In this guest post, Currensee welcomes Tim Mazanec, CMT, a 14 year veteran of the foreign exchange and global markets. Tim combines technical, fundamental and flow analysis to develop his forecasts and Forex trading decisions.
Monday marked the 3rd consecutive Monday that US equities opened the week on a strong note with the last two Monday’s seeing a surge in equity prices. Currency traders are well versed though that EUR/USD has only partially kept pace as it continues to trade around the 1.50 level. This begs the question of whether or not we are starting to see a divergence between traders in the stock market and in the currency market?
A quick check on Currensee on Monday afternoon shows that 61% of EUR/USD traders remain Short this pair. Their average entry price is 1.48323 stating that they expect this upward move in risk-taking to dissipate. If you take a look at one of the stock market bell-weathers, GE, you’ll find that there was a 7% decrease in shorts this past week. So at first glance there is a divergence in what Currensee and equity traders are thinking.
Those not willing to be long EUR/USD or those that are more risk averse have more than a few economic indicators that they can point towards to support their case. These can be found easily enough on Currensee’s Economic Calendar on the Research Dashboard. Consider last week’s US Treasury budget. Within the budget it shows the monthly federal withholding taxes that are deducted from everyone’s paycheck. The beauty of this figure is that it is an actual figure. It is not derived from a survey and not subject to revisions and/or changes in benchmarks. The data shows that individual tax receipts were down 22.2% y/y in October. That is the lowest monthly figure since May 2004. Normally the months of Sept. & Oct. are "incoming" season for the Treasury due to tax extensions but when comparing this Sept/Oct to last year it was even worse at -30% y/y.
Of course these figures more closely resemble the current 10.2% unemployment rate rather than the improved NFP figures. That said the US economy remains reliant on the consumer after all and less income (lower taxes points to less income) and fewer jobs may equate to a subdued economy ahead.
As we alluded to though more a few traders, especially equity traders are a little more bullish. If the global economy is getting better then more investors may not only be willing to put risk back on but also go back into the buy-and-hold strategy that we used to be accustomed to. If you go back to the Economic Calendar on Currensee’s Research Dashboard you’ll notice more than a few economic indicators that are due this week. They range from CPI/PPI to Capacity Utilization midweek before finishing off with the latest Leading Indicators and Jobless claims. Improved economic figures may help build confidence for equity traders to remain long ahead of potential profit-taking season.
Of course Bernanke threw his 2 cents in on the dollar on Monday but that was literally it as within his 6 page speech there were literally 2 sentences that touched on the Dollar. Not exactly enough to frighten one out of a position either way. Very much overshadowed by Bernanke was Bank of England’s Sentence, who suggested that ‘the impact of (their) interest rate cuts are only just being seen’. You could have seen this on the Thomson Reuters IFR squawk Box (that can be found in the Currensee Widget Gallery) as his suggestions would have been harder to notice without this widget.
Either way there are enough arguments on both sides of the debate to keep bulls in one corner and bears in the other.
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