Chinook's EUR/USD (E/$)Mumblings

This action has again confounded most. Strong TICS flows and what happens the USD gets crunched - 200 pips. I'm with you Ivan - I'll be looking for a shorting opportunity (again - since I was fetched kicking and screaming from my hiding place) - the move up has been strong and I'm hesitant to put my money on the table just yet.... It looks like a stop clearing exercise higher - possibly past 1.3060. There I would be looking to sell.

Lets see if this run up stalls - the fact is all and sundry are probably waiting for inflation figures this week before committing either way. And while we wait the stop hunters have fun.
For know until the statement changes I would think .25 per meeting which should be dollar supportive.

This is my "educated guess".

If the EUR does turn south again - look out below.
 
Another thing I believe EUR is dependant on is what will happen with the market open in the US. People are antcy that equities are about to get really hammered after last week.
 
Trade-ya,

More on what I was saying yesterday. Echoing my thoughts on this is Jack Crooks from BlackSwan trading. I dunno if you put much stock in him, but I've always liked him - even when he was a EUR bull last year and I wasn't! :(

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I think the story on the dollar, at least over the intermediate term, is more simply about two factors from here on out:

1) Interest rates
2) The dollar’s world reserve currency status

We have recently been told the ECB will probably remain on hold through the remainder of the year. The commodity dollar countries—Australian, New Zealand, and Canada seem to be feeling a whiff of slowdown from Asia. So we can no longer place them in the aggressive category. The BOJ is on hold at zip. Switzerland appears to be in the same boat as the ECB. The UK?
Despite the news on PPI today, the Fed will continue to hike rates. A slower US economy: maybe?

Higher relative interest rates supporting the dollar: most probably!

By default, and despite the many financial warts associated, the US dollar is and will remain the world’s reserve currency for a while longer. Why? Safety, as measured by capital market liquidity
and depth. And in a financial world leveraged to the gunnels—consider that hedge fund assets have QUADRUPLED since 1998 to $615 billion as of last September—the place to hide most of these funds in times of trouble and despair (as we talked about in yesterday’s Currency Currents) is the good old US.

It is a simple story. I’m sticking to it until the reasons for the story change.

Jack Crooks
 
Quote from Ivanovich:

Trade-ya,

More on what I was saying yesterday. Echoing my thoughts on this is Jack Crooks from BlackSwan trading. I dunno if you put much stock in him, but I've always liked him - even when he was a EUR bull last year and I wasn't! :(

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I think the story on the dollar, at least over the intermediate term, is more simply about two factors from here on out:

1) Interest rates
2) The dollar’s world reserve currency status

We have recently been told the ECB will probably remain on hold through the remainder of the year. The commodity dollar countries—Australian, New Zealand, and Canada seem to be feeling a whiff of slowdown from Asia. So we can no longer place them in the aggressive category. The BOJ is on hold at zip. Switzerland appears to be in the same boat as the ECB. The UK?
Despite the news on PPI today, the Fed will continue to hike rates. A slower US economy: maybe?

Higher relative interest rates supporting the dollar: most probably!

By default, and despite the many financial warts associated, the US dollar is and will remain the world’s reserve currency for a while longer. Why? Safety, as measured by capital market liquidity
and depth. And in a financial world leveraged to the gunnels—consider that hedge fund assets have QUADRUPLED since 1998 to $615 billion as of last September—the place to hide most of these funds in times of trouble and despair (as we talked about in yesterday’s Currency Currents) is the good old US.

It is a simple story. I’m sticking to it until the reasons for the story change.

Jack Crooks
More...

I agree with your fundamental analysis. The main problem I have is that almost all multi-year secular bull (or bear) markets end with some kind of sentiment driven panic despite contrary fundamentals. The Fed started tightening when the Nasdaq was in the 3000s, yet it hit 5000 despite these clearly terrible fundamentals along with impending stock-lockup expirations. It's a similar story with most major market moves - their final move occurs *contrary* to changing fundamentals, and is sentiment driven. So IMO, the changing bullish fundamentals for the dollar are likely to be eventually ignored, and people will then conclude that being short dollar has no risk and is the play of the decade. This could easily drive the Euro up to 1.40+. That is where I would want to make major dollar longs, not down here. Remember the Euro has rallied about 1% in the last 15 months, sentiment is hardly mega-bearish on the dollar IMO.

So my opinion is that there is still one last leg left in the Euro. However, if that happens and everyone becomes a dollar bear, and it gets on the cover of Time etc, then I want to load up on dollars because I think that will be a multi-year, if not decade low in the currency.

P.S. just to give some other examples - oil was a fundie buy at $15 in the late 90s, but it went to $10. Beans were stupidly cheap at 500 from 99-01, yet they went down to 400. Hogs were stupidly undervalued at 30 in 1998, yet they went down to almost 20. Do I need to mention the Asian stockmarkets in 1998, or Brazil in 2002?
 
Quote from trade-ya1:

EUR at 1.50 will have little impact in my opinion. Although I'm not professing to be an expert at figuring that stuff out.
More...

EUR at 1.50 will have the impact of getting every Tom, Dick and Harry long the Euro and short the dollar, giving every Joe Schmoe hedge-fund artist a big head (and excessively leveraged long EUR position), and seriously scaring the crap out of the ECB and EU politicians, watching their export sector get decimated at the same time as they watch double digit unemployment and the rejection of the proposed EU constitution. Sticking it to a bunch of Yank fast-buck artists, whilst rescuing their major industrial employers from financial armaggedon, would seem a perfect opportunity for major ECB (and Fed, BoJ, BoE) intervention. Remember these guys bought the Euro on size in the 80s when all the speculators were bearish. In the same way, they will short the Euro and prop up the dollar when everyone is bullish on the Euro. So far the ECB is up about 45 big figures on their trade. I wouldn't particularly want to go against their next intervention.

IMO the EUR thing is setting up to be a repeat of the Yen in 1998. All the hedge fund guys will be long EUR at the highs, then will write contrite letters to their investors explaining how they could never have anticipated the unprecedented 10 handle move in 1 day that handed them their balls on a plate. At 1.45-1.48, almost no hedgie in the world will be long dollars, so long dollars will be the best possible play. Just buy Euro puts, sit back, and watch the hedgies puke their greedy guts out on a stale overleveraged position, just like Tiger did in 98.

The safest play in the world is to fade the entire hedge fund and CTA community when they get too enamoured of one position.
 
Cutten,

Do you really see central banks dropping a currency ten big figures. They would probably operate more discrete and over a larger timeframe, not?
 
I agree with you, Tradingwise. I think Cutten's ideas certainly have merit and even some historical significance. But it's just too soon. I don't believe (read: guess) that this is destined to take place in the next month, which is - for all intensive purposes - what I'm trying to play here.
 
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