 10-year US Treasury up about three basis points to around 1.58%.  European benchmark yields are 2-3 bp higher.  Gold finished last week on a softer note and edged lower today to trade below $1840 for the first time since November 10.  Resistance is around $1850.  News that Japan may join the US to release oil from reserves saw January WTI slip below $75 but recover back above $76.  It met the (38.2%) retracement of the rally from the late August low near $60.75.  European natural gas (Netherlands) is lower for the fourth consecutive session, during which time it has fallen around 11%.   Iron ore extended the 5.6% gains before the weekend with another 4% gain today.  On the other hand, copper rose 3.3% in the past two sessions and has come back offered today.  Lastly, the CRB Index eased less than 1% last week and is off two of the past three weeks.  Its seven-month rally is at risk.   Asia Pacific Despite China's economic success, it remains clumsy and heavy-handed.   As the US and some other countries were considering a symbolic diplomatic boycott of the winter Olympics in Beijing, the tennis star Peng Shuai is being censored or worse for allegations against a former Politburo member.  Meanwhile, at the end of last week, three Chinese coast guard vessels launched water cannons against two Filipino boats sent to resupply a garrison on the Second Thomas Shoal (Ayungin Shoal), which is within the Philippines' Kalayanan Island Group.  The aggressive harassment brought a rebuke by the US, which reminded Beijing of its mutual defense agreement with Manila.   The Philippines will attempt to bring provision again this week.  Separately, note that after being notified by the US of the military nature of the Chinese construction project in the UAE, the project has been halted.   With the yuan at six-year highs against a trade-weighted basket, Chinese officials have begun expressing more concern about the one-way market.  The FX Committee, composed of industry participants, wants members to do a better job monitoring prop trading, and it follows the PBOC works of caution about risk management at the end of last week.  In its quarterly monetary review, the PBOC made a few tweaks that suggest it could ease policy.   Japan's Prime Minister Kishida acknowledged that releasing oil from its strategic reserve was under discussion.  China indicated it would tap its reserves last week for the second time since September, while it is still under review in the US.  Currently, Japan keeps reserves that are intended to last 90 days, while the private sector must hold reserves to last 70 days, according to reports.  Japan is considering selling oil and using the funds to subsidize the rising gasoline prices.  It may also reduce the duration of the reserves.   The dollar is straddling the JPY114.00 level as its hugs the pre-weekend range (~JPY113.60-JPY114.55).  The JPY114.30 area offers initial resistance, while the focus in early North America may be on the downside.  Still, it appears to be going nowhere quickly.   The Australian dollar finished last week at its lowest level since early October.  That low, just below $0.7230, held, and momentum traders covered shorts, helping lift the Aussie back to session highs near $0.7260.  A move above here allows gains into the $0.7270-$0.7290 area.  The PBOC set the dollar's reference rate at CNY6.3952 today.  The market (Bloomberg survey median) had projected a CNY6.3931 fix.  Although the dollar is softer today, it held above last week's lows as consolidation is evident.  It remains within the range set last Tuesday (~CNY6.3670-CNY6.3965).   Europe With the Swiss franc appreciating to six-year highs against the euro, it would not be surprising to see the SNB intervene.  The first place to look for it is in the weekly domestic sight deposits.  They rose by CHF2.58 bln, the second-most in the past three months.  Recall the mechanics.  The SNB buys euros but just sitting on them distorts the allocation strategy.  So it needs to either sell some euros for dollars or Swiss francs for dollars.  If it does the latter, its overall level of reserve growth accelerates.  Many suspect it will do the former, i.e., sell some euros for dollars.   The US continues to warn that Russia's troop and equipment movement is consistent with a rapid large-scale push into Ukraine from multiple spots simultaneously.  The suggestion, according to reports, is that the operation could take place early next year.  Both Ukraine and Georgia are seeking more US assistance.  Recall Russia invaded Crimea in February 2014.   Bank of England Governor Bailey has toned down his rhetoric, though he blames the market for misconstruing his remarks last month.  He warns now that next month's decision is finely balanced and that the price pressures are emanating primarily from supply-side disruptions for which monetary policy is less directly effective.   The implied yield of the December 2021 short-sterling interest rate futures contract is slipping for the fourth consecutive session.  Today's yield of about 21 bp is the lowest since early October.  The yield peaked in mid-October near 62 bp.  Lastly, while progress on the UK-EU talks has been reported, the two sides are still far apart.  Talks between Frost and Sefcovic will resume at the end of this week.   The prospect that a new German government could be announced this week has not helped the euro very much.  The single currency, which was sold through $1.14 and $1.13 last week, is struggling to find a base.  It has held above the pre-weekend low near $1.12560 but only barely (~$1.1260), and the attempt to resurface above $1.1300 was rebuffed. A move above $1.1320 may suggest some near-term consolidation, perhaps ahead of Wednesday's US PCE deflator report.  That said, tomorrow's flash PMI composite reading for the eurozone is expected to have weakened for the fourth consecutive month.  Sterling could not rise 15 ticks from its pre-weekend close (~$1.3450).  The downside was also limited (~$1.3420).  It caught a bid in the European morning that could extend into the US morning.  Still, the $1.3460-$1.3480 band may be a sufficient cap.  The market does not appear inclined to see trigger the $1.3395 option that expires today for about GBP425 mln.   America President Biden's announcement on the Fed's leadership could come as early as tomorrow, as he is set to deliver a speech on the economy tomorrow.  But it probably would be a separate announcement.  Given the expiration of the terms of the two vice-chairs, changes among a few of the regional presidents, and the challenging situation, President Biden is likely to follow Treasury Secretary Yellen's recommendation to re-appoint Powell.  Moreover, a tradition goes back to Volcker of one party making the initial nomination and the other party approving of another term.  This helped "depoliticize" monetary policy.  Trump broke with that tradition, and as Biden has done in a number of other areas, is restoring some traditions.  Lastly, we suspect that if Bernanke or Yellen, or Brainard were at the helm of the Fed, there would not be substantive monetary policy differences.   Vice-Chair Clarida and Governor Waller joined regional Fed President Bullard to suggest that Fed may consider accelerating the pace of tapering at next month's FOMC meeting.  We suspect others will be sympathetic after this week's October PCE and deflator news.  The economy is rebounding in Q4 from the disappointing 2% annualized pace in Q3 (which is likely to be revised higher on Wednesday), and a critical part is consumption.  Personal consumption expenditures are expected to rise by 1% after a 0.6% increase in September.  The headline PCE deflator, which the Fed targets 2% on average, which Governor Brainard reportedly helped devise, is expected to jump above 5% from 4.4% in September.  The core rate is expected to exceed 4%.  No Fed officials are slated to speak this week, but the minutes from the November 3 FOMC meeting will be released on November 24.   El Salvador caught the crypto world's attention again.  It is the first country to make Bitcoin legal tender.  It announced plans to issue a $1 bln bond, and half the proceeds will be used to buy Bitcoin (~2000 coins).  The other half will be used to fund infrastructure projects to build the infrastructure of more Bitcoins.  It will offer a 6.5% coupon, which is lower than current dollar issues.  It looks like one pays a lot for BTC exposures.  El Salvador is rated BB+ of the equivalent by the top three rating agencies.  This makes El Salvador bonds risky, to begin with, and adding Bitcoin on top of that would seem to preclude most retail and institutional investors.  It seems like a desperate act that only an impoverished country can try.  The idea that other countries will quickly follow seems to be a stretch.  There is a good reason why Tesla had few corporate followers to buy Bitcoins with reserve funds.  The same principle would seem to apply to countries.   The economic calendar for North America begins off slowly this week.  Today's main feature is the US existing home sales report.  A pullback after September's heady 7% gain is expected, the strongest in a year.  After a weak start to the year, existing home sales have recovered.  They averaged 5.66 mln (seasonally adjusted annual rate) last year and have averaged more than 6.0 mln for the past three months.  The Canadian dollar has weakened for the past four weeks.  It briefly poked above CAD1.2660 ahead of the weekend to reach its best level since early October.  The greenback is in about a 15-tick range on either side of CAD1.2645 today.  Support is seen in the CAD1.2600-CAD1.2620 area, but it may take a break of CAD1.2585 to boost confidence that a high is in place.  The US dollar rose 1.5% against the Mexican peso last week.  It was the third weekly gain in the past four weeks.  The greenback is trading above last week's high (~MXN20.89) and looks set to test the high set earlier this month near MXN20.98.  Lastly, the Chilean presidential election will go to a run-off next month, as widely expected between the far-right and far-left candidates.   The dollar snapped a five-week pullback against the Chilean peso last week, rising 3.6%, the most in three months.  Year-to-date, the peso is off nearly 14.25%.   Disclaimer
Intraday Market Analysis – USD Regains Momentum

Intraday Market Analysis – USD Regains Momentum

John Benjamin John Benjamin 07.02.2022 09:10
USDCHF bounces higherThe US dollar rallied after January’s nonfarm payrolls exceeded expectations. The latest pullback found support near the previous low at 0.9180.A bullish RSI divergence suggests a loss of momentum in the sell-off. A close above 0.9275 would force short-term sellers to cover and pave the way for a broader rebound.Then the double top (0.9360) on the daily chart would be the next target. On the downside, a bearish breakout may send the pair to 0.9110.USDCAD awaits breakoutThe loonie weakened after a rise in Canada’s unemployment rate in January. The greenback has previously come to a halt at the daily resistance (1.2800).The retracement then found bids at the resistance-turned-support at 1.2650, suggesting traders’ strong interest in keeping the two-week-long rally intact. The RSI has inched into the overbought territory and may drive the price lower with short-term profit-taking.A bullish breakout may extend the uptrend to December’s peak at 1.2950.GER 40 lacks supportThe Dax 40 drifts lower after the ECB’s hawkish turn. The recent rebound met stiff selling pressure at 15740. Then a fall below 15350 indicates a lack of commitment from the buy-side.A bearish MA cross suggests an acceleration to the downside and may attract more bears. The demand area around 14850 is a critical floor on the daily chart. Its breach could trigger a bearish reversal in the medium term.An oversold RSI may cause a limited bounce. The bulls need to reclaim 15500 in order to turn sentiment around.
Fed Acted, Now It's Markets' Turn. What's The Next Step Of Crude Oil?

Fed Acted, Now It's Markets' Turn. What's The Next Step Of Crude Oil?

Monica Kingsley Monica Kingsley 10.02.2022 15:58
S&P 500 upswing continued amid increasing credit market support. Risk-on, finally – and commodities are on fire again, with precious metals awaiting their time in the spotlight. That‘s the big picture view as markets keep digesting the recently upgraded hawkish talk of the Fed. Or more precisely in my view, they‘re sniffing out the inevitability of the Fed having to make a U-turn later this year. Meanwhile, any temporary hint of lower Treasury yields – the reprieve is arriving – is eagerly embraced by the tech while value is disregarding that. As a result, S&P 500 market breadth is improving, and as stated yesterday, the positive seasonality of 2nd to 3rd week of Feb, is working. Today‘s CPI data would show inflation isn‘t relenting – even White House warned about hot year on year figure coming. Coupled with the tightening job market, the question is now what remains of the budding S&P 500 upswing and bond market reprieve. It‘s becoming increasingly clear that the Fed would have to really move, and that inflation is biting and not exactly sinking input costs. That‘s where we have the cost-push inflation I talked relentlessly over many quarters last year, and wage pressures joining at the hip. It‘s really about letting copper and oil profits keep growing now, while taking off S&P 500 long ones off the table. Done, and PMs are to join next. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bulls had a great day, and need a solid close today against the poor inflation data. This isn‘t though likely to happen unless bonds hold up well during the regular session. Mission impossible, almost. Credit Markets HYG extended gains yesterday, and would need to defend them today. What remains of the risk-on posture, is key to determining the stock market rally longevity vs. waning power. Gold, Silver and Miners Precious metals are firmly on another upleg – I‘m not looking for setbacks during the opening selling pressure to last. The direction is firmly up. Crude Oil Crude oil is still pausing, but at the same time the bulls are readying a response. I‘m looking for continued trading in the recent range, followed by a break higher. Copper Copper is finally on the move, and the high volume speaks plenty about the buying pressure. I‘m looking for dips to be bought – I‘m not expecting a stampede of the bears taking advantage of a „shorting opportunity“. Bitcoin and Ethereum Cryptos aren‘t plunging, but the test of the bullish resolve is arriving today – let‘s see what kind of reversal it turns into. The volume looks solid, so I count on more than a daily setback as a minimum. Summary S&P 500 meets unpleasantly high inflation, which is forcing the hand of the Fed. Stocks are going to have a hard time recovering, and the bullish window of opportunity may be drastically shortened. Good to have taken profits off the table automatically through the trailing stop-loss – commodities would be more resilient. That‘s where real gains are – in real assets, as inflation is returning to the spotlight. Rightfully so as the Fed is desperately behind the curve, and precious metals need to fully get that. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Fed And BoE Ahead Of Interest Rates Decisions. Having A Look At Nasdaq, S&P 500 and Dow Jones Charts

Mid & Small Cap Indexes May Surge Higher

Chris Vermeulen Chris Vermeulen 16.02.2022 21:32
As the global markets move away from recent concerns of war and Fed rate hikes, I believe both Small and Mid Cap indexes are uniquely positioned to potentially surge 7% to 11%, or more, from recent lows. My analysis suggests both the Small and Mid Cap Indexes may have moved excessively lower over the past 30+ trading days. They may be poised for a unique opportunity and a substantial price rally if the global markets continue to move away from extreme risk events. As the US Fed and global central banks position to combat inflation while war tensions build near Ukraine, I believe the US Small and Mid Cap Indexes are uniquely undervalued and ready for a potential move higher. The recent recovery in the US major indexes may be evidence of strong bullish price momentum underlying the US Major Indexes. I believe that foreign capital is moving into various US assets to avoid foreign market/currency risks. The US Small and Mid Cap Indexes seem like perfect opportunities for this capital deployment. IWM May Rally 12 to 14% - Targeting $238 to $240 This Weekly IWM chart highlights a support level near $191.00 and a recent Three River Morning Star bottom reversal pattern near $194.40. It also highlights the previous range-based trading and dual Pennant/Flag setups using shaded BLUE and YELLOW Rectangles. I believe IWM has a solid potential to rally back to near the $220 level before finding resistance (+7.25%). If this bullish price momentum continues, IWM may rally to levels above $238 to $240. The global markets may have recently focused too much on the US Fed and Global Central Banks while missing the underlying strength of the US economy. Consumers are still spending, and the US Fed has yet to make any substantial adjustments to rates or balance sheets. These recent lows may provide an excellent opportunity for traders to capitalize on a “reversion price move” soon. The only way to navigate and capitalize on these price swings is to stay focused on Technical Analysis and strategic opportunities for trades when they occur. WHAT TRADING STRATEGIES WILL HELP YOU TO NAVIGATE CURRENT MARKET TRENDS? Learn how I use specific tools to help me understand price cycles, setups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase. This may start a revaluation phase as global traders identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern drive traders/investors into Metals. I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com 
EURUSD Rallies, GBPUSD Moves Up A Little, USOIL Goes Back To "Normal" (?) Levels

EURUSD Rallies, GBPUSD Moves Up A Little, USOIL Goes Back To "Normal" (?) Levels

Jing Ren Jing Ren 10.03.2022 08:43
EURUSD bounces back The euro rallies on news that the EU may issue a joint bond to fund energy and defense. The pair found bids near May 2020’s lows (1.0810). An oversold RSI on the daily chart prompted sellers to take profit, easing the downward pressure. A rally above the immediate resistance at 1.0940 and a bullish MA cross may improve sentiment in the short term. However, buyers will need to clear the support-turned-resistance at 1.1160 before they could hope for a meaningful rebound. 1.0910 is the support in case of a pullback. GBPUSD inches higher The sterling claws back losses as risk appetite makes a timid return across the board. Following a three-month-long rebound on the daily chart, a lack of support at 1.3200 and a bearish MA cross shows strong selling pressure. A bounce-back above 1.3200 may only offer temporary relief as sellers potentially look to fade the rebound. 1.3350 is a key hurdle that sits along the 20-day moving average. 1.3080 is fresh support and its breach could trigger a new round of sell-off below the next daily support at 1.2880. USOIL breaks support WTI crude tumbled after the UAE said consider boosting production. The parabolic climb came to a halt at 129.00 and pushed the RSI into an extremely overbought condition on the daily chart. A bearish RSI divergence suggested a loss of momentum and foreshadowed a correction as traders would be wary of chasing the rally. A fall below 115.00 led buyers to bail out, triggering a wave of liquidation. 105.00 is the next support and a breakout could bring the price back to 95.00 near the 30-day moving average.
US Inflation Report And Its Impact On The Cryptocurrency Market

Crypto Prices: Bitcoin (BTC) Gained 1.4%, ETH Increased By 3.1%, Polkadot (DOT) Went Up By 4.5% And Terra Decreased (-6%)

Alex Kuptsikevich Alex Kuptsikevich 16.03.2022 08:30
BTC added 1.4% over the past day to $39.3K. Attempts to develop an offensive ran into a selling wall. The most important line of defense in the first cryptocurrency at the 38.0K area is still more confident withstanding all bear attacks. Ethereum added 3.1% to $2.6K in 24 hours. Other leading altcoins range from a 6% decline (Terra) to a 4.5% rise (Polkadot). According to CoinMarketCap, the total capitalization of the crypto market grew by 1.4%, to $1.75 trillion. The Bitcoin Dominance Index lost 0.1 percentage points to 42.6%. Cryptocurrency fear and greed index added 3 points to 24, although it remains in the territory of "extreme fear". The FxPro Analyst Team mentioned that during the Asian session, there was a sharp jump in the rate from $39.2K to $41.7K, followed by an almost equally rapid pullback to the area below $39.0K. Stop orders were triggered in the morning low-liquid market, but it is clear that the selling pressure remains huge. In fact, since February 10, the rises in the Bitcoin rate have become less and less long and end at ever lower levels. The reason for the jump in prices in early trading in Asia was the statements of official Beijing on support for the markets, which caused a rally in the shares of the region. However, Bitcoin frankly ignored the drawdown of Asian stocks in recent days, so it quickly returned to its place, because other factors have become its key drivers in recent days. Meanwhile, Glassnode believes that bitcoin investors may face a final capitulation. This is indicated by the high proportion of "unprofitable" coins among short-term holders. At the same time, the uncertainty associated with geopolitics and the Fed rate weakened the accumulation of BTC by hodlers and caused an increase in sales on their part.
🔥 SHIBA Volatile Move Ahead: Triangle Analysis

(SHIB) Shiba Inu Price Has Lost The Gains From The Recent Past

FXStreet News FXStreet News 18.03.2022 16:02
Shiba Inu price action falls back to Monday’s opening levels, making it a week of hardly any gains or losses. SHIB price action looks a bit bearish as another broader support test is set to kick in later today. SHIB price is still set to tank to $0.00001500 as bearish momentum continues. Shiba Inu (SHIB) price action retook a step back and pared almost all the gains from Wednesday’s rally. Investors are swinging back into bearish mode as tail risks emerge and are put at the top of the agenda going into the weekend. Conflicting rumours and contrary remarks from what is going on in Ukraine are keeping investors puzzled and refraining them from continuing to open risk-on bets. Shiba Inu price sees puzzled investors turning their back on crypto Shiba Inu price action is set to erase its gains from earlier this week. SHIB price rose after the news that peace talks were making good progress. Yet this all looked to be thrown in the bin overnight as several headlines came out about Russiabeing not at all optimistic, and the US even putting the threat of nuclear weapons back on the table, as it sees Russia possibly trying to squeeze out a peace agreement that meets all of its demands but none of Ukraine’s. Shiba Ina and other cryptocurrencies saw bulls repeating the same mistake as last week when they got squeezed out by the weekend. SHIB price action is again dropping back to the baseline of a longer term triangle with the green trend line as its base. Multiple tests up until now have been held, but with the meeting between Biden and Xi this evening, it looks clear that the US wants to get a clear answer from China as to whether it is with the US against Russia, or with Russia – offering no middle ground. The tail risk from this meeting going into the weekend could trigger a break at $0.00002111 and see a drop towards $0.00001708, the low of January, which could well overshoot towards $0.00001500. SHIB/USD daily chart Of course, a truce or ceasefire would help turn the current sentiment around. If that were to happen expect a big pop in price action, capped at a max 13% gain, to where the red descending trend line and side of the triangle intersect with the 55-day Simple Moving Average (SMA) . Yet at the moment this seems an impossible hurdle to break through seeing the weakness of bulls currently at hand.
Russia-Ukraine War: Five reasons a deal may be closer than it seems, what it means for the dollar

Russia-Ukraine War: Five reasons a deal may be closer than it seems, what it means for the dollar

FXStreet News FXStreet News 22.03.2022 16:18
Calm in talks, lack of fresh pressure on China implies potential progress. Ukraine's proposed referendum and Russia's struggles also provide hope. The dollar would fall on any deal, but a comprehensive accord is needed for a lasting effect.It might be darkest before dawn – the Russia-Ukraine war seems stuck in the mud after a month of fighting, but this stalemate could be a prelude to a deal.1) Quiet talks: there has been no news from the negotiating table for a few days. When diplomats talk to the press, it is usually a sign that there is no progress and that they are trying to accuse the other side of failing to compromise. The current calm is a source of optimism – no news is good news.2) UA Referendum: Ukraine's President Volodymyr Zelenskyy said that any deal would require a referendum. He seems to be preparing the public for some compromise – perhaps not only on NATO membership but also other matters. If he concedes territory to Russia, public support is needed for him not to be seen as a traitor. Laying the groundwork for a deal implies one has a higher chance to occur.3) RU stuck in the mud: Russia continues failing to make any progress on the battlefield. Ukraine's soldiers and civilian fighters refuse to surrender in Mariupol, a strategic city in the south, despite lacking sufficient water and food. Moscow seems to have thought that the fact that most citizens there speak Russian would help. Local motivation with Western arms is turning Mariupol into Stalingrad, while the battle for Kyiv is not getting any closer. 4) Is Russia thinking beyond the war? The use of a hypersonic missile – unnecessary against Ukrainian defenses – can also be seen as a sign that Russia wants to sell such weaponry to other countries. It seems to be thinking about the post-war deals rather than trying to achieve any military goal. In the meantime, oil, gas and bond payments continue flowing to the West, a sign Russia does not want further escalation. 5) Quiet on the Chinese front: international pressure is growing to stop the war. From the Pope to mediators such as Turkey and Israel, via European countries which are mulling moving sanctions to the next level – on energy. The strongest country that can impact the situation in China, the world's second-largest economy. Beijing is politically aligned with Moscow but economically tied to the West. The fact that the US has stopped criticizing China is another positive sign.Dollar implicationsIn case a deal is struck, there is a stark difference between a ceasefire leading to a frozen conflict, and a comprehensive accord that would remove sanctions. In the former scenario, oil prices would remain elevated. The global economy would continue struggling in a transition period. The dollar would recover from an initial fall, benefiting from Fed hawkishness.In case of a full deal, the greenback would suffer from diminishing demand for safe-havens and would tumble instantly. Re-integrating Russia in the global economy is better for risk assets than having Putin rule over a "big North Korea" – a large economy isolated from the world.
Copper Speculator bets fall to 2-year low as China lockdowns dent demand

Copper Speculator bets fall to 2-year low as China lockdowns dent demand

Invest Macro Invest Macro 07.05.2022 11:55
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday May 3rd 2022 and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. Highlighting the COT metals data is the recent decline in the Copper futures bets. The speculative net position in the Copper futures has fallen for two consecutive weeks and by a total of -19,408 contracts over that time-frame. This weakness has dropped the current standing for Copper net positions into a bearish position for a second straight week. Last week was the first time Copper has been in a bearish position since June 2nd of 2020, a span of ninety-nine weeks. This week’s further decline in speculator bets brings the current net standing (-15,623 contracts) to the lowest level in two years, dating back to May 5th of 2020. Weighing heavily on the Copper sentiment is the shut downs in China due to Covid-19 outbreaks, particularly in Shanghai and Beijing. China is among the largest producers of Copper in the world and is the largest consumer of Copper in the world with the red metal being used in numerous manufacturing processes, industries and electronics being produced in the country. Any prolonged slowdown in China economic activity will have an outsized effect on the current demand for Copper. The Copper price has pulled back recently with declines in each of the last four weeks that has taken approximately 10 percent off the futures price. Copper has been on a torrid bullish run that started in March 2020 when the pandemic burst open globally. Since the lows in March of 2020, Copper’s price rose by over 100 percent and now currently trades around the $4.25 per pound futures level. The only metals market we cover with higher speculator bets this week was Platinum (+816 contracts) while the markets with lower spec bets were Silver (-7,338 contracts), Gold (-18,856 contracts), Copper (-11,838 contracts) and Palladium (-245 contracts). Speculator strength standings for each Commodity where strength index is current net position compared to past three years, above 80 is bullish extreme, below 20 is bearish extreme OI Strength = Current Open Interest level compared to last 3 years range Spec Strength = Current Net Speculator level compared to last 3 years range Strength Move = Six week change of Spec Strength Data Snapshot of Commodity Market Traders | Columns Legend May-03-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index WTI Crude 1,751,564 2 321,701 6 -366,213 94 44,512 78 Gold 560,441 31 199,168 42 -231,852 55 32,684 57 Silver 137,692 5 28,068 50 -39,317 60 11,249 8 Copper 185,255 16 -15,623 31 10,080 66 5,543 57 Palladium 7,638 6 -2,752 6 2,455 90 297 61 Platinum 66,545 33 -1,541 1 -3,667 100 5,208 35 Natural Gas 1,138,319 12 -117,706 43 72,861 54 44,845 92 Brent 168,128 14 -27,318 65 26,014 37 1,304 27 Heating Oil 349,618 31 6,455 52 -32,434 37 25,979 88 Soybeans 700,856 22 190,402 77 -165,353 27 -25,049 29 Corn 1,513,880 23 501,865 94 -451,210 8 -50,655 14 Coffee 206,337 1 40,697 77 -43,007 28 2,310 5 Sugar 818,627 1 201,592 78 -236,394 23 34,802 51 Wheat 319,233 0 20,012 60 -14,225 30 -5,787 82   Gold Comex Futures: The Gold Comex Futures large speculator standing this week was a net position of 199,168 contracts in the data reported through Tuesday. This was a weekly reduction of -18,856 contracts from the previous week which had a total of 218,024 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 42.1 percent. The commercials are Bullish with a score of 55.4 percent and the small traders (not shown in chart) are Bullish with a score of 57.0 percent. Gold Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 52.4 23.3 9.1 – Percent of Open Interest Shorts: 16.8 64.7 3.3 – Net Position: 199,168 -231,852 32,684 – Gross Longs: 293,439 130,795 51,270 – Gross Shorts: 94,271 362,647 18,586 – Long to Short Ratio: 3.1 to 1 0.4 to 1 2.8 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 42.1 55.4 57.0 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -18.3 17.9 -2.5   Silver Comex Futures: The Silver Comex Futures large speculator standing this week was a net position of 28,068 contracts in the data reported through Tuesday. This was a weekly decrease of -7,338 contracts from the previous week which had a total of 35,406 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 50.3 percent. The commercials are Bullish with a score of 60.3 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 8.4 percent. Silver Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 41.2 36.4 17.3 – Percent of Open Interest Shorts: 20.8 65.0 9.2 – Net Position: 28,068 -39,317 11,249 – Gross Longs: 56,764 50,184 23,860 – Gross Shorts: 28,696 89,501 12,611 – Long to Short Ratio: 2.0 to 1 0.6 to 1 1.9 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 50.3 60.3 8.4 – Strength Index Reading (3 Year Range): Bullish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -19.8 24.8 -31.2   Copper Grade #1 Futures: The Copper Grade #1 Futures large speculator standing this week was a net position of -15,623 contracts in the data reported through Tuesday. This was a weekly reduction of -11,838 contracts from the previous week which had a total of -3,785 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 31.1 percent. The commercials are Bullish with a score of 66.4 percent and the small traders (not shown in chart) are Bullish with a score of 57.3 percent. Copper Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 35.4 46.7 9.7 – Percent of Open Interest Shorts: 43.8 41.2 6.7 – Net Position: -15,623 10,080 5,543 – Gross Longs: 65,590 86,458 18,009 – Gross Shorts: 81,213 76,378 12,466 – Long to Short Ratio: 0.8 to 1 1.1 to 1 1.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 31.1 66.4 57.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -30.6 30.7 -13.0   Platinum Futures: The Platinum Futures large speculator standing this week was a net position of -1,541 contracts in the data reported through Tuesday. This was a weekly gain of 816 contracts from the previous week which had a total of -2,357 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 1.2 percent. The commercials are Bullish-Extreme with a score of 100.0 percent and the small traders (not shown in chart) are Bearish with a score of 34.6 percent. Platinum Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 44.4 38.8 13.5 – Percent of Open Interest Shorts: 46.7 44.3 5.6 – Net Position: -1,541 -3,667 5,208 – Gross Longs: 29,516 25,830 8,956 – Gross Shorts: 31,057 29,497 3,748 – Long to Short Ratio: 1.0 to 1 0.9 to 1 2.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 1.2 100.0 34.6 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -30.5 32.3 -28.3   Palladium Futures: The Palladium Futures large speculator standing this week was a net position of -2,752 contracts in the data reported through Tuesday. This was a weekly lowering of -245 contracts from the previous week which had a total of -2,507 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 5.8 percent. The commercials are Bullish-Extreme with a score of 90.5 percent and the small traders (not shown in chart) are Bullish with a score of 61.1 percent. Palladium Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 12.7 59.8 16.9 – Percent of Open Interest Shorts: 48.8 27.7 13.0 – Net Position: -2,752 2,455 297 – Gross Longs: 973 4,567 1,290 – Gross Shorts: 3,725 2,112 993 – Long to Short Ratio: 0.3 to 1 2.2 to 1 1.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 5.8 90.5 61.1 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -8.8 12.7 -38.9   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.