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Faros Morning Update - Fear and Loathing

|Includes: CNY, GOLD, ProShares Ultra Semiconductors ETF (USD)

 Fear and Loathing

It is usually at the times of greatest fear or uncertainty that the market tends to become less involved and it is generally at these times that we witness the impulsive moves higher or lower in an asset price which catches everyone offsides and not involved.  The scramble to get involved on these breakouts is usually what sends the assets in question into mini-blow off tops.  Could we be setting up for that in Gold, Silver and EUR/USD?  Perhaps. 


Overnight the Chinese fixed USD/CNY lower down to 6.6908 vs. 6.6986 previously and there was a lot of chatter about the HKMA activating the swap agreements with China after the trade-CNY quota had been depleted.  Markets took this as a signal that more USD selling would occur in the NDF market and we saw macro selling 1m out to 1yr USD/CNY with 1y given down at 6.4600.   A central bank advisor for China was on the tapes indicating that CNY needs to be more flexible and the long term trend is CNY stronger.  The PBOC’s Li indicated China can accommodate a 3-5% move in CNY in nominal terms but excessive moves could hurt exporters.


NJA was generally quiet with no significant moves, other than PHP making fresh new lows just barely in USD/PHP.  Heard BSP on the bid down there.  There was rumors of India looking to cut CRR due to persistent tightness in liquidity.  USD/INR moved through 44.45 to 44.42.


USD/JPY whipped lower overnight with a move through 80.80 amid Noda comments about stronger JPY and grumblings from Panasonic about JPY hurting exports.  The low came in around 80.55 and wea re 80.80 now. 


AUD/NZD cracked through 1.3000 in an impulsive way and we saw lows down at 1.2850 and given on from there.  The 50 day at 1.2920 did little to support the cross and the position size in the macro community in this cross was substantial, so this could be the start of a bigger shakeout. 


EUR/USD got hit on talk of a EU haircuts as reported in the UK Telegraph article and we saw 1.3880 hold for a bit before the London morning saw the pair taken through 1.3880 to 1.3810 where we saw a bounce amid rumors of a Portuguese budget deal and rumors of a Greek debt deal that apparently kicks the can down the road there for the next few years or so.  The Portuguese rumors were two way, as we heard one bank say a deal was not reached, but two reported a deal had been reached.   Also talk of more ECB debt purchases and we have seen spreads come in quite a bit.


EUR/JPY traded down to the 100 day and the 50 day in the 111.70 area where it stalled and for those that believe in our view, this represents a great buy zone. 


 USD/CHF is testing the 50 day again at 0.9914 and a few houses have sent out technical pieces that are bullish USD/CHF and looking for a short term move to 1.000.  Bullish hammer in USD/CHF on the monthlys is one technical set up being cited.  We continue to like USD/CHF lower and see this as a great sell zone.


We heard talk of a US investment bank liquidating NOK and SEK related to a real estate portfolio and we saw EUR/NOK and EUR/SEK make highs in early London trade in impulsive fashion.  Also talk of Norges selling NOK related to the petroleum fund.  EUR/SEK rallied through 9.4200 and then went 9.3600 given. 


EUR/HUF also met with liquidation overnight and we heard it was a European bank on the offer.  Next level below is 270.00 and a break there opens a move to 260.00.


USD/BRL opens slightly lower in the Dec future which is the first future starting on Monday and we see the 50 day holding for now at 1.7123 in spot.  Seems like a good spot to sell USD/BRL if you believe in the story and want to fade risk reduction worries into next week.

Good Luck

Disclosure: I take no positions in the assets discussed