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EURSEK trade ideas

FX Update: At what point is euro weakness existential?Summary: A fresh spike in natural gas prices in Europe accelerated the relative weakness of the euro yesterday and the single currencies performance is so dire that we have to consider where to look if the market transitions to more existential, as opposed to cyclical concerns. Elsewhere, SEK has recently looked like the baby being thrown out with the bath water and the USD strength is broadening out. FX Trading focus: The Euro in the dumps, in part as sterling mounts steep comeback. The remarkable relative weakness of the euro has been the most prominent development among major currencies recently, accelerated yesterday by the latest spike in natural gas prices brought about by a German regulator announcing a delay in the Nord Stream 2 pipeline certification. So far, the euro weakness is arguably cyclical only (as opposed to existential – more on that below), with weakening growth prospects brought about by the ugly spike in gas- and power-related input costs clouding the growth outlook, while the ECB guidance has no relevance for addressing the situation and where the central bank forever defaults to the dovish side anyway. So far, the theme of a weakening growth outlook has played as it usually does for the pro-cyclical peripheral European currencies like SEK, which has weakened even more than the euro. But if this situation extends deep into the winter months and especially if this is accompanied by a German “stoplight” coalition that features the LDP’s Christian Lindner and his stingy stance on fiscal stimulus as finance minister, the euro weakness could begin to take on a more existential angle. What would a new “existential crisis” for Europe look like in markets and how would it differ? Likely very different, as the ECB sits so heavily now on the EU sovereign market that it would likely break every rule to keep spreads more or less in line. That leaves the currency itself as the only real speculative vehicle. Chart: EURSEK To a degree, the relative SEK weakness to the euro fits with past cycles as SEK traders often focus on the cyclical growth outlook, to which SEK is seen as high beta due to Sweden’s export-oriented economy. But the late squeeze is looking overdone, particularly if the natural gas price situation eases in Europe in coming days and weeks. As well, the Riksbank is priced to prove far more responsive to shifting guidance as inflation moves higher – with 2-year yield spreads at cycle extremes in favour of the SEK here. And eventually, if the euro concerns wax existential rather than merely cyclical, SEK looks very cheap indeed. Recall back in the late 2009-2012 period when the SEK traded as a safe haven relative to the euro during the EU existential debt crisis. The 10.10-15 area is the ultimate local resistance here if the market agrees…today already showing potential for a bearish reversal, with a close near or below 10.00 today an interesting setup for pressing the action back toward the cycle lows. US jobs drastically under-counted? – The Washington Post ran an article suggesting that poor BLS data collection and other factors mean that over 625,000 US jobs were not counted for the June to September time frame. If this is the case and these revisions show up in the next jobs on top of strong new numbers for November, etc., we could be headed for a far more drastic Fed tightening than anticipated, with the December FOMC possibly bringing a doubling of the tapering rate and the market bringing forward the lift-off timing and pace of rate hikes. USDJPY perched near 115.00 – have to watch the longer US treasury yields here, as well as oil prices, for the risk of further JPY weakness, as the JPY managed to weaken more or less as rapidly as the euro yesterday and USDJPY is near the massive psychological level of 115.00. Probably an un-moored US 10-year yield pulling above the 1.75% cycle high would be needed to sustain a major break higher for this pair and eventual attack on the 120.00 area. Note the US 20-year treasury auction late today. Brainard or Powell? Get it over with already. This is still a significant point of uncertainty for the market and I am entirely unsure how the market will respond. Lael Brainard’s odds of getting the nod are rising and she is even favoured by bookmakers at this point, but how difficult would the confirmation hearings prove for her? As mentioned before, the path of Fed monetary policy would likely differ little whether Brainard or Powell is Fed Chair from February, while Brainard is a hawkish regulator and will likely be given a prominent new post as such even if Powell is offered a second term. Disclaimer The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
by Saxo
EURSEK MULTI-TIMEFRAME ANALYSIS & TRADE IDEA - ICI & M PATTERNHello everyone, if you like the idea, do not forget to support with a LIKE and FOLLOW for more creation of free analysis. \m/ We can see that on all Higher Timeframes (Monthly, Weekly, Daily) EURSEK is bearish. Monthly the market has created an M pattern where we can expect a retracement back to the neckline or wick of the monthly candle, where its lining up with structure and the 0.382 of the fibonacci retracement. Dropping down on the Weekly we have an ICI to the downside where its also lining up with the 0.50 of the fibonacci retracement and structure where it was previous support turns resistant. On the 4H timeframe this is where we take our trade. We will base our entry on the 0.50 of the fibo, and our take profit is at the fibo of the impulse of the weekly W pattern, which is lining up also with the wick of the monthly M pattern. Our stop loss is above the last high. Trade Signals SELL Entry: 10.04000 Take Profit: 9.73703 Stop Loss: 10.09727 Good luck! Trade wisely, please do proper money management. ~FX_SHIFTER
Short
by fx_shifter
1
FX Update: This market keeps running out in the sand.Summary: Friday brought a sharp reversal of the US dollar strength from Thursday as the US May payrolls data was seen as likely to lower the odds that the Fed will deviate from its current patient stance on trying to see through strong labour market and inflation data in the near term. The last biggest test on that front will the US May CPI release on Thursday. For now, treasury yields jerking lower supported everything from the AUD to JPY against a suddenly weaker greenback, even if directional moves seem to have a half life of mere hours. FX Trading focus: This market keeps running out in the sand There is a Danish expression that roughly translates as “to run out in the sand” that is an extremely efficient way to describe some initiative or movement running out of energy or forward motion, resulting in nothing or a failure. I’m told by my Danish colleague that it is a metaphor of the sand in an hourglass running out, marking an inflection point or time of judgment. A shame, because in the literal translation into my native English-speaking mind this saying painted a rather more literal and compelling image of an effort getting bogged down and reabsorbed back into the undifferentiated chaos around it, like a fading sandcastle or a stream of water that dissolves into the sand. Oh well, either way you use the metaphor, this market keeps running out in the sand, making it impossible to trust the latest effort to get something going in one direction or even to judge the implication of sharp reversals. The latest new development is, of course, the weaker-than-expected US May Nonfarm payrolls print on Friday, which at 559k vs. nearly 700k expected (and really, the “lean” was for a print far north of that) was a kind of “Goldilocks” data point, sufficiently strong to indicate a still robust recovery in the US labour market, especially together with other evidence, but sufficiently weak to allay the fears generated by other data points last week that the Fed will have to sharply alter course. The narrative on the back of the data is that this is “just right” to keep treasury yields rangebound and risk sentiment high and the USD weaker. But as we discussed on this morning’s Saxo Market Call podcast, we’re uncomfortable with the narrative here (so the best thing for markets will be a weaker than expected US economy as it keeps us on the safest-of-all outcome of relying on the eternal stimulus gravy train?) This pump and dump of the US dollar on Thursday-Friday could just prove the latest thing to “run out into the sand”, although if risk appetite remains firm here and Fed expectations neutral through whatever surprise the May CPI release on Friday, there may be enough space for the USD to extend lower ahead of the important June FOMC next Wednesday. In any case, the move lower in yields and rise in risk sentiment on Friday saw odd co-movements like both the AUD and JPY rallying sharply, the former on risk correlation, the latter on the US treasury rally. SEK was also firmer as discussed below. Chart: EURSEK EURSEK is one currency pair currently trying to get something more notable going in directional terms as the very bottled up price action of the last several weeks was broken on the release of the US Nonfarm payrolls change data on Friday, likely on the logic that lower US treasury yields are better for the very low yielding, and likely to stay that way, Swedish krona. But SEK should be a more pro-cyclical currency and, while the move looks legit so far, and in any case demands our attention as the absolutely massive 10.00 level approaches, we’re more comfortable with SEK strength in the context of strong risk appetite and hopes for the EU economic outlook turning higher as the Swedish economy is leveraged to the strength of its export sector. At least it has been traditionally. A SEK rally based on simply looking less attractive via yields dropping elsewhere? That’s not the basis for a potent move in my view. Still, watch the behaviour around the 10.00 level, one that last traded in early 2018. AUDNZD back in the old range. Elsewhere, in smaller developments in the crosses, it has been interesting to watch the AUDNZD comeback after the pair sold off on the RBNZ’s comments at its most recent meeting eyeing mid-next year as a possible window for raising rates – a NZD move that, you got it, ran out in the sand. The big move and capitulation below the old 1.0710 range lows was done the following day and we are now back in the old range, trading near 1.0750 today. One reason is likely that, the RBNZ’s forecast notwithstanding, the market is still not differentiating the forward rate path for the RBA vs. the RBNZ relative to where it was before the RBNZ meeting, which saw a brief, one-off reaction at the front end of the yield curve in NZ that, well, ran out into the sand. RUB sentiment riding high – key risks ahead – Russia may have a new reason to keep its currency firm and that is rising food prices after a UN global food price index showed a 40% increase year-on-year. Russia is moving to limit exports of foodstuffs and this Friday’s rate decision sees a split consensus, with some looking for a quarter-point rate hike while others are looking for fifty basis points. The latter is more likely if the focus is on food prices and cost of living baskets, which it may be more than supporting growth. In any case, USDRUB is trading down against a key range support at 72.70 and this could prove a volatile couple of weeks, with Biden and Putin also meeting next week on top of the signals from the rate move. Disclaimer The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
by Saxo