the daily chartist

S&P500 recap for 16.09.2015

published 4 years ago
S&P500 Daily

 S&P500 isn't giving up on its up move momentum and managed to get to 1998.3 from its opening at 1980. The futures dipped a bit for a low to 1972. Still the price needs to move above 2000 and beyond to close in on the Death Cross between MA 50 and MA 200. In the scenario of a FED rate hold up or some dovish news the index may brake trough these levels and continue to 2096 at first. The price found great support around 1949. What we see is that the stock market has no fear about a rate hike. 

Credit Suisse's five scenario view for the FED

published 4 years ago


 Credit Suisse also made their view on the different scenarios and market reactions on the matter of the eventual rate hike from the Federal Reserve today.

 They look up at five scenarios as stated by Credit Suisse:

 1. A surprisingly hawkish FED: We define this as a rate hike combined with no downgrade of future terminal rate projections. In this case we would expect the USD to resume trend appreciation and rally by at least 5% by the end of the year on broad TWI basis.

 2. The FED hikes but qualifies this by producing suppressed terminal rate expectations among other caveats: This should allow the USD to gain ground in line with our existing relatively muted forecast profile for the next 3 months. But the upside move is likely to be short and sharp as the subsequent period of suppressed rate expectations will reduce the potential for rate-differential and by extension FX volatility and trends.

 3. The FED does not hike but makes it clear there is a high chance of a hike this year, while keeping its terminal rate expectations similar to current projections: We would expect a similar reaction to Scenario#2 above. But to the extent that the market can continue to hope for a protracted FED hiking cycle and material monetary policy divergences persisting with other countries, there may be more lasting opportunities to establish USD longs than the case with Scenario#2. 

 4.  The FED does not hike, it makes it clear there is a high chance of a hike this year, but still lowers its terminal rate projections: We would see a modest USD sell-off around 2-3% over a period of a couple of 1-2 weeks as the market would wonder if the FED ever gets into a position to hike rates at all. We would use this as an opportunity to by USD vs currencies of countries where a policy ease is likely (for example AUD or JPY) or where there are underlying and unsolved fragilities (such as EM currencies like BRL or TRY).

 5. A clearly dovish FED that takes the idea of rate hikes off the table for at least 6 months: This would prove a material shock to the market and should results in material losses for the USD on a TWI basis of at least 5% in the remainder of 2015. This scenario would stress our existing USD-bullish forecast profile unless we were to expect relatively rapid dovish tilts in response by other central banks. 

 To be clear, we are not in the camp that see the start of a FED hike cycle as signaling the peak of USD strength. While we accept that this was more or less true in 2004-2006 FED hiking cycle, that was only because conditions outside the US were so good then that other central banks were hiking even more aggressively, and the USD was used as a carry currency. That picture bears a little resemblance of current global circumstances.

 In this matter I want to add what ANZ (Bank of New Zealand) has to say about the coming rate hike.

 ANZ is expecting as the FOMC goes, but they warn of a government shutdown. In several dots they lay out their view and worries:

  • The FED may hike rates for the first time in nearly a decade - an event many in financial markets have not experienced
  • Our base case is that the FED should proceed with a tightening in what is set to be a close decision
  • The US domestic economy seems solid enough to cope with a modest tweak in interest rate from emergency settings

 And if the FED doesn't move:

  • Its possible Yellen may indicate that the US economy is ready but that the FED is holding off due to heightened uncertainty about the international outlook
  • If this is the case, a further stabilization in financial markets would make October a reasonable proposition
  • There is one development flying under the radar that could undermine such plans and could thwart the FED from moving this year and possibly early next year.
  • The Washington Post reports that the odds of a government shutdown happening in October have risen sharply. Should this happen, the experience of 2013 showed that even if the economic impact may be small, there will considerable uncertainty over the veracity of the data for a couple of months. This could make things tricky for the data dependent FED.

GBP/USD recap for 16.09.2015

published 4 years ago

 The big story for me personaly yesterday was from the UK and what the Pound did in the echoes from the data that we saw. As I mentioned yesterday in my analysis for 15.09.2015 for GBP/USD my scenario, the price not only tried to reach 1.54761, it burst trough it! The daily opened in at 1.53426, went a bit low to 1.53296 and then it rocketed 198 pips to its top at 1.55277 and just to find a close at 1.54930. Average Earnings Index - 2.9% in positive from forecast of 2.5% and previous (revised) at 2.6% and Unemployment Rate went down to 5.5% from 5.6%. Not only that, again, the broad US dollar weakness helped boost and strengthen the move, of course the higher wage inflation, wages are growing in the UK, and the hawkish comments from Carney.

 Yesterday's candle is big bullish engulfing candle and it seems that if the broad weakness in the dollar remains and (after the outcome of today's historic event) we may see the pound push up pretty fast to 1.56866. 

EUR/USD recap for 16.09.2015

published 4 years ago

  Welcome to the first recap of the market moves for 16.09.2015. I am starting with EUR/USD cross and it seems the euro appears to be backed up by good data and broad US dollar weakness. I guess you just can't keep a good euro down... 

 The euro yesterday opened at 1.12665 and made a low of 1.12137 where rebounded of the daily inner trend support line, went up to 1.13198 and was sold back to its close of 1.12910. It did flexed its muscles again and there were a few things behind the euro strength: Bunds are under pressure with yields up 2 bps to 0.766%, the slight miss on US CPI, euro shorts getting out of the way ahead of the FED and the broad US dollar weakness overall. We see constant higher lows and even now, the euro is going up, passing trough 1.13. The long shot move if FED does nothing? 1.15. Still the levels around 1.13512 must be breached before the bulls find their way beyond that. On the Euro side we had Final CPI and Final Core CPI coming in both negative at 0.1% and 0.9% respectively  from 0.2%/1.0% forecast and 0.2%/0.1% in previous value respectively. But as we saw, US CPI was the big catalyst for the moves and not only for the euro. 

Deutche Bank's four scenarios for Thursday's plays

published 4 years ago

 Thursday is  knocking on our door when the Game will change with FED's maybe faithful decision regarding its rate policy. There are four main FOMC scenarios for the market to consider: a "dovish hike"; a "hawkish hold"; a "dovish hold", or a "hawkish hike". 

 According to Deutche Bank, these are the scenarios. In addition to their opinion how things will play and the market impact it will have, they add the following: "If one was putting a probability on the above four scenarios: 70% chance of a "hawkish hold"; ~20% of a "dovish hold" (no overt attempt to make it clear that October is "live"); 10% of a so called "dovish hike" - that as emphasized below, won't prove dovish at all; and, close to zero (call it less than 1%) chance of "hawkish hike" signaling more than a gradual path for rate hikes going forward". 

 "There is no such thing as a "dovish hike" - a surprise hike would be a huge (hawkish) change in FED regime, showing the Yellen FED is no longer willing to "baby - sit" long risk exposure" - DB adds to the argument.

 Stating this from DB's perspective only three actual scenarios remain with their market impact:

 1 - A "hawkish hold" reaction: We will know about the hold part immediately with the first headlines, and that should be helpful for risk and a small negative for the USD, given there is still a modest (~20% probability) of a 25bp hike priced in for this meeting. Thereafter we could hear from Yellen that October is "live", which will undercut the response to the hold marginally. The more sustained reaction will likely include, some stale USD longs and risk shorts getting squeeze perhaps for few weeks because both the US and China stories are going off the boil. Thereafter strategic mediumterm books will buy USD dips before the October FOMC meeting.

 2 - A "dovish hike" and a "hawkish hike" reaction should very quickly turn into close to the same thing: a rout of risk appetite that is very USD positive. 

 3 - A "dovish hold" that does not overt make October "live". This will temporarily give risk parameters a nice lift, and further aid the selective positioning squeeze we have seen in some currencies notably AUD and ZAR. Howere beware, this trade probably has only a few weeks window.

This ends the overall view of Deutche Bank on the upcoming events for Thursday. 

If you can't handle the trade - stay out of it and wait for the dust to settle. If you are a risky player - I wish you firm discipline and good luck!