Weekly Trading Notes – A Euro carry trade and Yellen’s testimony in focus


  • Greece is resolved… rejoice!! Or is it? They still need to get the deal agreed through the national parliaments (by a qualified majority across the parliaments), howeve Greece and Germany both get a veto. It does not look likely to not be passed, however as with this whole sorry saga, anything seems possible.
  • The impact of this seems to have seen the resumption of a trade from earlier in the year, a euro carry trade. With the Eurozone event risk now being reduced, yesterday we saw the euro sharply sold off, on the trade of using the euro (very low interest rate currency) to fund riskier strategies. In effect, traders can once more play the rate divergence trade again. This is one of the reasons why the euro held up relatively well during the Greek “Crisis” and has since fallen away. This should continue to act as a drag on the euro as long as there are no curve balls thrown up over Greece again.


  • Sovereign debt yields in the Eurozone had an initial reaction (Greek sharply lower, German sharply higher) but now this move is settling down again. The ECB remains a key buyer in the market and this should act as a drag on yields as markets continue to settle down.
  • This should therefore all add up to higher Eurozone equity markets, with the DAX and CAC key beneficiaries. There is still significant overhead resistance on the DAX to negotiate (June high at 11,636) though.
  • Friday last week, Janet Yellen noted that a rate hike in 2015 would be appropriate. In all the fuss over Greece and the Eurozone, it was almost as if it slightly went under the radar. However this week the market will very much be looking towards Yellen’s Congressional testimonies to give hints at how the FOMC may approach the final 4 meetings of the year. My view remains December at the earliest, whilst if Yellen re-iterates her view of 2015 being highly possible still (and she is still on the dovish end of the scale) this would be dollar supportive on Wednesday and Thursday.
  • US data will also be key for giving us some clues this week. Stating with Retail Sales, anything above +0.5% for the ex-autos monthly data would be a positive as it would continue to pull higher the year on year data which is what the Fed needs. Friday’s CPI data may not be exactly the Fed’s ideal measure of inflation but it would certainly be of interest to see the expectation of headline CPI showing inflation) and the core CPI also higher again.
  • The US dollar has been strengthening once more, with the Greek situation seemingly resolved, focus turns back to the data. The stronger US dollar should continue to act as a drag on the commodity currencies with the Aussie and Kiwi sill around multi year lows. The Canadian loonie also could come under pressure, as the oil price has fallen away again (Iranian talks have ended with an agreement to lift the sanctions – which is another downward pressure on prices). This may add to pressure on the Bank of Canada to cut rates as it could drag inflation lower.
  • It is earnings season now for the US and focus will be squarely on the big banks this week. JPMorgan and Wells Fargo announce on Tuesday, with Citi, Bank of America and Goldman Sachs later in the week. This could be a key set up for earnings season, especially with valuations off their recent highs.
  • There is a batch of key data still to come this week. For the UK, after Mark Carney’s comments that an interest rate hike may be getting closer (despite CPI dipping back today), this puts extra emphasis back on the UK average weekly earnings growth data tomorrow. Euro traders will be focused on whether the Greek deal gets through the Greek Parliament, whilst the press conference for Mario Draghi and the ECB monetary policy has taken on added interest, with the Q&A session sure to focus on Greece. The Michigan Sentiment will also be an interesting indicator to watch as if expectations are hit (96.4) then it would be a 6 month high.
  •  Watch for: US Retail Sales, Janet Yellen’s Congressional testimony, US CPI



EUR/USD – Deteriorating technical and pressure on $1.0915       

  • The return of the euro carry trade could add to downside pressure once more. The batch of key US data and Janet Yellen’s testimony could see the return of the interest rate differentials trade as any positivie data/hawkish hints will be dollar positive.
  • The $1.1050 pivot has been breached again and the outlook is under pressure. With lower highs and lower lows forming, alongside deteriorating momentum, this should put pressure on $1.0915, below which opens $1.0818. Above $1.1278 is now needed to defer the mounting selling pressure.
  • Watch for: Janet Yellen’s testimony, ECB monetary policy & press conference

GBP/USD – The support around $1.5450 is now being tested

  • This is a tough call to play on interest rate differentials, as despite the dip in UK inflation, Mark Carney suggested in his parliamentary testimony that the timing for a rate hike was coming closer. Has he had a sneak peak at the UK earnings growth data (expected at +2.9% whilst headline inflation is flat).
  • Technicals have been fluctuating in the past couple of days, with today’s rebound unwinding the disappointment of a false upside signal on Monday. I am still mindful that in recent months, once Cable picks a direction it sticks with it for a couple of weeks if not more. A close above $1.5643 re-opens the upside.
  • Watch for: US earnings growth, Janet Yellen’s Congressional testimony, US CPI

USD/JPY – Still very choppy and looking for direction

  • The on-off safe haven trade has resulted in a lot of chop on Dollar/Yen, but resolving the Greece situation and focus on the US data should result in the dollar driving the outlook once more. Once more Yellen’s testimony could be key this week. Although the Bank of Japan is likely to remain on the loose monetary policy path, there is no change anticipated tomorrow.
  • There is big overhead resistance in the range 123.70/124.40 to cap the upside I recent weeks which is yet to be overcome. Until this is seen it makes it difficult to go long for any time horizon other than a very short term trade. Near term support at 123.20 is important now as a breakdown opens another retracement. Support again comes in around 122.00.
  • Watch for: BoJ monetary policy, Janet Yellen’s Congressional testimony, US CPI

Gold – Continue to sell into strength for the gradual drift lower

  • The return of the dollar strength is like a boa constrictor that is squeezing the price ever lower. This gives rise to the occasional rebound but rallies continue to be seen as a chance to sell. The lack of buying pressure throughout the height of the Greek crisis would be a significant concern for any gold bugs.
  • Trading below $1170 now suggests that there will be continued pressure back towards the March low at $1143. It never seems to be a clean move though and whilst this does offer up some shorting opportunities it means that trading time horizons should be fairly short.
  • Watch for: US dollar strength and the negative correlation, Janet Yellen’s Congressional testimony

Indices – Wall Street driven by earnings season, DAX driven by negative correction with the euro  

  • S&P 500 – Focus is back on earnings season… finally! The driving forces being the big banks this week. Technically, the move back above 2085 is a key positive development for the near term outlook, which now needs to hold should there be a correction. Confident bulls will be eyeing the 2130 June high, but I will be looking at the RSI as a key trigger as a move back above 60 would be a near 5 month high and suggest the bulls are on really on a run.
  • DAX Xetra – A weaker euro is a positive for the DAX (so watch the euro). This is a key moment for the DAX as it now needs to break above 11,636 June high to prevent it become a continued range play. Technical indicators have unwound to neutral and now the bulls need to push on. Support is difficult to gauge as there are so many gaps, but the bulls will be keen to hold on to the range around 11,200.
  • FTSE 100 – The FTSE bounce above 6700 was a key near term move, but to turn this into something more than just another bear market rally there needs to be a push above 6870. 6700 now becomes key near term support.



Tuesday 14th July

  • US – Retail Sales

Wednesday 15th July

  • China – GDP
  • Japan – BoJ Monetary Policy
  • UK – Unemployment, Average Weekly Earnings Growth
  • US – Industrial Production & Capacity Utilization
  • US – Janet Yellen Congressional Testimony
  • Canada – BoC Monetary Policy
  • New Zealand – CPI

Thursday 16th July

  • Eurozone – CPI (Final)
  • Eurozone – ECB Monetary Policy
  • US – Janet Yellen Congressional Testimony

Friday 17th July

  • Canada – CPI
  • US – CPI
  • US – Building Permits & Housing Starts
  • US – University of Michigan Consumer Sentiment


Tuesday 21st July

  • Australia – RBA meeting minutes
  • UK – Public sector net borrowing

Wednesday 22nd July

  • Australia – CPI
  • UK – BoE meeting minutes
  • US – Existing Home Sales
  • US Crude Oil Inventories
  • G8 meeting
  • New Zealand – RBNZ monetary policy

Thursday 23rd July

  • UK – Retail Sales
  • US – Weekly Jobless Claims

Friday 24th July

  • Japan – Flash Manufacturing PMI
  • China – Flash Manufacturing PMI
  • Eurozone – Flash Manufacturing PMI
  • US – Flash Manufacturing PMI
  • US – New Home Sales


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