Macro View - USD Weakness

Thursday, Jun 21, 2012

Good Morning,

Fundamentally, the news stinks. Claims are inching towards 400k - if that happens, expect a negative jobs report in the works very soon. Philly Fed, terrible - it dropped precipitously. New orders were much more negative than expected as well. Not good for the incumbents in Washington, but very good for additional QE measures. After all, the Fed did say:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook

Most importantly, they said:
The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

So you can see here, the GBP, the AUD and the NZD are very, very strong against the USD. When these pairs dip, the USD strenghthens slightly. This looks very similar to the equity markets. So when equity markets bottom, the USD is actually overBOUGHT! Now, with the equity markets much, much higher, can they sustain their lofty levels and go higher? Will the USD continue to weaken and any dips in the GBP, the AUD, the NZD be points to go long?

Past performance is not indicative of future results

Another curious relationship is oil (USO) and natural gas (UNG). Natural gas has been beaten up so much that there seems to be some support coming in (look at individual stocks such as CHK).
Here is the chart of UNG followed by USO:

Past performance is not indicative of future results

Past performance is not indicative of future results

It seems that USO, consistently breaking lows is headed for the 29 handle, which would bring oil close to the high 70's. Is oil becoming more attractive?
Happy Trading and Be Environmentally Cool
Coach Brian

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.


Posted By: 

Brian Kahn

Brian provides regular commentary focusing on the relationships between various financial markets. An experienced trader and portfolio manager with over 15 years in the markets, Brian relies on fundamental and technical analysis to create trading plans for each and every market entry.