Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:
I like EUR and AUD
- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
- Strong German data means IMF and others could be underestimating EZ growth
- ECB begins taking back liquidity with LTRO repayments
- Sharp move lower not warranted
- Chinese data consistently surprising to upside
- RBA will leave rates on hold
- Triple Dip Recession Risks
- Investors and central banks dumping GBP
- Talk of EU Referendum weighing on currency
- BoJ Easing, need I say more?
- Yen weakness not helping trade much give territorial dispute with China
- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
- Incoming BoJ Gov in April could speed up open ended asset purchases
The Federal Reserve’s Open Market Committee changes every year and for 2013 in particular, the new makeup of the FOMC will be extremely important because this group will decide whether asset purchases should end in 2013. Gone are Lacker (the most hawkish member of the FOMC), Pianalto (a dove), Williams and Lockhart. Three doves and one hawk will be replaced with two uber doves (Evans and Rosengren), one moderate hawk (George) and one unknown (Bullard). What this implies is that the new voting members of the FOMC may not be as eager to phase out asset purchases this year as the prior committee.
Here is the updated FOMC Voters Dove Hawk Scale for 2013
These new members will have their first opportunity to vote on monetary policy at the January 25th FOMC meeting and here’s where they stand:
Openly Dovish Chicago Fed President Charles Evans
Boston Fed President Eric Rosengren
NY Fed President William Dudley
Vice Chair Janet Yellen
Fed Board Member Jeremy Stein
Fed Board Member Sarah Raskin
Fed Board Member Daniel Tarullo
Slight Lean towards Dovishness
Fed Chairman Ben Bernanke
Fed Board Member Elizabeth Duke
Fed Board Member Jerome Powell
Slightly Hawkish Kansas City Fed President Esther George
St. Louis Fed President Bullard
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My trade of week on CNBC’s Money in Motion on Friday was to sell EUR/JPY. It was a jam-packed show and my window to talk about the trade was short. Therefore I want to take this opportunity to explain in further detail why I really like this trade, particularly since its finally rebounding and could potentially trigger an entry.
On the show, I said trading EUR weakness through EUR/JPY is the best of both worlds because we can take advantage of
1) Lower EUR for European Weakness
2) Stronger JPY for risk aversion, weaker global growth, and softer Chinese data
The great thing about trading EUR/JPY is that it benefits from a sell-off in the EUR/USD or a sell-off USD/JPY so if this week’s FOMC minutes confirm that QE3 is still on the table, it will also help our trade.
If you know me, then you know that when I identify trades, I always look at it from 3 perspectives:
a. Spanish bond yields back on the rise and I don’t expect much from Monday’s EZ Fin Min meeting, which should be bearish for EUR
b. Renewed expectations for QE3 should weigh on the U.S. dollar with the FOMC minutes as a potential catalyst for driving USD/JPY lower
c. If this week’s Chinese data surprises to the downside it could set off a wave of risk aversion that will drive the JPY higher
a. EUR/JPY Broke 1 month low which opens the door to a move down to 97 and possibly even a move below 96 (as Todd Gordon pointed out). As you can see in the chart below, EUR/JPY is in a “downtrend” according to my Double Bollinger Bands. While 97 is my target, theres no real support in EUR/JPY until the 11 year low of 95.60.
a. Investor sentiment or what I call the “flow” is on our side with the sharp sell-off in EUR/JPY.
EURJPY is the quintessential “risk off” trade, which means that it traditionally underperforms when investors are nervous and given the extreme pessimism of the ECB and other central bank officials, the possibility of weakness could raise the level of anxiety in the market and help my EUR/JPY trade call.
These were the levels that I provided on CNBC
Sell EURJPY at 98.25
Stop at 99.00
Click on the EURJPY Chart to Expand
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