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GOLD REACHES NEW HEIGHTS AMID RISING SAFE-HAVEN DEMANDUS economic data   Positive news came from the jobless claims, which dropped to 241,000, much lower than expected and down from the revised 260,000 from the previous week. US retail sales also did better than predicted, rising by 0.4% from the month before, compared to an expected 0.3% increase. Nonetheless, positive retail sales and strong jobless claims are unlikely to alter the course of the Fed's monetary policy. ECB rate cut   ECB cuts rates as expected and upcoming months will be crucial as the ECB evaluates economic conditions and decides on its future monetary policy approach. US dollar index-   The US dollar index showed a minor decline due to profit booking.  A break above 104 would confirm a continuation of the bullish trend.   Based on the CME FedWatch Tool, the likelihood of a 25 basis point rate cut in November has risen to 92.2%, up from 89.50% just a week ago.
OANDA:XAUUSDLong
by DCFX-TA
USDJPY Analysis: Potential Bullish Bias for the Upcoming Week!USDJPY Analysis: Potential Bullish Bias for the Upcoming Week (Sept 23-29, 2024) As we look ahead to the coming week, USDJPY appears poised for a potential slightly bullish bias. This outlook is based on a confluence of fundamental factors and current market conditions that favor USD strength relative to the Japanese yen. Below is a breakdown of key drivers supporting this outlook, along with insights that could influence price action. 1. Federal Reserve's Hawkish Stance One of the key drivers for a potential bullish bias in USDJPY next week is the persistent hawkish tone from the Federal Reserve. Although the Fed opted to pause rate hikes in September, policymakers have indicated that they are open to further tightening if inflationary pressures persist. Recent inflation data in the U.S. showed a slight uptick in the Consumer Price Index (CPI), suggesting that the Fed may still consider additional rate hikes in 2024. Higher U.S. interest rates would continue to bolster the U.S. dollar, driving demand for USDJPY as traders seek yield differentials. 2. Bank of Japan's Dovish Policy In stark contrast to the Fed, the Bank of Japan (BoJ) remains committed to its ultra-loose monetary policy, including negative interest rates and yield curve control. The BoJ's dovish approach continues to weigh on the Japanese yen, especially in an environment where other major central banks are tightening monetary policy. While some market participants expect the BoJ to consider policy changes in the future, there have been no concrete signals indicating a shift in the near term. This widening policy divergence between the Fed and BoJ is a key factor supporting a bullish outlook for USDJPY. 3. Safe Haven Demand Waning The yen is traditionally viewed as a safe-haven asset, particularly during periods of global market volatility. However, recent market stability, coupled with optimism surrounding global growth prospects, has reduced demand for the yen as a haven. As risk sentiment improves, investors are more likely to allocate capital into higher-yielding assets, which could further weaken the yen. Moreover, geopolitical tensions that previously supported yen demand have eased slightly, making USDJPY more likely to drift higher in a low-risk environment. 4. U.S. Treasury Yields Rising Another factor contributing to the bullish bias in USDJPY is the rise in U.S. Treasury yields. Higher yields on U.S. government bonds make the dollar more attractive to foreign investors, adding upward pressure to USDJPY. The correlation between USDJPY and U.S. Treasury yields is well-documented, and as yields rise, so too does the currency pair. Traders will be closely monitoring U.S. economic data next week, including durable goods orders and GDP figures, to gauge the potential for further yield increases. 5. Technical Analysis: Key Support and Resistance Levels From a technical perspective, USDJPY is trading within a well-defined range, but with a slight bullish bias as long as it holds above key support at the 147.50 level. A break above the psychological 150.00 level could open the door to further upside, with resistance seen at 151.50. On the downside, failure to hold above 147.50 could lead to a test of lower levels around 146.00. Momentum indicators, including the Relative Strength Index (RSI), are currently neutral but leaning slightly toward overbought territory, suggesting room for further gains before a pullback. 6. U.S. Economic Data Next Week Next week, market participants will pay close attention to several high-impact economic reports out of the U.S., including the Durable Goods Orders on Tuesday and GDP Growth on Thursday. Positive readings on these metrics could fuel further gains in USDJPY, reinforcing the bullish bias. Conversely, any disappointing data could dampen USD strength and lead to some consolidation in the pair. Conclusion Given the combination of hawkish signals from the Fed, the BoJ's ongoing dovish stance, rising U.S. Treasury yields, and waning safe-haven demand, USDJPY appears to have a slightly bullish bias heading into next week. Traders should watch for any shifts in risk sentiment or unexpected economic data that could alter this outlook. The key levels to watch are 147.50 for support and 150.00 for resistance. Keywords: USDJPY forecast, USDJPY bullish, USDJPY analysis, Bank of Japan policy, Federal Reserve rate hikes, U.S. Treasury yields, Japanese yen, safe-haven demand, forex trading, USDJPY technical analysis, USDJPY key levels, USDJPY next week, trading USDJPY.
Long
by PERFECT_MFG
USD/JPY Forecast: Bullish Bias Expected – Key Factors to Watch.USD/JPY Forecast: Bullish Bias Expected – Key Factors to Watch (20/09/2024) As we analyze the USD/JPY pair on 20/09/2024, the outlook appears to be slightly bullish for this week and next. Several key drivers are pushing the U.S. dollar higher against the Japanese yen, creating an attractive opportunity for traders. In this article, we’ll break down the fundamental factors behind this forecast and highlight the elements influencing USD/JPY price action in the coming days. 1. US Dollar Strength Bolsters USD/JPY The strength of the U.S. dollar is a critical factor contributing to the bullish bias in USD/JPY. With the Federal Reserve signaling a commitment to maintaining high interest rates for an extended period, the greenback remains in demand. Fed officials have recently emphasized their concerns about persistent inflation, leading markets to believe that U.S. interest rates will stay elevated for longer than previously expected. This hawkish monetary stance, coupled with strong economic data, has made the U.S. dollar more attractive to investors. As a result, USD/JPY has been moving higher, with the strong dollar likely to continue exerting upward pressure on the pair. Key SEO keywords: USD/JPY forecast, US dollar strength, Federal Reserve policy, interest rate hike, USD/JPY price action. 2. Dovish Bank of Japan Keeps the Yen Weak On the other side of the equation, the Japanese yen remains under pressure due to the Bank of Japan’s (BoJ) ultra-loose monetary policy. The BoJ has shown no signs of tightening monetary policy in the near term, despite global inflationary trends. Japan’s central bank continues to prioritize economic support, maintaining low interest rates while avoiding any drastic policy shifts. This dovish stance contrasts sharply with the Federal Reserve’s hawkish policy, widening the interest rate differential between the U.S. and Japan. This is a major driver of USD/JPY’s bullish outlook, as investors gravitate towards the higher-yielding U.S. dollar over the lower-yielding yen. Key SEO keywords: Bank of Japan policy, Japanese yen weakness, dovish BoJ, USD/JPY interest rate differential, yen depreciation. 3. Interest Rate Differentials Favor USD/JPY Upside One of the most important factors pushing USD/JPY higher is the widening interest rate differential between the U.S. and Japan. While U.S. Treasury yields remain attractive, the yield on Japanese government bonds remains low due to the BoJ’s dovish policy stance. This gap in yields makes the U.S. dollar more appealing for investors seeking better returns. The widening interest rate gap is a key bullish signal for USD/JPY, as capital continues to flow into U.S. dollar-denominated assets. As long as the Federal Reserve maintains its hawkish tone, and the BoJ remains accommodative, this dynamic will likely support the bullish bias for USD/JPY. Key SEO keywords: Interest rate differentials, U.S. Treasury yields, Japanese bond yields, USD/JPY bullish outlook, capital flows into USD. 4. Japanese Economic Weakness Adding Pressure on the Yen Another factor supporting the bullish bias for USD/JPY is the ongoing weakness in the Japanese economy. Japan has struggled with slow economic growth and weak inflation, further justifying the BoJ’s cautious approach to monetary policy. Domestic consumption remains low, and Japan’s economic recovery has been uneven. As a result, the Japanese yen continues to face downside pressure, while the U.S. dollar benefits from stronger economic fundamentals. This divergence between the U.S. and Japanese economies adds to the case for a stronger USD/JPY in the coming weeks. Key SEO keywords: Japanese economic weakness, low inflation in Japan, weak yen, Bank of Japan policy, USD/JPY forecast. 5. USD/JPY Technical Analysis Suggests Further Upside Potential From a technical standpoint, USD/JPY is showing signs of further upside. The pair has been testing key resistance levels, and if these levels are broken, we could see a more significant bullish move. The recent price action has shown strength, with USD/JPY consistently finding support at higher lows. Traders should watch for a potential breakout above these resistance zones, as it could signal further gains for USD/JPY. With strong fundamentals supporting the pair, the technical outlook aligns with the overall bullish bias. Key SEO keywords: USD/JPY technical analysis, key resistance levels, USD/JPY price action, bullish trend, support and resistance. Conclusion: Bullish Bias Expected for USD/JPY In conclusion, several fundamental and technical factors support a slightly bullish bias for USD/JPY over the next couple of weeks. The ongoing strength of the U.S. dollar, the dovish stance of the Bank of Japan, favorable interest rate differentials, and Japan’s economic challenges all point towards further upside potential for USD/JPY. Traders and investors should closely monitor these key drivers as they make their trading decisions. As always, staying updated on central bank policies, economic data, and technical signals will be crucial in navigating the USD/JPY price action during this period. Key SEO keywords: USD/JPY forecast, bullish bias, USD/JPY key drivers, US dollar strength, Bank of Japan policy, interest rate differential, USD/JPY technical analysis.
Long
by PERFECT_MFG
USDJPY: Slight Bullish Bias This Week? (19/09/2024)As of September 19, 2024, traders are closely monitoring the USDJPY pair for potential bullish momentum. Several fundamental factors and market conditions indicate that the pair might see a slight upward bias this week. Let’s dive into the key drivers affecting the USDJPY price action. 1. Diverging Central Bank Policies One of the primary influences on USDJPY is the monetary policy divergence between the Federal Reserve (Fed) and the Bank of Japan (BoJ). - Federal Reserve’s Stance: As we move into the week, the market expects the Fed to maintain a hawkish stance or at least keep interest rates elevated. Although there’s some speculation about a possible pause in future rate hikes, the Fed's priority remains controlling inflation. This higher interest rate environment in the US makes the US dollar more attractive, pushing USDJPY upwards. - Bank of Japan’s Ultra-Loose Policy: In contrast, the BoJ continues its ultra-loose monetary policy, aiming to stimulate Japan’s sluggish economy. Despite rising inflation in Japan, the BoJ has shown little inclination to raise rates aggressively. This Interest rate differential between the US and Japan tends to weaken the yen, giving a bullish outlook for USDJPY. 2. Risk Sentiment in Global Markets Risk sentiment plays a crucial role in the movement of USDJPY. When global markets are in a risk-off mode, investors tend to flock to safe-haven assets like the Japanese yen, strengthening it. However, recent global economic data and financial news have maintained a somewhat stable risk appetite, leaning towards a risk-on environment. - US Economic Data: Recent reports from the US, such as better-than-expected retail sales and strong labor market data, continue to support the narrative of economic resilience. This fuels demand for the dollar and supports USDJPY’s bullish momentum. - Global Geopolitical Risks: While geopolitical tensions in regions like Europe and the Middle East may inject some volatility, there hasn’t been a major shift toward a risk-off sentiment that would heavily favor the yen. For now, dollar strength seems to dominate. 3. Japanese Economic Conditions Japan’s economy continues to struggle with low growth despite rising inflation. The BoJ’s consistent approach to stimulus, combined with the government's push for wage growth, has not yet translated into significant yen strength. Additionally, trade deficits in Japan, exacerbated by higher import costs, have weighed on the yen’s valuation. Without a major shift in BoJ policy or a significant improvement in Japan's economic performance, the yen will likely remain under pressure, keeping USDJPY on a slightly bullish path. 4. US Bond Yields US Treasury yields are another major factor driving the USDJPY. Higher US bond yields, often seen in response to tighter monetary policy and strong economic data, make the dollar more attractive to foreign investors. The upward trajectory of bond yields has been a persistent theme, reinforcing dollar strength. If this trend continues through the week, we can expect additional support for USDJPY. 5. Technical Indicators Looking at the technical analysis for USDJPY, the pair has been trading near key resistance levels in recent sessions. If the pair breaks above these resistance zones, we could see further bullish momentum. - Key Support and Resistance Levels: The 145.00 level has been a psychological support level for USDJPY, while 148.50 serves as resistance. Should the pair break beyond this resistance, it could trigger more buying pressure, pushing USDJPY higher. Conclusion: USDJPY’s Slight Bullish Bias In conclusion, the USDJPY pair is expected to exhibit a slight bullish bias this week, primarily driven by: - Monetary policy divergence between the Fed and BoJ. - Favorable US economic data and rising Treasury yields. - Limited economic growth in Japan, with persistent trade deficits. - Stable global risk sentiment supporting the dollar over the yen. Traders should keep an eye on US bond yields, Fed comments, and any sudden shifts in risk sentiment or geopolitical events, as these could influence USDJPY’s trajectory throughout the week. --- Keywords: - USDJPY forecast - USDJPY bullish bias - USDJPY analysis September 2024 - USDJPY technical analysis - USDJPY key drivers - USDJPY trading strategy - USDJPY and Federal Reserve policy - USDJPY support and resistance levels - USDJPY risk sentiment - USDJPY bond yields impact
Short
by PERFECT_MFG
USDT.D Analysis: $ Dominance Dips, Opening Doors for Crypto?Hey traders, Let's dive into Tether Dominance CRYPTOCAP:USDT.D and see what it might mean for the crypto market. Channel Cracked: USDT.D used to chill in a monthly channel for a while. But recently, it decided to break free, potentially paving the way for a continued decline in dollar dominance, reaching the next weekly resistance level. RSI Bouncing Back (Maybe): The Relative Strength Index (RSI) just stepped out of the oversold zone. This could signal a potential price bounce or a period of consolidation (think of it as the market taking a breather). Crypto on the Rise? As long as dollar dominance keeps falling, more money might flow into cryptocurrencies, potentially pushing their prices up. Bitcoin's Buddies: If this dollar decline happens alongside Bitcoin price fluctuations and a dip in its own dominance, we could see altcoins surge in an epic way! The US Dollar Factor: One big question mark: how will US policies affect the dollar's value and, in turn, crypto prices? Only time will tell. Time to Take Profits? If the RSI exits the oversold zone, it might be a good time to consider closing out your long positions (selling your crypto) or taking some profits off the table. Remember: This analysis is for educational purposes only, not financial advice. Do your own research and use proper risk management before making any trades.
CRYPTOCAP:USDT.DLong
by solinash1
USDJPY: Thoughts and AnalysisToday's focus: USDJPY Pattern – Ascending Triangle Pattern Support – 146.50 - 144.75 Resistance – 147.92 Thanks for checking out today's update. Today, we have run over USDJPY, breaking down the overall price picture, levels, and patterns and incorporating moving average and RSI into the analysis. The USDSJPY continues to be locked up in a bullish continuation pattern. If we see a break above this pattern, we are interested in how buyers handle being back into a supply and resistance area. An area that stopped the last main rally. On top of that, the RSI is also showing lower highs as price has made higher highs. This could be a sign of divergence, but we will continue to watch if buyers can make a higher breakout. If we see a break lower, we will look to 146.50 and 144.75 as potential support areas. Heads up: BOJ policy rate and policy statement are due on Friday. Have a great day and good trading.
Long
by Eightcap
Navigating The American Debt Ceiling DramaSome people create their own storms. And then get upset when it starts to rain. US Debt Ceiling drama is akin to a soap opera that never ends. Debt ceiling issue is not new. Why bother now? Political polarisation in the US has got to unprecedented levels. The showmanship could tip over into a political nightmare. It could send economic shockwaves with impact deeply felt both within US and well beyond its shores. Many politicians seemingly are so pulled away from reality that their fantasies aren’t working. Wishing away a problem out of its existence is not a solution. The Debt Ceiling is here. US defaulting on its debt is highly unlikely. Scarily though, the probability of that occurrence is non-zero. This paper looks at recent financial history surrounding prior debt ceiling episodes. Crucially, it delves into investor behaviour and their corresponding investment decisions across various asset classes. When uncertainty looms large, straddles and spreads arguably deliver optimal hedging and investment outcomes. A SHORT HISTORY OF DEBT CEILING. WHAT IS IT? HAS IT BEEN BREACHED BEFORE? The US debt ceiling is a maximum cap set by the Congress on the debt level that can be issued by the US Treasury to fund US Government spending. The ceiling was first introduced in 1917 to give US Treasury more flexibility to borrow money to fund first world war. When the US government spends more money than it brings in through taxes and revenues, the US Treasury issues bonds to make up the deficit. The net treasury bond issuance is the US national debt. Last year, the US Government spent USD 6.27 trillion while only collecting USD 4.9 trillion in revenue. This resulted in a deficit of “only” USD 1.38 trillion which had to be financed through US treasury bond issuance. This deficit was not an exception. In fact, that’s the norm. The US Government can afford to and has been a profligate borrower. It has run a deficit each year since 2001. In fact, it has had budget surplus ONLY five (5) times in the last fifty (50) years. If that wasn’t enough, the deficit ballooned drastically from under USD 1 trillion in 2019 to more than USD 3.1 trillion in 2020 and USD 2.7 trillion in 2021 thanks to massive pandemic stimulus programs and tax deferrals. This pushed the total US national debt to a staggering USD 31.46 trillion, higher than the debt ceiling of USD 31.4 trillion. The limit was breached! So, what happened when the ceiling was broken? Not that much actually. When the ceiling is broken into, the US Congress must pass legislation to raise or suspend the ceiling. Congress has raised the ceiling not once but 78 times since 1970. The decision is usually cross-partisan as the ceiling has been raised under both Republicans and Democrats. It was last raised in 2021 by USD 2.5 trillion to its current level. Where consensus over raising the ceiling cannot be reached, Congress can also choose to suspend the ceiling as a temporary measure. This was last done from 2019 to 2021. Since January, the Treasury has had to rely on the Treasury General Account and extraordinary measures to keep the country functioning. Cash balance at the Treasury remains precariously low. Its operating balance stood close to nearly USD 1 trillion last April but now hovers around USD 200 billion. Such reckless borrowing! Yet US continues to remain profligate. How? Global investors have confidence in the US Government's ability to service its debt. Despite the increasing debt, the US Government continues to pay investors interest on its bonds without a miss. Strong economic growth and its role as a global economic powerhouse assuages investor concerns over a potential default. Additionally, where Treasury does not have adequate operating cash flow, it leans on a credit line from the Federal Reserve (“Fed”). The dollar’s strength and reserve status contribute to the US Government’s creditworthiness and vice-versa. The Fed is also the largest holder of US government debt. It holds USD 6.1 trillion as of September 2022 (20% of the overall debt). The share of government debt held by the Fed surged to current levels from just above 10% during the pandemic due to massive purchases of treasury bills by the Fed as an emergency stimulus measure. GROWING US DEBT IS BECOMING A SOURCE OF CONCERN US debt has ballooned during the pandemic. It is deeply concerning for multiple reasons. Key among them is the risk of default. Although debt has increased significantly, GDP growth during this period has been tepid due to pandemic restrictions stifling economic activity. As such the ratio of national debt to GDP, a measure of the US’s ability to pay back its loan has also skyrocketed. This increases the risk that the US Government may fail to service its debt. A US Government default would lead to surging yields on treasury bonds and crashing stock prices. It would also call into question its creditworthiness limiting future borrowing potential. A default will also have far-reaching economic consequences threatening dollar hegemony which is already being challenged on multiple fronts. Another concern is the rising cost of servicing the debt. Servicing the debt is the single largest government expense. Interest payments on debt this year are expected to reach USD 357.1 billion or 6.8% of all government expenditure. Additionally, with the Fed having raised interest rates with no stated intention of pivoting in 2023, the interest rate on US public debt, which is currently at historical lows, will also rise. DEBT CEILING BREACH AGAIN. SO WHAT? LOOKING BACK IN TIME FOR ANSWERS. There has been more than one occasion when political disagreements resulted in Congress delaying the raising of the debt limit. In 2011, political disagreements pushed the government to the brink of default. The ceiling was raised just two (2) days before the estimated default deadline (the “X-date”). Despite the raise, S&P lowered its credit rating for the United States from AAA to AA+ reflecting the effects that political disagreements were having on the country’s creditworthiness. This played out again in 2013 due to same political disagreements. Thankfully, for investors, the effects of the 2013 crisis on financial markets were not as severe. Flash back. Equity markets initially dropped after the debt ceiling was reached and investors worried that the disagreements would not be resolved in time. In July 2011, markets started to recover as both parties started to work on deficit reduction proposals. Then on July 25th, just eight (8) days before the borrowing authority of the US would be exhausted, Credit Default Swaps on US debt spiked and the CDS curve inverted as participants feared that a deal would not be reached in time. This led equities sharply lower. On August 2nd, a bill raising the ceiling was rushed through both the House and the Senate. Following this S&P lowered US credit rating from AAA to AA+ citing uncontrolled debt growth. Equity prices continued to drop even after the passage of the bill. Commodities showed similar price behaviour heading into the passage of the bill. However, unlike stocks, gold and silver prices rallied after August 2nd. The USD weakened against other currencies before the passing of the bill but recovered after August 2nd. Treasury yields trended lower but spiked during key events during this period. Short-term treasury yields remained highly volatile. Following crisis resolution, yields plunged sharply. US DEBT CEILING CRISIS AGAIN. WHAT NOW IN 2023? The US reached its debt ceiling again in January 2023 and yet another debt crisis. 2013 is repeating itself again as lawmakers disagree over whether to raise the ceiling further or bring the budget under control. The Congressional Budget Office (CBO), a non-partisan organization, has estimated that the US could be at a risk of default as early as June 1st. Republicans disagree with the Biden administration. They seek budget cuts to reduce annual deficits while Democrats want the ceiling to be raised without any conditions tied to it. This crisis is exacerbated by rising political polarisation in the US. Not just metamorphically, the Republicans and Democrats are at each other’s throat. A study by the Carnegie Endowment for International Peace found that no established democracy in the recent past has been as polarised as the US is today. This raises the risk that Congress gets into a stalemate. Moreover, the house is only in session for 12 days in May. After the law is passed in Congress it must also pass through the Senate and the President. The availability of all three overlap on just seven (7) days, the last of which is the 17th of May. This means that lawmakers have just 3 days (from May 12th) to reconcile their differences before the US is put at risk of default. POSITIONING INVESTMENT PORTFOLIOS IN DEBT CRISIS WITH X-DATE IN SIGHT What’s X-date? It refers to the date on which the US Government would have exhausted all its options except debt default. The X-date could arrive as early as June 1st. There is a small chance that it could arrive in late July or early August. The US Government collects tax receipts in mid-June. If the US Treasury can stretch until then it will have enough cash to last another six weeks before knocking against the debt ceiling again. The current crisis has been brewing. Equity markets remain sanguine. But near-term treasury yields have started panicking. Short term yields have spiked. The difference in yield on Treasury Bills that mature before the likely X-date (23/May) & after it (13/June) has shot up. Muted equity markets create compelling opportunity for short sellers. In the same vein, it also presents buying opportunities when debt ceiling is eventually lifted. When up or down is near impossible to predict, an astutely crafted straddle or time spread can save the day. DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Editors' picks
TVC:US01MY
by mintdotfinance
27
The ‘free lunch’ in currency hedging?Since 2012, WisdomTree has been a leader in helping investors understand the impact that currency risk can have on their portfolios. When investors allocate funds internationally, there are two sources of return: the local asset return and the return from changes in foreign exchange (FX) rates. This can be problematic during periods in which foreign currencies are depreciating against the investor’s home currency, leading to underperformance. Historically, the default allocation of a majority of investors has been to keep the equity and currency exposure combined. However, this doesn’t have to be the case and it is possible to uncouple those risks. Currencies, a significant source of risk and tracking difference A globally diversified equity portfolio, like the MSCI World point of view, is a bundle of equity and currency risk. 68% of the MSCI World is invested in US equities and, therefore, denominated in US dollars. 6% is invested in Japanese equities and, therefore, denominated in Japanese yen and so on. The exposure to currency can add to or detract from the performance of the equities themselves. This means that the performance of the MSCI World (unhedged) is quite different for an investor with the US dollar as the base currency compared to an investor with the euro as the base currency. Every year, the difference in performance between the MSCI World hedged or unhedged is significant for both euro and pound-based investors. For euro-based investors, the difference in performance driven by the currency exposure oscillated between -9.41% and +10.1%. For a British pound investor, the difference is between -5.9% and +20.4%.This embedded currency exposure also tends to increase the risk in the portfolio. Because the currency risk sits on top of the equity risk when investing in global equities, taking currency risk or not taking currency risk has to be a conscious investment decision. Currency hedging as a tactical endeavour Foreign exchange rates change over time. Many factors contribute to those deviations: interest rate expectations inflation differentials public policy growth forecast balance of payments Over the short to medium term, currencies can move quite dramatically against each other leading to potential losses or gains for investors invested in unhedged foreign equities. For investors with strong conviction on the direction of foreign currencies relative to their domestic currency, it is therefore possible to tactically currency hedge, or not, their portfolio to try to benefit from those moves. Currency hedging for the long run Whilst in the short and medium term foreign exchange rates fluctuate, over the very long term, currencies tend to fluctuate around a long-term equilibrium. This phenomenon is often called ‘long term mean reversion’. This means that for long term investors in global equities, the performance impact of currencies should offset itself over long periods of time. In other words, the performance of currency hedged and unhedged investments should be similar. However, from a risk point of view, this is not the case. As discussed previously, the long-term volatility of the unhedged investment tends to be higher than that of the currency hedged investment. A reduction of risk with zero long term expected returns sounds like a ‘free lunch’ which is why investors could look at currency hedged investments in foreign equities as their default long term investment policy. For example, a portfolio manager with a base currency of euro and a holding of 1 million US dollars of US equities can hedge the US dollar currency risk by selling a 1 million US dollar forward contract against euro for settlement in a month’s time at today’s rate. Operationally, this process can be quite cumbersome, in particular for a portfolio with multiple currencies and/or with hard to access currencies. The MSCI World comprises 13 currencies which means that investors would need to trade 12 FX forwards every time they want to hedge the currency exposure and then they would need to roll those 12 forwards on a regular basis. This is why WisdomTree has been launching currency hedged share classes for its strategies, providing turnkey solutions for their investors and their currency hedging need.
Editors' picks
ICEUS:MWL1!
by aneekaguptaWTE
2
Europe is treading a fine line between growth and inflationEuropean equities have ushered in 2023 with a strong rebound, up 7.72%1. Exchange-traded fund (ETF) flows into the European region have risen by US$13bn, in sharp contrast to the US that has seen US$9bn of outflows year-to-date (YTD)as of 27 February 2023. The confluence of China re-opening its economy and prudent management of resources during the energy crisis, alongside better valuations, helped European equities flourish. Essentially, the worst impact from the energy crisis that was priced in for Europe did not end up materialising, thereby improving sentiment. Resilient Q4 2022 earnings season but outlook remains cautious Europe is seeing better earnings growth for Q4 2022, up 8.81%3. The deep value parts of the market – financials, energy, utilities, consumer staples, and healthcare – continue to contribute to positive earnings growth. At the same time, China’s reopening has benefitted cyclical sectors across consumer discretionary and communications which posted the strongest earnings growth up 49% and 38% respectively4. At 8% of sales, Europe has the second-highest exposure to China after Asia-Pacific (ex-Japan). It therefore would make sense to position for a better China macro-outlook in the sectors with the highest revenue exposure to China – semiconductors, materials, consumer durables, energy, and automobiles. We also know Chinese consumers saved one-third of their income last year, depositing 17.8 trillion yuan ($2.6 trillion) into banks, and investors are pinning their hopes on those savings finding their way into Europe’s luxury goods market. Another factor favouring European equities has been European buyback activity which has increased to a record level, with a net buyback spend reaching around 220bn thereby creating an additional yield of around 2%5. This has helped Europe’s total yield (that is, buyback + dividends) outpace that of the US for the first time in 30 years. Headwinds persist from further tightening by European Central Bank (ECB) Euro-area Purchasing Manager’s Indices (PMI) continued their rebound in February reaching a nine-month high of 51, helped by easing headwinds from the energy crisis and resilient consumer spending amidst fading inflation. Headline inflation in the Euro-area for January dipped to 8.6%, showing further evidence that price pressures are easing6. However, core inflation in the Euro-area rose to 5.6%5 from 5.2% in December, highlighting that underlying price pressures continue to remain sticky. The more resilient economic data of late is likely to keep the ECB on a more hawkish monetary path. As monetary policy works with approximately a 10 - 12 month lag, we are yet to see the full impact of the recent spate of tightening. Euro-area M1 growth is down to 0.6%, marking the second weakest reading on record pointing to weaker growth ahead. Furthermore, the Q1 results of the ECB Bank Lending Survey showed Euro-area credit conditions tightening at the fastest pace since 2009. In the Euro-area, moves in M1 growth tends to lead economic momentum by six months. This suggests that tighter monetary policy is leading to reduced credit availability for the real economy. Tailwinds from looser fiscal policy to aid the Euro-area recovery Prior to the Ukraine war, the Euro-area was characterised by relatively tight fiscal policy. However, the shock of the energy crisis drove a shift in fiscal policy. Governments are loosening their fiscal purse strings again, offering significant support to both consumers and businesses amidst the recent energy shock. Government expenditure, as a share of GDP, surged to almost 60% as COVID-19 hit (from just over 45% prior to the virus) and it is now rising again higher than before the pandemic7. The Eurozone budget deficit is now widening and heading towards 4% of GDP. Eurozone government expenditure as a share of GDP in 2022, through Q3, was 3% higher than the average from 2017 to 2019, with revenues up less than 1%. The think tank, Bruegel, estimates that EU economies have set aside €680bn to date to protect consumers from the energy crisis, which comes in addition to the EU Recovery Funds (€750bn from 2021 to 2027) which are now flowing. This is close to 10% of GDP, which excludes the cost of COVID-19 support. The European economy remains caught between tailwinds – loose fiscal policy, easing energy prices, strong labour market, the re-opening of the Chinese economy – and headwinds of a weakening credit cycle in response to tighter monetary policy. Amidst this macro backdrop we expect investors to be more selective as the existing tailwinds should help Europe endure a milder than expected recession.
M
by aneekaguptaWTE
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.
ICEUS:MWL1!
by aneekaguptaWTE
DXY GAME ON!! SPIKE COMING FOR THE DOLLAR?Last week's surprising jobs report sticky inflation, and persistent and frothy financial conditions may force the Federal Reserve members into a more hawkish position, forcing them to keep the heat on interest rates and the money supply. Many market participants were looking for a pause in rate hikes as soon as next month and possibly a pivot to lowering rates shortly after. This new data is going against what the Fed was trying to accomplish in this rate hike cycle, which is to keep inflation within mandated guidelines, and to tame loose financial conditions, dashing the hopes for a pivot in policy anytime soon and pushing that pivot out for far longer than some were expecting. This will put upward pressure on bond yields and a dollar so heavily shorted causing the pivot crowd to close out some of their short positions as the Fed puts the screws to the money supply and inflation. This classic cup and handle setup illustrates the effect the Fed Policy may have on the dollar.
TVC:DXYLong
by Journeyman124
EURJPY Sell Idea Hello traders. EURJPY formed a double top at multiyear High levels. However, during evening of yesterday, some big players closed their positions and as a result the market direction was occured due to the surpass of sellers. I think that the psychology of this pair is mainly short and any spike can be considered as a sell opportunity either if it touches the trend line again or if it touches the upper resistance zone. My long term target is approx. 137 zone which is a OB and strong demand zone. But there are plenty intermediate take profit levels on other support areas. Today's Lagarde's speech will be of importance about the future of this pair.
Short
by The_Forex_Path
1
Energy CorrectionOver the first half of 2022, energy was a bright spot in markets. NYMEX and Brent crude oil futures rose 40.62% and 40.24%, respectively. The oil futures closed well below the March highs on June 30, with prices north of $100 per barrel. NYMEX natural gas futures moved 45.42% higher over the first half of 2022. The price was at the $5.424 per MMBtu level on June 30 and was over $6 in mid-June. Meanwhile, thermal coal for delivery in Rotterdam, the Netherlands, was at the $370 per ton level on June 30, 215.16% higher over the first six months of 2022. The nearby August contract was higher at $391 per ton at the end of last week. A correction takes crude oil futures below the $100 level Crude oil takes an elevator lower during corrections- Nothing new The four reasons oil will find a bottom and turn higher Natural gas remains highly volatile as the peak season approaches Follow those trends until they bend Fossil fuel continues to power the world, and while oil has corrected, oil, gas, and coal remain at the highest prices in years. The XLE, a highly liquid ETF that holds shares of the leading US energy producers, refiners, and related companies, moved from $55.50 at the end of 2021 to $71.51 on June 30, a 28.8% gain. At $68.59 on July 15, the XLE continues to outperform the rest of the stock market in 2022 despite the 4.08% loss over the first half of July but still over 23.5% higher in 2022. The most diversified stock market index, the S&P 500, fell 20.58% over the first half of 2022, settling at 3,785.38 on June 30. The index was at the 3,863.16 level at the end of last week, significantly below the closing level of 4,766.18 on December 31, 2021. Crude oil prices corrected over the past weeks, but while the short-term trend has turned bearish, the landscape could support higher prices over the coming weeks and months. A correction takes crude oil futures below the $100 level Crude oil futures tend to take the stairs higher during bullish trends and an elevator lower during corrections. The spike to the March fourteen-year high in WTI and Brent futures was an exception to the rule as Russia’s invasion of Ukraine shocked the oil market and the world. The chart highlights the correction in the NYMEX crude oil futures market that took the price to a low of $90.56 last week, the lowest price since February 2022. NYMEX WTI futures for August delivery were at the $97.59 level on Friday, July 15. Brent futures have been trading at a premium to the WTI futures because they reflect the price of oil production from Europe, Russia, North Africa, and the Middle East. Brent futures also fell to the lowest price since February 2022 last week when they reached $94.50 per barrel. The nearby September contract settled at the $101.16 level on July 15. Crude oil takes an elevator lower during corrections- Nothing new As we learned in early 2020, when the pandemic took NYMEX crude oil futures to a record low below zero and Brent futures to the lowest price of this century at $16 per barrel, declines in crude oil often defy logic, reason, and rational analysis. Over the past decades, there are more than a few examples of drops that take prices far below analysts’ expectations before rebounding. The latest correction took the continuous NYMEX contract from $130.50 in early March to $90.56 last week, a 30.6% drop. Brent futures fell from $139.13 to $94.50, or over 32% over the same period. WIT and Brent futures have made lower highs and lower lows over the past four months. The four reasons oil will find a bottom and turn higher Four factors could cause crude oil prices to eventually find a bottom and return to a bullish trend: The war in Ukraine continues to rage with Europe and the US tightening the sanctions noose around Russia’s neck. Russian retaliation could cause embargos that create severe crude oil shortages, lifting prices. One of the factors weighing on oil prices is the Chinese economic weakness caused by the COVID-19 lockdowns. When they end, the demand from the world’s second-leading economy and the most populous country could soar, running the oil bear into a charging bull. The US government continues to look elsewhere for oil production as policies address climate change. According to the US Energy Administration, the US Strategic Petroleum Reserve has declined to the 485.1-million-barrel level as of July 8, the lowest level since 1985. The administration continues to withdraw one million barrels each day from the SPR. Eventually, the US will need to replace its reserves. There are few incentives for US and European oil companies to increase production in the current environment. OPEC and Russia have no interest in addressing climate change. The world continues to depend on fossil fuels, and alternative and renewable energy domination are decades away. With oil production and pricing controlled by Riyadh and Moscow, higher prices are likely after the current correction. While the oil price is correcting lower, the reasons for a bottom and a return to higher prices remain compelling in mid-July 2022. Natural gas remains highly volatile as the peak season approaches In June 2020, US natural gas futures fell to a twenty-five-year low of $1.44 per MMBtu. The chart shows the rally in the US natural gas futures market that took the price of the continuous contract over 6.7 times higher by June 2022, when it reached the highest price since 2008 at $9.664 per MMBtu. Since then, the price corrected as it was around the $7 level on July 15. The last time natural gas futures were at this price in July was fourteen years ago in 2008. We are in the heart of the summer, which is the peak cooling season. However, the test for the bullish price action in natural gas will come in October 2022 through February 2023, when the peak heating season arrives. Meanwhile, US natural gas has become a far more international market over the past years, as US LNG travels the world on ocean vessels to locations where prices are much higher. The war in Russia creates natural gas shortages in Western Europe. The chart shows that UK natural gas never traded above the 2005 117 high until 2021. At the 200.290 level at the end of last week, the price was nearly double the previous record high after rising to the 800 level in March 2022. The US will struggle to fill Europe’s natural gas void created by Russian retaliation. As of the week ending on July 8, US natural gas inventories stood at 9.6% below the previous year’s level and 11.9% under the five-year average. US energy policy has weighed on natural gas output at a time when Europe is looking to the US to fill the gap created by the war in Ukraine. Natural gas shortages are likely in Europe this coming winter season. Follow those trends until they bend The short-term trend in crude oil has turned bearish, with the prices on either side of the $100 per barrel level. I expect lots of two-way price action in the oil and gas markets over the coming weeks and months. While natural gas remains a bucking bronco with wide price swings, crude oil is now in a bearish correction. Follow those trends until they bend as they are the best barometers of the path of least resistance of prices. Trends reflect the market’s sentiment. When sellers are more aggressive than buyers, prices move lower. When buyers dominate sellers, they move to the upside. As of Friday, July 15, the sellers were in the driver’s seat in the oil market. Time will tell how long they remain in control and how low they will push the price of the world’s leading energy commodity. -- Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility , inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
NYMEX:CL1!
by Andy_Hecht
3
The Euro Is Heading for Parity Against the DollarThe US dollar and the euro are the world’s reserve currencies. Political and economic stability and free convertibility are the requirements for reserve currency status. Central banks and governments worldwide gold the US and European currencies as reserve assets. The exchange rate between the US dollar and the euro is multifactorial. Interest rate differentials, political trends, and other issues determine the value of each foreign exchange instrument versus the other. The euro has been around since January 1, 1999, and euro notes and coins were only available two decades ago, in 2002. The euro currency opened for trading in the futures market in April 2001 at an exchange rate of $0.8760 versus the US dollar. The euro first rose above parity with the US currency in July 2002. The last time it was below was in December 2002, but the recent exchange rate price action and the factors determining currency values could send the euro back to levels not seen in two decades. New highs in the dollar index- Approaching the test of the 2020 high The US dollar index has a 57.6% exposure to the euro currency. Since January 2021, the dollar index has been on a bullish path, making higher lows and higher highs. As the chart highlights, the dollar index futures contract moved from a low of 89.165 in early January 2021 to the most recent high of 103.950 on April 28, 2022, a 16.6% rise. The index is approaching a critical technical resistance level. The long-term chart shows the upside target stands at the March 2020 103.960 high, the highest level for the index since 2022. A break above that level will make the next upside target the July 2001 121.290 high. A move towards that level would push the euro below parity against the US dollar for the first time in two decades. Lower lows in the euro versus the US dollar foreign exchange relationship A bearish trend in the euro versus the US dollar currency relationship is nothing new. The chart shows the euro reached an all-time high against the dollar in July 2008 at $1.6038. Since then, it has been all downhill for the European currency. The euro reached a low of $1.03405 in January 2017. After a recovery took the euro to above the $1.25 level in February 2018, the downtrend resumed, and it was approaching the early 2017 low on April 29 at below the $1.075272 level. A move below the $1.03405 level makes the target the critical psychological parity level. Herding cats- The European economic challenge The European Union is a collection of countries with diverse cultures. Moreover, economic policy is a blend of different orientations to monetary and fiscal policies. Southern Europe has depended on tourism and has had a far looser approach to economic management than the austerity of the north. The north has been the industrial powerhouse, providing financial stability for the Union. Greece, Italy, Spain, and Portugal are far different economies than Germany, France, the Netherlands, and Belgium. Policy agreement between the Union members has been like herding feral cats over the past two decades. The north has bailed out the south routinely, causing stress on relationships within the Union and pressure on the euro currency. Cultural differences have been the borders since the establishment of the European Union and continue to be a factor that impacts the euro’s value. War on the border- An aggressive Russia is bad news for the euro In early 2022, the European Union is facing its most challenging test since its birth. Russia’s invasion of Ukraine launched the first major war in Europe since WW II. Russian aggression is a challenge to NATO countries, particularly those bordering the former Soviet Empire. Over the coming years, European military budgets will need to dramatically increase to provide safety and deterrence against the Russian aggressor. As military spending rises, it is likely to pressure the euro currency as the Union faces new threats that transcend the costs of the cultural divide between the northern and southern countries. The threat will likely unify the north and south, but the price tag for unification will be staggering. Rising US rates are another nail in the euro’s coffin- Parity is only the first stop – The trend is your friend In currencies, exchange rates are highly sensitive to interest rate differentials. The US dollar and euro are the world’s reserve currencies. The US central bank has shifted its monetary policy path to a more hawkish approach with inflation. raging. The March consumer and producer price indices rose by 8.5% and 11.2%, respectively. The US Fed ended its quantitative easing in March 2022 and will quickly shift to quantitative tightening, allowing debt securities to roll off its swollen balance sheet at maturities. The FOMC will increase the short-term Fed Funds rate by at least 50 basis points at this week’s May 4 meeting. US short-term interest rates are going nowhere but higher. Meanwhile, the US 30-Year Treasury bond futures have been a falling knife, pushing interest rates higher further out along the yield curve. The chart shows the decline in the long bond futures since the March 2020 high. The most recent 138-14 low on April 20, 2021, took the bellwether government bond futures to the lowest level since November 2018. Critical technical support stands at the October 2018 136-16 low. Below there, the next target is the 2013 127-23 low. A falling bond market and higher interest rates make the dollar more attractive than the euro. Europe cannot afford to increase interest rates and keep pace with the US dollar interest hikes because of its economic and geopolitical landscapes. Therefore, the dollar’s bullish trend will likely continue over the coming weeks and months. Bull and bear markets rarely move in straight lines. Currency markets tend to experience far lower volatility than stocks, bonds, commodities, and other asset classes as governments manage price moves with intervention to provide stability. However, technical and fundamental factors support the path to parity for the dollar and euro currencies. In 2000, the euro reached $0.8901 against the dollar, the long-term technical target. A stronger dollar and weak euro will have significant ramifications for markets across all asset classes, but the currency markets are a mirage as they trade in a vacuum. A trip to the supermarket, gas pump, or purchasing any goods or services in dollars reveals that the US currency has lost substantial purchasing power over the past year. The dollar may be strong against the euro, and it looks set to continue the current path, but all fiat currencies are losing power. As one strategist said the dollar is “the cleanest shirt in the dirty laundry.” -- Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility , inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
ICEUS:DX1!
by Andy_Hecht
Market reaction on FED's change in monetary policy is irrationalThe stock and crypto market reactions on for some time known FED's change in monetary policy is an emotional overreaction driven by fear. As you can see from the graph that compares Nasdaq's Index development over the last years with US State Interest rates there was a period from 2015 to 2019 with climbing interest rates and climbing NDQ as well. Directly before the global start of Corona pandemic the US Interest Rate was 1.75%. Currently, the markets expect an up to four times increase of some 0.25% per step in 2022, perhaps resulting in 1.25% at the end of the trading year - so what are we in fear of ??? What changed at Nasdaq and Crypto during the Corona Years 2020 and 2021 is the steepness of the price increase - but is this increase of Tech and Crypto really mainly driven by a very low level of interest rates? Surely not, as we have already seen such low interest rates in the period of 2008/9 to 2015 during the global financial crisis and there was not such increase in the steepness of price development. Moreover, innovative tech companies which calculate with double digit sales increase per year can not be severely damaged by an interest rate increase of some 1%. To my mind, what really changed in 2020 and 2021 and boostered Tech Stocks and Crypto similarly, is a new awareness of the relevance of the global digital social and business model. As never before, Corona let us understand that digital and technical innovations are of systemic importance to jointly master the challenges of the future and Crypto's Blockchains may form a catalytic and secure fundament to trade and socially connect people peer to peer all over the world. Yours Edgar Neufeld Germany
ECONOMICS:USINTRLong
by ENeufeld
Fossil Fuel Fury: Natural Gas Takes The Bullish BatonNatural gas is combustible as producers extract the energy commodity from the earth’s crust. The energy commodity’s price action has been equally volatile since the CME’s NYMEX division rolled out futures contracts over three decades ago in 1990. Natural gas probes above the $5 level- a nearly eight-year high Heat and storms have been bullish LNG demand is booming US energy policy- lower supplies when the demand is rising- A potent bullish cocktail Approximately ten weeks to go in the injection season- Inventories are low The nearby NYMEX natural gas futures contract has traded from a low of $1.02 to a high of $15.65 per MMBtu. The futures price reflects natural gas’s value at its delivery point at the Henry Hub in Erath, Louisiana. The Henry Hub price is a benchmark. Local prices can vary and trade a substantial discount or premium to the nearby NYMEX futures. Massive discoveries of quadrillions of cubic feet of natural gas in the Marcellus and Utica shale regions of the US had weighed on the price over the past years. Technological advances in fracking lowered the production cost. Since necessity is the mother of invention, the demand side of natural gas’s fundamental equation rose with supplies as natural gas replaced coal in power generation and liquification opened a new demand vertical. LNG now travels worldwide via ocean vessels and is not limited to pipeline transmission. After falling to the lowest price in a quarter of a century in late June 2020 at $1.432 per MMBtu, the price has more than tripled. Last week, it probed at over $5 per MMBtu for the first time since February 2014, during the heart of a colder than average winter season. Natural gas probes above the $5 level- a nearly eight-year high With the start of the 2021/2022 winter season still over two months away, the natural gas futures market was in full winter mode last week as the price exploded higher. As the daily chart of October NYMEX natural gas futures highlights, natural gas futures eclipsed the $5 per MMBtu on September 8 and rose to a high of $5.058 on September 10. Natural gas has made higher lows and higher highs throughout the 2021 injection season, with the latest highs coming last week. Open interest, the total number of open long and short positions in the natural gas futures market, rose in June and remained elevated as the price continued its ascent. The metric was at the highest level of 2021 last week and the highest level since early 2020. Increasing open interest when a futures market price moves higher is typically a technical validation of a bullish trend. The move above $5 was a significant event for the natural gas market. The monthly chart illustrates that natural gas futures rose above a critical technical resistance level at the November 2018 $4.929 per MMBtu peak. The energy commodity rose to its highest price since February 2014, a nearly eight-year high. The next technical target stands at the 2014 $6.493 high. Meanwhile, natural gas futures had not traded above $5 in September in thirteen years since 2008. At the end of last week, nearby natural gas prices have risen by 251.3% from the 2020 $1.432 low to a closing price of $5.031 on nearby futures on September 10. Heat and storms have been bullish It may be early for natural gas to soar on seasonal factors as the beginning of the withdrawal season in mid-to-late November is still two months away. However, the price had been trending higher as the summer was warmer than average, increasing cooling demand. Moreover, the devastation caused by Hurricane Ida pushed the energy commodity to new highs. In mid-September, we are still in the dangerous period when storms can wreak havoc with natural gas infrastructure along the Gulf of Mexico. Since natural gas replaced coal as the primary energy commodity generating power, cooling during the summer season has seen natural gas demand rise. For many years, natural gas was a winter commodity, but electricity requirements have made demand a more year-round affair. LNG demand is booming Natural gas discoveries and technological advances in extracting the energy commodity from the earth’s crust via fracking fostered a new demand vertical. In the past, natural gas only traveled by pipelines, limiting demand to mostly landlocked areas. Liquefication evolved the market as it now travels around the globe to areas where the price is higher. Natural gas prices are rising worldwide. On Thursday, September 9, in an interview on CNBC, Cheniere Energy’s (LNG) CEO said the company is “sold out” of LNG for the next two decades. Cheniere is doing so well it plans to pay shareholders a dividend. LNG shares reached a bottom in 2020 at $27.06. At $88.05 on September 10, the leading US LNG company’s stock was 225.4% higher as it almost kept pace with the energy commodity. The bottom line is LNG demand is booming and has caused natural gas to trickle instead of flow into storage over the past months. US energy policy- lower supplies when the demand is rising- A potent bullish cocktail While the weather, LNG, and overall inflationary pressures have provided lots of support for natural gas prices over the past months, the most significant factor has been the dramatic shift in US energy policy. The Biden administration has put the US on a greener path towards renewable, cleaner energy. Fossil fuels like oil and gas have been pushed aside as the administration addresses climate change. The Obama administration did the same with coal, which became a four-letter word in the US energy sector. The fact is that fossil fuels continue to power the world. It will take decades for technology to replace oil, gas, and coal with wind, solar, and other renewable energy sources. Even if the US and Europe move to alternative energy sources, the world’s most populous countries, China and India, are likely to continue to burn fossil fuels. While natural gas is up 251.3% from the 2020 low, coal gas has done even better. The chart shows that the price of thermal coal for delivery in Rotterdam rose from $38.45 per ton at the 2020 low to $169.55 at the end of last week, a gain of over 340%. In a world starving for energy, fossil fuel prices are on fire. In 2021, the Biden administration canceled the Keystone XL pipeline, banned fracking for oil and gas on federal lands in Alaska, and is increasing regulations and taxes on the fossil fuel industry. Meanwhile, the administration gave the go-ahead for a natural gas pipeline from Russia into Germany. The twenty-year war in Afghanistan ended, but the US war on hydrocarbons to battle climate change is only getting started. Meanwhile, the administration calls climate changes an “existential threat” to the world. It took twenty years, four US Presidents, billions if not trillions of dollars, and many lives to replace the Taliban with the Taliban. It seems a bit hypocritical to transfer the production and pricing power in crude oil back to OPEC+. It took decades for the US to achieve energy independence. The current administration has replaced OPEC+ with OPEC+. Oil, natural gas, and coal are fossil fuels. Climate change is a global issue. The world continues to depend on these commodities. The US retreat only hands to other countries that will now dominate pricing. Moreover, the transfer occurs as the demand is exploding, putting more upside pressure on traditional energy prices. Approximately ten weeks to go in the injection season- Inventories are low In around ten weeks, the natural gas market will move into the 2021/2022 withdrawal season, when inventories begin to decline as heating demand rises. We are moving into the peak demand season with stockpiles at low levels. As of September 3rd, 2.923 trillion cubic feet of natural gas were stored throughout the United States in preparation for the upcoming winter season. Stocks are 16.8% below last year’s level and 7.4% under the five-year average for the beginning of September. At the end of the 2020 injection season, natural gas stocks rose to a high of 3.958 trillion cubic feet. An average injection of over 100 bcf per week would lift inventories to that level. The robust demand for LNG, lower production, and the regulatory environment under the current administration means that there will be the lowest level of natural gas in storage at the beginning of the winter months in years. A cold winter could cause a shortage of the energy commodity. Meanwhile, heating homes will be costly during the coming winter season. If temperatures are colder than average, the bullish party could become parabolic for the volatile energy commodity. Natural gas reached a milestone over the past week as the price moved above the $5 per MMBtu level for the first time since 2014. In early July, NYMEX crude oil traded at its highest price since 2014. Coal is at a thirteen-year high. The Taliban now controls Afghanistan, again. The US was formerly the world’s leading energy producer. The current green energy path means that energy independence has also slipped through the administration’s fingers. Bull markets rarely move in straight lines. Corrections can be fast and furious. However, the trends remain higher, and a new set of fundamentals support higher lows as the bullish fossil fuel frenzy is no flash in the pan. -- Use the link below to sign up for early access to articles. Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
NYMEX:NG1!Long
by Andy_Hecht
1
Crude Oil Correction - Another US Policy MisstepIn early July 2021, nearby NYMEX crude oil futures rose to the highest price since 2014 after rising to a high of $76.98 per barrel. The price eclipsed the October 2018 $76.90 high by only eight cents. The crude oil futures market ran out of upside steam at the early July high and has made lower highs over the past seven weeks. At around the $62 per barrel level at the end of last week, the September futures contract was in a short-term bearish trend. Meanwhile, over the past year, the energy commodity made great strides on the upside. Virus variants and China weigh on the energy commodity US energy policy is bullish for crude oil A bull market since April 20, 2020 The US administration and crude oil- Comedy or Tragedy? Levels to watch in crude oil The most recent selling reflects a long-overdue correction. The slowing Chinese economy, along with other factors, is likely weighing on crude oil. Crude oil futures take the stairs to the upside during rallies and an elevator lower when the price corrects. While we could see lower prices over the coming weeks and months, the underlying support issues facing the energy commodity suggest that it is not a time to become too bearish on petroleum as it continues to power the world. Virus variants weigh on the energy commodity As the delta variant of COVID-19 spreads throughout the unvaccinated population, with reports of some breakthrough cases in those who received vaccines, economic activity has begun the slow. Fears of a return of widespread cases have caused economic growth to slow. Meanwhile, China has cracked down on some sectors of its business sector that raise capital in the west, causing its economy to cool over the past weeks. The demand for energy has begun to decline, sending the crude oil price to its lowest level since late May over the past week. The chart of the now active month October NYMEX crude oil futures highlights the decline from a high of $74.77 per barrel on July 6. In July and August, crude oil has made lower highs and lower lows, falling to $61.82 on August 20, the lowest price since May 21. The next level of technical support stands at the May 21 $60.68 low on October futures. Open interest, the total number of open long and short positions in the NYMEX crude oil futures market, has declined from 2.414 million contracts on July 6. The decline reflects long liquidation. Falling price and declining open interest are not typically a technical validation of an emerging bearish trend. Price momentum and relative strength indicators have dropped to oversold territory. As crude oil has been correcting slowly and not taking an elevator shaft lower, daily historical volatility was just below 27% on August 20. Over the past week, the prospects for higher US interest rates lifted the US dollar index to its highest level in 2021. The dollar index rose over the 93.47 March high. A stronger dollar tends to weigh on commodity prices, and crude oil is no exception. However, the Fed canceled its in-person Jackson Hole event, citing the rising number of delta variant cases. We will soon find out if the central bank decides to stall tapering quantitative easing because of the virus. A prolonged period of inflationary monetary policy could cause raw material prices to resume their ascent. US energy policy is bullish for crude oil President Biden pledged to address climate change during his 2020 campaign. Following that promise, he canceled the Keystone XL pipeline project on his first day in office by issuing an executive order. In May, the administration banned oil and gas drilling and fracking on federal lands in Alaska. While crude oil demand has been booming over the past months, US output stood at 11.4 million barrels per day as of August 13, 13% below the record high of 13.1 mbpd in March 2020. Meanwhile, US crude oil and oil product inventories have declined in 2021. According to the American Petroleum Institute, US crude oil stockpiles declined by 51.508 million barrels from January 1 through August 13, 2021. Gasoline stocks were 4.9509 million barrels lower, and distillate inventories dropped by 9.571 million barrels. The Energy Information Administration data shows a 57.8 million barrel drop in crude oil stocks, with gasoline inventories 8.4 million barrels lower so far this year. Distillates have declined by 13.9 million barrels. US daily production has increased from 11.0 mbpd to 11.4 mbpd since early January, but it is insufficient to keep stockpiles from falling. US energy policy is weighing on output as increased regulations, and a shift to a greener path for powering the US causes fossil fuel production to decline. Meanwhile, crude oil and oil product prices have moved substantially higher in 2021: Nearby NYMEX crude oil futures closed 2020 at $48.42 per barrel. At $62.32 per barrel on August 20, the energy commodity was over 28.7% higher even after the recent correction. Nearby NYMEX gasoline futures closed 2020 at $1.4238 per gallon. At $2.0236 on August 20, the fuel was 32.1% higher for the year. Nearby NYMEX heating oil futures, a proxy for distillate prices, settled at $1.4832 per gallon at the end of December 2020. At $1.9082 on August 20, distillate prices rose by 28.7%. While the US is on a greener path of energy production or consumption, the US and the world continue to rely on crude oil and oil products for power. For decades, the US struggled to achieve energy independence from the Middle East, home to over half the world’s crude oil reserves. Over the past years, rising shale production and a drill-baby-drill and frack-baby-frack policy caused the US to take the leadership role in output, achieving its goal. The change in energy policy under the Biden administration has shifted crude oil’s pricing power back to OPEC and the cartel’s partner, Russia. As the Saudi oil minister said earlier this year, “Drill-baby-drill is gone forever.” A bull market since April 20, 2020 At the height of the global pandemic, energy demand evaporated. Nearby Brent crude oil futures fell to the lowest price of this century at $16 per barrel. NYMEX futures fell below zero as the landlocked crude oil ran out of storage as inventories exploded. As the monthly chart shows, at over the $62 level on August 20, 2021, crude oil futures remain over $100 per barrel higher than the April 20, 2020, negative $40.32 low. While the nearby futures have corrected by nearly $15 since the early July high, they remain in a bullish trend since the April 2020 low. The US administration and crude oil- Comedy or Tragedy? If the Biden administration should have learned anything from the current debacle in Afghanistan, timing is everything. The administration misjudged the Taliban’s ability to swoop across the country’s 34 provinces and capture its capital, Kabul, in short order. Transporting US citizens and Afghanis that assisted the US became a tragic chapter for the world’s wealthiest nation and leading military power. Two weeks ago, before crude oil corrected, the Biden administration appealed to OPEC+ to produce more oil as gasoline prices had risen to multi-year highs. Opposition party Republicans and environmentalists noted that the President casts himself as a climate warrior moving the US towards cleaner energy to protect the planet. The request for OPEC to increase output only makes sense if their production comes from sources away from the earth. After suffering under increasing shale production over the past years, OPEC+ does not have the US’s best interests at heart. The cartel is more likely to structure production policy to squeeze US consumers. After all, producing one barrel at $100 yields a better return than two at the $40 level. The Biden administration has been in office for the past seven months. Immigration, Afghanistan, and energy policies have been far from successes over the period. One sector of the market could benefit from the events transpiring in Afghanistan. With banks closed, one of the few ways people can leave with life savings is to protect them in computer wallets in the cloud. Cryptos allow for transport on flash drives or access in other areas of the world via a secure password. Bitcoin, the leading cryptocurrency, posted gains over the past five consecutive weeks. The correction after the parabolic rally found a bottom. Flight capital is another reason supporting cryptos in a volatile world. Levels to watch in crude oil US energy policy remains bullish, despite the current correction in the crude oil futures market. OPEC and the Russians are not likely to cooperate with the Biden administration and heed the call for more output. They are more likely to cut production given the foreign policy tensions and signs of weakness in Afghanistan. The NYMEX crude oil’s weekly chart shows support levels at $61.56, $57.25, and $33.64 per barrel. As crude oil is heading towards the end of the driving season, delta variant cases are rising, and the US and Chinese economies are slowing, a deeper correction is possible. Meanwhile, with OPEC+ back in control of the marginal oil barrel, the medium and long-term prospects for the energy commodity remain bullish. I expect higher highs in crude oil in 2022 and beyond. US energy policy towards a greener path will change the oil market’s dynamics over the coming decades. Still, as petroleum continues to power the world in the medium term, the move to protecting the planet will lift oil’s price and fill OPEC+’s pockets over the coming years. I am short crude oil from a trend-following perspective, but US energy policy is likely to cause the fossil fuel to find a bottom at a higher level over the coming weeks. Follow those trends, they are your only friends. ----- Use the link below to sign up for free early access to articles. Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility , inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
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