Is Euro Periphery Tension Back As A Driver For EUR/USD?

We initially amended our estimates to demonstrate EUR/$ drawback in April 2014, on the method of reasoning that financial outperformance would see the Fed raise rates in front of the ECB, moving rate differentials against the single money. At this crossroads, our 12-, 24-and 36-month gauges for EUR/$ remain at 1.00, 0.95 and 0.90, individually, and rate differentials are still the principle driver for our view.

Intermittently, nonetheless, different variables have risen to drive EUR/$, eminently in mid-2012 when separation hazard was intense and ECB President Draghi made his now celebrated “whatever it takes” discourse, basically pre-reporting the OMT program. This limited Euro outskirts hazard premia (Exhibit 1), driving EUR/$ far above what was legitimized by rate differentials.

With expanded market concentrate on Italy’s banks, we returns to examination we have done in the past on Euro periphery.In specific, we take a gander at family unit and corporate bank stores over the span of the Euro zone emergency.

We presume that stores over the Euro outskirts have held up well, through the many high points and low points of late years, so that late advancements are probably not going to start material surges. The remarkable special case to this photo is Greece, where rising chances of Euro exit in late-2011 and mid-2015 brought about generous store flight. In any case, what is outstanding, once more, is that this store flight did not encourage into virus to whatever is left of the Euro fringe.

Examiners Net Short Yen in the Futures Market without precedent for a Year

 The US dollar climbed more than 8.5% against the yen in November, lastly toward the end of the month, theorists at last changed to another short position surprisingly this year.

In the CFTC reporting week finishing November 28, theorists added 12.1k contracts to their gross short position, lifting it to 72.4k contracts. Examiners included somewhat less than one thousand contracts to the gross aches, which then remained at 72.1k contracts.

Since topping toward the beginning of October close to 102k contracts, 30k gross in length contracts have been exchanged. Over a similar period, very nearly 40k contracts have been added to the gross short presentation. The outcome is that the net position is short around three hundred fates contracts. That leaves the Australian dollar as the main cash fates we track in which examiners are still net long. Furthermore, even there they are back.

Amid the most recent reporting time frame, theorists sold 8.7k long Aussie fates contracts, conveying the position down to 54.8k contracts. Around 1.1k contracts were added to the gross short position, so it remained at 33.8k contracts. The net long position fell by a third to 21.0 contracts.

Developing the gross short yen prospects was the biggest theoretical position alteration, yet examiners were additionally dynamic in euro fates. The bulls added 9k contracts to the gross aches (to 136.1k), while the bears developed the gross short position nearly to such an extent (8.9k contracts to 255.3k).

Examiners added to their net short Mexican peso position. The 5.6k contract expansion conveyed the gross short position to 73.8k contracts, outperforming the yen. Also, on the grounds that the yearns were trimmed possibly, the net short position rose to 54.5k contracts, the biggest since early October.

Theorists for the most part added to short cash exposures. Of the eight monetary standards we track there were two special cases, the Canadian dollar (2.1k diminishment of gross shorts) and the New Zealand dollar (200 contract decrease). Without come up short, examiners exchanged long presentation to the dollar-coalition coinage and the peso. They for the most part added to alternate majors, except for sterling, where net yearns were cut.

The bulls and bears have been wrestling in the 10-year note prospects. In the latest reporting time frame, the bulls surrendered. They exchanged 208.4k contracts. Despite everything they have another 519.1k contracts. The encouraged bears added 60.5k contracts to their gross short position, raising it to 615.4k contracts. The outcome is that the net position swung from long 173k contracts to being short 96.3k contracts.

In the reporting time frame finishing the day preceding OPEC’s oil cut declaration, theorists trimmed both gross long and short positions. They trimmed the gross long position by 8.9k contracts to 551.7k. They secured 20.4k gross short contracts, abandoning them with 263.8k. This brought about a 11.6k contract increment in the net long position to 287.9k contracts.

29-Nov      Commitment of Traders
Net  Prior  Gross Long Change Gross Short  Change
Euro -119.2 -119.3 136.1 9.0 255.3 8.9
Yen -0.3 10.9 72.1 0.9 72.4 12.1
Sterling -78.1 -74.3 50.0 -3.4 128.9 0.4
Swiss Franc -24.3 -22.9 13.0 3.5 37.4 4.9
C$ -18.6 -17.5 25.0 -3.3 43.6 -2.1
A$ 21.0 30.7 54.8 -8.7 33.8 1.1
NZ$ -1.9 -0.5 30.2 -1.5 32.1 -0.2
Mexican Peso -54.5 -48.3 19.3 -0.6 73.8 5.6
(CFTC, Bloomberg) Speculative positions in 000’s of contracts

For OPEC’s Rivals, Success Lies in Oil Market Far, Far Away

Rivals of OPEC seeking to reach its most-prized oil customers are finding that the long way around is better than any shortcut to success.

As the group seeks to implement a deal to limit output, the glut that was exacerbated by its prior strategy of keeping taps open has spawned a market structure that’s benefiting competitors in sales to Asia. Cargoes from Europe’s North Sea will reach South Korea in coming months, while U.S. Eagle Ford shale crude as well as Mexican oil arrived at Yeosu port in November. Japanese and Thai refiners have bought West Texas Intermediate from BP Plc.

Shipments to Asia from locations farther than the Middle East are turning more attractive because of a deepening market structure known as contango, where near-term supplies are cheaper than those for future months. Sellers benefit from this because the value of a cargo rises as it makes the longer journey to its destination. For buyers, abundant output across the Atlantic Basin has made North American and European oil cheaper relative to crude from OPEC nations such as the U.A.E and Qatar.

“The wider contango has given OPEC’s rivals a shot at loading up a vessel and sending oil from all corners of the globe to Asia, even if it sails for up to two months,” said Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd. “OPEC’s fight for market share amid rebounding output from members such as Nigeria and Libya, as well as increased production from places like Russia and former Soviet Union regions, has exacerbated the market oversupply.”

The premium of later supplies of Brent, the benchmark for more than half the world’s oil, over near-term cargoes is currently at about $5 a barrel versus a contango of $2 at the end of April. That’s in contrast to more than two years earlier, when later shipments were at a discount, or backwardation, of more than $7. Crude was then trading at more than $100 a barrel before a global glut dragged down prices by more than 50 percent.

Long-Haul Voyages

Two million barrels of oil on a Very Large Crude Carrier will take about 55 days to traverse the 15,000 nautical miles from the U.S. Gulf Coast across the Atlantic to South Korea, a month more than supplies from the Middle East. The value of crude can rise by as much as a dollar per barrel during the time difference because of the contango, data compiled by Bloomberg show. That would also help compensate for higher shipping costs from the longer voyage.

The value of Brent crude loading in three months is about $1 per barrel higher versus cargoes for two months ahead. The expense to time-charter a vessel for 30 days is lower at 80 to 85 cents per barrel, according to Bloomberg calculations based on data from ship broker Howe Robinson Partners.

Oil is trading more than 50 percent below its 2014 highs, amid speculation over whether the Organization of Petroleum Exporting Countries will be able to implement a plan to cut output and stabilize markets reeling from a glut. A decision is expected next week after a Vienna meeting between ministers from group nations including biggest member Saudi Arabia as well as non-OPEC producers such as Russia.

Crude Varieties

“OPEC’s potential production cut could tighten the market in Asia. And, if you can’t get enough medium and heavy sour crude, then the best would be to look for alternatives in the Atlantic Basin,” said Ehsan Ul-Haq, an analyst at industry consultant KBC Energy Economics. If the Saudi-led plan to curb supplies goes through, the Middle Eastern Dubai oil benchmark could turn costlier relative to Brent, which “in turn facilitates the flow of Atlantic Basin crude to Asia,” he said.

Brent futures for January settlement traded at $48.36 a barrel on the London-based ICE Futures Europe exchange by 3:41 p.m. Singapore time.

Vessels that bring oil to the U.S. Gulf Coast from the Middle East can in turn be used to haul back North American and Latin American crude, or a combination of both, to Asia. The supertanker Izki arrived at South Korea’s Yeosu port earlier this month with U.S. Eagle Ford crude co-loaded with Mexico’s Maya and Isthmus oil grades. The cargo was for refiner GS Caltex Corp., which has joined other Asian processors in buying supply from the U.S. mainland after a 40-year ban on American oil exports was overturned.

Buyers in Asia-Pacific also benefit from this strategy because they can receive a blend of heavy crudes from Latin America and lighter varieties from the U.S. in a single shipment. The region will use 32.88 million barrels a day of oil this year, accounting for more than a third of global consumption, according to data from the International Energy Agency. Daily demand is forecast to expand to 33.7 million barrels in 2017.

“There has traditionally been a regular flow of vessels moving oil from the Arabian Gulf to the U.S., as producers such as Saudi Arabia and Kuwait have term contracts to supply refineries along the U.S. Gulf coast,” said Den Syahril, a Singapore-based analyst at industry consultant FGE. “This makes a ready pool of vessels available when exporting U.S crude either on its own or along with Latin American grades to Asia, while serving as a viable back-haul option for ship-owners.”

Can You Really Beat the Market? Here Are 5 Tips that Will Give You an Advantage

By Nial Fuller

thegreatestThe point of today’s lesson is not to convince you that the market can be beaten, because if you don’t believe it can be beaten then why are you even playing the ‘game’? Today’s lesson is meant to help you make the market easier to beat; to increase your edge over the market.

Whilst I can’t give you every ‘secret’ in one article, the following tips are some relatively easy things you can do to actually give you a much higher chance of success. Most traders don’t understand these topics fully so I wanted to discuss them today. You see, it’s not just your trading strategy that you need to get down, there are other aspects to trading that you need to understand to get the most out of your trading method…

The spread is your enemy

Every time you trade, the spread (which is the price distance between buyers and sellers) eats away at your profits. This means, the more trades you take, the more money you lose in spread costs, and this quickly adds up.

On 100 trades you give back 100 to 200 pips to the market in trading costs, that’s before you factor in any profits and losses. Many traders take 100 or even more trades per month, if this is you, you are paying hundreds of pips to the market each month, which makes beating the market a lot harder.

Therefore, it is important to…

  1. Trade on a competitive spread, but more importantly…
  2. Lower your trade frequency and focus on quality trades only.

I personally accomplish this by avoiding day trading and using a low-frequency end of day trading approach instead. Essentially, the more trading transactions you make with the market, the more you give back in costs and potential losses. This is one of many reasons it’s critical for you to focus on quality trades over quantity of trades.

Let trades run their course; things take time

One thing that will significantly increase your ability to beat the market, is having enough patience and foresight to let trades run their course. You have to understand that trades take time to play out in the market, and you cannot give into the temptations you feel in the moment. If you enter a trade on a Friday afternoon and it’s just sitting near your entry point just before the market closes, you can’t just close it out because you’re nervous, you need to commit to the trade and remember the reason why you entered, and see it through.

There are many reasons I like swing trading over day-trading, but the main reason is because swing trading improves your chances of trading success, as I discuss more in-depth in the article I just linked you to. As swing or position traders as we are sometimes called, we take well-planned and thought-out positions in the market with the understanding that it may take several days or weeks to play out either for or against us.

This aspect of trading, that trades can take longer to play out than we expect, often causes problems for traders, especially for beginners. I understand the ‘itch’ you have to make money fast in the market, but what you have to understand is that you do not make money fast by trading a lot. It may feel like you can, but you can’t. In fact, the fastest way to make money is by having patience and letting the market run its course without your constant involvement. See my set and forget trading strategy article for more on this. This ties into the end-of-day trading approach that I mentioned in the previous tip.

Believe in your edge, winners occur in random sequences

As I discussed in my recent article on the late, great Mark Douglas, for any given trading edge (strategy) winners and losers are randomly distributed in the market. In more straight-forward terms, this basically means that you never know if your next trade will be a winner or loser until after it is finished. It may sound obvious at first, but MANY, if not most traders, trade as if they ‘know’ THIS trade will be a winner. This is the only way you can explain why people risk way more than they should or take what I call stupid trades. If they did not believe THIS next trade was going to be a winner, they wouldn’t make those aforementioned mistakes.

What you have to do, as Mark Douglas pointed out so eloquently throughout his career, is continue to subject yourself to your trading edge and believe in it, even when you may be in the middle of a losing streak. This can be very mentally difficult to do, but it will be easier if you keep the following points in mind:

  • Imagine you have a weighted coin, where the heads side is a little bit heavier than the tails side so that over enough flips, you should get heads about 70% of the time. Now, what that means is that 70% of the flips, given a big enough sample size of flips, will be heads. What it DOES NOT mean is that any one flip has a 70% chance of being heads; an important distinction to make that applies directly to your trading edge.
  • If you flip that coin 100 times, you could conceivably have 20 tails in a row for example, before you get say 60 heads in a row then 10 more tails then 10 more heads. Now, apply that logic to trading; can YOU mentally deal with 20 losing trades in a row? How about 10 losing trades in a row? Even if you know that over 100 trades, 70 will be winners, it may be near impossible for you to deal with 10 or 5 losses in a row, especially if you’re risking too much per trade.
  • You can significantly increase your overall trading edge by being patient and only taking very obvious (and thus high-probability) price action signals. This will make it less likely you have a big losing streak, but it will also work to calm your nerves and keep you focused because you won’t constantly be trading.
  • The number one thing you want to avoid, is ruining your trading edge by over-trading, or trading when your edge isn’t there. The only way your hypothetical 70% trading edge will give you 70% winners over a series of trades, is if you follow it with discipline and consistency.

Manage risk and trade like hedge fund

There are huge profits just around the corner if a professional trader waits long enough, trends are developing all the time and the next big trade is there for the taking if you wait long enough, but if you have no capital to take advantage of it, then you’re screwed. As a trader, my primary goal each year is to stick around long enough to see that George Soros-like trade and having the capital to make a huge profit from it.

I would rather trade 2 times a year and double my money than trade 200 times a year and make just 20%, or more likely, lose money. This is how hedge funds think and act and it’s discussed more in-depth in my article on trading like a baller – trade as if you’re a hedge fund.

A trader sees enough trends in their lifetime to make considerable profits, however, the trader needs to survive long enough to participate in them. He will lose quite a few trades but the few he wins will put him well ahead. In an article I wrote on the Market Wizards, I discussed the founding members of  the Turtle Traders and their money management approach and how it allowed them to lose many more trades than they won and still make an immense profit.

The main reason for failure, or getting beat by the market, is running out of money, which comes from either over-trading or poor risk management or both. If you can preserve your trading capital and gain experience that come with time as well as learn from your mistakes, you statistically have a higher chance of success.

In this exact order, the best path to take is as follows:

Demo trade as a novice, trade smaller when you start going live, then build up from there as confidence and ability improves, build trade position size higher over time and then back yourself handsomely when you finally enter the ‘zone’ and have proven your abilities to yourself and those around you.

Trading in Volatile Markets

Trading in Volatile Markets

We would like to take this opportunity to remind you of the measures Bank of America Merrill Lynch (BofAML) has in place for trading in volatile market conditions.

In periods of extreme volatility, we have on some occasions seen delays to trades, including requests for quotes (RFQs), order taking, order processing, price streaming and/or market data dissemination.  As a reminder, we are not obligated to provide price streaming, respond to RFQs, or accept orders for execution in any particular manner, and all determinations of if, whether, or when market criteria have been met for execution shall be made by us in our sole discretion.

BofAML’s electronic trading platforms have volatility controls that may temporarily suspend execution and price streaming in response to rapid and adverse market movements.  It is possible that different clients submitting orders or requesting trades with similar profiles may achieve different outcomes, including whether and when orders or trades will be executed.

During volatile markets, we will endeavour to continue to serve clients but we may not be able to provide the product offering, level of execution, liquidity and pricing – including in electronic markets – as would be the case under more normalized market conditions.