Europe’s QE?

BarroMetrics Views:  Europe’s QE?

‘Put up, or shut up’.

In July 2012, Draghi promised ‘to do whatever it takes’ to save the EC and the Euro. To date his ‘interventions’ have been more words than substance. But, at some point significant action must be taken and be seen to be taken- if his credibility is to be maintained.

For Draghi that moment came with his Jackson Hole speech. Yesterday he followed up words with perhaps the first step towards an EC QE: he appointed BlackRock to advise on a QE bond-buy program. As expected, we saw a rally in the DAX and FTse. But the Euro was little moved. I’d have expected to see the EUR move down against the USD, AUD and CAD. Perhaps that will be forthcoming today.

Know Your Data

BarroMetrics Views: Know Your Data

FX trading has a peculiarity that exchange traders don’t face: in FX the same instrument charted on the same timeframe across two different platforms may take different shapes. This does not happen with exchange traded instruments – the S&P daily chart on Esignal will look the same as the chart provided by CSI-data.

Let me show you what I mean.

Figure 1 is a daily chart of the EURAUD  derived from GFT data; Figure 2 is the same chart using CMI data. Now they look more or less the same/ But take a closer look at the two bars in the rectangle. Now you see what I  mean. The second last bar looks very different in both charts.

In Figure 1 it would be appear that the buyers have taken control. The EURAUD opened, tried to go lower and failed. It then pushed through the open, closed on its highs, and closed line ball with the previous close. If short we may be tempted to least tighten stops.

In Figure 2,  we see a day where, on balance, the sellers seemed to remain in control. True the attempted sell off failed; but the buyers were unable to push through the open, the day closed below the open of today and close of yesterday. If short, we may be tempted to see what the next day brings.

So why the difference?

It’s because the GFT ‘day’ starts and ends at 12:00 GMT; whereas the CMI starts and ends at 5:00 PM EST. Most days there is no difference; but as we saw, there will be times when there can be.

So, of the two, which do I prefer?

CMI because it better reflects what is going on in the market. In FX a trading Monday begins at NZ 7:00 am and end at 5:00 PM EST.  We can say a trading day begins at 7:00 am NZ and ends at 5:00 PM EST. Right now there is an overlap between 7:00 am NZ and 5:00 PM EST. With daylight saving there’s about a 60 min gap between US close and NZ open.

Hence, a data base that shows a day beginning and ending with the US close better reflects the trading for the day.

GFT’s approach includes in yesterday’s bar some of today’s sentiment and price action; that can cause distortions.

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FIGURE 1 GFT

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FIGURE 2 CMI

Stats and Trading Plans

BarroMetrices Views: Stats and Trading Plans

Stats in a trading plan are little used by traders. Part of the problem lies in the perceive difficulties in learning the subject; part lies in the processing of data.

The first problem is easily overcome: read ‘Statistics Without Tears‘ by Derek Rowntree. The book was published in 1981 and cost me US$5.00. It was one of the best buys I have ever made. For someone who was (is?) a dunce at maths, the book opened the world of statistics – the journey was effortless. The only maths involved was ‘plus, minus, divide and multiply’.

The second problem was less easily solved. Gathering the data, inserting that into a spreadsheet to obtain the results, and maintaining the data set was a cumbersome process. Too cumbersome for many traders. Now, Market Analyst has come to the rescue.

Figure  1 shows the EURAUD, 5-min chart with the stats for impulse (deep red) and corrective swings (light red). Obtaining the stats for 51 swings tool less than 10-mins. An easy and effortless process.

So, how do I use the info?

From the stats I derive the idea that, in this timeframe, a normal impulse move would be at least 30 pips. Overbought for me would be at least 53 pips. Hence if I am seeking to see an upswing, I’d like to see at least more than 30 pips (preferably nearer to 50).

Figure 2 shows an impulse move into a Primary Sell Zone. The size of the move is 24 pips. Under this circumstances, all things being equal, I would forge taking a sell signal on the basis I’d expect to see another move up. Seeking at least a normal move has saved me many a time. Have I missed moves using this approach? Sure. But, on balance, I am ahead by not taking marginal trades.

(A short note to advise that I won’t be posting on Friday)

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FIGURE 1 Stats

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FIGURE 2  EURAUD 5-min

A Look At The Euro

BarroMetrics Views: A Look At The Euro

” Where goes Germany, so goes the Euro”.

If that is true, how is the German economy faring, especially in the light of the Russian sanctions. I say this because Germany, Europe, is far more reliant on Russian trade than the US. For this reason, the sanctions will affect Germany more adversely than the US.

The sad fact is the Germany was slowing down before the sanctions. It reported that in the second quarter, its GDP declined by 0.2%. Add to that the fact that the Ukraine crisis is threatening German jobs. The German Committee on Eastern European Economic Relations has stated that the crisis could endanger up to 25,000.00 jobs. It also warned that the recent US sanctions have placed additional burdens “on the general investment climate”.

The pundits suggest that a Russian recession would reduce German growth by 0.5%.

Given the above, I would expect to see a weakening of the EUR against the USD and AUD.  AUD? Weren’t we recently told that Australia saw one its the greatest unemployment since 1995? Yes we were; but what most did not say was that the definition for ‘unemployed’ had been changed ahead of the release. So, comparing the July headline number with previous headline numbers is failing to account for the new definition. In addition, some of the important numbers prior to the jobs number (e.g. retails sales) were stronger than expected.

So, yes I do expect the AUD to strengthen against the EUR.

S&P 2014-08-18

BarroMetrics Views: S&P 2014-08-18

Back from hols and ‘honeymoon’. I had a great time and it’s good to again climb aboard the saddle.

While on hols, the S&P had a pull back that had many calling for the correction that ‘has to happen’.  Let’s see…….

Figure 1 shows the break and subsequently rally. The S&P is retesting the breakdown on a 5-day swing basis (weekly trend). The question that arises is whether we shall see a resumption of the downmove or see, at least, a test of the Primary Sell Zone of the range 1992 to 1904. I’d suggest the latter is more likely. The reason?

Figure 2 shows why.

You’ll see that the FED AMB graph has again moved up. With the sentiment strongly reflecting that the FED will come in to bail out the stock market, I believe it unlikely that we’ll see any meaningful decline until the AMB shows  a decline of around US$200B.

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FIGURE 1  S&P Daily

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FIGURE FRED AMB