LONG EURUSD (Daily Timeframe)Following up on my previous post below and zooming in thru the daily timeframe:
EURUSD is at the resistance area (supply zone) 1.08 and holding on. A break above may be confirmed today after FOMC and Fed rate decision.
A break above, will lead to the upper channel of the correction uptrend (ABC) and to the next resistance and supply area at level 1.15 as next target.
Europe
Brace for volatility as inflation meets recession2023 has been ushered in with a rebound in pockets of equity underperformance from 2022. Markets are coming to terms with the fact that stickier inflation and more resilient economic data globally are likely to keep central banks busy this year. Owing to which the spectre of interest rates staying higher for longer appears to be the dominant theme for the first half of 2023. Global money market curves are re-pricing higher to reflect the tighter monetary scenario.
For the Federal Reserve (Fed), markets have priced in a 5.5% terminal rate, somewhat higher than was suggested by the median dot plot back in December. While in Europe, 160Bps of additional rate hikes are being priced for the European Central Bank (ECB) with terminal rate forecasts approaching 4%. The speculative frenzy witnessed since the start of 2023, indicates that equity markets are discounting the fact that the global economy has not faced such an aggressive pace of tightening in more than a decade and the ramifications, although lagged, will eventually be felt across risk assets.
Preference for international vs US equities
Exchange-traded fund (ETF) flows since the start of 2023 resonate investors’ preferences to diversify their portfolios with a higher allocation to international markets versus the US. Since the start of 2023, international equity market ETFs have received the lion’s share of inflows, amounting to US$20.6bn in sharp contrast to US equity ETFs that suffered US$9.3bn in outflows.
Looking back over the past decade, US companies outpaced international stocks owing to two main drivers of equity price appreciation: earnings and valuation. Earnings remain the key driver for equity markets over the long term. If we try to think about what lies ahead, we can see that earnings revision estimates are displaying a marked turnaround for China, Japan, and Emerging Markets (EM), whilst the US and Europe are poised to see further earnings contractions.
China’s recovery remains the important swing factor that could enable its economy, alongside EM and Japan, to outperform global equities in 2023. At 8% of sales, Europe has the second highest exposure after Asia-Pacific (ex-Japan) to China. Yet it’s important to bear in mind that European companies earn twice the amount of revenue from the US than from China. So, a soft landing in the US will be vital for Europe to continue its cyclical rally.
US valuations remain high vs international developed and EM equities
US equity market valuations from a price-to-earnings (P/E) ratio remain high globally, whilst Japan continues to trade at a steep 29% discount to its 15-year average. Amidst the recent rally, European valuations at a 13.7x P/E ratio remain at a 14% discount to its 15-year average. That being said, three months ago European equity valuations were trading at a 35% discount to its 15-year average. After travelling half the distance to their long-term average, European valuations might have to contend with the headwinds of tighter monetary policy.
Evident from the chart above, international markets ex-US continue to boast of favourable valuations allowing for a higher margin of safety, which is why we expect investor positioning to tilt in favour of international markets ex-US over the course of 2023.
The battle between Energy and Technology stocks
The Energy sector is coming off a strong year, as tight supplies and rising demand drove energy prices higher in 2022. While these dynamics have failed to play out so far in 2023, owing to the speculative frenzy in riskier parts of the market, we expect earnings results for energy companies, and their stock performance across the spectrum (including oil, gas, refining and services), to maintain momentum in 2023. Whilst investment in oil and gas production has been rising, it will still take multiple years for global supply to meet demand, which continues to support the narrative of higher energy prices.
Refining capacity continues to look tight this year, given the reduced capacity and long lead time required to bring new capacity online. We expect this to support another strong year for the profitability of refining operators. At the same time, energy service companies should also benefit as spending on exploration and production continues to gather steam. The biggest risk to the sector remains if demand for energy falters in the face of a severe recession. However, as we expect most economies to face a modest recession, this risk is less likely for the Energy sector.
Meanwhile, higher interest rates were the key driver of the underperformance of the Technology sector last year. We continue to see weakness in the Technology sector amidst rising risks of peak globalisation, weaker earnings, and the potential for more regulation. Despite the recent layoff announcements by technology firms, they still appear inflated, with employee growth in recent years 20% too high relative to real sales growth. The COVID-19 pandemic had accelerated the demand in software and technology spending with the rise of remote work and social distancing. However, companies today are more likely to cut their technology spending to offset the higher costs of energy, travel, wages, and other factors. The key risk, in our view, remains that valuations have come down, and if rates do begin to peak, selective technology companies could benefit from the growth generated by their cost-cutting initiatives.
Value vs Growth in 2023
Value stocks tend to be positively correlated with higher inflation. In 2022, high inflation was a result of rising commodity prices, labour shortages, and fiscal stimulus provided by Western economies, whilst Growth stocks were penalised for their lofty valuations. Value-based stocks flourished on commodity supply constraints and cheaper valuations amidst a rising rate environment. Much of this is now priced into Value stocks. Most Value stocks’ earnings growth and valuation re-ratings rely on higher commodity prices or interest rates or a factor outside of their control. Owing to this, we still believe there are opportunities where constrained supply in the absence of falling demand will continue to support higher prices.
There are significant prospects in Europe and Asia where discounts remain wide and sizeable valuation gaps exist across sectors. Europe’s energy sector accounted for two-thirds of Europe’s EPS (earnings per share) growth in 2022. The continuing trend of capital discipline, resilient earnings, and high shareholder returns should keep attracting flows into the sector in 2023. We expect Value stocks to be in better shape to withstand the global economic slowdown. Historically, the Value factor has demonstrated resilience during periods of interest rate volatility.
Conclusion
There is considerable uncertainty about how 2023 will unfold. As the key focus moves from inflation to a recession in 2023, it opens up the possibility of several outcomes for central banks and interest rates. Keeping this in mind, 2023 may well be a tale of two halves, with higher interest rates in the first half, followed by lower rates in the second half as a global recession takes centre stage.
MY OPINION ON GBPUSDMy bias is displayed on the chart. I do hope that the M-pattern on the chart will likely come to play.
To be on the conservative side, I will only enter sell when the neckline of the pattern is formed. My SL and likely TP are depicted on the chart
share your opinion, FOLLOW and like
European Gas March 2023: Bullish and Bearish FactorsThe idea has two parts: fundamental and technical analysis . The latter is based on the weekly chart.
On the fundamental side , several essential and minor factors affect and could affect March 2023 price change. Let's divide them into three groups.
Bullish :
Russian shutdown of gas supply to Europe
Russia has cut its European flows for the last months so that a total shutdown would be possible. Russian gas remains crucial for the European economy despite the American armada of LNG ships.
Freeport LNG plant Restart Shift
The company plans to restore the plant in January 2023. A possible postponement would support TTF prices in the winter season.
Limitations of US Gas Exports
Last winter, some US Senate members suggested limiting or prohibiting US LNG export. They estimated that the change would increase US gas supply for the internal US market, especially for New England, which is dependent on the import of gas from the gas-production states getting gas via pipelines and LNG. They said the prohibition would reduce high gas prices for customers and industry. In July, LNG winter 2023 prices for New England touched a record high of $40/MMBtu, while Henry Hub traded at about $8.6/MMBtu. I suppose that senators would return to the idea, especially since the US elections are in November. Although the risk is low, its realization could dramatically affect the TTF price assessment. Analysts and think tanks have considered possible Russian gas cuts but haven't accessed a potential US gas supply reduction.
French Nuclear Plants Outages
Since the end of 2021, the French nuclear industry has been weak with planned and unplanned maintenance. As a result, nuclear output has lost more than 40% YoY of its output. While serious issues are unlikely to arise, new minor obstacles could buoy TTF prices.
Dry Summer
The continuation of the European 2022 dry summer led to abbreviated hydropower production. On the back of hydropower reduction, natural gas-power generation increases its output and gas consumption, driving subdued gas injection into storage facilities. Subdued gas injection in summer means less gas for winter, creating a possible gas deficit.
Bearish:
Slowing European Economy and Demand Destruction
High inflation induced by the monetary policy of 2020-2021 provokes a decline in real incomes and makes some industrial production unprofitable or near break-even. These debilitate aggregate demand, particularly industrial output of fertilizers, ceramics, and other chemicals. Industries that are heavily reliant on gas are cutting their gas consumption today. Lasting historically high gas prices would promote a decrease in gas utilization. The demand destruction could happen among all consumers: power, industrial and individual. A new recession is near. ECB monetary policy with a growing rate also adds problems to the economy. The rate is still tiny, but debt bubbles are sensitive to interest rate change. The bust of bubbles would drop economic growth and curtail gas demand pushing TTF prices down.
Slowing world economy
The world economy suffers from high prices losing economic growth momentum. A move into a recession would trigger a decline in gas consumption lowering LNG gas prices and letting LNG producers increase LNG sendout to Europe.
Voluntary Demand Reductions of 15% and Gas Rationing
Energy ministers of Europe adopted plans to voluntarily cut gas demand by 15% from August until March 31, 2022. In case of emergency, like near zero Russian flows, the voluntary reduction changes to mandatory. i.e., gas rationing. The actions could divert rising prices.
Covid Lockdowns in Europe
Europe has prepared different measures to withstand possible gas issues in winter. Besides voluntary reduction or rationing Europe could return to the lockdowns of 2020, when gas consumption dramatically went down because industrial production of goods collapsed. Since June 2022, the media has published news about a new variant of Covid. Countries could impose Covid-related limitations this fall. Unstable gas consumption and gas shortage would drive for a Covid or climate lockdown. A good measure to cut gas demand and destroy the economy.
Covid Lockdowns in China
Despite possible lockdowns of 2022-2023 in Europe, lockdowns in China happened in the last months and could be imposed again. An effect of prohibitions has hit the Chinese economy and cut gas consumption resulting in freeing up the supply for other consumers, i.e., Europe. New Chinese lockdowns would mean more gas for Europe.
Joker :
The joker that could be a bullish or bearish driver is the weather. They can't predict winter weather today. Lasting temperatures above season norms in winter could be a lifesaver for Europe, dropping gas consumption and its prices. Cold spells and lingering temperatures under the winter season average would lift prices significantly. Near-average temperatures would put the significance of the factor on hold. While in summer, it is vice versa. Temperatures above the norms slow gas storage injection and slightly increase a lack of gas risk in the winter season.
On the technical side , there are no resistance levels cause the contract is traded near its record high. Only psychological levels like €200/MWh , €300/MWh , and higher. On the bulls' side, there are many support levels. For those practicing buy a bounce trading , essential levels are €125/MWh , €100/MWh , and €86/MWh . The last one developed in the December 2021-April 2022 period. I estimate that Gazprom made a significant contribution to its existence. Gazprom's export price to Europe, which was pegged to a fusion of lagged prices of fossil fuels, including TTF, was near to €86/MWh . So when the market price rose significantly above the level, market participants cut their demand because Gazprom sold cheaper. When the price tried to break through €86/MWh and went down, Gazprom trimmed its flows to Europe. All in all, this helped the company to control its revenues on the same level. Since then, it has not been the case because Gazprom has changed its approach.
Finally, I am afraid to forecast the price on the expiration date. I suppose the price would remain volatile, and we could see spikes above €200/MWh in the winter season.
Thank you for your reading, and have profitable trading! Comment your thoughts!
**Long Nikkei Short DAXPost BOJ decision which is USDJPY supportive, we could expect the Nikkei to recover from recent weakness.
Since it remains a choppy Equity Environment, selling DAX against it (delta hedge) makes sense from a relative price perspective and looking at technical levels, along with oscilators.
Another way would be to buy Upside calls on Nikkei (cheap in Impiled volatilities) and selling upside on DAX (call vs. Calls strategy)
I will keep it plain vanilla though
Buy BT/Bund Spread wideningAfter Equity Option expiry today and into Month end, the technical rally induced by January effect could be fading.
Commodities recent spike (on China reopening/inflationary) will certainly have an knock on seasonal effect in next Inflation data,
Technically speaking BTP/Bund spread has done a double bottom, and we could expect a bounce from here (Italy widening i.e. BTP selling off more than Bund)
EUR/JPY - SHORT; Geopolitics matters - Center stage.Given the inevitability of;
1) An abject Chinese population collapse - already under way -, necessitating the consequent *** massive DEurbanization, DEindustrialization *** (leaving in its wake ~800 million subsistence "gardeners" - No, not even farms, in the traditional sense of scale!);
2) Japan having *** the only other (beside the US) long range Navy *** capable to protect shipping/supply lines, anywhere on the globe; (While China couldn't defend it's own coast line, if push came to shove. All that The "Chinese Menace" propaganda is laughable, at best. China is already dead, it just hasn't rolled over, yet, fully.)
3) The EU's obvious, ongoing Hara Kiri (the kind that would fill every samurai with envy), the demise of the Euro is a foregone conclusion. (How long for total EU disintegration?? ... A) Most likely measured in a couple years; B) It is well under way!.
4) Germany's full and unmitigated retreat from a collapsed Chinese market - the US filling the vacuum in every imaginable corner on the globe;
5) Japan being *** the only other (alongside Taiwan, S. Korea and the US) precision manufacturer of high-technology, of any scale ***;
6) ...
...
12) ...
There are at least a dozen existential reasons - already well within grasp! - all of which will leave Japan likely the only industrial power standing in Asia, while Germany (as is the whole of Europe) will be forced to backtrack to the '60s. - Not to the 1960s, no ... to the 1860s!
The technicals are also favorable to start shorting this pair from here, ... on and on ... onto forever.
p.s. The rise of France in Europe and Japan's in Asia - relative to their current industrial and geopolitical pull- is all but a foregone conclusion.
France being the "youngest" industrial and agricultural power in the EU while Japan, having survived - so far - their own demographic apocalypse, will have ring side seats to revel in the total and abject Chinese collapse. Germany also "only" lacks any and all domestic energy or food resources (except Sauerkraut), while also beset with a demographic apocalypse that is about to hit its full stride.
THE EASIEST ARBITRAGE EVER IS RIGHT IN FRONT OF OUR EYES?
LONG US, SHORT EU
Hello, these two charts seem to show an identical background situation for the two economies (US and German), however, the economy in US and EU is very different (among other explanations, TFP - total factor productivity is, and always has been positive in the US, while it is negative and, most importantly, decreasing since many years in Europe; US has never lowered rates below 0, while Europe did, breaking the Marxist M-G-M model, which means Money-Goods-Money1 cycle, and transforming it into a mere M to M1 model, money to money1, where M1 >M, skipping the "Goods" part of the cycle, basically creating a system where Money that creates other money out of thin air).
The markets (especially the European ones) are discounting the fact that there will be no recession based on last data, and that we will have a soft landing after all in US. I believe this will not be the case but it is not important now. The important thing is that, European investors are believing that the same will happen in EU, where, however, the increase of interest rates is far from being done, and inflation has not peaked yet!
Surprisingly, European investors are continuing to consider the two economies as identical, simply because in the last 40 years they moved together. However, they forget the 10-15 years of QE and the fact that the world after it will not simply continue to be the same as before, as we simply can erase these 15 years of history and put in conjunction the two extremities. They are pricing the two markets as it they were at the beginning of capitalism, while we are probably at the end of it, or better at a new phase of it. A phase in which US adapted to the MDM model by increasing the productive cycle (they have companies like Tesla, Amazon, Google) while in Europe we persevered in the aberration of the M-> M1.
LONG US (Dow jones), SHORT EU (Dax)
IThis is why, n my opinion, what we have in front of us is a win-win situation.
If the markets will continue, in my opinion wrongly, to consider these two markets almost perfectly correlated, while they are going up even if at least one of the two will have a recession ahead, we will be covered in any case.
case 1 - recession in USA, recession in EU
the recession will hit stronger in Europe-> The position will lose on long US less than what it would gain from the short on EU (DAX)
case 2 - no recession in USA, recession in EU
double gain (from the on long US and from the short on EU)
case 3 - no recession in USA, no recession in EU
US economy will perform better then EU : the long position on US will gain more than what it would LOSE from the short on EU
It is worth noting that both indices are surprisingly at 8% from their respective peaks of 2021 but the strength of the trend (red line on the second indicator - DMI) is very low.
Of course, the strategy will need to be adjusted with the sizes so that every side has the same notional value in USD - What do you think?
Short STOXX EUROPE 600 OIL & Gas sectorWe are having here a very well structured trade idea, exploiting the confluence of high important technical factors, mean reverting stance, and extreme positioning in the Oil and Gas space thanks for a Long Inflation lean by most investors this year.
Into year end and preparing for 2023, Fact is that after such a good performance some will be tempted to take profit especially with a potential FED pivot in [/b preparation based on Inflation peaking.
Saying it simply and pragmatically : if you made money being long the sectors or High dividend stocks in that space, that's a great achievement, but the forward looking factors are clearly pointing lower.
the USD price action is clearly indicating of Inflation peaking and is highly supportive of this trading idea.
Bottom line: Sell / Short SXEP Sector using this Multi Month horizontal trendline and overbought technical indicators
JPY BASKET SELLING OPPORTUNITYJPY BASKET For basket selling opportunity is high probability due to yearly analysis , sellers are more strong as we have seen 12M candle of 2022 we manage to create all time LOWS and that is where we are heading because sellers are maintaining their selling pressure / opening price are defended
Euro up or down?EURUSD closed the year well and above many key support levels, and it even closed above several diagonals, as did several other currencies vs. the USD. On the one hand, the USD may have peaked, especially as the DXY swept a critical low and retested its 2015-2020 highs.
The year has started with a EURUSD dump, and the pair has closed below its Monthly and Yearly P. This isn't great, but given the low liquidity, it could simply be a trap. In some of my past analyses, I had thought it was possible that it would go down to 1.055 to test an untested zone and then go higher, but it went higher first. Recovery may be coming as it has come down and tested the VP PoC in this area.
There are many reasons why I think the USD could go down and EUR could strengthen, but I won't go into them here. I only want to focus on the current TA, as a close above the key pivots could indicate that the market is going much higher. It could go up to 1.08 before going lower, or it might not even go lower for a long time. Until I see it close below 1.035, I have to be neutral/bullish, and if it does close below 1.035, then I think 1.01 is the next target.
My point is that although this doesn't look like the cleanest long, I do see the potential in this trade, and I think that going long here with a stop below 1.047 or 1.035 makes sense.
BCO Technical Analysis On a we weekly we have gotten close to our resistance level
we can get the following two plays: price going up and closing above 86.149 on a weekly chart or we may get pullback where then we will have to evaluate longs
for now i am bullish since levels held perfectly
my entries are pullback after retest (roughly as demonstrated on the chart)
Let me know your ideas on oil!
Short position for EURGBP + daily resistanceThe orange line is a daily resistance that I use a long time ago.
As we can see RSI already crossed the 50, after a overbought zone, together with MACD we can see after the RSI change the direction MACD had crossed the signal line and also changed it.
And joining these indicators we've the BB where the candles had already crossed the MA, and the BB lower line is moving away from upper line, showing us a great continuation of the downtrend
Analysis of the 4H time-frame is the same, all the indicators are moving in the same direction as 1H tf
Germany30 Technical AnalysisHello traders!
Europe and most dominant economies of it such as England, Germany and France are under fire but regardless good news from USA have eased the situation and some pressure.
It reasonable to buy some of the positions on retest of recent support levels such as a historic 1W timeframe- 13602 / 13011. Bearish trend has been stopped and looking for more upside in the upcoming weeks.
Like and subscribe if you agree and you want to discuss the ideas all together.
European Central Bank Preview – Time to PivotDespite facing the unknown external shock of a war, the Eurozone economy’s growth has been resilient in the first three quarters of the year. Eurozone Gross Domestic Product (GDP) rose by 0.3% quarter-on-quarter (QoQ) in Q3, easing from a 0.8% increase in Q2 2022 aided by the rise in government spending alongside an improvement in inflation adjusted trade surplus . However, this is likely to change in Q4 2022 and Q1 2023 as COVID reopening demand fades.
Eurozone recession remains a key risk until Q1 2023
Europe is set to embark on a harsh winter, and with savings rates extending the decline from a 1.7% drop in Q2, consumer spending is likely to come under pressure. The 1.8% month on month falls in euro area retail sales in October is consistent with the notion that real income squeeze is now catching up the with consumers. Services spending rose only 1.5% in Q3 compared to the 3.1% jump in Q2 2022 . The labour market has remained fairly resilient as Eurozone unemployment hit a new low of 6.5% in October, pushed down by falling unemployment in Southern Europe, the Netherlands, Finland and Austria. However, unemployment is likely to rise as the economic slowdown and tightening financial conditions impact hiring. That being said, fiscal policy could come to the rescue as major Eurozone governments have earmarked €573Bn into the economy to shield the private sector from the upcoming fallout in economic activity.
Inflation in the Eurozone declined more than expected from 10.6% in October to 10% in November. Yet it’s hard to say for certain that the inflation rate has passed its peak as it is largely dependent on the fluctuations in energy prices. Core inflation remained at 5% in November and is likely to remain close to 5% through Q1 2023 . Companies continue to transfer higher input costs to consumers and in spite of an approaching recession, we expect this process of cost-push inflation to extend into 2023, keeping price pressures higher for longer.
European Central Bank (ECB) split between the doves and hawks
Ms Isabel Schnabel (a member of the executive board of the ECB) warned in November that loose fiscal policy risks adding to underlying inflation pressures by boosting consumption and reducing the incentive for consumers and businesses to save energy. We would argue that while the volume of relief packages is large, they are insufficient to provide complete relief for all consumers and companies. Ms Schnabel also noted that, “that the room for slowing down the pace of interest rate adjustments remains limited, even as we are approaching estimates of the ‘neutral rate’”.
This hawkish sentiment was echoed by Dutch central bank head Klaas Knot in his statement that risks are tilted towards the ECB doing too little to combat rising inflation, noting that an economic slowdown, or perhaps even a recession, is needed to bring inflation under control. President Lagarde stressed that she would be surprised if inflation has already peaked, as there is too much uncertainty regarding the pass-through of high energy costs at the wholesale level into the retail level. She added that the ECB may have to go into restrictive territory with key rates. On the other hand, the head of the French central bank, Villeroy, who has often anticipated the actual ECB decisions in his statements, spoke out in favour of 50 basis points. Even hawks such as Bundesbank President Nagel and Estonian Mueller seem to be able to come to terms with a hike of just 50 basis points.
Further clarity on Quantitative Tightening (QT)
The ECB is likely to meet consensus expectations this week of narrowing the pace of rate hikes to 50Bps on 15 December, following two 75Bps rate hikes in September and October. This decision will lift its deposit and refinancing rates to 2% and 2.5% respectively. Neither peaking inflation nor a recession will give the ECB a reason to hold back from raising rates in Q1 2023, but both suggest that risks are tilted towards a slower pace of tightening. The outlook for the balance sheet, and more specifically QT, will be another key theme at this week’s meeting. It will be interesting to see whether the ECB will be pressed to sell bonds outright or stick with roll-off. We would expect the central bank to begin with an Asset Purchase Program (APP) roll-off equivalent to a monthly reduction of €25Bn in the balance sheet on average. Currently the ECB is still using Pandemic Emergency Purchase Programme (PEPP) reinvestments to compress spreads and the Transmission Protection Instrument (TPI) remains at its disposal if conditions deteriorate further. Both these tools limit how far the ECB can go with QT.
Sources:
1Eurostat as of 30 November 2022
2National Accounts as of 30 November 2022
3Bruegel as of 31 October 2022
4Bloomberg as of 30 November 2022