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GBP heads up for traders: What you need to know 101

  
Analysis, Forex
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GBP

GBP
Ok, let’s summarise where we are with the GBP
We are negative GBP going into today on the basis that PM Johnson is going for his ‘do or doe’ Brexit approach. Will he prorogue parliament again? Will he ignore the Benn Bill? He’ll try, probably so GBP neagtive
Saunders dumps the GBP: The BoE may jump in and cut rates even before Brexit negotiations are done. GBP negative this am and we saw a 40+ spike lower on GBPUSD. Next target is 1.2250.
The problem 
So, what’s the problem for shorts? Only this – positive Brexit news.Outlier, but possible.
What to do?
Keep a short bias until there is a reason not to. Then, most probably the obvious option will be to go with a long bias
Just remember that Brexit GBP trading is short quick swings, so don’t hold shorts into the weekend and take profits when you have them. Don’t wait for 2.5 million pips (unless we get a surprise deal announcement, of course;-)).

A very quick snippet on why the US dollar is more attractive than the euro and yen

  
Analysis, Forex

Via a longer piece from Nordea on the Fed and ECN balance sheets, these few words seem to be where we are at in a nutshell ….

  • we ultimately think that USD liquidity is king (no one needs all the damn EURs and JPYs that ECB and BoJ are printing)  
Oh dear 😀
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OK, here is a little more that, while less pithy, is even more interesting, it follows on from the above:
  • we have found some interesting patterns on TLTRO-settlement days. 
  • On days when EUR liquidity has entered the financial system in size via TLTROs, it has often been a good idea to be long EURCHF and short EURSEK (81% hit ratio) – i.e. risk on! 
  • The first TLTRO-III allotment was though a yuuuge disappointment (a mere 3.4bn EUR), so we don’t expect a big effect when the liquidity enters the system on Wednesday the 25th. 

Currencies in focus after weak PMI’s

  
Analysis, Forex
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Quick look as PMI impact settles

The weak PMI data was not a surprise, but the flow through into service data is confirmation of the feared inevitable, hence the weakness we see in the EUR/USD, German Bonds rising and European equities down. Dax now increasing its losses and at -1.48%.
So, the strongest currencies include the JPY and CHF (on risk aversion) with the EURO and the GBP the weakest on the session. Watch out for further risk souring.
Quick look as PMI impact settles

Crucial Update :US Dollar Index ,EURO ,YEN ,GBP ,INR ,CAD ,AUD ,PESO ,WTI ,SPX 500 -Anirudh Sethi

  
Analysis, Crude, Forex
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The Japanese yen and Canadian dollar were the only major currencies to gain against the US dollar last week.  They are also the only major currencies to appreciate against the dollar so far this year.  US President Trump’s apparent playing down of the pressure to strike a partial deal with China before the 2020 election weighed on stocks and lifted the so-called safe-haven currencies ahead of the weekend.  When everything was said and done, from the attack on Saudi Arabia to the money market squeeze in the US and the Fed’s rate cut, the dollar remained mostly within well-worn ranges.
The exceptions were idiosyncratic.  Growth concerns, both globally and domestically, saw the New Zealand dollar fall to new four-year lows ahead of the weekend.  The RBNZ meets next week, and the market has about six basis points of easing, or about a 25% chance of a cut.  The Australian dollar fell in four of last week’s five sessions and the day rose was by 1/100 of a penny, according to Bloomberg.  Sterling had threatened to break high in the second half of the week, but Ireland’s Deputy Prime Minister helped put Juncker’s seeming optimism in context.  UK Prime Minister Johnson reportedly acknowledged that the EU is unlikely to agree entirely with his proposal at the critical summit in the middle of next month.  These developments pushed sterling a cent off the highest level since July (~$1.2580).
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Global currency trading volumes surge to highest-ever level

  
Analysis, Forex
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Trading hits $6.6 billion per day

Trading hits $6.6 billion per day
Trading in the foreign exchange market has hit $6.6 trillion per day, according to the latest survey from the Bank of International Settlements.
The BIS today reported today that volume in the survey month of April rose 29% compared to 2016. The comprehensive survey is conducted every three years.
Aside from the jump, what stands out was the rise in swaps trading — which is now nearly half the market.
Other key details:
  • 88% of all trades include USD
  • London accounts for 43% of all activity
  • US trading is 17%
  • EM currencies are now 25% of turnover
  • Trading involving the euro hit 32%
  • Trading involving the yen at 17%
  • Yuan trading is 4%
  • Spot FX trading rose 20% to $2 trillion
The changes in volumes of the major currencies was muted compared to 2016 aside from a small drop in the yen but that may have been due to lower volatility in the survey month.

Euro: Now on a medium term bullish run

  
Analysis, Forex

Via Bloomberg

Via Bloomberg
As I was mulling over the ECB rate decision last week I came across an interesting and helpful piece from the Bloomberg market live blog which I will detail below. The reaction to the ECB rate decision was to put in a firm reversal on the EURUSD pair. The markets live blog made the case for a medium term bullish turning point:
1. Rates – the ECB cut rates, but not more than expected. Euro rates have been deeply negative for years and will stay negative for years and these small moves changes little at the margin. Draghi has also explicitly said that monetary policy has reached it’s limits and fiscal policy needs to step up now
2. Tiering – Is finally here and should relieve the impact of negative rates. The suffering of the European banking sector has been dragging on the regions economy. Tiering is a positive for the Euro, even if it is mild
3. QE – ECB officials have shown that they will do whatever it takes for however long it takes. This is a positive for the Euro as it removes tail-risk outcomes enhancing the euro’s appeal as a reserve currency, and a potential haven asset.
Ok, that was the heart of the article and one takeaway we can definitely take from this is thatany news of fiscal policy stimulus from the eurozone will be euro positive. One headline to watch out for, as it should be good for a quick +50 on the EURUSD when it comes.

Is there anything more to the rebound in the pound?

  
  Forex

The pound has rallied by more than 4% against the dollar after falling below the 1.2000 level at the start of last week

The pound has rallied by more than 4% against the dollar after falling below the 1.2000 level at the start of last week
The pound has been remarkably solid in the past two weeks of trading. While there is some reason to be mildly optimistic as parliament succeeded in turning the Brexit delay bill into law, is it really worth 4% (give or take, minus out dollar weakness today) of optimism when put together with other Brexit developments?
As much as I am skeptical about the pound’s strength, the overwhelming rally today has got me thinking a little. Is it just all about short covering and positioning flows during the quiet period before October strikes?
My previous take was that the range for cable will settle between 1.20 and 1.25 during this period but as we move closer to the upper extreme, this is something to look at in case we observe a potential breakout.
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How are markets initially reacting to the ECB decision?

  
Analysis, Forex

Euro weaker, bonds surge as the ECB reintroduces QE

EUR/USD H1 12-09
I’ll try to keep this short and concise. So, what was announced by the ECB today?
1. A 10 bps cut to the deposit facility rate
2. A rate tiering system
3. Change in forward guidance (dropped date-based forward guidance)
4. Reintroduction of QE (€20 billion per month) starting 1 November
So far, the initial market reaction is as what you would see with the euro weaker on the more or less “expected” stimulus package. The initial knee-jerk reaction was a move higher before a whipsaw back lower in the single currency.
On the balance of things, it is a dovish decision but I reckon the move lower in the euro could also be in part tied back to markets not having confidence that this is enough to bolster economic confidence and/or inflation expectations.
But we’ll see, there’s still Draghi’s press conference and time after that to let the dust settle before we get more clarity.
Elsewhere, equities are moving higher on the easing decision and the introduction of the rate tiering system is helping to lift bank stocks as well.
Meanwhile, bonds are loving the QE news as yields tumble across the board where we’re seeing even Italian 10-year bond yields hit a record lower of 0.77%. Treasury yields are much firmer across the board as well and that is putting a bid in the yen with USD/JPY falling to 107.70 levels currently.
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