Friday 4 December 2015

Wild moves in currencies and bonds

Whilst equities saw significant declines develop across the day, the underlying cause was no doubt the carnage in currency land. Whilst the USD settled -2.2% in the DXY 97.80s, there was even more significant weakness in US bonds, with the ETF of TLT -2.7% @ $119.52.


First... lets take a look at the USD...

USD, daily


USD, weekly


Summary

So, Draghi cut the deposit rate 10bps to -0.3% (that will really please savers), and extended QE (€60bn a month) from Sept'2016.. to at least March 2017. In effect, another €360bn of money created from nowhere.

With the market deciding this was clearly 'less than expected', the Euro soared.. and this helped crush the USD.


The ultimate issue - double top?

The bigger weekly chart is pretty clear, there is a valid scenario in that we've seen a double top at the giant DXY 100 threshold.

I'm still more bullish USD than any other FIAT currency, but for now.. there is a massive reversal underway. First support is the 95/94 zone.

Any sustained action <94 would then offer further weakness to the DXY 90 threshold. Under any reasonable outlook, I don't see the USD trading under 90.

Or maybe you think the market would place more value on the depreciating Yen or the Euro?
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Next up... US bonds.

TLT, daily


TLT, monthly2


Summary

*note the red monthly candle... unable to break above declining trend/resistance.
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A fierce net daily decline for TLT of -2.7% in the $119s. Next soft support is around 117.

On balance, the $110s look viable in spring 2016.. not least if the Fed raise rates for a second time in March/April.

If the US bond market has peaked - as some, notably Armstrong, have suggested... then first grand target for TLT will be $100, back to levels from late 2013. Things really only get interesting if the secondary target zone of 80/75 is hit.. but that is probably not viable until late 2016 at the very earliest.


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Looking ahead

Friday is action packed...

OPEC are having a bi-annual meeting in Vienna. There is high probability of a statement that will at least threaten supply cuts.

The monthly jobs data - market is expecting net gains of 190k, with a headline jobless rate of 5.0%.

*there are 3 fed officials due to speak... Bullard in the 3pm hour is especially notable.
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Goodnight from London