QuantumLogicTrading

DXY/ USD: WEAK ISM PMI FLUSHES USD BIDS - FED MESTER SPEECH

TVC:DXY   US DOLLAR CURRENCY INDEX
3 months ago
USD disappointingly failed to maintain its heavily demanded week when ISM PMIs not only fell short of expectations but also showed a slight contraction by slipping across the 50 mark to the downside. This data pattern however has been consistent for USD, where it has failed to show any upbeat prints, though in the past months the Job market has been able to stand out from this trend so it is difficult to read too much into what the report tomorrow will show.

As discussed in my post last week, i believe the risks are to the downside and even more so that Fed mester has stated that employment has reached capacity and 75k-100k a month will be enough to maintain the rate - a figure like this tomorrow would surely see DXY             move back into the 94s, with september expectations likely to drop into the 12-18% range that it had maintained before yellen last week.

Fed Mester on the whole was neutral, offering little to support the dovish or hawkish side.

USD Positioning:

In terms of positioning, given $Yens rapid 6-day appreciation (today would be the 7th on a close above 103.45) I am looking to get short if we can get a close just 15pips higher than market, as a 7th day on the up has only been seen 3 times in the past 16yrs so shorts here are statistically in play - though of course NFP upside bodes a risk, but given my expectations going in (downside) it is a risk I will be willing to take (not to mention i expect market risk to spike increasing yen demand - but i will discuss this in a separate post if we close higher tonight).

My long favoured short GBP$ trade is currently hanging in the balance, with little negative data to illustrate brexit impacts coupled with USD data unable to get a footing it is hard to continue with the "short sterling on rallies" approach, given topside is becoming arguably justifiable, if we see Services Monday and construction friday PMIs above the 50 level, short GBPUSD             on rallies will no longer be a conviction trade, as there will be no real macro case outside of the broad "brexit uncertainty" which by all accounts is waning as optimism and confidence measures are fading the downside spike. Ask yourself, going forward assuming data holds up which it should, what further reason does the BOE have to ease or GBP have to fall? Brexit negs arent likely to start until Q2 2017 so we have a firm 6m of "stability".. especially when you think of sterling with respect to the massive 1000-4000pips its lost (cross ccy) into brexit, upside from here is certainly possible even if it is just a recovery rally.

Trading NFP on a 220k print is also possible as a tactical trade e.g. long DXY             , as DXY             is likely to offer lower some more going into the event as the market derisks.

Fed Mester Speech Highlights:
3 months ago
Comment: -Fed's Mester: Economy Has Made 'Significant Strides' Since Recession
-Fed's Mester: Low Interest Rates Not Effective Solution for Long-Run Labor Market Challenges
-Fed's Mester: To Remain Competitive, U.S. Economy Needs to Adapt to Technological Changes and Globalization
-Fed's Mester: Meeting With Fed Up Activists at Jackson Hole 'Productive Exchange of Views'
-Fed's Mester: Investments in Human Capital, Infrastructure Key to Regional Development
-Fed's Mester: Accommodative Monetary Policy Has Helped Labor Market Improve
-Fed's Mester: Low Interest Rates Won't Solve Job-Market Challenges
-Fed's Mester: 'Back on Trend' on Labor Force Participation Rate
-Mester: Still Expects Labor Force Participation Rate to Decline Because of Demographics
-Mester: Job Growth Between 75,000 and 150,000 a Month 'Enough to Keep Unemployment Constant'
-Mester: Low Rates Helped Labor Market After Recession
-Mester: Economy at Full Employment
-Mester: 'Gradual' Interest Rate Increases Consistent With Outlook
-Mester: Timing of Rate Increases Will Depend on Data
-Mester: Holding Rates Too Low for Too Long Could Allow Financial Stability Risks to Build
-Mester: Expect Inflation to Move to 2% Over 'Next Couple of Years
-Mester: 'Gradual' Interest Rate Increases Consistent With Outlook
3 months ago
Comment: ECB'S Nowotny Speech Highlights:

-We live in a world with low rates, less inflation
- We see a long term trend of lower growth rates
- Reasons include savings glut and income inequality
- Low rates are a reaction to economic developments
-In This Economic Environment Central Banks' Ability To Autonomously Set Rates Extremely Limited
-Prevention Of Deflation Is The Central Task For A Central Bank In This Environment
3 months ago
Comment: STATISTICS UPDATE:

1. Since September 2009 to August 2016 Average NFP has been 143.8k, Median 162k, Standard Deviation 121k (last 2 prints 1 deviation above average), Minimum -263k, Maximum 431k, Range 694k.
Entrenched
3 months ago
Amazing, great stuff man! Thanks!
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QuantumLogicTrading Entrenched
3 months ago
my pleasure!
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BekirTanriover
3 months ago
thanks!!!
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QuantumLogicTrading BekirTanriover
3 months ago
no problem!
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dchua1969
3 months ago
hi
would your analysis take into consideration that consumer confidence is at its 11th month high and ADP has rise from 171k to 177k?
thanks
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QuantumLogicTrading dchua1969
3 months ago
Consumer confidence is a fair point, however ADP NFP has little correlation to NFP, and it only beat by 2000 jobs as it was. 177K is also still below the 180k expected also even if correlation was high.

Either way, still with the last two prints being so high i think its going to be hard to keep it up, especially as the economy reaches full employment.
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QuantumLogicTrading dchua1969
3 months ago
Just done the correlation between confidence + NFP, its 60% - so its not a bad indicator but that doesnt show the degree just shows that 6/10 of times when confidence is higher NFP is higher.
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QuantumLogicTrading dchua1969
3 months ago
data from Q3 2009 to current
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