22 March, 2012

Surprise! Dollar Trading INVERSE to Yields

Based on the theory that USD goes up on higher treasury yields, you would imagine EUR/USD would be heading lower on higher yields, right?

Well, the relationship that's developed in the past couple of weeks says otherwise. The USD is suffering from higher yields. Is it because traders are pricing in economic recovery in the rest of the world while the US leads? We think it has something to do with that, but more so with the stress that higher yields are going to put on a trillion dollar deficit.

13 March, 2012

Side-by-Side Fed Statement Comparison

The Fed has largely acknowledge recent gains in jobs as well as temporary inflation pressures from high oil and gas prices. The reaction so far is US Dollar positive, as expected, and 10-Year Treasury yields are breaking highs on the expectation that economic growth will re-invigorate interest rates.

The statement and comparison with the previous statements is posted at this link

Greek Debt Restructuring - New Bonds

After investors wrote off over 100B Euros in bonds, the new bonds have taken over and we're getting to see what the market is expecting of Greek debt, post restructuring.

Greek 10-Year Bonds

09 March, 2012

Hard Data: The Real Correlation Between AUD/USD and S&P 500

Correlation is measured on a scale from -1 to 1. A correlation of 1 would mean two perfectly correlated instruments (the same thing), 0 would mean completely uncorrelated, and -1 would mean perfectly inversely correlated. 0.5 is a darn good correlation

The following chart of Aussie and the S&P 500 and their correlation is presented without additional commentary.

Source: Bloomberg

What You're Probably Going to Miss

You're probably going to miss this weekly chart of Euro which we look at for the ultimate decider in technical bias, especially at the end of a week.

The big, bulging yellow line is the CLVN and delineator between the CVPOC at 1.2885 and higher prices toward 1.33. Ever since 2004 it has been the pivot between these two levels and even more. Closing above it this week is indicative of rejection from 1.31s and below and foretells higher prices. The other possibility is gyrating around it with high volatility and the last one is just breaking under it.

EUR/USD weekly chart
Watch the close after 17:00 EST and we should get a quick move at the beginning of next week away from our current level.

08 March, 2012

Where to See the USD Weakness

With Aussie and Euro getting bear-raided today, we're focusing our attention on gauging the strength of the US Dollar via the USD/CHF as well as the US Dollar Index.

The daily chart of USD/CHF is indicative of a failure on this most recent rally should the pair fall and close under 0.9100. Basically we'd be looking at a rejection of value around the 0.9190 CHVN and a retest of 0.90 first, followed by 0.8808 on further weakness.

Daily USD/CHF chart.

02 March, 2012

Euro FX Shorts Decrease

The latest COT report shows decreasing short positioning, but still with speculators being net short. The trend is to stay with the prevailing CTA/hedge fund positioning and it works quite well historically so more consolidation around 1.3165 is likely.

Green horizontal lines mark net long speculators, and subsequently a higher EUR/USD rate. Red is the opposite.