Bovespa all set to fall !

Brazil stock market Bovespa is all set to fall . My stat arbs and technical analysis have indicated weakness in the market.

Stat arbs have forecasted Bovespa to trade 45000 in the next 3 months. This is also inline with the H&S formation on monthlies and weeklies . First of all the right shoulder of the H&S has tested a major 4 year trendline coinciding with a 75% Fibonacci resistance. The failed test has resulted a reversal from 58000 to the current price 53000. The H&S neckline rests at 45,000.

 From fundamental perspective Brazilian interest rate are relatively high for a sustainable economy and the currency is at a multi year low against the USD. The global market sentiment  doesn't support Brazil either with continued risk due to Greece.

Short Brazil (Bovespa) 53000 for 45000  in 3 months time i.e looking for min 15% selloff.

GBPJPY all set to test 200 !

Sorry folks not been updating my blog for ages, been very busy with few other things. So here it is, my stat arbs have indicated GBPJPY is all set to breakout thru major trendline resistance and test multi year trendline at 200.  Strong support for this week is expected at 186 which is the monthly trendline breakout and will set the way for 196 and 200. 

DAX to make a strong finish by year end !

On 11th July, I  highlighted the fact that US30 yr Bonds will rally and  target 141.50. Further a bearish equity note indicating equity indicies especially DAX ..

Since the note was posted  US 30 Yr traded 141.50 and DAX corrected lower by 10% . My weekly and monthly model forecasts have now indicated a very strong rally in Equities into the year end especially DAX  to trade 10500.

The US conterparts are already trading at life time highs whereas DAX is lagging. ECB easing is likely to boost liquidity amongst European banks and support growth in coming quarters. Overall growth in developed nations especially US & UK will have a positive spillover effect on Eurozone sooner or later. Hence the catchup theory calls for a Long DAX on dips strategy targeting 10500 by year end.

If you are a chartist and follow charts on a monthly and quaterly scale then the current bounce from 8900 level on Dax will appeal you.

best of luck traders.

AUD & JPY crosses risks lie to the upside breakout.

Buy AUDCAD 1.0180 Stops 1% for 1.0300
Buy AUDJPY   96.00 stops below 95.00 depending on your risk appetite as the pair heads to 99.50
Bullish USDJPY forecasts from my weekly model with initial target 104.70/105.00 and depending on the monthly close in August potential for 107. i.e if Monthly close in August > 105 then very good potential for 107.

I am relatively bullish AUD and bearish JPY hence AUD/JPY does the job for me.

30 Yr US Bonds upside breakout risks !

Timespan for strategy validity based on in-house model - 2 Months.
Key decision drivers - long term trendline support bounce , Weekly stat arb indicating upside breakout potential .

Daily close above 138.50 and a weekly close above 139.50 does the job. Overall the strategy can be fine tuned by looking out for long setups in 135.50 region and stops below 134 to target 138.50 at first and then larger targets like 141.50.

30 Yr bonds have been finding decent enough support in 135.00/50 zone for the last 2-3 months hence a stops below 134.00 is ideal and justifies the technical setup.

On a fundamental perspective my Dax Index model has shows signs of exhaustion along with few other equity indices like Dow, Bovespa, BSE which may imply a consolidatory to slightly corrective (lower) phase in equities sending bonds higher.

Overall my directional view on 30 yr bonds for the next 2 months is Bullish .

RV Trade Short ZAR against a basket of INR & MXN - Reform Trade

Last few quarters have been extraordinary for EMFX especially countries running the risk of higher current accounts(deficits), political risks.

Long MXNZAR @.8100 stop 0.7900 for 0.8500
Long INRZAR  @ 0.1755 stop 0.1710 for 0.1810 and 0.1900

I like to call this the reform trade. The expectations of investors from EM governments to push in new reforms has been higher than ever. Firstly it was Mexico with its oil reforms and recently expectations from Modi's Indian government. The recent  trend has been, the inflows to buy Indian equities and bonds with the 'expectation' of change and implementations of new reforms. A similar trend can be noticed in Indonesian equities with the expectations of new government and possible reforms. Later this year investors expectations from Brazil should reflect in Bovespa and BRL.

On a relative basis South Africa is severely lagging in terms of new reforms to kick start the economy or increase investor confidence. SARB is relatively dovish on its monetary stance as growth has fallen. The current account deficit remains a concern when compared to likes of Mexico or even India which has managed to reduce it remarkably.

There is a carry potential on Long INRZAR whereas a slightly negative carry on Long MXNZAR.

The chart above is INR/ZAR Monthlies and it is evident that the pair has found support on the long term support trend line at 0.1750 after consolidating for approximately 5 months and now heads higher to top of the range trend line resistance of 0.1920.  My in house models do agree with the setup which is a plus.

The chart below is MXNZAR monthlies. 0.8000 has been a multi year resistance line which has been tested aggressively in 2008-09' but failed to trade above. Last quarter of 2013 the pair finally closed above 0.8000 and since then has been finding support at 0.8000. I think there is potential for 0.8500 for this trade which is the topline resitance. Again my models do agree with the forecast. Overall there lies plenty of scope trading the big range 0.7500-0.8500 depending on the risk profile one has and how he perceives the incoming macro data.

EMFX Currency Charts- Risk lie to upside short term !

Cautious on EMFX short term possibly till end of July. If you are following my posts since May 2014 you will notice a  short bias in emerging market currencies especially INR (post election).

The following charts are long term however the daily formations and intra-day price action off this major trendlines should not be ignored! Also notable three day bank holiday coming in the US so I would expect the vols to kick in next week or so. Time to buckle up the seat belts..

 

Daily 10YR TRY Yields basing out at 8.50 support.

RV Trade: Bullish HUF/PLN

Ref Rate 100HUF= 1 PLN

Long term charts in HUF/PLN indicate a very good medium term opportunity for longs  in 1.34-1.3550 region depending on what sort of risk profile you have . The base of the long term trendline is at 1.3400 , I believe the support will continue attractive relative value traders and  there is good potential for 1.4200 in 6 months time.

>First of all my quant models compliment the current growth figures in Hungary which is now in the league of fast growing economies in (CEE region).
>Hungary's current account surplus will continue supporting the Forint relative to Poland which runs a deficit.
>Both CB's i.e  MNB and NBP have initiated series of small rate cuts  citing deflationary risks however the NBP seems relatively more dovish than MNB in its approach to tackle deflationary threats.


Risks:
Both Hungary and Poland have picked up momentum in terms of growth this year. The events which will dictate  the  pair are as below:
>Change in monetary stance by CB's
> Inflation starting to pick up.

Best of luck traders!
PS: Not to confuse the Bullish HUF/PLN with the earlier posted  Bullish USD/HUF . Different strategy one is RV other one is Directional..

Moreover the USD/HUF made a high print of 227.30 and had gained almost 2.75% since my post on 22nd May (221.50)

Silver/Gold Ratio an interesting medium term trade for 2014 !

Ref: 100oz Silver =  oz Gold

XAG/XAU  has been testing a long term trendline since 90's and has now made an interesting reversal pattern which I like to call it as 'Triangular Reversal' at a major trend line support. In other words Silver is heading for a major reversal and is more likely to revert back to 1.75 with a strong possibility of 1.90  on a longer term basis against Gold. My analysis is based on few stat arb models which I have run at my end and traditional methods like the one posted here. In short  Long XAG/XAU ref rate 1.58 has a potential to gain 15-20% in about years time. Fundamental factors could play a role as US growth gathers momentum along with other western countries like UK . ( Not to mention the positive spillover effects of US growth on EM countries.)
Medium-Long Term Play Guys
Best of luck traders !

USDHUF AT RISK ?

Guys if you trade USD/HUF then you gotta pay attention to latest formations on M,W and D charts. My weekly  stat arb is slightly skewed higher and supports the current bounce on the monthly trendline. I think there is a strong possibility of 230  and I am closely watching the flag structure on dailies along with the support on the daily trendline at 221. 

Good luck!

Indian elections USDINR thoughts!

Just a word of caution here for my followers from India.  Updating my thoughts as have got several requests with regards to USDINR.

First things first, my monthly and weekly stat arb have realigned for a slightly bullish forecasts and project a gradual move higher valid for next 3-4 months. Technically 59 is now key and should remain pivotal for next couple of months . I rarely trade against my model forecast hence I am more likely to stay away from INR shorts due to high carry but for corp players levels like 59 and 56( very strong , that thou if we see this) are good levels to own Dollars I believe.

INR traders and FDI's have already positioned for BJP victory and now what matters is the majority with which BJP wins. The higher majority is likely to give an immediate push to USDINR lower and a slim majority will result in profit taking sales to emerge.

As per model forecast a 4-5% upward correction is likely from post election Monday USDINR daily close price.

best of luck..

Pre-FOMC mins Stat Arb Model Forecasts

Hello Traders,

Going into FOMC minutes my daily USDZAR, USDTRY, EURTRY AND DOLLAR INDEX models are indicating a slight bullish forecast. This forecast is valid for next 5-7 working days and I am expecting Dollar to pick up momentum on upside for this week going into mid-next week.(short term).

Also notable Kiwi daily stat arb has indicated exhaustion in uptrend and correction lower is due. Out of all the forecasts I like the USDZAR LONG trade 'smalls' at 10.90 stops below 10.80 for 11.20 types.

On the majors, few other pairs like EURUSD,USDCHF have indicated slight exhaustion in trend and support a mild Dollar rally. Will be surprised any major downside in Dollar today. 

best of luck guys

INR UPDATE

With regards to the Long EUR/INR issued on 13th Nov, think time is ripe to close it as the position is not feasible owing to cost of carry which has costed almost 3% even though the price reference level is almost same since Nov 13'.

Some of the drawbacks of shorting high yielders eh !

will keep updated if any other interesting opportunities come up.

A Contrarian Trader's 2 pips on EMFX

As a starters EUR/HUF has traded 310 as highlighted in my Nov 13 issue (Dec15 post) . Even if you managed to pick EUR/HUF on Dec15 you would have been sitting comfortable 4% higher as of now. So basically job done on EUR/TRY and EUR/HUF and the last pair which is still lagging is INR . I am going  to stop mentioning how TRY is getting hammered day by day as its pointless. Twitter will do that for you!

Lets  focus on TCMB, I expressed concerns about how the bank may hesitate to raise rates which could put their credibility to threat. This week they did it but as you would expect market saw this signs of desperation and weakness and local Turkish traders saw this opportunity to bank as much Dollars they could. Then came  SARB raising rates on ZAR. At this very point I was not aware they had a policy meeting until one of my good trader mate actually made me aware. The very first words which came out of my mouth were " I hope SARB doesn't do anything absurd by raising rates" They actually raised rates and the price action post rate hike was horrible.

Personally think emergency rate hikes do not pan out well when  slow growth,debt issues and political risks are looming in near term. Take an example of the brave attempt taken by MNB in Oct 2008' by raising 300bp on Forint.  Post rate hike EUR/HUF lost approx 10% and in the next few months carried with the overall bullish trend and made new highs erasing all the gains post rate hike. Of course some may argue it was a totally different situation, but does it really matter ? Looking at how market has reacted to ZAR and TRY it is very similar to how market reacted to HUF in the past. Infact in the case of USD/ZAR it made a new high post rate hike right away. Charts below Weekly EURHUF, 4H EUTRY and 1H USDZAR

For now I have shifted my focus on Scandies and CE4 and by the way HUF traders were clueless yesterday. Again a classic example of fundamentals and sentiment reflect in charts if interpreted correctly.

Best of luck traders!

DX outlook 2014

Just finished creating my 2014 outlook for Dollar . The report is bearish Dollar at least going into Q1 and Q2 and is path dependent into Q3.

Also added a bullish AUD cross note in my report and I expect AUD crosses to remain bid or find interest atleast till Feb end in Q1. This is inline with my tweet on 6th Jan where I highlighted AUDUSD,AUDCNY,AUDCAD AND AUDNZD weekly stat arb is exhaused or in other words Aussie selling is overdone and expect short covering in AUD.

I will publish my report here when time is ripe.

Don't let Turkey spoil your Xmas ' Traders ' - The Lira Conundrum

I think it could not have been better to finish 2013 by year end note mentioning that TRY has been catching up with INR in the most 'Battered EMFX League 2013'

The midyear year report was the tip of the ice berg and highlighted  major weekly  formations indicating a bullish breakout. Later on in last quarter again the pennant formation was highlighted on Nov 13th accompanied by my tweet on Nov 26th.

The most striking feature was my stat arb was heavily bearish across the board TRY against EUR, USD and MXN.  Infact stat arb went long MXNTRY on 17th Dec " 0.1571 as tweeted and is up approximately 5% since then.

Just name is fundamentally, technically and statistically the TRY was doomed . Classic example how fundamentals reflect first in prices and charts and depicted/interpreted later. TRY is in real trouble . Economists have argued real interest rate is substantially lower relatively to other EM however what is/was underestimated is the political risks building up in Turkey.

Turkey's Muncipal elections and fate of Erdogan regime . Winter sets in to Turkey and should keep the CA under pressure due to Crude imports.. ( Just intuitive haven't gone that deep into statistics ) and Fed's taper game all point to a negative TRY. Lastly TCMB in order to raise rates has to ovecome the pressure from Turkish higher interest rate lobbies ahead of the elections which would put the banks credibility at threat.( if it fails to do so)

Personally think TRY will remain under substantial pressure relatively against the remaining EM until 1st Quarter 2014 and should   appeal to macro traders to add in the short basket against other EM/DM basket longs.

Also a little disappointing was Long EURHUF and EURINR which have not moved as I expected but the losses are little and gains are more and that is what matters. So will keep an eye on this pairs and update accordingly.

The smart central banker - RBI's Rajan

Reserve Bank of India (RBI) surprised majority of market participants by keeping rates unchanged to 7.75%. Whilst I wasn't surprised, I have to credit  Rajan for his smart move. It makes great sense when taken into account following factors:

>As a CB assess the FOMC statement today and its impact on EMFX especially USD/INR volatility.

> Assess the political risks arising due to elections and thereby the investors sentiment affecting equity and bonds flows.

> Analyse the inflation trend for couple of months into next year.

> In short keep master weapon 'rate hike' as the last option in its arsenal.

USD/INR now heading for crucial resistance of 62.20 after basing on weekly 60.70 support line. My stat arb still  likes higher USD/INR on weeklies.

Gods of Arena : Modi & Kejriwal

Narendra Modi and Arvind Ketriwal hereby I describe them as Gods of Indian political arena who will dictate the future of Indian politics and possible transformation into a more investment friendly emerging market.

Arvind Kejriwal (AAP) an ex- IRS officer and  a graduate of prestigious IIT,  demolished Congress in Delhi elections is a smart  and aggressive common man trying to tackle corruption and the thick layer of bureaucracy in India. He is hope to millions of young Indians especially in Delhi and has influenced heavily others in rest of India.

On the other hand we have Narendra Modi (BJP) who is what I call the CEO of Gujarat. The master mind in getting things right in a systematic way. His allies admire him and the opposition envy him for his superior project management, leadership skills and popularity. Media argues Modi has not done anything spectacular but I can argue equally a million times saying Gujarat state is relatively in a better shape politically, economically and security wise. I admire him for his vision and for his ability to meet his targets towards completing  staterun projects which is a rare occurrence today amongst  Indian leaders.

The above mentioned leaders have a very different personality but have similar mind set and that is to eradicate corruption and to revive growth. The common Indian man associates Modi with change and foreign investors see him as a route to liberalized reforms to invest in India.

Few weeks ago I issued a bullish note on USD/INR citing election risks and negative sentiment revolving around EMFX  due totapering risks. I still think there is political uncertainty which would weigh on INR.


 >  Big states like Bihar and UP which share a massive 120 parliamentary seats of the 543 will dictate how likely BJP will form a majority . Whilst I don't believe the poll system in India due to sample size and methodology issues , the poll indicates BJP is likely to secure 1/ 3 of 120 seats in the above mentioned states. If this is true then the other side of equation says BSP,JD and SP are to take a hit which reflects the change of sentiment shift from dominant players(BSP,SP,JD) to BJP.

> My market intelligence in this states has made me aware how Modi fever is picking up in Bihar and UP but this is all speculative and has a factor of uncertainty built in.

> In my optinion  market especially local funds  are awaiting how BJP performs in UP, Bihar and possibly AP and pump more investments into BSE. This is going to be a very big game changer and possibly even make me revisit my USD/INR forecasts.

> Fed's taper will weigh on INR along with the expiry of  currency swap facility nearing in Feb between Oil corps and RBI.

> The food inflation was a major contributor for the spike in inflation and immediate response  by RBI to hike rates. This is a structural issue combined with  imported inflation( Potash) due to weak INR. While structural issue does take time to be solved the imported inflation could be contained by capping and further appreciation in USD/INR. RBI has hiked rates  compromising  growth and I seriously think this is a issue if inflation gets out of control.

> I will end the note by mentioning that  tapering sends a positive signal to global investment community i.e  Fed's confidence of growth reviving in worlds largest economy. The dis inflationary environment supported by lower commodity prices should stabilize the inflation in emerging countries and support to more balance outlook for world economy in 2014. Hence it would make great sense that the climax of tapering story  ends with EMFX buyers stepping in i.e growth is bought.

With Love from Scandinavia- EURNOK - 16th Dec 2013

If scandi traders can correctly remember how in the name of safe haven currencies SEK and NOK topped the charts when EU crisis was at it peak ?

2013 saw EMFX getting hit really hard due to DM markets recovering and investors shifting their focus from EM to DM.  But then NOK and SEK too got hit hard and they don't even fall into the EM criteria. Yes yes the whole Commodity etc etc ..

Point here is if you believed Short EURNOK and EURSEK were the trades to proxy hedge the EU Sovereign Crisis then you might want to give it a bit of thoughts.  Well the damage has been done a bit late.  The purpose I have put this long term charts of EURNOK here is since the beginning of year I have been getting research reports from Scandinavian banks on how they feel that NOK has value and overall EURNOK is undervalued and has potential for downside.

Well I don't myself trade this pair but keep an eye on it because my tutor my old man 'BPP' a veteran FX Trader who started his career market making Deutsche Mark  against local African currencies( Rwanda, Uganda,Kenya) takes quite a bit of interest in Scandies. I will get back to BPP and his trades some other day.

As a starter few prime trendlines have been taken out on monthlies. This trendlines date back 96' and have been pivotal. Also noticable on larger picture is EURNOK has double tested 02' lows and has been heading higher since then.

I believe there is a strong correlation between G3 yield curve steepening since  May , Growth in EM especially S.Korea , Mexico etc . All this leading  indicators point towards investors expectations of better and stable DM/EM economies. ( Pls note not all EM have been in better shape there is the nice ones which I like i.e KRW, MXN and the ones I dislike  ZAR, TRY and INR)

Hence if one believed NOK and SEK has safe haven status then the time is ripe to bite the bullet and get over it.

EUR/NOK has potential to head higher towards 8.75/80 in the next 3-5 months. My directonal indicator is heading towards long term over bought range but still in comfortable zone. My long term stat arbs are still bullish and favour a long strategy.

8.06/16  is major pivotal support which should buying interest intact for medium term.

Long AUD/NZD Nov 10th 2013

Long AUD/NZD trade !  I consider this pair as very notorious and relatively less predictable than EUR crosses. . Dont like it but tempting when one looks the pair approaching a 20 year trendline from 1990 and Kiwi being adamant at highs. Yes yes economists argue Australia going through structural issues.. Miners struggling , Dis inflationary threats , China etc etc 

Well the trade got stopped  . I have feeling traders go for massive stop hunt towards 1.0500 or so and then the pair rallies.. Not going to touch now until next year and closely watching my long term stat arbs to give me clues. Most likely Aussie bottoms out end of first quarter 2014.

https://drive.google.com/file/d/0B6MwssNHtXgUeTRqa2pWQ1FMY0U/edit?usp=sharing