10 September-Issue 31

Crashes do not happen in Aniversaries

Last week’s forecasts were not triggered, despite pointing to the correct direction. Long USD, short EURJPY, short EURUSD was the correct thing to do, but the advised entry levels were missed by more than 25pips. I have offered no view for AUD and GBP, and the short USDCAD trade is 8 pips in the red.

Major last week’s events:

  • Tariffs’ front: The additional round of tariffs of $200bn worth of Chinese products are set to be announced in the next 3 weeks, following the end of public hearing procedure.
  • NAFTA: Negotiations between USA and Canada continue and could finalize by the end of September. Issues to be resolved are: (a) Canadian dairy industry and subsidies given, (b) Chapter 19 on how disputes are settled, (c) Canadian companies’ access to US government contracts, (d) ending of steel and aluminum tariffs, (e)5year or 16 year expiration date of the deal.
  • US Transformation: An anonymous letter against Trump produced by someone in the White House offered some headlines during the week
  • Turkey-Russia-Iran: Officials met in Iran to talk on Syria. Note that Turkey and Russia are supporting opposing sides.
  • Turkey: A side effect of TRY drop was a rally in the Occupied Northern Cyprus, where Turkish Cypriots protested against the rising cost of living
  • China: New tax breaks were promised to banks so that they could increase the loans.
  • Cryptos: Total market cap at 204B$, -12% w/w, -75% from the 800B$ peak. Goldman Sachs is pulling back from establishing a crypto trading desk and Kraken (crypto exchange) announced the firing of 57 Employess (equal to 10% of it’s client service team office in California). I would go long ETH at 204$ for a quick 20% gain

Major next week’s events:

  • 10 year aniversary since the colapse of Lehman Brothers

  • Wednesday’s release of OPEC’s montly report. I am expecting an oil rally

  • Thursday’s Monetary meeting of the ECB, the BOE (Bank of England), and the Central Bank of Turkey. I would short USD/TRY with a sell stop order 800pips bellow the market price, targeting 5.81


I keep my short EURJPY bias and would re-enter short at 130.23 and 131.32 levels.

Snapshot unchanged:

  • Core CPI (=BOJ’s compass) at 0.8% (vs 2.0% target and BOJ’s members’ expectation of 1.2~1.3% within 2018), BOJ rate at -0.1%
  • GDP at 1.00% annual, 0.5% q/q, 10Y Government bonds yield at 0.11% (+0bps w/w) vs BOJ’s target of 0.00±0.20% level
  • Unemployment increase to 2.5%

Strengths of JPY:

  • QQE will stay, up until core CPI reads 2.0% in a stable manner. The scheduled VAT hike in Oct’19, rules out any possible monetary policy change, before 2020.

  • increasing retail sales, improved GDP reading (new reading expected this week) , increased Manufacturing PMI, impressive capital spending reading

  • I cannot offer a reasoning, but the end result of all physical desasters happening in Japan, is a strengthened JPY.

Weaknesses of JPY:

  • decreased Services PMI and trade balance. New readings of monetary base, bank lending and machine orders, that dissappointing during the previous month, are expected this week
  • increased unemployment reading


  • Monday’s Current Account and GDP q/q reading.

  • Tuesday’s M2 and Wednesday’s Manufacturing Index. Both are expected higher favoring JPY

  • Next Monetary Meeting on 19 September


I am confident with my short USDCAD position and could re-enter at 1.3192.

Bank of Canada did not raise rates, but a hike is possible on October’s meeting. For now, the high inflation was attributed to the temporal airfare increase and not to excess demand pressures. A bad outcome of Nafta negotiations would be translated to a -0.66% GDP adjustment, but the likely possitive outcome has an upside potential.

Snapshot deteriorated.

  • Inflation at 3.0% (vs 2.5% target, BOC expects 2.0% within 1Q19), BOC rate at 1.50% (4 hikes so far, neutral rate according to BOC within 2.5%~3.5% range).
  • GDP at 1.9% (vs. BOC expectations of 2.0% in 2018 and long term potential of 1.8%), 10Y Government bonds yield at 2.29% (+6bps w/w).

  • Unemployment increased to 6.0%

Strengths of USDCAD, weakness of CAD:

  • latest disappointing GDP m/m and unemployment reading

  • housing market, wholesale sales and retail sales readings

Weaknesses of USDCAD, strengths of CAD:

  • I am expecting a new oil rally following Wednesday’s OPEC report.

  • NAFTA negotiations are proceeding. I am expecting a CAD rally once a deal is reached


  • Any news on NAFTA negotiations

  • Wednesday’s OPEC report.

  • Next Monetary Meeting on 24 October


I will enter long AUDUSD at 0.7000 level

RBA (Australian Central Bank) left interest rates unchanged and noted that the dynamics of housing market has changed as it has become a buyers market.

Snapshot unchanged:

  • Inflation at 2.1% (expected at 1.75% later in 2018 and then higher in 2019), RBA ‘s rate at 1.50% (no hike so far)

  • GDP increased to 3.4% (RBA expects more than 3.0% within 2018 and 2019), 10y Bond yields at 2.55% (+3 bps w/w)

  • Unemployment at 5.3% (expected to reach 5.0% by 2020)


  • AUD has become extremelly undervalued at current 0.7100 level and a rebound is likely
  • Australian political drama is over

  • GDP is increasing


  • market participants expect the RBA’s rate to remain unchanged for a considerable period of time

  • decreased trade balance, current account and company operating profits

  • decreasing capital expenditure, building approvals and home sales


  • Tuesday’s re-opening of Australian Parliament

  • Wednesday’s consumer’s sentiment

  • Thursday’s Unemployment rate

  • Next Monetary Meeting on 2 October



I keep my long USD bias

Snapshot unchanged:

  • Core PCE (=FED’s inflation compass) at 2.0%, FED ‘s rate at 1.95% (IOER) and expected to reach 3.1% within the cycle. FED’s view of long run rate at 2.9%

  • GDP increased to 2.9%y/y (reached OPEC expectations for 2018), 4.2% q/q, 10y Bond yields at 2.89% (+4 bps w/w)

  • Unemployment at 3.9% (vs natural rate of unemployment of 4.5%), FED expects 3.6% unemployment in 4Q18 and 3.5% for 2019 and 2020.

Strengths of USD:

  • inflation is contained (labor cost data decreased & Trump canceled a 2.1% wage raise for federal employees) and at the same time the Fed cannot postpone the rate hiking, given its forward guidance is described as a policy tool and given that markets are currently pricing 99.8% probability of a rate hike on September and 77.6% probability of an additional rate hike on December.

  • strong macros (GDP, Manufacturing PMI, Non-manufacturing PMI, Service PMI)

  • two new narratives capable of boosting US markets for another semester are in the making (a) indexing inflation so that long term capital gains are taxed lower (b) publishing earnings every 6 months instead of every 3 months can bring creative accounting.

Weaknesses of USD:

  • 10y Government Bond yields remain below 3.0%.


  • Tuesday’s Wholesale Inventories. A number above 0.7% may trigger US-equity sell off and strengthening of USD

  • Wednesday’s 10y Goverment Bond Auction &Thursday’s inflation readings

  • Friday’s business inventories m/m. A number above 0.4% may trigger US-equity sell off and USD strengthening

  • Next Monetary Meeting on 26 September, when a new hike is expected.



I am shorting EURUSD at 1.1720 , as current 1.1550 level does not offer enough room for trading.

Snapshot was mixed:

  • Annual CPI at 2.0%, core CPI (=ECB’s compass) at 1.0%, ECB ‘s rate at 0.00%

  • GDP decreased to 2.1% growth (OPEC reduced expectations to 2.0%), 10y Bond yields of EFSF at -0.37% (-4bps w/w), 10y German Bond yields at 0.37% (+4bps w/w), 10y Italian Bond yield at 2.82% (-42bps w/w), 10y Greek Bonds yields at 4.30 (-10bps w/w, at the third week following bailout protection)
  • Unemployment at 8.2%

Strengths of EURUSD:

  • decreasing bond yields of European periphery, decreasing unemployment

  • service and manufacturing PMI levels are stable and above the 50 threshold

Weaknesses of EURUSD:

  • we are 40 days away from Bavarian elections and the announcement of Italian’s goverment budget.

  • the different stages of monetary policy between EU and US, can only be simulated with two expected dips of EURUSD, in late September and mid December

  • a possible decline of US equities would fuel a risk off environment, where EUR is generally falling

  • decreased M3 and retail sales readings


  • Monday’s Investor’s Confidence and Tuesday’s Economic Sentiment

  • Thursday’s ECB’s Monetary Meeting. No policy change is expected and my focus would be on the press conference


Avoiding forecasts for GBP is the correct thing to do. On the 29th of August it was the “Brexit deal within our sights Minister Raab said” headline that moved GBP within minutes. On the 5th of September it was the “Germany and UK drop key Brexit ask, easing the path to deal” bloomberg headline that moved GBP.

Both failed to have a long lived effect on GBP, so I would advise to use any other similar headline to exit from any long GBP trades.

Snapshot unchanged:

  • Inflation at 2.5% (vs 2.0% target), BOE ‘s rate at 0.75%

  • GDP at 1.3% growth (vs 1.75% BOE’s expectations and 1.3% decreased OPEC’s expectations), 10y Bond yields at 1.46% (+3bps w/w)

  • Unemployment at 4.0%


  • the bad weather narrative for the abnormally low GDP number of Q1 still makes sense.

  • Macro picture is improving: GDP, unemployment, construction activity and housing market. New numbers for GDP and unemployment are coming during the week.

  • possitive macro releases: Services PMI, Consumer Confidence, M4, consumer’s inflation expectations increased


  • a no deal with EU is possible. In this case UK would be able to be competitive to EU regulatory wise, but would loose tax revenues from the decrease of financial activity in the City.

  • the no deal scenario has already been characterized as bad outcome by Mark Corney (Governor of BOE) and has been quantified to be equal to a £80bn in public finance by Philip Hammond (Head of Treasury)
  • Negative macro releases: decreased average earnings, industrial order expectations, manufacturing and construction PMI


  • UK politics

  • Monday’s GDP m/m, manufacturing production m/m, industrial production m/m

  • Tuesday’s unemployment rate

  • Thursday’s BOE’s monetary meeting. No policy change is expected



Issued by Labis Michalopoulos, CFA




People checking my returns at www.forexfactory.com/dxmix will notice a leveraged trade on AUDUSD opened on 24 August that ruined my statistics. I mistakenly ordered to open a position 10 times bigger than I am used to, and my reaction to the mistake was a series of new wrong actions.

This material is for Qualified Investors and Professional Clients only and should not be relied upon by any other persons.

Past performance or past accurate forecasts is not a guide to future performance and the accuracy of future forecasts and should not be the sole factor of consideration. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Changes in the rates of exchange between currencies may cause the value of investments to go up and down. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

This report is for information purposes only and does not constitute an offer or invitation to anyone to invest or trade and has not been prepared in connection with any such offer.

Any research in this document has acted by Labis Michalopoulos, CFA for his own purpose. The views expressed do not constitute investment or any other advice and are subject to change. The author has an interest in the currency pairs, indexes and any other security disclosed in this report as he is an active trader.

Reliance upon information in this material is at the sole discretion of the reader.

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