Market full of riddles - staying on course, is right.

Volatility centered around Bernanke's testimony, risk sold off when he failed to signal fresh stimulus and rebounded on the subdued outlook and his willingness to act if necessary.

That's what took place but does anyone know what this really means? Yeh. Nah.

Will there be any form of QE? I don't see how.

The current Operation Twist II runs until the end of the year so will there be urgency for the Fed to deliver additional QE.? Answer - simply is - an emphatic no. In particular when the CPI perked up a little on a 1.7% print and considering the skyrocketing landscape of Agricultural Commodities the CPI is unlikely to soften any time soon, if at all the rest of year.

The Fed and Treasury are hellbent on POMO until infinity with its grotesque budget deficit. We also saw Net TIC Flows (Treasury International Capital) come in at a whopping $101.7 BLN. Why is this important? Many participants refuse to pay attention to it as they fail to understand it. It is one of the major events in the market, as it is seen by most participants as the Government resource for offsetting the current Trade Deficit. Question remains; is this massive international capital inflows into U.S paper front running the Fed and Treasury on 30 year debt? Maybe. The Fed will be loving every minute of it..so why disrupt it?

So how to make money? Glad you asked, as the landscape is riddled with riddles it is hard to say. However as depicted in this entry Muddling Through The Chop I made a case the second half of year will be more bullish than not. Quite likely will not make sense to many as market continues to grind higher. The main element behind my thinking is that Central Banks have no alternative and no solution other than stimulate.

My greatest fear is the pop-rally will only be short lived until say Mid August. China is the main player that has capacity to catch the market off guard and has plenty of room to move in its current stimulatory cycle - and it is in a stimulatory cycle.

TNX - Likely double bottom trading at 1.5% rising 37 basis points on the day (+2.53%)
VIX - Down 3.63% to 16.52 for the day and no end to the complacency.

How fearful am I of an epic crash? Very!!

I will post a chart on current SPX/TNX spread. This disconnect is a monster and needs to be tread with cautiously. Stocks and Bonds are two separate asset classes and they are both going up in tandem in bubbly fashion. Bigegr than Ben Hur - you betcha

Until that mess is resolved - and it will be resolved. For short term opportunities, you will need to be quick and nimble for rest of week. I can post ideas but it really is up the reader to interpret them correctly as I am simply unable to click the buttons for you!

Until next time.

Euro plummets and awaits suckers

The first trade set up I have posted on this blog. I am not going into the fundamentals as you can entertain yourselves with previous entries and we shall stick purely on the technical aspects.

I am a very simple chartist - primarily I like to work off a pressure line i.e,. support becoming resistance and vise versa. I like to focus on mis pricings, the upside or downside surprises based on the economic calendar. But on this entry, we shall determine what EUR/JPY is trying to tell us and whether we can execute a profitable trade.

Firstly we have a very big week in the Chinese markets next week and it would be handy if you keep this somewhere as a reference point as I expect volatility next week by the buckets.

From IFR:

*Markets speculate the PBOC was pre-empting weak data with today's rate cut.
*Heavy data flow beginning week of July 8.
*CPI expected to fall from 3% y/y to 2.3%, PPI exp to drop from -1.4% y/y to -1.9%.
*Exports anticipated to have fallen from y/y rate of 15.3% to 10.2%, GDP exp 7.7% from 8.1%.
*Equity market near 3-year lows cast doubt on whether soft landing can be engineered.
On to EUR/JPY

The above is a 4 HR chart of EUR/JPY. Apart from fundamentals this chart doesn't spell any buy signals to me on the premise of being oversold. On the contrary if you are short, you would book some profits here based on a 14 RSI reading of 10 which is extremely oversold and hedge the remainder for a sucker bounce in case it manifests into a reversal. The bounce will likely be a  sucker bounce providing position is appropriately hedged I would place a limit sell and add to the existing position approximately 3-5 pips outside that support line band in view of becoming resistance at 99.75/80.

Opening fresh trades on Fridays should be immediately eliminated unless booking profits, so the above example is seeking to open a trade Monday/Tuesday. The trend is at best of times very difficult to qualify in ranging markets, but to keep it simpler than simple I implement a 200 moving average and use an above/below rule. So in EUR/JPY instance the bears are in control so you don't want to mess with them.  If our limits are not hit and the instrument continues to plummet, so what. The main fact we have remained disciplined in our approach in order to get involved at the best possible price should be the strategy here.

Good Luck.

Muddling through the chop.

This post is primarily for my own purposes; if you find uses to integrate into your trading strategy then you are welcome. Usual Caveats apply.


The main motivation behind this post is to define where markets will trade in the coming months. Remember I do not day trade, I trade themes based on macroeconomic events. The macroeconomic picture is muddled and very difficult to define at this point, but we shall attempt to crack it and see how we go. 


Firstly with slow growth, high unemployment and limited room for manoeuvre regarding macroeconomic policy space, structural reforms are the short-run remedy to spur growth and boost confidence.

We see a graph by the OECD that confidence in the U.S has picked up but at plateau levels and difficult to determine where US confidence will go from here considering the nations government debt profile.

In Europe, business and household confidence is weak, financial markets are tight and the adverse impacts of fiscal consolidation on near-term growth may be significant, particularly in countries hardest hit by the euro crisis.


Recovery in the healthier economies, is not strong enough to offset flat or negative growth elsewhere in Europe.


Adjustments in the euro area are now taking place in an environment of slow or negative growth and deleveraging, prompting risks of a vicious circle involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth.

As we are already aware the situation in Europe is very poor and there is no end in sight.

However, as global growth expectations have come under pressure as economic momentum has considerably weakened. In the absence of a genuine European shock from here one can expect U.S and China to lead the global economy in the second half of 2012.

Softer US economic data in recent months has largely been the result of statistical implication of a warm winter. Signs of improvement in housing, falling energy prices and OK consumer demand suggest the recovery hasn't completely fallen off the proverbial cliff.


Commodity markets are currently heavily oversold on the double whammy of slower growth momentum [as per China] A stimulus policy in China will be favourable to commodities but will highly impact input costs and hence the falling value of Chinese exports. The latter should be seen in early 2013 as China stimulates which leaves room for a multi month commodity rally until early 2013, on the proviso of no other European shocks.

It can be easily argued the U.S 10 year bond yield has traded into cyclical lows at 1.44%. My personal belief taking global debt swallor into consideration with little impact on reforms will eventually trade vastly lower and we shall eventually see a re-make of Japan's JGB market. However a move into the shaded areas as yields revert to their mean is also a highly probable scenario, in particular if China decides on a stimulus policy. There is a clear disconnect between USD and U.S 10 yr yields and this disconnectness will continue as flows from debt to risk will be the story.

References -
-OECD economic outlook http://www.oecd.org/document/18/0,3746,en_2649_37443_20347538_1_1_1_37443,00.html
-ANZ research quaterly http://www.anz.com/resources/d/d/dd076e004babd2058c3eeec96010cd62/ANZ-Research-Quarterly-June-2012.pdf?CACHEID=dd076e004babd2058c3eeec96010cd62