The economic calendar came into focus in trade on Wednesday with German IFO positive while U.S. Durable Goods numbers were horrific at -3.8% compared to the expected 0.6%. However, the long side of the Usd will hold so long as S/P futures trade below 1050, because even in the face of terrible economics, the scramble to get long historically low Usd-based Treasury yields will be all-consuming. The famine in the global yield market is not pretty, as seen by sub-2.5% yearly rates on ten year notes being snapped up.
The continued weakness in global risk markets is following the tone mentioned by the trade desk over the last nine months that whatever direction the U.S. Non-farm Payroll number has printed at, either better or worse than expected, has set the direction for the following month of trade.
The pattern is set, and is a reflection of the depth that fair value on forward growth has on speculative and investor outlook and expectancy. It is also creating huge swings from one month to another in the value of equity, commodity and bond values.
What would have been acceptable as a yearâ¿¿s worth of return just a few years ago is now accepted as the monthly, and sometimes weekly, movement in individual markets. The following examples are the consequences of a market that is starving for yield, in the middle of an ongoing private-sector, public-sector, and inter-bank credit freeze that is a detox of the years, if not decades of leveraged greed that most look back on in the cold light of day as financial suicide.
The hangover on this will last a very long time, as the new-norm forces a buy-and-sell mindset on market participants.
moved higher from Jan-May by 12%, from Jun-Jul dropped 11%, and in just the one week following the August NFP report gained 4%, which for an asset class that has a weekly average trading range of 0.5% is confirming huge intra-day volatility. The dollar index is up by 7% on the year.
S/P 500 Futures
have an astonishing monthly high-to-low movement ratio, as market participants battle each other on a daily basis for fair value, in-line with NFP sentiment. Jan 7.3% Feb 6.3% Mar 6.1% Apr 4.2% May 13.8% Jun 9.9% Jul 10.4% Aug 7.4%. After all of the month-to-month volatility the year-to-date loss is 7%, as eight months of movement has been absorbed, all of which was at the beck and call of the post-Non-farm Payroll sentiment.
Equity investors would have been better off taking a new position in ESUO (S/P Futures) in the direction of the miss of expected NFP numbers the week after each NFP report, closing the position just ahead of the next release, and repeating the process each month. Conversely, investors could have invested in the German Dax that has held in a tighter range, and dropped only 3% on the year.
has been on a roller coaster ride that has followed the NFP express with some very high percentage periods of trade, here are the high-to-low movement ratios on West Texas Intermediate oil; Feb-May was +24%, with May-Jun reporting -26%. The response to Aug NFP has been a drop lower of 14%. WTI is also lower on the year by 11%, and after all of the volatility has left a market devoid of speculative interest that is now controlled by intra-day algorithm trading.
Current Dollar Index Review
The dollar index is holding 83.50 at a time that the global market is selling risk and buying into the Treasury-based move to the Usd on days that stocks are sold. The inverse correlation between the dollar and equities is in full force, and so long as S/P 500 futures trade is under 1075 the dollar will dominate Gbp, Eur, Cad, and Aud. Conversely, a weaker equity and Treasury yield market will empower Jpy and Chf. A 200 tick channel between 82.00 and 84.00 is in play with support at 82.50 easily holding in the near-term. Neutral momentum reads are disguising daily moves into the dollar.
Current S&P Futures Review
Asian, European, and U.S. equity markets recently put in a 4-hour swing point high on increasing volatility and decreasing participation. That allowed equity selling to dominate daily trade patterns, with ESUO giving forex traders a great read each day on risk direction. On the days of ESUO S/P futures weakness the Usd gains ground, and vice versa. S/P futures are trading under the critical 1075 swing point. Watch for a Weekly chart hold above 1075 to trigger 1095 tests, or below 1050 to trigger 1025 moves.
Current Crude Oil Review
There has been a 10% slide in value since August 11th on WTI in response to weak equity trade, and that has allowed global growth question marks to put crude speculators on the back foot. Consolidation around 72.50 resistance is expected in the near-term. Daily trading range is high at 2.5%.
Current Gold Bullion Review
The need to hedge the Usd moves has allowed gold trade to stake a claim to be a stand-alone asset class that seems to have few peers when global expansion is in doubt. The GLD/USD correlation is holding strong. The up-trend on gold is expected to continue, at least until global growth is confirmed.
Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.