O Canada October 5, 2009
Posted by Warren in FX, Strategy.add a comment
The loonie looks poised for a fresh up leg, and it may even hit parity with USD by year-end.
CAD 3-year: after breaking out of a two-year downtrend back in July, the loonie has been consolidating in a tight range
Silver correction complete; update on USD September 28, 2009
Posted by Warren in FX, Metals, Strategy.add a comment
My core view is that PMs will finally break out to new highs over the next few months. Many people are expecting a further correction to August levels, but I think that is wishful thinking. If PMs are indeed headed for all time highs, they must not lose their current momentum – a further correction to August levels would impair the momentum that is required for the final push, especially considering that we are currently in a favorable season for PMs.
Silver 9-month
Silver technicals: 16 is a MAJOR level for silver (see my 8/13 post) and is currently the last line of defense. Silver dipped below 16 overnight but managed to close above it, forming a long doji. Looking at the 1-month chart of silver below, there is a potential head and shoulders topping pattern – I think this will turn out to be a significant bear trap.
Silver 1-month
USD: the chart below is a friendly reminder to DON’T FIGHT THE TREND. There’s been a lot of coordinated USD jawboning as of late, but I think this is merely an attempt to smooth out an otherwise obvious (and beneficial) collapse of the USD. As for the yawning inflation v. deflation debate, the answer is simply in the data; I’m not even going to bother explaining this. Bill Gross recently rebalanced PIMCO’s portfolio to almost 50% in long dated US bonds, betting that deflation in the US will persist – I can hear Jeff Van Gundy commentating in the background: are you kidding me?! Can’t wait for the NBA season to start :)
USD: 9-month
Flipping back to long August 11, 2009
Posted by Warren in Central Bank, FX, Metals, Strategy.add a comment
I had taken profit on PM longs and also shorted some last Friday. Indeed gold and silver have sold off sharply during the past few trading sessions, and I decided to flip back to long this morning. As for tomorrow’s FOMC announcement, it looks like almost everyone in the world is expecting the Fed to shut down QE! My expectation is that the Fed will not raise rates until next year at the earliest. I doubt that Bernanke will pull the trigger on any “exit strategy” before the dust has really settled. So long as the Fed doesn’t explicitly announce an end to QE right now, I think Fed day will be bullish for risk (and bearish for USD).
Silver 1-month: very nice entry point
USD 1-year: don’t fight the trend
Market sentiment chain of events; chart updates July 9, 2009
Posted by Warren in Central Bank, Energy, FX, Government, Metals, Stocks.add a comment
Cyclical recovery and commodities have dominated the news since Q1, but prices have experienced a near collapse during the past month; this is a very drastic change in market sentiment. My take on the chain of events impacting market sentiment this year is as follows: (i) Fed/government props up market via historic stimulus/bailout, (ii) inflation fear prematurely turns into hyperinflation fear, fueling risk-taking, (iii) stocks recover and green shoots sprout everywhere, (iv) an optimistic and inflation-fearing Fed/government prematurely indicates plans to roll back historic stimulus/bailout, (v) hyperinflation fear turns into deflation fear, curbing risk-taking, (vi) stocks sell off and green shoots are put into doubt, (vii) ???. As for subsequent chain of events, I expect the Fed/government to realize its premature mistakes and eliminate any doubt of economic recovery (while at the same time implementing much needed additional fiscal/monetary stimulus). Consequently deflation fears will dampen and risk-taking will resume. As for timing, I expect the Fed/government to act before the current stock sell-off gains serious momentum (so pretty soon). It is interesting to note that despite the drastic sell-off in commodities during the past month, the dollar index has not moved all that much; the current currency devaluation trend is still very much in play.
Dollar index: 9-month (this chart gives me comfort that commodities prices are currently oversold)
Silver: 6-month (back to 12.80! BUY!)
Crude: 6-month (down $14 since last week’s scandal; could hit 55 but 60 seems to provide strong support)
Treasuries: 6-month (breaking out; rates have room to go lower while commodity prices (and inflation expectations) recover)
Long Australia… April 1, 2009
Posted by Warren in FX.add a comment
…been looking for an opportunity to go long AUD. USD had a sharp rally a couple days ago, and I bot AUD as it started to recover last night. Fundamentally, AUD is a favored currency for shorting USD (e.g. the euro has a long list of problems). For now, it looks like long AUD could provide better exposure to a dollar sell-off than long gold, at least until gold breaks out of its yawning consolidation range.
AUD: 11-month
When all hope seems lost… March 30, 2009
Posted by Warren in Energy, FX, Metals.add a comment
…opportunities are abound. Indeed, most assets are at a critical juncture.
Gold spot: 7-month (consolidation over? seriously, is it really over?!)
Crude spot: 5-month (quick correction below 50?)
Dollar Index: 5-month (an evening doji star in the making?)
Weekend chart reviews March 21, 2009
Posted by Warren in FX, Metals, Stocks, Strategy.add a comment
S&P 500: 3-month
AUD/USD: 1-year
Silver MAY09: 18-month (ready to EXPLODE)
Reflation trades March 13, 2009
Posted by Warren in Energy, FX, Metals, Strategy.add a comment
The “reflation” theme has come undone during the past few months (though gold did take on a new role as a safe haven), as deflation has become a word widely used in mainstream media. I hate to sound contrarian, but I think the markets might experience some reflationary flashbacks over the intermediate term (same duration as potential bear market rally). Here are a few items that I’ve been juggling in my head:
1) Markets have been in a strong deflationary trend (stocks down, crude down, dollar up, treas up, gold up)…is it time for a breather? The U.S. government has already injected over $1 trillion in liquidity into the system and many other credit/liquidity facilities have been going into operation this year. Is it reasonable to say that there’s at least some level of risk appetite coming back into the system? An increase in risk appetite correlates with dollar depreciation because when you want to take risk in assets, you have to exchange your dollars for stocks, gold, crude, foreign currency etc.
2) The dollar has rallied against many foreign currencies due to deleveraging (liquidations, repatriations, etc.), but it has also rallied against the euro based on the hypothesis that Europe is in worse shape than the U.S. I think this Europe v. US debate is not as important to EUR/USD as many think. I’m not saying that Europe is in better shape than the U.S.; no one knows that for certain (also depends on whether one’s looking at the services or manufacturing sector). One thing for sure is that the U.S. government has committed far more capital funds in bailout/stimulus than Europe has.
3) If there’s a relief rally in equities, won’t there be a lot of capital pulling out of gold? As I’ve commented before, such “weak longs” have, for the most part, already exited the gold market since prices hit 1000. Gold has since been in a volatile range (890-940) without any correlation to other markets. Assuming there’s a recovery in risk appetite, I think there will be sufficient demand to support gold at current levels. Recent volatility is an indication that the gold market may be rotating away from its “safe haven” function and reverting back to its “reflation” function. The sooner gold completes this transition, the sooner gold prices will benefit from an environment of relflation/risk-taking.
Specifically, I think the reflation trades (long gold, long crude, long stocks and short treas) will last so long as the dollar is retesting/correcting to its JAN09 low.
Dollar Index: 6-month (retest of 83 possible)
I think a strong rally in crude is crucial for the reflation theme to work. Forget about OPEC productions cut related analysis…it has had no impact on crude prices since OPEC started pushing for cuts last year. I have no idea what the catalyst for a breakout above 50 would be (stock rally? euro rally? China?), but I do believe crude prices will break 50 eventually…the issue of course is timing. Crude has been range-bound (35-50) for quite some time (4 months), and it could very well remain sideways for much longer than I expect.
Crude: 6-month
Potential trend change December 15, 2008
Posted by Warren in FX, Uncategorized.add a comment
Perhaps a positive sign for long PMs.
Euro technicals: bearish September 18, 2008
Posted by Warren in FX, Strategy.3 comments
Fundamentals: panic “recovery” in US + panic just beginning in Europe + USD repatriation from EM
Technicals: rising wedge + bearish divergence
Comrades, although the reflationary measures taken by the US government should be bearish for USD, time will tell how this will counteract with renewed “confidence” in the US financial market, not to mention potential deflationary pressures that remain in the system. But for now, the chart shows that the EUR downtrend is still intact.
Euro: target=$1.35, stop=$1.44 (update: $1.425)
Brazil longs better watch out September 11, 2008
Posted by Warren in FX, Stocks, Strategy.add a comment
Brazil…the “B” from BRIC. Unlike its peers, Brazil’s currency and stock index have barely started to buckle to the downside. During the past half-decade, not only has Brazil benefited from EM longs, but Brazil has also benefited from commodities and resource longs. Well, those longs are pulling the plug right now, so I expect BRL and Bovespa to develop a strong downtrend in the medium term. I am currently short BRL, and I plan to buy 45.0 OCT puts on EWZ when the stock market opens.
BRL and Bovespa: 5-year
EWZ: 3-year
Euro and Gold: more room for downside September 10, 2008
Posted by Warren in FX, Metals, Strategy.add a comment
Fundamentals: deflation…nothing else matters (at least until Fed starts easing)
Technicals: breach of key support; 50dma below 200dma
Euro: 1st target=$1.38, 2nd target=$1.33, stop=$1.43
Gold: 1st target=$730, 2nd target=$630 (doubtful, but possible), stop=$850
Euro technicals August 28, 2008
Posted by Warren in FX, Strategy.add a comment
The big question for the euro right now is whether it is bottoming or continuing its downtrend. But first, here’s a quick look at euro fundamentals: (1) weakening economic data; (2) rising inflation; (3) softening ECB hawks; and (4) dropping/bottoming crude prices. Although crude seems to be putting in a bottom, weak economic data and rate cut expectations seem to be supporting the euro bears. Looking at the chart below, there is a clear downtrend. The euro rallied overnight to the upper range, but the bears took control after positive US GDP data came out, pushing the euro below the short-term rising wedge. The dollar index, however, looks pretty toppy right now, and it will be interesting to see how the euro moves once key European economic data (unemployment, CPI, various confidence indicators) come out early tomorrow morning. I flipped from euro long to short.
Euro: target=1.4550, stop=$1.4750
Gold in euro August 15, 2008
Posted by Warren in FX, Metals, Strategy.add a comment
A theme that is attracting capital right now is “long US.” It’s not that the US economy is rebounding (it’s actually going to get worse), but the dollar is benefiting from weakness in other currencies and the effects of deflation from the unwinding of various macro trades. How does all this affect gold? Perhaps it’s worthwhile to look at gold against a non-dollar currency. Looking at the charts, the correction in gold/eur seems near its end, while the correction in gold/usd seems far from over.
Gold/EUR and Gold/USD: 3-year
I am short euro as a hedge against my precious metals longs (though short euro may turn into a directional bet). I expect euro to make at least one more down leg after it consolidates. With a break through the 200 dma, euro is developing a strong trend to the downside. I think it’s possible that euro may sell-off to about $1.40. It’s not that I’m bullish on the dollar. But I expect the ECB to inflate as much as, if not more than, the Fed. As a dollar bear, I expected euro to rally beyond $1.60. But there has recently been a significant change in market sentiment for the euro. I think dollar bears should just stick with gold for now. My current strategy is to short-term trade the precious metals market while maintaining a medium-term short position in euro and US stocks.
EUR/USD: 3-year
Range bound: trader’s market July 24, 2008
Posted by Warren in FX, Metals, Stocks, Strategy.add a comment
Most assets are currently testing either resistance or support, and they will probably be range bound until we get some more definitive news. I think the stock market has squeezed all the positive news it can possibly extract for now (crude correction, no shocking earnings), and the government’s bag of tricks (FNM/FRE bailout, SEC don’t-short list) seems to be waning. I expect markets to reverse their short term trends ahead of next week’s payrolls. My targets for next week are as follows:
Short S&P SEP08: target=1240 stop=1290
Long Euro SEP08: target=$1.575 stop=$1.5575
Long Gold AUG08: target=$955 stop=$915
Short dollar trades reverse July 22, 2008
Posted by Warren in Central Bank, FX, Metals.add a comment
Earlier this year when financials puked (Bear Stearns and friends), euro and gold rose to record highs. Although there hasn’t been any big institutional failure since Bear Stearns (maybe IndyMac counts), the pukage during the past couple months was arguably more severe (Fannie, Freddie, and friends). But did euro and gold rise to record highs? Hardly. I blame it on two things: moral hazard and dollar jawboning.
The market has accepted the notion that the government will bail out any major financial institution in the name of systemic risk. Of course, such bailouts merely prolong the inevitable, while robbing the tax payers. But for now, the government seems to be able to restore market confidence as they see fit, albeit artificially and fraudulently. It will only be a matter of time before the market acknowledges that the current credit crisis is beyond the reach of government bailouts, and that such bailouts only exacerbate the problem.
Last month, the government embarked on a chorus of dollar jawboning – a concerted effort (Fed, Treasury, and Exec. Branch) never seen before. Although it was a bluff, the dollar jawboning managed to keep the lid on euro and gold as stocks took a nose dive. Bernanke and Paulson must be giving each other HIGH FIVES right now, because just as euro and gold finally started to call their bluff, crude began a long-awaited correction and stocks began a long-awaited bear market rally; their timing couldn’t have been any better.
Now the Fed has wiggle room to make even more bluffs. So for now, euro and gold must wait to see better days (record highs)…most likely towards the end of Q3.
Euro: big move within next two days July 14, 2008
Posted by Warren in FX, Strategy.add a comment
According to my watch, we’re probably going to see a big move in euro within the next couple days…either up or down. There seems to be a lot of euro bears out there, and euro has been lagging behind gold, silver, and yen. Looking at the charts, euro is testing its recent breakout in a symmetrical triangle formation (hopefully a bullish pennant), while eur/jpy also seems to be near a critical juncture. Tomorrow we have NY manufacturing, PPI, and retail sales data coming out at 8:30am, so look for some big moves around that time. Also note that Citi, JPMorgan and Merrill Lynch are coming out with earnings on Thursday. If euro is going to break $1.60, which I hope it does, it’s gotta happen this week.
Euro: 2-week (potential bullish pennant)
EUR/JPY: 1-month
Interpreting EUR/JPY and Equity Divergence July 11, 2008
Posted by Warren in FX, Metals, Stocks.add a comment
During the past half-decade, eur/jpy has (had) been highly correlated to stocks. This correlation is currently breaking down. So what does a rising eur/jpy mean after a wild consolidation since the subprime crisis went full blown last summer? I think it means that deleveraging is slowing down as investors are finally grasping the direction of various markets and acknowledging that a bear market in stocks has begun. Therefore, the divergence between eur/jpy and stocks will continue, whereas eur/jpy and gold, for example, will start to correlate.
EUR/JPY and SPX: 6-year
EUR/JPY and Gold: 2-year
Yen diamond July 11, 2008
Posted by Warren in FX, Strategy.add a comment
Assuming eur/jpy is about to rise to uncharted territory, a breakout by yen from its current diamond formation will mean there will be an explosion in euro beyond $1.6. I’m not entirely sure about the cause and effect of all this, but I’m assuming the imminent eur/jpy breakout is an independent phenomenon, which I will explain in my next post.
Yen futures: 1-month
Euro and Yen may have bottomed July 9, 2008
Posted by Warren in FX, Strategy.add a comment
I think the dollar is ready for another leg down.
Euro had a big sell off following Trichet’s dovish comments, but it was just a flush-out of those who were betting on a hawkish statement; the dollar bears are still holding strong.
Euro: 1-month
Yen is probably the most difficult to trade, and I know this from personal experience (ouch). You just know that the usd/yen is about to go into a secular decline, but it fools you every time. Looking at the yen chart below (futures, so inverse of usd/yen), one can see that the massive rally on 6/26 turned out to fool everyone trading the breakout. I drew the two falling wedge lines on 7/2, and one can see that, while the falling wedge is still in tact, volatility/noise is pretty high. I mentioned in my previous post that we might see a return of reflation, and a clear indication of that would be if yen and stocks rallied at the same time, while carry trades like euro/yen and cad/yen skyrocket.
Yen futures: 1-month
Bank of Korea intervention July 2, 2008
Posted by Warren in Central Bank, FX.add a comment
Apparently BOK sold about $3b into the market yesterday to prop up the Korean Won. Inflation is out of control in my home country, and it will be interesting to see how far the government will go to support the Won. Maybe the government doesn’t really understand economics, but Korea’s inflation is a product of printing money to buy dollars so that exporters (Samsung, LG, Hyundai) can benefit from a cheap Won. I remember when the Won was at 900 last year, people were complaining about its negative impact on exports…now that the Won is above 1000, people are complaining about inflation. Frickin make up yo mind foo.
Yen Carry unwinding…look out below June 30, 2008
Posted by Warren in FX.add a comment
Last week, the Dow broke through key long term support…
…as a result, yen carry trades have begun to unwind. When the Dow was at this level back in March, USD/JPY was in double digits and gold was at 1000. BOOYAH~
Tough week for dollar shorts June 13, 2008
Posted by Warren in FX.add a comment
Despite ugly job numbers last Friday, the dollar quickly reversed to the upside on the back of dollar jawboning. I’m surprised at how much impact the open mouth operation has had on the markets. The yield curve has flattened significantly with short term yields shooting to the sky…this can’t be good for banks. The dollar rally must stop.
What dollar rally? Trichet crushes Bernanke June 5, 2008
Posted by Warren in Central Bank, FX.add a comment
This week, Bernanke stepped up his support for the greenback during a conference in Spain and a class day speech at Harvard’s graduation ceremony. Stating “significant concern” over the falling dollar’s impact on inflation, Bernanke made it clear that the Fed is done cutting rates. His remarks sparked a sharp sell off in bonds and commodities, with crude falling about $8 and gold falling about $30. However, all of Bernanke’s efforts became undone overnight when Trichet of the ECB explicitly opened the possibility of a rate hike during the ECB’s next meeting in July. The dramatic reversal is evident in the charts of EUR/USD and crude below. This is truly: in your face. The Fed might as well stop talking about holding/raising rates because we are about to see Credit Crisis Part II, while the housing market continues to derail in a slow motion train wreck.
EUR/USD
Crude
Below is a three-year chart of the USD index. Do you see the dollar rally everyone’s been talking about?
