one of the best post I have read on FX markets.
congrats and thanks.
congrats and thanks.
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What Moves the Currency Mkts?
- Thread starter hcour
- Start date
For the most part the "majors" don't really move right now. I would say that the majors trade off technicals and brownian motion.
Emerging market currencies trade very much in the manner that Soros describes. That is things moves as a resulting of a self reinforcing trend. It goes something like this;
High interest rates- capital inflow- good charts-foriegn investment-economic growth- overvalued currency.
Read his book he lays it out nicely
Emerging market currencies trade very much in the manner that Soros describes. That is things moves as a resulting of a self reinforcing trend. It goes something like this;
High interest rates- capital inflow- good charts-foriegn investment-economic growth- overvalued currency.
Read his book he lays it out nicely
hcour,
If I incorrectly read your timeframe of interest, I apologize. But when you made the joke about what moves markets, and mentioned Interest Rates X3, you - perhaps inadvertantly - indicated to us that your interest was not intraday.
The reason is that intraday trades, as many alluded to here, are not moved by what interest rates are at. They are technical moves (mostly, leaving out the NFP jumps and the like) that rely on MA resist/support lines, or fibos, or options, etc. But taken in context over a few weeks, all of these intraday movements follow the basic, and very emotional, belief of where interest rates will be at (month's/year's) end.
If I incorrectly read your timeframe of interest, I apologize. But when you made the joke about what moves markets, and mentioned Interest Rates X3, you - perhaps inadvertantly - indicated to us that your interest was not intraday.
The reason is that intraday trades, as many alluded to here, are not moved by what interest rates are at. They are technical moves (mostly, leaving out the NFP jumps and the like) that rely on MA resist/support lines, or fibos, or options, etc. But taken in context over a few weeks, all of these intraday movements follow the basic, and very emotional, belief of where interest rates will be at (month's/year's) end.
Q
http://www.bloomberg.com/apps/news?pid=20601014&sid=aQmb0fAqH6Hs&refer=funds
Hedge Funds, Central Banks Push Swiss Franc to a Two-Year Low
By Aaron Pan
Oct. 23 (Bloomberg) -- The Swiss franc has become the new favorite for speculators seeking cheap money to finance higher- yielding bets.
The franc dropped to a two-year low against the currencies of Switzerland's biggest trading partners, according to an index prepared by the Bank of England. It has fallen against 13 of the 16 most-traded currencies since July.
Switzerland's central bank charges 1.75 percent interest to borrow for three months, the lowest rate outside of Japan. That has attracted speculators, who borrow the franc and sell the currency to invest in Iceland, New Zealand and Turkey, where rates are as much as 15.75 percentage points higher.
``The Swiss franc has really been eroded and it's down to interest rates,'' said Mark O'Sullivan, who helps oversee $2 billion of foreign exchange at Currencies Direct Ltd., an investment-management company based in London. His favorite trade is selling the franc and buying debt in New Zealand, where the central bank's benchmark rate is 5.5 percentage points higher.
Switzerland's currency lost 1.8 percent against the dollar in the past three months to 1.2592. The franc extended its decline after Swiss National Bank President Jean-Pierre Roth on Oct. 10 said the economy will grow 1.8 percent in 2007, down from about 3 percent this year. The cut gave traders confidence that interest rates won't rise.
The franc's value compared with the currencies of other industrialized countries has fallen 1.9 percent this year, according to a gauge compiled by the Bank of England. Last month the currency slid to 1.5967 per euro, the weakest in six years.
Carry Trade
The slump surprised some fund managers because the franc historically has been a haven in times of turmoil. They expected a gain as North Korea said it tested a nuclear weapon, Israel fought a five-week war in Lebanon and Iran refused United Nations demands to halt its uranium enrichment program.
``It's behaving abnormally and should be stronger,'' said Harriett Baldwin, head of currencies in London at JPMorgan Asset Management, which oversees about $50 billion. She said the franc should trade at 1.40 per euro, compared with last week's close of 1.5886, based on interest rates and economic growth.
Swiss rates make the franc a favorite for speculators in the so-called carry trade, where investors borrow in a currency with low yields and sell it to buy securities in countries with higher returns. The Swiss National Bank's target for its currency's three-month London interbank offered rate is 1.5 percentage points below the European Central Bank's benchmark and 3.5 percentage points less than the Federal Reserve's target for overnight loans between banks.
Currency Futures
The Bank of Japan's 0.25 percent benchmark rate also has made the yen popular with hedge funds, sending the currency down to a 10-month low of 119.88 per dollar this month.
``The franc will continue to be used as a funding vehicle,'' said Dale Thomas, head of foreign-exchange management in London at Insight Investment Management, which oversees $10.5 billion. Thomas borrows in francs to invest in Australia, where the overnight cash rate target is 4.25 percentage points higher.
Hedge funds and other large speculators increased their wagers against the Swiss franc to the second-highest since the U.S. Commodity Futures Trading Commission began keeping records in 1983. They had a net 67,208 contracts, valued at $6.7 billion, betting on declines in the currency on the Chicago Mercantile Exchange as of Oct. 17. The record of 68,262 contracts was set in March.
Central Banks
A decline in volatility in financial markets, or the degree of fluctuations in prices, has enhanced the appeal of the strategy, said David Bloom, head of currency research in London at HSBC Holdings Plc, Europe's biggest bank by market value.
Traders are pricing in a 68 percent chance that the Swiss franc's price against the euro will be within 2.85 percent of the current rate, based on a gauge of volatility implied by options. It fell to 2.6 percent in August, the smallest since March 2000.
Central banks are cutting holdings of Swiss francs. Worldwide they held $4.7 billion of reserves in the currency at the end of June, down 41 percent from 2002, International Monetary Fund data show.
``The trend is for central bankers to ask for higher returns,'' George Chou, head of the Taiwanese central bank's foreign-exchange department, said in an interview in Taipei. ``Interest rates of the Swiss franc are too low.''
Chou declined to specify whether he holds Swiss francs in Taiwan's $261.6 billion of international reserves, the world's third largest after China and Japan.
``The Swiss franc doesn't really help'' boost returns, Christian Johansson, head of the investment division at Sweden's central bank in Stockholm, said last week in an interview. Johansson said the Riksbank doesn't hold the currency among its reserves, which amounted to $21.3 billion in September.
Demand among central banks for the Swiss franc has been falling since the 1980s when it accounted for 3.1 percent of holdings, according to the Bank for International Settlements. At that point, the franc was the third most popular currency for central banks after the dollar and Germany's mark.
UQ
http://www.bloomberg.com/apps/news?pid=20601014&sid=aQmb0fAqH6Hs&refer=funds
Hedge Funds, Central Banks Push Swiss Franc to a Two-Year Low
By Aaron Pan
Oct. 23 (Bloomberg) -- The Swiss franc has become the new favorite for speculators seeking cheap money to finance higher- yielding bets.
The franc dropped to a two-year low against the currencies of Switzerland's biggest trading partners, according to an index prepared by the Bank of England. It has fallen against 13 of the 16 most-traded currencies since July.
Switzerland's central bank charges 1.75 percent interest to borrow for three months, the lowest rate outside of Japan. That has attracted speculators, who borrow the franc and sell the currency to invest in Iceland, New Zealand and Turkey, where rates are as much as 15.75 percentage points higher.
``The Swiss franc has really been eroded and it's down to interest rates,'' said Mark O'Sullivan, who helps oversee $2 billion of foreign exchange at Currencies Direct Ltd., an investment-management company based in London. His favorite trade is selling the franc and buying debt in New Zealand, where the central bank's benchmark rate is 5.5 percentage points higher.
Switzerland's currency lost 1.8 percent against the dollar in the past three months to 1.2592. The franc extended its decline after Swiss National Bank President Jean-Pierre Roth on Oct. 10 said the economy will grow 1.8 percent in 2007, down from about 3 percent this year. The cut gave traders confidence that interest rates won't rise.
The franc's value compared with the currencies of other industrialized countries has fallen 1.9 percent this year, according to a gauge compiled by the Bank of England. Last month the currency slid to 1.5967 per euro, the weakest in six years.
Carry Trade
The slump surprised some fund managers because the franc historically has been a haven in times of turmoil. They expected a gain as North Korea said it tested a nuclear weapon, Israel fought a five-week war in Lebanon and Iran refused United Nations demands to halt its uranium enrichment program.
``It's behaving abnormally and should be stronger,'' said Harriett Baldwin, head of currencies in London at JPMorgan Asset Management, which oversees about $50 billion. She said the franc should trade at 1.40 per euro, compared with last week's close of 1.5886, based on interest rates and economic growth.
Swiss rates make the franc a favorite for speculators in the so-called carry trade, where investors borrow in a currency with low yields and sell it to buy securities in countries with higher returns. The Swiss National Bank's target for its currency's three-month London interbank offered rate is 1.5 percentage points below the European Central Bank's benchmark and 3.5 percentage points less than the Federal Reserve's target for overnight loans between banks.
Currency Futures
The Bank of Japan's 0.25 percent benchmark rate also has made the yen popular with hedge funds, sending the currency down to a 10-month low of 119.88 per dollar this month.
``The franc will continue to be used as a funding vehicle,'' said Dale Thomas, head of foreign-exchange management in London at Insight Investment Management, which oversees $10.5 billion. Thomas borrows in francs to invest in Australia, where the overnight cash rate target is 4.25 percentage points higher.
Hedge funds and other large speculators increased their wagers against the Swiss franc to the second-highest since the U.S. Commodity Futures Trading Commission began keeping records in 1983. They had a net 67,208 contracts, valued at $6.7 billion, betting on declines in the currency on the Chicago Mercantile Exchange as of Oct. 17. The record of 68,262 contracts was set in March.
Central Banks
A decline in volatility in financial markets, or the degree of fluctuations in prices, has enhanced the appeal of the strategy, said David Bloom, head of currency research in London at HSBC Holdings Plc, Europe's biggest bank by market value.
Traders are pricing in a 68 percent chance that the Swiss franc's price against the euro will be within 2.85 percent of the current rate, based on a gauge of volatility implied by options. It fell to 2.6 percent in August, the smallest since March 2000.
Central banks are cutting holdings of Swiss francs. Worldwide they held $4.7 billion of reserves in the currency at the end of June, down 41 percent from 2002, International Monetary Fund data show.
``The trend is for central bankers to ask for higher returns,'' George Chou, head of the Taiwanese central bank's foreign-exchange department, said in an interview in Taipei. ``Interest rates of the Swiss franc are too low.''
Chou declined to specify whether he holds Swiss francs in Taiwan's $261.6 billion of international reserves, the world's third largest after China and Japan.
``The Swiss franc doesn't really help'' boost returns, Christian Johansson, head of the investment division at Sweden's central bank in Stockholm, said last week in an interview. Johansson said the Riksbank doesn't hold the currency among its reserves, which amounted to $21.3 billion in September.
Demand among central banks for the Swiss franc has been falling since the 1980s when it accounted for 3.1 percent of holdings, according to the Bank for International Settlements. At that point, the franc was the third most popular currency for central banks after the dollar and Germany's mark.
UQ
http://tinyurl.com/ycodm8
Looking at the GBP on Thurs, at X, when interest rates were raised, Kerr asks: How does the mkt react? What does it mean in regard to what and who is in control? Supply or Demand? By the professionals - the strong money, or the public - the weak, and/or traders - weak because they are only in it for the short-term?
This follows a rally off s/r from A to B, in a long trading-range going back to May, to previous s/r at the top of the range. We should expect supply here. How does the mkt deal w/it? The day is neutral, all the volatility of that day is from scalpers and traders and the public, as they react to the news. But the longer-term money had already discounted this news, they are selling into that volatility to those taking longer positions. Otherwise you could not have such high vol on a neutral day w/favorable important news - this is strong (good) supply. The fact that the next day does not follow-thru well, upthrusting the previous high, and that today (not shown) has easily reacted sharply down on a moderately bad economic report thus far, indicates it wasn't manipulation by the smart money but actual selling by the pros into the good news.
H
Looking at the GBP on Thurs, at X, when interest rates were raised, Kerr asks: How does the mkt react? What does it mean in regard to what and who is in control? Supply or Demand? By the professionals - the strong money, or the public - the weak, and/or traders - weak because they are only in it for the short-term?
This follows a rally off s/r from A to B, in a long trading-range going back to May, to previous s/r at the top of the range. We should expect supply here. How does the mkt deal w/it? The day is neutral, all the volatility of that day is from scalpers and traders and the public, as they react to the news. But the longer-term money had already discounted this news, they are selling into that volatility to those taking longer positions. Otherwise you could not have such high vol on a neutral day w/favorable important news - this is strong (good) supply. The fact that the next day does not follow-thru well, upthrusting the previous high, and that today (not shown) has easily reacted sharply down on a moderately bad economic report thus far, indicates it wasn't manipulation by the smart money but actual selling by the pros into the good news.
H
Posted on the Yahoo Wyckoff board:
GBP Daily:
http://tinyurl.com/tg9b7
GBP/USD Hourly
http://tinyurl.com/wad98
I use PhotoBucket for my charts, they seem to have changed their format lately. You may have to click on the chart to get the full view. Not sure what's up w/that.
Anyway, this last wk is especially interesting in regard to both Nic's latest QOTD on the Wyckoff SOS and Kerr's analysis on the interpretation of news and price/vol action and what it reveals about who is doing the buying and selling.
On the daily chart, looking at it from a purely technical Wyckoff pov, following a strong rally off the low at A, price is at resistance at the top of the range once again at B, which upthrusts the previous high. There follows a reaction to C at precisely the 50% retracement of that previous rally. Then D a nice spread up closing on the high on moderate vol.
Now what's interesting from Kerr's pov is that on this obviously important day there is no news. There is no obvious outside force which would drive the up-move from the public. This suggests that the buying is on the part of the smart money.
The next 2 days are what one expects during the holidays, narrow spreads, low volume, little price action. Then, still the holidays, 11/22 at E a wide spread closing on the high on strong relative volume that rallies back to the top of the range resistance. This followed by Fri's remarkable day on a massively wide spread closing on the high, breaking thru trading-range resistance. Is this latest rally a SOS?
Again, from Kerr, on 11/22 (E on the Daily chart) the BOE minutes were released, which weren't so great. Now let's drop down to the 60-min chart and look where the buying actually came in on the GBP/USD at that time. At 2:00 11/22 on the European open there is early buying on an important M&A story which is positive for the GBP. Certainly this is obscure news that the public would probably not register, so again, this may be smart-money buying. At the diamond, 10:30, the usual time for UK economnic releases, the BOE minutes hold a negative suprise vote and less hawkish comments than were expected. This is the one the public is expected to react to but note how the reaction does not even hold on the one-hour bar as it rallies, and then subsequently does not look back for a powerful rally back to resistance at 9150ish.
Thurs 11/23 the US mkts are quiet, price goes sideways. Then on Fri at 3:00 a.m., an hour before the GDP release, the mkt explodes up. According to 4Cast from Oanda:
"USD selling for the first part of the European morning once more. This time, we are told, impact coming from a background story we wrote about earlier quoting PBOC vice governor Wu Xiaoling saying that (East) Asian countries reserves are at risk from the depreciation in the value of the USD. Though obviously not rocket science, this sort of comment can again encourage more buying of 'alternate currencies - and though for most this means a much larger holding in EUR, it also means that sterling is up there on the shopping list. The CHF is no longer an obvious choice - but, of course having lost at least a part of its old safe haven status, is acting nowadays as a fast EUR. Whilst option related trade will at least delay a move through 1.30 on EUR/USD, the CHF has less standing in the way."
So, on an US holiday wknd the EURO mkts have some of their greatest moves in months on good obscure news and bad public news, breaking thru a near 7-month range.
H
GBP Daily:
http://tinyurl.com/tg9b7
GBP/USD Hourly
http://tinyurl.com/wad98
I use PhotoBucket for my charts, they seem to have changed their format lately. You may have to click on the chart to get the full view. Not sure what's up w/that.
Anyway, this last wk is especially interesting in regard to both Nic's latest QOTD on the Wyckoff SOS and Kerr's analysis on the interpretation of news and price/vol action and what it reveals about who is doing the buying and selling.
On the daily chart, looking at it from a purely technical Wyckoff pov, following a strong rally off the low at A, price is at resistance at the top of the range once again at B, which upthrusts the previous high. There follows a reaction to C at precisely the 50% retracement of that previous rally. Then D a nice spread up closing on the high on moderate vol.
Now what's interesting from Kerr's pov is that on this obviously important day there is no news. There is no obvious outside force which would drive the up-move from the public. This suggests that the buying is on the part of the smart money.
The next 2 days are what one expects during the holidays, narrow spreads, low volume, little price action. Then, still the holidays, 11/22 at E a wide spread closing on the high on strong relative volume that rallies back to the top of the range resistance. This followed by Fri's remarkable day on a massively wide spread closing on the high, breaking thru trading-range resistance. Is this latest rally a SOS?
Again, from Kerr, on 11/22 (E on the Daily chart) the BOE minutes were released, which weren't so great. Now let's drop down to the 60-min chart and look where the buying actually came in on the GBP/USD at that time. At 2:00 11/22 on the European open there is early buying on an important M&A story which is positive for the GBP. Certainly this is obscure news that the public would probably not register, so again, this may be smart-money buying. At the diamond, 10:30, the usual time for UK economnic releases, the BOE minutes hold a negative suprise vote and less hawkish comments than were expected. This is the one the public is expected to react to but note how the reaction does not even hold on the one-hour bar as it rallies, and then subsequently does not look back for a powerful rally back to resistance at 9150ish.
Thurs 11/23 the US mkts are quiet, price goes sideways. Then on Fri at 3:00 a.m., an hour before the GDP release, the mkt explodes up. According to 4Cast from Oanda:
"USD selling for the first part of the European morning once more. This time, we are told, impact coming from a background story we wrote about earlier quoting PBOC vice governor Wu Xiaoling saying that (East) Asian countries reserves are at risk from the depreciation in the value of the USD. Though obviously not rocket science, this sort of comment can again encourage more buying of 'alternate currencies - and though for most this means a much larger holding in EUR, it also means that sterling is up there on the shopping list. The CHF is no longer an obvious choice - but, of course having lost at least a part of its old safe haven status, is acting nowadays as a fast EUR. Whilst option related trade will at least delay a move through 1.30 on EUR/USD, the CHF has less standing in the way."
So, on an US holiday wknd the EURO mkts have some of their greatest moves in months on good obscure news and bad public news, breaking thru a near 7-month range.
H
Quote from hcour:
So, on an US holiday wknd the EURO mkts have some of their greatest moves in months on good obscure news and bad public news, breaking thru a near 7-month range.
H
Right. Which - to me - says that this has nothing to do with any obscure news. Little or no fundamental outlook was changed before the US holiday to now. What happened was an excercise in illiquid (not the poster) market manipulation.
Holidays like Christmas are notorious for these type of moves - the market is almost all out-to-lunch, and someone (who can) uses their ability to move the market when normally they would be unable to break the range.
Thanks Ivan. Excellent commentary, as usual. Kerr is actually quite big on manipulation, but it's a more subtle aspect that I'm still trying to get an handle on.
So if you think this is manipulation, are you expecting the mkts to react back down into the range? That this was a false move?
H
So if you think this is manipulation, are you expecting the mkts to react back down into the range? That this was a false move?
H