Axios Trading

[axiostrading]

Currencies Weekly Commentary

.

EURUSD

We saw a significant drop in the EURUSD last week, invalidating our retracements pools I was hunting for. However I was still be able to get some broken support level entries. We can see a 20% increase in open interest last week suggesting plenty of short taking on the euro, while a sudden jump in volume suggesting interest in shorting the euro.Volumes peaking and slowing down explains the correction on the EURUSD this week but could also signal an opportunity to stalk another fall lower in the euro has buyers fizzle out and another selling round begins. COT data suggest nothing much has changed from last week, commercials have increased long positions.

With Regards to the dollar, we saw record highs last week, with moves higher with little or no breathers in between. not surprising that we have seen a slow down this week, with the market waiting for the FOMC interest rate announcement tomorrow. Technically we have seen inflating volume in the DXY market with a slight increase in open interest as compared to the the huge jump in the EURO. I have no idea why the open interest is slightly affected despite the rocketing volumes. COT analysis suggests the bullish trend is still strong with Commercials incrementally increasing short positions.

The GBPUSD AND EURUSD long term correlation is holding however this week we noticed a break in that correlation on the intra day level, however the FOMC meeting influenced a snap back to correlation after interest rates were left constant at 2.50.

Looking into the bond markets that  remain at very low levels, US 10 year still remains as the highest yielding to date and German yields still doing extremely poorly yielding at 0.25. Noticeable on the chat is the sudden upward shift in the Japanese bonds but seemed to have corrected is correlation with the rest. With such low yields, bonds still remain a poor indicator of currency flows with flourishing equity markets. conversely it would mean that if bond yields are soo low than the bond prices are at record highs, suggesting a bubble in this market as well.

This weeks support and Resistance levels are shown in the purple lines as usual. we can see the support level held apart from the disastrous wicks that blew through, Price objective would be next resistance level at the 1.0500 level. 

[axiostrading]

Macro Weekly Outlook

I think i am going to lean things out with the weekly analysis, i noticed that my previous posts were maybe to heavily focused on the macro themes and not on trade discretion and setups.

So will keep this nice and simple just focusing on the trade pairs and attaching any relevant macro themes to the currency pairs.

EURUSD

The Fiber continued is move lower this past week, mostly driven by strong economic news coming out of the US. Now looking at the at the EURX And DXY charts we have seen strong bearish and bullish moves on the respective currencies followed by a rise in trading volumes and a rise in open interest. This suggests EURUSD is still poised to move lower.

As expected we saw a break above the 95.47 level, with such a heavy move we can expect to see that level retested for support and another move higher.

We have seen a divergence in the bond and equity markets this week, Yields have spiked higher and conversely the SP500 dropped lower. What does this mean for the dollar i cannot say, however if we use the past yield rally and the dollar push higher, we can assume that things need to snap back to their correct correlation therefore two things can happen a rally in stocks or a significant drop in US 10 year yields. What is most likely to happen would be a rally in the stock market. A rally in equities should cause another dollar push higher.

Higher Time frame analysis shows we have arrived a multi year support level, a possibility of some consolidation around this area before a move lower, this correlates well with our theory due to the heavy push last week to see the market take a breather around this area.

Setups this week we are looking for replacements up to the 1.0900,1.0950,1.1000 areas of to go in for short positions for intra day and swing trades for the week. In the event we dont see a retracement move we will look to go in short during the London and NY open highs.

GBPUSD

Now onto to the Cable, the upward retracement that seemed to look like it was turning out to be a market shift upwards was in fact a retracement. Im not one for chart patterns but looking at i now look like a flag formation. Although that move was missed, the doubt on discretionary direction is now out the window we are strongly bearish now, looking to see a break below the current support level.

Volumes have been rather low, COT chart shows that commercials have been covering their longs during the upward move in February(they possibly shared the same concerns)however we would expect them to start opening up long positions now.

Next lets look at what the FTSE and the 10 year Guilds. The FTSE is on stable uptrend as shown by the trend line, we should expect to see bullish moves in the UK equity market. Seems the UK bonds are also moving higher, this would mean that bond prices are moving lower. So a positive correlation on both yields and equities would reflect a strong economy. This would theoretically mean GBP should be bullish, however GPUSD pair i think it would come down to who has the stronger numbers and sentiment behind them. USD definitely takes it. Therefore i am still going to be bearish but for curiosity sakes lets look out how the the other economies would fare against the UK.

Now onto the Setups, On the high time frame we are coming close to historical low areas, therefore we should be cautious with our trades. I think it would be smart to reduce our position sizes due to this risk factor.

On the short term, we expect some side ways range movement due to indecision on this level, however in the case bearish sentiment takes it, we would prefer to look for short entries based on our discretion analysis. Setups would constitute retracements to dark pool of liquidity.

[axiostrading]

Macro Analysis W2

Starting of this week as usual, I will begin with the treasury notes of the main economies I am following.

Beginning with the US,  I have noticed a drop in yields across most notes, the 10 and 5 year showing a drop while the 2 year still constant on 0.62%.

GBP has had  a drop in yields on both the 2 and 5 year but an increase in yields on the 10 year.

GER which is the poorest performing yields across the boards is still making new lows going deeper into negative territory.

YEN yields have also been fairing preaty badly with a fall in yields across the board.

  So based on yield movements since last week, nothing much has changed the US higher yields should, theoretically attract more flows into the US and out of poor performing nations such as Japan and the Euro area. The GBP yields seem to put the Pound in second place after the dollar. Now we have to keep in mind however theoretically higher yields should attract more flows but with surging equity markets and such low yields across all countries, yields could be a negligible indicator currently.

  A quick mention about the DXY which has been consolidating between 93.27 and 95.47 level for a while now, mirroring the side action we have noticed on most dollar pairs, however the range seems like it will be violated(that just wrong!) to the upside soon. We currently hovering around the 95.26 level, we would anticipate a break in the support level as a strong indicator of USD bullishness.

Now onto the Indices, I must say these stark rallies on the equities is making me quite uneasy, I can feel the tide changing sometime this year, the question is now is what will the  FED interest rate hike and a pull back on QE mean for the  markets, we all know that companies have taken on so much debt this past couple of years that their balance sheets are incredibly fragile. Will have to wait and see, the dollar will be the catalyst factor that drives what I think could be a dark 3 years we have in store for equities.

One more thing on the graph below we can see the DAX over performing most, what is interesting however is the slow down among the FTSE, SP500 and the DOW.

  Now enough ranting these are the numbers as of Friday last week.

SP500: 2106

DOW:18132

NASDAQ:4447

DAX:11401

FTSE:6946

NIKKEI:18797

  Now onto commodities, first off historically speaking a strong dollar will decimate commodity prices, so we are not too shocked that the CRB has continued falling and similar to gold and Oil. However we are seeing a pull back in prices as on end of  Jan, although we dont expect a turn around we should keep an eye on commodity prices for an indication of a bottom.

[axiostrading]

Macro Analysis W1

This week we see that the US 10 year yield is highest compared to the UK, German, and the Japanese 10 year yields. The German 10 year is the poorest performer yielding 0.339. I have noticed a divergence in the yield curves since late January. All other yields apart from the German have edged higher.

We can assume the long EURUSD position is still solid, weaker German yields should suggest currency flows out of Europe.

DOLLAR (LONG)

On the Dollar index chart, They seems to be wedge formation, while support being held at the 93 level, we would expect a break upwards as the coil seems to be coming to an end.  COT curves suggest that commercials are still holding their short positions, however we can see some short covering in the past 2 weeks but this could be due to the sideways movement that we have noticed in that period. A fall in open interest and volume suggests weak market pressure at the moment; this makes sense as we have been sideways ranging on the EURUSD for the most part of the month.

EURO( SHORT)

With the Euro we can see the charts are almost perfectly inverted to the DXY chart, consolidation in the past 2 weeks, lateral wedge formation has formed. Price has not broken past the 1.149 level therefore we can assume that the Euro short is still valid and would be looking for a further break downwards. COT curves suggest that the commercials are reducing their long positions on the EURO. Although we don’t really pay much attention to the speculators we can see that both large and small speculators have also reduced their short positions. Open interest has reduced slightly, but buying volume has ramped up.

Some indication of EURO demand is showing, however the market has already priced in these moves, we cannot tell how prevalent the EURO demand will go on for. I am still bearish on the EURO though, commercials are still heavily invested so we will keep trading in line with the commercials.

Much of the consolidation of the EURO has been brought about by the possible Greece exit, although an extrention of 4 months has been given, I am not too sure how the markets will price in a possible Greek exit, possible positively and we would anticipate a appreciation of the EURO, a short one at that. Europe is still in deep dark deflationary waters for the foreseeable future until a QE programme kicks in.

GBP( LONG)

With the GBP, the tide seems to be changing; we have seen a turnaround in price since late Jan. we will not know for sure until the 1.5600 level gets broken. COT chart shows that commercials have been reducing their short positions heavily and the large speculators have been covering their short positions. This suggests that a trend change is eminent. Open interest is a negligible factor at the moment and volumes have fairly low and consistent.

Trade direction would suggest we should take buy opportunities this coming week.

JPY( LONG)

We see a possible trend change on the JPY. As of mid-December we have seen a downward trend change into a consolidation. I have noticed upward pressure on the consolidation with higher lows forming. We would want to see the previous high at 0.85250 to be taken out to confirm the bullish trend. COT curves suggest speculators have been aggressively reducing short positions and the commercials have been reducing their long positions, further confirming a trend change could be eminent. The question is against what pair would be most sensitive to this shift. Open interest has been falling gradually and consistently as well as volumes, suggesting market downward strength is waning.