Macro Bets by Greg Feskoe

9:41pm: Risk Aversion and Crude
At last we have a catalyst that will put an end to the bear market rally, due to the 5.5% unemployment rate (lowest since '86) and due to the parabolic move in crude on Friday. I look for this to be the beginning of a move that will ultimately exceed prices that were hit on March 17th.
Trading strategy for the week is obvious:
Short USD/CAD through 1.000
Short USD/JPY through .95 (Near term support is around the 103 handle.)
Short USD/CHF on rallys
Long Euros on dips. (Looking to get in long around the 1.57 figure if it does not break 1.58 in the near term.)

7:49pm: CAD and JPY
Things are starting to make more sense as crude finally bounced off
support at $122. I did not anticipate that it would take this long for
it to find direction. I believe Crude is going to remain bid through
138+ which may cause investors to outweigh any optimistic news about
the US economy and instead focus on the continued financial sector
weakness, particularly with a widening OIS-LIBOR spread. With that in
mind, I think USD/JPY's rally is finally coming to an end.

I look for the market to press Bernanke's hawkish resolve, yet I don't
think USD will be sold as aggressively as equity markets and USD/JPY.

I am looking to short USD/JPY and USD/CAD after the market sorts
itself out regarding NFP tomorrow.

USD/CAD is facing declining resistance at 102.00 on a daily chart.
Inclining support comes in around .9900. This ultimately forms a
symmetrical triangle (though the price is at the top of the triangle).

USD/JPY temporarily broke through its upward channel at 106.30 on an
hourly chart before retreating back to the figure and beyond. If we
get a decent NFP tomorrow, I look for USD/JPY to challenge the upward
part of the channel again at 106.50, yet as I have stated, I think
this would be short lived. If we have a weak NFP reading, I look for
USD/JPY to challenge the lower part of the channel around the 105
handle and then to ultimately break out lower.

5:24pm: Long Euro, Long Crude, Short USD/JPY
I am prepared for an exceptional volatile week in global markets caused by a reversal in last weeks driving themes, coupled with an up coming week packed with market moving data and rate announcements.

It is clear that global markets are taking its cues from crude oil momentum speculators, which is a classic case of crowd psychology in markets. It seems the leader of the herd is Goldman Sach's oil analyst Arjun Murti who weeks earlier seems to have given new life to the pyramid scheme when he called for a crude oil "Super Spike" to $150-$200.

Despite recent retracement in crude, I believe it has found support around $125. Because of this, I am expecting it to remain bid through the $140 handle.

With this in mind, EUR/USD on a daily chart looks to be forming a "cup and handle" pattern, which implies a break out towards 1.60.

These thoughts would lead me to think USD/JPY will sell off through the 102.00 figure.
This kind of market movement is quite possible given what we have on tap:

Monday:
PMI Manufacturing in (German and UK)
CHF GDP Announcement
May ISM Manufacturing (US)

Tuesday:
RBA Interest Rate Announcement
EMU GDP
April Factory Orders (US)
ABC/Wash Consumer Confidence

Wednesday:
Australia GDP
ECB's Trichet speaks
April EMU Retail Sales
ADP Employment Change (US)
ISM Non-Manufacturing (US)
RBNZ Interest Rate Announcement

Thursday:
Australia April Trade Balance
Factory Orders (Germany)
BoE Interest Rate Announcement
ECB Interest Rate Announcement
May Ivey Purchasing Managers Index (Canada)

Friday:
Industrial Production (Germany)
Non-Farm Payroll (US)
Unemployment Rate (Canada)

4:11am: JPY
I am going to recant my JPY long term forecast as I think it will actually head lower in the next few years instead of higher. There are two reasons for my change of opinion: One is that inflationary pressures will outweigh the problem of slower growth in Japan, thus forcing the BoJ to raise interest rates. I would think that their would be a significant amount of speculation in a hike of Japanese interest rates well before the actual date of the first hike. Secondly as the Japanese economy slows, yen may actually strengthen, as the relationship between growth and strong yen has de-linked over the last few years. As of now I will make my end 2008 JPY forecast below 90.
I am also implying a dissemination of JPY centric carry trades as the BOJ raises rates.

3:03am: carry trades
I'm trying to find decent entry for shorting USD/JPY. I am currently short GBP/JPY at 203.14 with a minimal size position. I plan on holding the long yen position for the next 1-2 months, as I believe we will see a correction in a market that has "overdone" itself in recent months. I think USD/JPY will retreat below its previous low on March 17th of 95.74 to perhaps 90.00. If this move occurs, I think the driving psychology behind it will be a correction theme more so than a price move motivated by fresh panic.

I will concede to the Goldman super spike oil forecast. Yet an important detail that has been over looked within the forecast is the prediction that crude will have a significant pull back once a top is finally reached.
However, I think the super spike will fuel the correction. I believe this will be the final act for a declining dollar and equity markets. Once this plays out I believe USD/JPY will soar from the 90.00 area to 170.00 within he next three years. More importantly I think GBP/JPY will quickly recover the 40,000 pips it shed in late 2007. Therefore my focus for the rest of the year is essentially shorting yen against GBP and USD once I perceive this final act is complete.

Within the final act my forecasts are as follows:
GBP/USD 1.87
USD/CAD 85.00
AUD/USD 99.00
EUR/USD 1.65
USD/JPY 90.00
GBP/JPY 188.00
Crude 160.00

I expect these prices to be reached within the next 3 months followed by significant moves in the opposite direction. My immediate focus is on catching the downward move in carry trades, particularly in USD/JPY and GBP/JPY, shorting through their previous lows and then I will try to catch the beginning of a much larger move in the opposite direction. When we reach the end of this final act, I believe GBP will recover much faster than the USD, at the same time, I think JPY will weaken rapidly, thus my long term focus is going long GBP/JPY through its July high of 251.00 once I perceive its low to be in place over the next 3 months.

10:40pm: Crude, USD, EUR, CAD, AUD and Risk
I am currently short AUD/USD at the .9500 figure as it is forming a round top pattern with volatility dropping on 5 minute through 4 hour charts, signifying that the trend does not have enough to break through the psychological level. This also fits with my theory that commodities will correct within the next 24 hours. The reason why I say this is because equities ended positive today, despite the oil move, which means to me that people are actively testing the conviction of oil longs. I think the Nigerian situation should be respected thus followed closely, yet I believe the situation has become exaggerated in the recent crude surge. I also think the Goldman Sachs $150-$200 "Super Spike" oil forecast today sounds gimmick-like and an appeal to the status quo bias. I am calling for oil to find a home in the $85-$95 range or below, based on a strengthening USD coupled with weaker global demand as the recouple theme plays out.

USD Rebound and Euro Weakness
I think for the time being, the market seems to be putting an emphasis on Eurozone weakness rather than a USD rebound, therefore I think initially USD will strengthen more so on news of Eurozone weakness rather than on better than expected economic news from the US, i.e., the price action on Fridays NFP versus the weak German IFO number.

Risk
I think risk will remain neutral to positive in coming weeks. I believe the market feels that a good portion of a recession is already priced in and is prepared to face growing corporate defaults along with bad earnings. I think the market feels relatively secure or as if there is now a safety net of some sort in place given recent collaborated efforts by central banks around the world: (Including what our fed has already done: PDCF, TAF and TSLF), the BOE's "Special Liquidity Scheme," and the ECB and SNB's announcement to extend and expand their own auctions. With this I am calling for a 108.00 USD/JPY in coming weeks, which I then look for it to range trade as I think that price should serve as long term resistance, for now.

CAD and AUD
Given the recent commodity surge and for reasons that I have listed, I feel it is opportunistic to get long USD/CAD and short AUD/USD (with tight stops as they trade just above (CAD) and below (AUD) key psychological levels) in anticipation for a commodity correction to reestablish itself within the next few days.

1:48am: Buy dollars, wear diamonds
Currently I'm long USD/CAD and short EUR/JPY while I try to find another entry to short EUR/USD. I was short EUR/USD on Wednesday evening and my target got taken out early Thursday morning. In hindsight I realized I should have just used a trailing stop on it. Hopefully 1.58 will prove to be another chance to short.

My long USD/CAD is a macro based trade of mine which I had been thinking about for a while. My reasoning is that the only the only thing supporting CAD at these levels is crude, due to their softening economy. I believe crude will pull back to $110 and then towards $100. I think CAD should weaken exponentially in tandem with that crude scenario.

I believe this is the beginning of a USD buy back. I think the theme will shift from concern about a vulnerable USD to focus on European business deterioration. With that in mind, I believe we are in the beginning stages of a major commodity correction as investors unwind dollar hedges. I look for this to alleviate the inflationary pressures in Australia, New Zealand and ultimately in Europe which may result in central bankers taking on more of a dovish stance in those countires/regions.

I look for EUR, CAD, AUD, NZD, gold and crude to weaken significantly over the next few weeks.

5:50am: GBP and NZD
I opened up the week getting burned by averaging up into a EUR/USD short. The position quickly went against me during London's whipsaw price action session at the beginning of the week. I didn't think EUR/USD would be so indecisively violent. The reason for the trade was that if EUR/USD was still in correction mode then the chances of it getting higher were unlikely. I reasoned that it's current price opened up so high as a result from the weak NFP and thought that wasn't where it really wanted to be.

I have entered two trades on Tuesday: One was a little before 7am EST when GBP/USD broke pivotal support on a daily chart. I shorted the pair and plan to take profit around 1.94.

Later on in the afternoon I saw that it was technically advantageous to short NZD just ahead of .8000, with a take profit around .7500.


I am anticipating a rate cut and further economic weakness from the UK. I am also expecting the gravity of an economic slowdown in New Zealand to surpass any power lingering commodity prices have on the currency.

I think this is the very beginning of a great dollar buy back that may last through 2009. I think the re-couple theory is back in play which would support the dollar during a recession.

Daily chart of GBP:



Daily chart of NZD:

3:19am: NFP Thoughts
This will be a pretty simple one to play mostly because of the evidence shown last FOMC cut, that is, the market preferred better than expected earnings from LEH and GS instead of rate cuts. So now we don't have an artificially minded market anymore.
If NFP comes in convincingly better than expected, I think there will be dollar buying as well as a bid carry trade/equities. I think the best USD buying play here is in shorting GBP/USD, since GBP is the most fundamentally weak in the G10 right now aside from USD.
This is a lot easier to figure out than say back in Aug-Dec when markets would rally on poor data in anticipation of a bigger rate cut.
Here is my plan:

Weak NFP = Short USD/JPY only. (Not going to bother shorting USD against other pairs, since most are in the midst of a temporary correction against USD.)

Strong NFP= Short GBP/USD, long USD/JPY

3:18am: Credit Default Swaps and EUR
I am in the midst of an investigation into the potential problem that credit default swaps may pose in the event of a recession. Since a recession seems looming, the rise in the possibility of corporate defaults would bring an extraordinary strain to a market that would normally take it as a moderate strain, given the extent of the credit crisis. The good news is that it seems for now that the TSLF is working and has alleviated liquidity issues, resulting in the narrowing of credit spreads, particularly in CMBS, which has brought on a pseudo rally in USD. With that in mind, this may be a fantastic opportunity for recession believers to jump in shorting carry trades (Can't believe EUR/JPY is nearing 161.00.) the indices, etc.

I believe adamantly that EUR is setting up for a move that would pierce 1.65. It seems EUR/USD has started its second leg in its corrective move downward within a forming ascending triangle. As I have said before, I am watching carefully to get in long, which I would then hold till mid 1.58 before preparing for it to drop down again making a higher low...as it would then ultimately break through 1.59/1.60 with the same force it broke through 1.50.

4:09am: I did well on my EUR short and I now look to go long within the next 24 hours as it bottoms. It does seem to be poised for a higher low which would add fuel to my theory that this is another ascending triangle.

I have been thinking that the end of FOMC rate cuts may not necessarily mean a bottoming USD. I remain bearish on USD due to broader economic concerns. Moreover, if we enter a recession, will I-Banks be faced with another series of write downs in corporate credit default swaps? Anyone know anything about this?

3:28am: EUR
I've changed my position. I liquidated my long EUR/USD with a small profit as gold selling worried me. I took a good look at a daily EUR/USD chart and realized something special: It seems that EUR/USD is set on forming another ascending triangle right under 1.59. This brings back memories of the ascending triangle it formed just below 1.49 a few weeks back. This opens the possibility that EUR/USD will eventually want to break out through 1.65.
I have a limit at 1.5560, while I hope to play this triangle up and down and through the break.

5:42am: AUD, EUR and JPY
-I came in Sunday evening buying EUR/USD at 1.5785, with a limit just before 1.60. I believe commodities are going to be on their way this week in retesting their highs. I ultimately believe they will fail yet again once they reach those highs. I think we are going to witness the final battle cry in gold and oil. I believe this cry will move in tandem with EUR/USD reaching 1.60.

-I think equities will remain neutral to the downside in anticipation for Friday's NFP.

-I would short USD/JPY anytime it tries to break 100. I already missed an opportunity once tonight and I am even doubting if I'll get another shot.

-I am beginning to realize my outlook on AUD is extremely flawed. I am calling for a big commodity correction once it tries to retest its previous highs. I gave the fact the AUD has been sheltered from the credit crisis too much weight. One can argue that its current price already greatly reflects Australia's fantastic performance through the credit crisis and that when the crisis wanes, AUD will see a correction. I am now changing my view to that argument.

10:08pm: JPY and EUR
I came into the week on Sunday night thinking carry trades would be bid as equities would rally on the back of financials. I also thought commodities would continue their sell off as USD would continue to show strength on the back of narrowing credit spreads. Last night I placed the following trades: long AUD/JPY, long USD/JPY, short EUR/USD. I was in the money almost immediately and remain so in my two JPY shorts. I took some of my leverage that I gained from my so far successful JPY shorts and added to the diversification to my JPY shorts by going long GBP/JPY. Within two hours later, which would be at the time of writing this, I am up 50 pips so far on the new GBP/JPY long. As far as my EUR/USD short, that trade did well through the Asian session, yet came back against me during a thin European market where it remained during much of the New York trading day. As EUR/USD grew to go against me, I doubled up on my initial small position just before 1.5450 where I think it will be met with stiff resistance before dropping lower. Currently it is 1.5440 and I will trim my position if it establishes itself above 1.5450.

Two things surprised me today, One: Financials were neutral despite continued narrowing of credit spreads in CMBS, a continued bounce in the AAA ABX price, and continued basing in the BBB ABX price. Perhaps I-Banks were neutral for the same reason I think commodities were--shorts were covering some profits from last week (and longs were taking some off the table in financials.) The neutrality in commodities is probably the only thing propping up EUR right now. I would think Europe steps in tonight selling oil and gold, which would help my EUR short. I would find it odd though, if gold and oil get bought while equities stay bid.

11:06pm: Forget 75bp, is 100 enough?
I was stopped out of my AUD/JPY short quickly after the markets reversed mid Friday morning. Since it is too obvious as to what is going on tonight, and what will go on tomorrow, I don't have much to write. Yet one thought stands out: will a 100bp cut be enough to slow this fire down? As I witness what is going on in the currency markets this evening, my instinctive answer is no.

8:41am: aud/jpy
CPI is ok...I'm back on my long aud/jpy....with 98.00 my limit/target.

7:39am: aud/jpy
I got out of my long 2 pips higher after being ahead 40 pips. Will evaluate from here.

1:41am: Long AUD/JPY
I have noticed an inverted head and shoulder pattern here on AUD/JPY. I am going to take the risk and long this pair hopefully for 370 pips. I don't like shorting Yen right now, even against AUD, yet the pattern looks promising.

Open Trade: Long AUD/JPY
Entry: 94.30
Limit: 98.00
Stop Loss: 93.55
Reward/Risk Ratio: Roughly 4:1
Goal: +370 pips

11:13pm: JPY, GBP, EUR
GBP/JPY Trade Closed
Pips Captured: +245
-My limit was executed late Wednesday evening at 204.00

Some trades I am eyeing:

The most attractive potential possibilities right now I think are carry trade shorts. Of the JPY pairs, I think GBP/JPY and EUR/JPY look the best for a short at the right price.
EUR/JPY is near the upper portion of its channel on a daily chart. If the price can creep up to the 158.25 area, I will short till 156.00.
GBP/JPY is consolidating between 207.00 and 204.00 and over all has been moving downward in horizontal segments. I will look to short this pair once again if the price can get up to the 206.75 area. I would short till 204.00, yet I think an established move downward is a high possibility, with 199.00 or 200.00 acting as new support.
I am also waiting for the right price to go long GBP/USD. This pair has been moving in upward segments had has some important pivot points at 1.9400, 1.9700, 2.0000, and 2.0200. I would be looking to buy at 2.0200 and hold till 2.0400.
In regard to EUR/USD, I think it is frustrating a lot of traders who have not gotten in yet. Many are waiting to buy on a pull back, but there hasn't been any...Therefore it is difficult to pick out an entry and frustrating when we soon learn that any price would have been a good entry. Is this going to rocket to 1.60? I hope I figure that out before it happens.
Lastly, USD/CAD is climbing to its upper part of its channel on a daily chart. I am looking to short at 99.25 with a tight stop and a limit around 98.25, but I would be looking for an established move lower and I am expecting this to break its 98.00 support.

12:51pm: gbp/jpy
Open Trade: Shorting GBP/JPY
Entry: 2.0645
Limit: 2.0400
Stop Loss: 2.0705
Reward/Risk ratio is roughly 4:1
Goal: +245 pips

GBP/JPY seems to trade in ranges. Its current range is 2.12-2.05. My theory is that it is going to drop below the current range and start a new lower range. I think there will be sell offs tonight in Asian and European markets due to skepticism about the Fed's bailout plans. After reviewing carry trades, I think this one is the best to short.

1:23am: GBP
*I am closing my GBP long for a 100 pip profit here at 2.0070 as I am becoming increasingly skeptical about its momentum. The UK has a good amount of data to be released tonight...so I will watch in anticipation.

3:38am: AUD, NZD, GBP
Continued Trades:
Long GBP/USD
Entry: 1.9970 (On Thursday)
Limit: 2.0270
Current price: 2.0170
Current pips: +200

I continue to hold GBP/USD until my planned limit is achieved at 2.0270, which would capture another 100 pips.

Notable long/short ratios in the CFTC's Commitment of Traders Report:

AUD, 10:1 long (Note, this report is taken on Tuesday's and released on Fridays. On Tuesday the RBA raised rates by 25bp.)
GBP, 2:1 long
NZD, 15:1 long
EUR, 2:1 long
JPY, 2:1 long
CAD, 3:1 long

Key data this week:
March 11th: (USD) Jan. Trade Balance

March 13th: (CHF) SNB Interest Rate Decision
(USD) Retail Sales

March 14th: (USD) Consumer Price Index
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I expect traders to up their USD shorts this week in anticipation for a 75bp cut by the Fed on March 18th.

AUD/USD: I plan to go long this pair at .89, which is the 61% retracement level. AUD/USD corrected to the 61% level after its rally starting in August until the beginning of November.
I believe towards mid and end 2008, EUR longs will increasingly look to AUD as the new best way to hedge against global financial downturn. I expect this to occur when weaker economic data starts to come out of the Euro-zone.

GBP/USD: I believe this pair has a legitimate shot at 2.0425 for now, but will take profit on my long at 2.0270 and reevaluate from there.

NZD/USD: Going long this pair at the right time will be tricky and may not be worth it. I will be paying close attention to possible support levels at the various retracement percentages. Yet I expect this pair to be stagnant at a support level, while AUD finds a support level.

7:04am: Long GBP
Open Trade:
Long GBP/USD
Entry: 1.9970
Limit: 2.0270
Stop: 1.9910
Goal: 300 Pips

12:47am: GBP
Current Trade: None

[Previous Trade: Short AUD/USD
Risk: Medium
Result: (-25 pips)]

I think there will be a fantastic opportunity in GBP this morning because I don't think it has much priced into it, even though the BoE is expected not to cut. I think many are dubious of the no-cut and you can see the tension in GBP/USD. If the BoE does cut, I think the GBP is vulnerable till 1.96 and then 1.94. If the BoE does not cut as expected I think it has the potential to jump up to 2.04. Also if the BoE does cut, I would want to go long EUR/GBP till .80

EUR/USD: I have my eyes set on 1.54 but do not feel comfortable buying. I think EUR/USD has the potential to retrace (someday) down to 1.49 and make one last battle cry through 1.55 before it gets its coup-de-grace down to 1.40.

USD/JPY: I think this pair will move upward with slow trepidation through 105.00 The trade here though, is shorting it when it does reach this level.

USD/CHF: This is really the same as USD/JPY right now.

USD/CAD: CAD will continue to be supported on the back of strong Crude. Yet it is very important to note that CAD is extremely vulnerable to a Crude pull back. If we see a Crude pull back in coming weeks or in a month or two down to $90, I would think this puts USD/CAD at 1.07-1.10.

AUD/USD: I am not enticed to jump in long here. I don't believe this pair is done retracing and I still adamant about buying only in the .91 area.

NZD/USD: I may consider going long if we see a pull back to .7925.

12:10am: AUD/USD update
Forex Trade:
Shorting AUD/USD at .9265
Limit: 9165
Stop: .9290
Goal: 100 pips
Risk Ratio 3:1

Fundamentally I believe I am still correct about AUD, yet technically I was wrong and came in too early. AUD's price action on Monday was misleading, yet RBA's governor Glenn Stevens hinted that he was done raising rates, which fueled further retracement. It probable that AUD will retrace down to the 38% Fib level of .9125 before it continues its climb upward through .9500. The new incentive for a strengthening AUD once it is done retracing would be USD weakness and Australian financial security in relative terms. I am going to buy AUD/USD in the .9100-.9125 range if it shows good support and will hold through .9500. In the meantime I am shorting AUD/USD well before the first significant Fib level.

EUR/USD - The Euro's ability to absorb a retracement is probably because of the Non-Farm Payroll we have in the US on Friday coupled with a looming US rate cut in two weeks. I am neutral on this pair.

USD/JPY - There is a lot of talk about this pair momentarily strengthening and reaching 104.00 but I don't think the risk/reward window is worth taking a shot at. I will contemplate shorting this pair if it does reach 104 and beyond and signals a downward reversal.

GBP/USD - This pair has been stagnant and I would say it is very vulnerable to an unexpected BoE rate cut on Thursday.

USD/CAD - While thinking before the BoC rate announcement this morning that USD/CAD should be shorted, I soon found out I was terribly wrong and that Canada's growth is officially being hindered by US and UK problems.
If there is a significant pull back in Crude Oil, one should go long USD/CAD as I think the only thing supporting CAD at these levels is a high crude oil price.