Forex rebates on every trade - win or lose!

So does leapfrogging, depending on the pile you've got.

D'you get the feeling this is it until the numbers are out later...if you want soporific, watch Euro :S

Agreed - just the kinda day where mistakes are made because of boredom. I've pulled my short for 5 points ;( Was it worth it?

Phew - that was good timing!!

Oh it was - makes up for the 5 you were down the other day :)

Very dangerous because I'm bored - long from 158

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.