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I don't believe it...the best I got was 162 :)

Oh goodie - fins have gone down :S

out at 171 :)

Out @ 175

185 was tempting then, but I didn't do it.
Hohum, back to work then

I missed it as well. Have to go out around the 13:30 news so probably best if I leave it until I get back. Pick the right direction and BINGO, pick the wrong one and Disaster. A bit McCawber like.

Pip, pip

Published: Jun. 03 2005, 12:09 GMT
Nonfarm Payrolls trading scenarios
EURUSD, option strategy and stocks


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EURUSD
The French and Dutch rejections of the EU constitution translated into a heavy EURUSD sell-off. But was it enough? The EUR is still weak and longs are fearful in this environment. Today, comments from the Italian welfare minister about a return to Lira, immediately resulted in a sell-off of 60 pips. Such an event is not exactly indicative of a strong market structure.

All in all, the economic data for the Euro-Zone has been horrible for several quarters. With the European Union coming apart and the market getting used to lukewarm but non-catastrophic data from the US, it now seems the fall of the EU treaty has just been the straw that broke the back on the EURUSD camel. The market has been long EUR for primarily two reasons: 1) The currency is big and liquid, and 2) it is not the USD.

We are now entering a theme, where these two reasons are no longer enough for being long EUR. The theme is new and not manifested in the markets. And now to the point: The number of non-farm payrolls created still matters, but if the number comes out today as expected, it would leave the market with no other things to think about than the Dutch and French no’s and the rapid disintegration of the political future of Europe. A clear sell to me – the EUR has a neutral non-farm payroll number against it. From the recent price action some likely scenarios would be the following.

NFP < 130
EURUSD + 50 pips

130 < NFP < 175
EURUSD unchanged

175 < NFP < 225
EURUSD -70 pips.

225 < NFP
EURUSD -150 pips.



EURUSD option
Today's US unemployment figures and the uncertainty of the future of the EUR certainly dictates tension and a further volatility in spot. The break of 1.2150 on the downside translates into a further erosion of spot. However a break above 1.2350 will acts as a short term stabilizer and the EUR may gain further momentum on short covering. We advise clients to use options for a directional move with a limited risk.

Option Cont. Looking to go short EUR and gain on the momentum if spot breaks 1.2150. Buy a 1.2150 EUR Put one-week expiry, 10 June. Premium cost 35 USD pips. As an aggressive position one might sell the 1.2350 EUR Call. One week expiry as well, 10 June. premium produced 35 USD Pips. Hence one goes short EURUSD via the EUR Put at a flat premium but with a risk above 1.2350 as one is short from this level on the day of expiry. Ask for further advise over the dealer on a risk management side of this combination.


Stock markets
The stock market environment is a big mystery when trying to predict a move on the non-farm payroll numbers today. Inflation fears have been very much on the agenda for investors to take into account in their strategies. When the market is leaning more towards a FED-rate at 3.75% year end, than 4% a month or so back, it seems like part of the rally seen of late in the US is explained by inflation fears cooling off. A stronger than expected non-farm number could trigger those fears again and hike the year-end interest rate expectations. That would be bad for stocks, but the stronger number would at the same time tell us that the US economy is picking up speed. A weak number should confirm interest rate expectations at a lower level, but on the other hand indicate that the economy is not doing so well. All in all we believe investors will be looking at oil and steel prices and how the USD is doing towards mainly the Euro and the Yen with more interest for inflation signs and look at the non-farm numbers as a pure indicator for how the economy is doing.

Jeff,

You're currently seeing a scenario whereby there is little prospect of good news coming from any one currency to drive that particular currency up. The likelihood is instead weighted more towards bad news driving a particular currency down which will therefore push the other side of a pair up.

The Nip economy is totally stuffed (zero rate finance does not promote growth), the Yanks have got big, big problems (the twin deficits have not gone away and they've just started the driving season with crude surging upwards to retest the highs), the Euro is a non-starter and the markets are now pricing in the likelihood of it not being here in 5 years and sterling is yet to suffer the ill effects of Boney Liar and Gordon the Haggis reaping what they've sown.

That sentiment is evidenced by the reaction to the payroll data ...... the news wasn't good, so the first instinct was to sell the Dollar. But what do you buy instead as everything else is also knackered? There are currently no buyers to provide any sustainable momentum, hence the whipsaw effect.

Hil:

Thanks for those cheering words. Do you really think the Euro could go away? How the heck would they extricate themselves from it?

D.

D,

I'm a regular harbinger of doom and gloom. My friends call me Jonah (as well as Manky Shins).

:o)

I think that you'll still see a Euro as it will be nigh on impossible to return to the former currencies, but a whole load of member states will have their own Euro (eg you'll see a Polish Euro and an Italian Euro, etc). Chirac is just about history. Schroder will be too soon. Fact is that it's not working and the dream-makers are now paying the price. Extending the Union to 25 member states should hopefully be the straw to break the camel's back. I wish they would hold a referendum in this country so that an overwhelming 80% NO vote would wake Boney Liar from his slumber and make him put the coffee on. Just my opinion.

PS Haven't forgotten the boots ...... just been a bit busy

Manky Shins (if I could be so bold)
Interesting thing I've noticed is that appeared (until recently) to be a relative correlation between the DOW and the currency - DOW UP, Currency UP.Now it appears to have shifted to DOW DOWN, Currency UP.

Any observations on that - my observervations have been cursory rather than scientific/rigorous so it may just be that I have noticed it whilst trading and there may be absolutely nothing in it. However, would be interesting to hear from a pro (in the nicest possible sense)

mg (I am Curious Yellow - and if that rings any bells you're older than I thought)

Dear Papal Leopard Print Thong Wearer,

Currency trading is a two-sided affair as you need a second currency to make the cross and the movement is therefore affected by news from both sides of the cross. The news from the US hasn't particularly been inspiring of late with talk of twin deficits and high energy prices. That has weighed on the Dow and also the Dollar. Fortunately for the Dollar though, the European news has been worse ..... zip-all economic growth, high unemployment and high debt, all overseen by a bunch of Eurocrats who are more concerned about sawdust on the floors of butchers shops than their crumbling union. Fed rates are now higher than ECB rates and not that far behind BoE rates which affects the carry trade. That is what has caused the Dow to fall and the Dollar to rise against the European majors.

A bit of positive news from the US right now would cause them both to rise which is the phenomonem that you've seen before. Equity markets, Bond markets and Currency markets all share the same news which affects where the REAL money players go.

Errm, just to add to the dollar debate..

...so what's so good about the dollar? There are plausible reasons to be a dollar bull. The first and most compelling is that the dollar is not the euro. Political defeats for the key proponents of the European Union, Schroeder and Chirac, as well as the 'non' vote are virtual defeats for the euro as a world reserve currency to rival the dollar. As a paper currency backed by over-spending governments, the euro is no more fundamentally sound than the dollar, and if markets were even moderately efficient, much of the bad news should already have been priced in to the euro. How much higher can the dollar go by virtue of not being the euro? The dollar has rising interest rates on its side - last week's release of Federal Reserve meeting minutes indicated that the US central bank is intent on raising interest rates at a measured pace. The prospect of rising US yields is in contrast to the lowest German interest rates since 1896. With a growing spread in interest rates favouring holders of the US dollar, why wouldn't it continue to rally?

Just as the dollar bulls believe it has rallied because it isn't the euro, so it should also fall because it isn't gold. The Philadelphia Gold and Silver Index recently breached 2 multi-year uptrend lines. Gold stocks are breaking down out of their bull run, or so it seems. Ok, so America's deficits aren't getting any smaller, there's nothing new in that.

The US Treasury's latest report on International Capital Flows shows that since last August, the Japanese have reduced their holdings of US Treasury bonds by $19.4 billion, which isn't a huge decline, but importantly, they're not increasing their buying of US bonds. And the Chinese have increased their holdings, but not by much, from $201.6 billion in August 04 to $223.5 billion in March 05. The most notable increase in fact comes in the UK including the offshore tax havens of Jersey and the Isle of Man. These holdings doubled over the 8 months to March. Meanwhile, Caribbean Banking Centres - US hedge funds - have also increased their holdings by 44% since last August. But unlike the UK's steady accumulation of US Treasury debt, the Caribbean's holdings actually fell between August and December, down to $71.4 billion. And since December, US hedge funds have increased their offshore holdings by 92%. In the great hunt for yield, 4% on a US bond is better than 0% in Japan. And here's the edge: hedge funds, unlike Japan or China, have no interest in a strong or a weak dollar. They're merely out to make money where they can. They will sell when a better trade comes along or when they're forced to liquidate.

So - the mainstays of the US bond market, China and Japan, aren't buying - hedge funds are. But their support for the dollar, which has the effect of keeping interest rates down, is merely a trade, not a policy. When the hedge funds sell or stop buying, you want to be asking who'll pick up the slack.

Answers on a postcard :)

Good post Chocolat food for thought.

1. EURJPY   2. EURCHF
3. GBPJPY   4. GBPCHF
5. EURGBP  6. EURAUD
7. EURCAD  8. CADJPY
9. CHFJPY   10.AUDJPY
11.NZDJPY  12.AUDCAD
13.AUDNZD

IMF SAYS ECB RATE CUT NEEDED IF NO EURO ZONE RECOVERY IN Q3, NO MOVE NEEDED YET
AFXU

IMF SEES EURO ZONE ANNUALISED GROWTH SLOWING TO AROUND 1 PCT IN Q2
AFXU

IMF SAYS EURO DECLINE HELPFUL FOR GROWTH
AFXU

IMF SAYS EURO LEVEL OF 1.20-1.30 USD 'ABOUT RIGHT'

AFX


LONDON (AFX) - The dollar was steady at slightly lower levels against other major currencies in a quiet day for economic data and ahead of US Fed chairman Alan Greenspan's testimony to the Joint Economic Committee of Congress Thursday.

Greenspan's views on the US economy will be central for interest rate expectations and may well have strong implications for the dollar.

Some analysts think Greenspan will be more hawkish than other Fed officials recently and will point to the sharp increase in unit labour costs but yet others think he will signal that the hiking cycle will end soon.

The Fed has raised its key Fed funds rate from 1 pct to 3 pct over the last year and as things stand, is still widely expected to continue raising the cost of borrowing in a measured manner over the coming months.

When the US benchmark US Fed funds rate hits 3.25 pct or 3.50 pct, the Fed may not be able to stick to its current policy of hiking rates in a measured manner, said Divyang Shah at IDEAglobal.com.

The Fed may 'choose to make further moves data dependent,' he added.

The dollar will also face another test Friday when US trade numbers for April are released. Any deterioration will weigh on the dollar especially if Greenspan also hints at a pause in US rate hikes.

That aside, continued speculation about when and how far China will go to revalue the yuan kept the dollar from rising too far.

In a speech in Beijing yesterday, Greenspan said China would benefit from introducing a freer exchange rate system and that a change is likely to happen soon. At the same time however, the Fed chief warned that a Chinese revaluation would not necessarily help address the burgeoning US current account deficit.

In any case China showed no signs of budging.

'We will push forward the reforms step by step. Past experience has told us that gradual reform is successful,' Chinese central bank chief Zhou Xiaochuan said pointedly.

Zhou also said that mounting political pressure on China to move to a more flexible exchange rate will not 'create a helpful environment for China to carry out its reforms'.

Talk about a revaluation is expected to continue especially in the run-up to the G8 meeting in Scotland in July and the G7 finance ministers meeting in London this weekend.

While such speculation may be misplaced, the impact that it is having on the market cannot be dismissed, said Mark Austin at HSBC.

The yen is potentially the biggest gainer from the yuan speculation and may even fall to 106.00 from 106.50 against the dollar, he added

The euro meanwhile, managed to stay close to the 1.23 usd mark despite continued speculation that the European Central Bank may have to bow to political pressure to reduce borrowing costs in the area.

'Political uncertainty over the future of the euro along with calls from politicians calling for a rate cut in the euro zone continue to weigh heavily on the euro. We suspect that this will continue over the medium term and hence any bounce in the euro will be limited,' said Naeem Wahid at HBoS.

For now at least, it looks like the ECB will not capitulate but the climate of uncertainty after France and the Netherlands rejected the draft EU Constitution has led some sections of the market to bet that the central bank will have to budge.

Yesterday, ECB chief Jean-Claude Trichet said inflation expectations in the euro zone were low and that the central bank would do all it could to reinforce consumer and business confidence, fuelling speculation that a rate cut may be on the cards afterall.

Trichet was reported saying that his comments were not meant to prepare markets for a rate cut.

Elsewhere, the pound was higher against the dollar despite a fresh raft of weak UK data showing that the consumer side of the economy is fast losing pace.

The British Retail Consortium reported that cooler than usual weather conditions, consumer caution and the slowing housing market hit the UK high street hard during May, with retail sales slumping for the second month running.

The BRC said like-for-like sales, which excludes new stores and added floor space, in May fell by 2.4 pct from the same period a year ago. This comes after a 4.7 pct decline in April.

Although the BRC said retailers were facing a consumer-led recession, the Bank of England is not likely to heed the lobby group's advice and cut interest rates this Thursday.

Separately, the monthly survey from the Halifax, the UK's largest mortgage lender and part of the HBOS PLC banking group, painted a pretty bleak backdrop for retailers.

Halifax reported that UK house prices were down 0.6 pct in May from April.

That pushed the quarterly year-on-year rate down to 5.7 pct, its lowest rate since May 2001 and way below the July 2004 peak of 22.1 pct.



London 1231 GMT Singapore 0844 GMT



US dollar

yen 106.75 up from 106.61

sfr 1.2465 up from 1.2440

Euro

usd 1.2282 dpwn from 1.2308

stg 0.6718 down from 0.6720

yen 131.12 down from 131.19

sfr 1.5305 down from 1.5308

Sterling

usd 1.8288 down from 1.8310

yen 195.19 down from 195.29

sfr 2.2790 up from 2.2779

Australian dollar

usd 0.7688 up from 0.7668

stg 0.4201 up from 0.4195

yen 82.07 up from 81.96



ss/ra

hilary, chocolat,

Ladies, I do hope you won't object to this crude male intervention but...

Thank you for taking the time and effort to provide these detailed and informative posts...:-)

Regards

SC

SC: Seconded. MM (but please don't mention my male intervention . . . ;-)

MM,
Your secret is safe with me..:-)