September 2018

Near NAFTA


It is twilight here in the GMT -05 timezone and as electronic venues begin to warm-up and post bids and offers the Cad$ is looking stronger at an indication of $1.2850 vs Friday NY close of $1.2910. Intraday Friday the CAD surged from over $1.3020 to the $1.2900 region.

Canada did report a slight GDP beat on Friday. I believe the October BOC rate hike was already a fait accompli no matter the Friday data (mkt pricing assumes it as well). But there were hints in recent speeches (Wilkins in Ottowa several weeks back) that their future rate path may not be as steep as that of the Fed's.

Trump on trade I believe will prove to have more bark than bite as US midterms near. China domestic slowdown fears will not be as bad as perhaps feared I sense.

I like a long USD/CAD at $1.2850 even with an agreed upon tri-lateral NA trade deal as I think new terms will still put a dent in any further Cad$ appreciation. I would expect a $1.29 handle could be regained on even positve NAFTA outcomes.

And of course any further negative announcements (delays) would most likely see a sharp USD surge higher versus Cad and Mex.
AUD/USD at $0.7220 seems like a good long entry if indeed CAD retains this bull run. Same with NZD/USD from the .6620 area. Their domestic data seems to be coming in better than expectations, coupled with a fairly dovish RBNZ and market short positioning.
Back to the price action in USD/CAD on Friday it was clear that certain market participants knew something was brewing as the cross rate plummeted amidst dollar strength elsewhere (not to mention month and quarter-end flows can make even the most eager contrarian trader of thinking twice or thrice before stepping in front of any move - no matter how seemingly exaggerated).

Well Anchored


The Fed hiked. The RBNZ stood pat. Higher inflation reported in the Eurozone and UK. After an initial confusion surrounding the Fed statement's dropping of the the word "accommodative", the wind is behind the Greenback.

Typically the Fed doesn't like to the rock the boat and spook the market. Too much of the world's debt is dollar-denominated. It is usally safe to buy commodity currencies (AUD, NZD, CAD) if they strike a balanced tone. That was the market's initial take. But this morning the AUDUSD is almost 100 points lower than its inital Post-Fed high of $0.7312.

I had a chance to re-watch Powell's testimony and it has given me more comfort at being long dollars.

Some notes I highlighted:

"...every voting member sees a natural rate above where fed funds is now ...so whether we keep that natural rate and exceed it a few times or raise that rate ..."
"...we are still accomodative ..."
"inflation is well anchored in the long run"
"employment is high, wages are rising; banking system is much stronger"
"true, asset prices are in the upper end of their ranges but it is moderate"
"impact of a trade war could be dire...rising chorus of concern about impacts on trade all around the country...""
"loss of business confidence could reduce investment"
"in longer run, where is this going...trade supports productivity and higher incomes...fair trade can be a good thing"
"widespread tariffs in place for a long time and reduction in trade is bad"
"...a particularly bright moment if you look back over the past decade...""
Reporter comment, 'WMT, KO, GPS, GM all expect tariffs to affect the price of everyday goods'...
"until we see it in the numbers it's hard to react"
"we don't see it yet"
"a lot of talk of supply side constraints"
"'accomodative'...its useful life was over - we put that in the statement in 2015, it no longer says anything important about the way the committee is thinking about the economy."

Current thoughts are long USD/CAD and USD/JPY.
$1.3065 looks like a 50% fib from May low of $1.2750 and June high of $1.3386.
USD/CHF seems now firm above 0.9700.

It's well anchored. Let it Ride.

To Think or Not to Think


To think or not to think. That is what I fight with when trading.

"Trade what you see", a colleague often tells me. Don't overthink and don't fight trends or positions. All true. All easier said than done if you sit too closely to the screens.

This is in large part why I employ an "algorithmic assistant". I rely on various indicators and a "risk matrix" measure to help me discern current moves.

I was expecting the USD/CAD to continue its grind higher from yesterday and march towards $1.30. The area of $1.2960 to $1.2975 was a stall-out region. Lower drift to mid $1.2955 area and THEN the algo lit up a "SELL" which saw it weaken further to $1.2940 over the next few hours.

The prescription I write myself is the same. Trade less. Wait. Stay out of "no man's land" and go with the algo signals.

We are about 26 hours away from the pre-supposed FOMC rate hike and press conference. There is some USD strength against the JPY and CHF but a bit of a mixed bag vs EUR and GBP as a more hawkish Draghi yesterday highlighted "vigorous" inflation.

I like the USD higher vs CHF and JPY in the next few days but more muted versus EUR. I think we will see 113.25 on JPY, 0.9685 on CHF and 1.1750 vs. EUR.

Not that dramatic versus where we are now - but I don't want to overthink.

RodinParisGreg2018

Photo courtesy of Annie and Greg taken on their trip to Paris, September 2018.

Sit Back


Sit back. I had several reminders recently that it is hard to see the bigger picture when focusing in too closely.

The FOMC meets this week and the market places a very high probability of a rate increase.

On Friday, Canada reported higher than expected CPI and stronger than expected retail sales which likely cemented a hike in rates at the upcoming BoC meeting as well.

With the expectations of any imminent NAFTA trade deal having subsided, there was an opportunity to sell USD/CAD right at the 8:30 data release mark at around 1.2925. The Cad$ did indeed strengthen however the time spent below the 1.2900 level was short-lived.

Larger trade wars are again the theme along with a steeper (somewhat) rate path in the US.

I believe the better trade now is to be long USD/CAD from 1.2925 with a target back to the 1.2975-1.3025 range.

The EUR and GBP took more of the focus over the past 48 hours with a reminder that the Brexit process is complicated and circuitous. I try to stay away from trading the GBP.

I will instead look to sell USD/JPY near 113.00 barring an upside breach of that level and likewise sell AUD/USD around the $0.7300 level on the likely elongated path of trade skirmish resolutions.

Riptide


The dollar has been selling off this week and is continuing its slide today.

This despite the fact that the yield on the 10yr treasury is trading at its highest yield since 2011, currently near 3.08%

Risk baskets are having a pretty good day; at or near all-time highs with the SP500, Dow 30 and Nasdaq 100 all +75bps to +90bps on the day.

Nothing is ever easy in trading and in FX land most days feel downright dangerous. Any position left on can seemingly go against me in perpetuity and yet the profitable ones seem to peter out as soon as they go green.

So like getting caught in a riptide - best to swim sideways, try to stay out of "no man's land", etc.

The Euro, Pound, Aussie, and Kiwi are all exceptionally stronger today. New Zealand reported better than expected GDP overnight. Trade tensions are still lurking yet investors do not seem spooked and instead seem to be complacent with the notion that things will be smoothed out.

The Swiss Franc is looking a little overbought to me given that risk is higher, US yields are up, the Fed rate path seems to be steepening and the SNB took an accomodative stance today.

I am currently long the dollar versus Swiss Franc, long USD/CHF at 0.9605 with a target price of .9635 and a stop just below .9590 (today's low).

Good luck and remember often times less is more.

Hold the Line


Hold the line. A former colleague of mine used to say that when headlines or data surprised the market and activity turned from flurry to fury. He could sense my tendency towards excitement and flailing in many directions at once.

Thursday saw some fireworks from the early morning pre-NY hours when the Turkish Central Bank raised rates by 625 basis points. This was not only above estimates, but was a sign their central bank was trying to do the right thing and gave an instant bid to risk assets.

This was followed-up by a double-whammy at 8:30 AM EDT with the simulataneous release of a weaker-than-expected CPI print in the US, and a much more hawkish Mario Draghi during his presser at the monthly ECB meeting (which he also began earlier than the normal 8:45 AM EST start).

The resulting gyrations saw a spike in EUR-crosses, bid to global risk baskets and a sharp sell-off in USD vs. all majors.

All we needed was a Presidential Tweet - and we got several - this time with respect to tarriffs and China. Yes, they are back on...for now.... I think...

My trading this week was marred by two back to back days when I managed to snatch defeat from the jaws of victory through my largest of many Achilles' heels - OVERTRADING.

After a good talk with a colleague and mentor I resolved to be more accountable to sticking to my plan (for me right now that means fewer trades).

I have read and heard in different arenas that wtih regards to human behavior and psychology that there is something about the 3-week (or 21 day) interval with respect to amending or tuning our neural pathways to either break (or groove a new) habit or behavior.

I was successful today at trading far less than normal (# of deals). There is a clarity that comes along with hitting the buttons less often. For me there is also the reward of showing myself I can exercise that muscle of restraint and discipline.

But it also goes deeper than that. By not allowing impulsivity (or worse - compulsivity!) to yank the steering wheel from the calmer, more logical version of myself, I exercise a vote of faith that there is always another chance. This keeps me from "chasing my tail" and loosing money.

One day down. Twenty to go. Hold the line.

Back to the Algo


Just going back to my simple home-brewed algorithmic system trade signals:

Sell USD/JPY at 111.45, tgt 111.20, stop 111.60.

Buy GBP/USD ay 1.3030, tgt 1.31, stop 1.3010.

Many times I may not see what the algo sees but it has had a better track record lately than many of my "thinking trades".

It is generally a decent barometer of which way the trade winds are blowing nonetheless.

Never Forget


It's hard to believe 17 years have past since that fateful day in New York City. That is a generation in almost every way.

I thank God every day that my mom escaped the North Tower. I remember my friends who were lost and mourn - particularly my classmates from Bergen Catholic High School Class of 1989 -
Rob Zampieri and Chris Vialonga

I keep a text my mom sent me from a few years back:

"But, for God's grace, I'm here to love my sons, my grandchildren, and share their lives. Went to mass to thank God for the opportunity He's given me. Thank you my sons, I couldn't ask for more than the love you've given back to me", Mom.

A photo I took on December 5th, 2000, while on a flight from JFK to Denver.

Never Forget.

More..

What time is it?


The Nat Aussie Bank will release its monthly business confidence survey for August at 11:30 AM local time in Sydney. That's 01:30 GMT, 02:30 LDT (London Daylight Time) or 21:30 EDT here in NY.

I like that people still use GMT (Greenwich Mean Time). In some circles like computer programming, GMT is 'old-school', or was phased out after 1972. In programming, the term often used is 'UTC' or 'Universal Time Coordinated'.

Actually, computer time (also known as UNIX Epoch time) is a system for describing a point in time, defined as an approximation of the number of seconds that have elapsed since 00:00:00 Coordinated Universal Time (UTC), Thursday, 1 January 1970.

While GMT and UTC are essentially the same, there is a basic difference between the two: GMT is a time zone officially used in some European and African countries while UTC is not a time zone, but a time standard that is the basis for civil time and time zones worldwide.

GMT time can be displayed using both the 24-hour format (0 - 24) or the 12-hour format (1 - 12 am/pm). No country or territory officially uses UTC as a local time. Neither UTC nor GMT ever change for Daylight Saving Time (DST). However, some of the countries that use GMT switch to different time zones during their DST period. The UK is not on GMT all year, it uses British Summer Time (BST), which is one hour ahead of GMT, during the summer months.

The little rabbit hole I went down in the above paragraphs was a mere sampling of the depth one could plumb with regards to working with time and timezones in the beautiful world of computers (I am currently working with Python's 'datetime' module).

In any event, my computer algo is also highlighting AUD/JPY as a Sell, sitting on a recent low of 79.00. Meanwhile AUD/USD is hovering at 0.7110, having held 0.7100 several times recently.

The survey number alone may not be of big significance but it may help paint the picture along with the recent increases by 3 of the top 4 domestic banks on adjustable mortgage rates in a highly leveraged housing market, and along with ongoing trade concerns and recent commodity price weakness.

Baring an excessively weak number I think Aussie will find a footing.

At least we have the time right.

Mixed Messages


This past week saw continued solid US economic readings that culminated with a strong Friday Non-Farm Payroll jobs report that showed better than expected wage growth. The jobs picture is a strange one for me to ponder because much like the saying 'all politics is local' I tend to think of the econonmy and job market through local and anecdotal references.

Anyone I know within a few years (plus or minus) of the age of 50 who has worked in any part of financial services would most likely hold a less opptimistic view of their future path of earnings than the reports heard across of the financial press.

The strong dollar was propelled to 111.20 on the USD/JPY cross until shrewd forex guru Greg S. (@northherofx) pointed out some risk-off reversal signals that marked that level as the day's high.

Trump started another tweet-storm regarding tariffs on China which took the good feeling out of risk trades.

There were also several Fed speakers and certain soundbytes resonated with words like, "gradual" and "patient".

There were some incrongruous moves like a particularly weaker Aussie, stronger Turkish lira and China-ADR equity calm (FXI, BABA, and others).

I think there is more to come in terms of risk-off for equities.

However, as I say that and review my week's trades I am reminded of my 'sticky-notes-to-self' that I am not in the 'prediction' game, I need to stay in the 'trend-following game' or get caught in the 'chopfest' of reactionary trading.

Mondays and Fridays are historically not my best. Off to plan for a better week ahead.

It's Never One Thing


The risk-off tone has prevailed throughout most of today with Trump's midnight deadline approaching before the implementation of increased tariffs on Chinese goods.

We are also awaiting announcements on progress regarding NAFTA talks with Canadian officials currently in Washington. Coincidentally the BOC's Senior Deputy Governor Carolyn Wilkins - who has been hawkish in the past - will deliver a speech later today (text released at 2:30 PM EDT) that will address yesterday's BOC interest rate meeting.

Emerging markets contagion also continues to persist with today's focus on Russia.

FANGs (or GAFA depending on your preference) continue to show weakness. Despite some recent rotation amongst equity participants into biotech and other sectors coming out of tech, the Nasdaq has still declined for several days in a row and dropping a few percentage points at a clip with not too much trouble (GOOGL, AMZN, FB, BABA, AAPL all currently down 2 to 3 percent).

The Fed's Williams also had comments earlier that he does not see concern over either emerging markets nor a nearly-inverted treasury yield curve. The economic calendar is picking up as well.

As far as my trading is concerned it has been a frustrating day - too many trades spent chasing false breakouts or breakdowns. Getting caught in choppy seas. Time to push away from the desk - but still with one eye open for a tweet, a text, or a tariff…

Long And Wrong


Australia's Q2 GDP was reported better than expected at a rise of +0.9% (q/q vs +0.7 exp) and +3.4% (y/y vs +2.8% exp). Below the surface there was concern that a debt-laden consumer was too high of a constituent of H1 performance.

Taking positions ahead of data is dangerous as I have learned. However I couldn't help but have a small long AUD/USD from $0.7180 ahead of the report.

The USD was looking a little stretched; RBA's Lowe had some positive comments the prior day (perhaps he had a look at the numbers); and I thought short bets on Aussie were a little crowded.

After the number a quick +25 pip gain in the Aussie reversed. I had actually been stopped out just as the number came out (my sell stop was set too tightly).

The above example is a just a reminder that one can be right and wrong in the same trade; or have a good idea but be early or express it incorrectly; or simply find a way to "snatch defeat from the jaws of victory" (reversing the normal sequence of that phrase).

Today:

-Focus has shifted from Turkey to South Africa for the EM stress watch.
-The Bank of Canada is expected to leave rates unchanged.
-NAFTA is not dead and Trump needs a win.
-I would look to sell USD/CAD near $1.32 and Buy GBP/USD near $1.28.
-If we get some progress on trade I would watch Aussie and Kiwi for a bounce.

Just ideas - not advice.

Back To School


It's the first full day after Labor Day in the US and kids and Congress are back in session. The themes from last week are largely still entact and seem set to even accerlate.

The dollar is bid against all EM and majors. In EM there are contagion fears and in the Eurozone there are growing debt fears largely focused on Italy right now and their desire to increase spending and bump up against some EU-derived debt thresholds.

Lookng at my "algo" aka "machine" aka "robot" there are few short term momentum signals other than sells in Nasdaq futures, FB and NFLX.

Mean-reversion signals suggest looking to buy EUR/USD, EUR/CHF and GBP/USD and selling USD/CAD, USD/MXN and USD/ZAR.

My back to school lesson today will be to recall three great sayings with regrads to "price":

"Don’t trade yesterday's prices", my buddy Alan J.
"Price is never too high nor too low", anonymous.
"Price is what you pay, Value is what you get", Warren Buffet.

Good luck and go slowly. As my mom says, "be a turtle today".

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