#63 The Catholic Easter

China’s macros improve – 2H19 rebound scenario remains valid

20 minutes read report, 9 pages

To help speed reading blue is used for new arguments, forecasts are underlined and found at the beginning of each page, hyperlinks are marked.

How the forecasts did:

The short EURJPY and short GBPUSD trades have not been triggered, the long AUDUSD trade is 30pips in the green, the long EURUSD trade is 10pips in the red, and USDindex futures closed the week on Thursday 45 cents in the red.

In relative terms, it has not been a rewarding week. Yet, it would be wise to keep the same positions during the upcoming week. European economy (16% of global GDP) is not looking good, but China and the USA (combined 40% of global GDP) bring optimism.

Major events of last week:

  • China: The latest macroeconomic releases support the argument that Chinese government expansionary fiscal policy is gaining traction. GDP growth at 6.4% (vs 6.3% expected), increased fixed asset investments, industrial production and retail sales, falling unemployment.
  • USA-China: The new milestone for the signing of a trade aggreement by President Trump and President Xi, is set towards the end of May-early June. Summary is here.

    Meanwhile the EU and the USA recorded their first win in WTO against China allowing them to penalize Chinese dumping practices more severely.

  • USA-Japan: The two countries kicked off negotiations on trade and security.
  • EU-USA: As we are heading to the European Parliament elections, trade negotiations seem stalled. The European Trade Commissioner, Cecilia Malmström, pursues talks with Robert Lighthizer. President Macron objects, and pushes for the backing of the Paris Climate Change Agreement, as a prerequisite for any trade negotiations.
  • France: The fire in Notre-Dame Cathedral postponed President Macron’s address to the nation, regarding the “yellow vests” and the 3 months long debate he had with them. Possible tax cuts, increase of the 35h working week and an expansionary fiscal policy may be announced.
  • Israel: Prime Minister Benjamin Netanyahu formed a new government.
  • Turkey: Given that Turkey will install the Russian S-400 defense system, and that the USA will not deliver any US F-35 fighter jets, Turkey is searching for alternative options in Sweden, the UK and Russia
  • Yemen: Al Jazeera reported a worth reading summary of the situation.
  • North Korea is turning the heat back on, while the USA negotiates with Russia and Japan on the North Korean denuclearization.
  • Equities: Excluding Goldman Sachs that fell, Citigroup, Bank of America, Blackrock, Morgan Stanley, Netflix were adequately persuasive at their earnings, and their stock prices rose.
  • Cryptos: Total market cap keeps rising at $181bn, +4.62% w/w, -77.9% from last year’s $821bn peak

Major events of next week:

  • Tomorrow’s election in Ukraine and North Macedonia. Next Sunday’s elections in Spain.
  • President Macron’s address to the French nation.
  • 1Q19 earnings Calendar: Baidu on Monday, Coca-Cola, Verizon on Tuesday, Boeing, Moodies on Wednesday, Amazon, Ford, Clarkson on Thursday. Numbers above -4% earnings growth are generally considered positive news as they are compared with the 1Q18 quarter when the effects of the tax law where significant. Our attention into Ford’s earnings is triggered by the recent announcement of Nissan (Japan) to cut global production by 15%.
  • Monetary policy meeting of the Bank of Canada on Wednesday. Central Bank of Norway, where a rate hike is not totally impossible to happen, and Bank of Japan have a meeting on Thursday.

  • Possible meeting of President Trump and Prime Minister Abe (Japan) in Washington, on Friday.


Long EURJPY at 124.65 as technical and fundamental analysis are currently pointing to different directions.


Strengths of JPY:

  • GDP q/q growth rebounded from the negative territory. Domestically economy is doing fine.
  • Monetary policy is unchanged.
  • improving macro readings: GDP (yet, it is expected to decrease in 2019), inflation, unemployment, trade balance, M2, current account, manufacturing PMI (but bellow 50), average cash earnings, capital spending, industries activity (but it is stil negative for 4th month in a row), housing starts, consumer confidence, consumer sentiment, bank lending


Weaknesses of JPY:

  • the 2H19 rebound scenario is alligned with recent macroeconomic data
  • The source of concern are the exports due to the moderate global growth. Indeed, the trade balance fell.
  • deteriorating macro readings: trade balance, retail sales,Services PMI, industrial production, monetary base, household spending

Watch / New Releases:

  • inflation, industries activity, unemployment, retail sales, housing starts

  • Thursday’s Monetary Meeting of the Bank of Japan


Long AUDUSD at 0.7087



  • China’s latest macro releases confirm that the expansionary fiscal policy produces possitive results.
  • Australian new budget, a few weeks before May’s elections, is the first surplus budget of the decade and includes 75bn AUD for ifrastructure, tax cuts for low and medium income famillies & energy assistance payments
  • improving macro readings: retail sales, current account, trade balance, inflation, inflation gauge, home loans, unemployment, M1, service PMI (crossed above 50), private capital expenditure, AIG manufacturing index, household consumption, consumer’s sentiment, wage price index, building approvals, private sector credit


  • GDP latest reading was unexpectedly lower and unemployment increased
  • Westpac, one of the top four Australian banks, is expecting two rate cuts, in August and November 2019. Moreover it lowered it’s GDP expectations to 2.4%y/y from 2.7%. Recently, the 3 year government bond yield fell bellow RBA’s main rate of 1.50%, an additional sign that a rate cut could happen within the next 3 to 8 months. Yet the communication of RBA, on 2nd of April, remained dovish.
  • deteriorating macro readings: GDP, unemployment, job advertisements, inflation expectations,manufacturing PMI, home sales,company operating profits, decreasing capital expenditure, business confidence

Watch / New Releases:

  • inflation reading

  • low volume expected on Monday and on Thursday due to the holidays

  • Next monetary meeting on May 7.


No forecast for USDCAD

The determinant factors that would move both oil and CAD are the OPEC’s decisions in Vienna, scheduled in June and the USA updated waivers decision (that grants Iranian oil exports) scheduled on May 2nd, in two weeks from now.


Strengths of CAD:

  • improving macro readings: GDP, inflation near the BOC’s target, retail sales, employment change, current account, trade balance, wholesale sales, housing starts

Weakness of CAD:

  • weak government due to their involvement with the big contractor, SNC-Lavalin, related to contracts in Libya. Elections are scheduled to occur in October.
  • for the Brend rally to continue (Friday’s close was 71.18$), an additional 0.5Million Barrels per day (MBpd) reduced OPEC supply will be needed, and this can only happen if China and India are denied access to Iranian oil. Current reduction exceptions permitted by the USA do not seem to end any time soon. On top, latest OPEC’s monthly report included a downward revision in demand growth.
  • deteriorating macro readings: labor productivity, capacity utilization, Manufacturing PMI, Ivey PMI, corporate profits,foreign securities purchases, building permits, manufacturing sales

Watch / New Releases:

  • Wholesale sales

  • Monetary meeting of the Bank of Canada on Wednesday. At the same time OPEC is


Keep the short US index trades from last week


Strengths of USD – Risk off points:

  • a meeting between President Trump and Prime Minister Abe (Japan) could happen on Friday and will also scheduled for 25th of May, in Japan.
  • Geopolitical risk is rising again in North Korea, as they asked to have Mike Pompeo, US Secretary of State, removed from negotiations and announced weapon tests. Last week, geopolitical risk was rising in Iran, as the USA designated Iran’s Revolutionary Guard as “foreign terrorist organization.
  • deteriorating macro readings: GDP, core PCE, inflation expectations, factory orders, current account, wholesale inventories moving higher, services PMI, manufacturing PMI, Non-manufacturing PMI, consumer credit, optimism, construction spending, consumer sentiment, consumer confidence, personal spending, capacity utilization rate

Weaknesses of USD -Risk on points:

  • the President Trump impeachment scenario, could officially be filed as not happening.
  • Latest release of the US initial jobless claims as well as the non-farm employment change give enough reasons to postpone any upcoming recession scenarios, for at least 7 more months.
  • Improving macro readings: inflation, capacity utilization rate, trade balance, unemployment, retail sales, unchanged at historic low, unit labor cost, trade balance, durable goods orders, manufacturing Index,industrial production moving lower, housing market, new home sales, vehicles sales,

Watch / New Releases:

  • housing market releases, durable goods orders, GDP q/q, consumer sentiment, consumer sentiment, inflation expectations and Friday’s currency report published by the Treusury.

  • Next Monetary Meeting of the FED on May 1st , in two weeks


Exit the EURUSD trades as we are heading towards the Spanish Elections on Sunday.


Strengths of EURUSD:

  • The shift of power in the upcoming EU elections is not expected to be significant, as the majority of the seats will be held by sum of EPP, Social Democrats and Liberals. Yet, the situation becomes complicated if MPs from the UK take seats in the next parliament.
  • Markets are currently pricing a 37.3% probability of a January 2020 rate cut, by the FED.
  • Commerzbank could merge with Dutch Bank (ING Grout), instead of Deutsche Bank
  • improving macro readings: trade balance, unemployment, M3, German GDP, German Trade balance, Manufacturing PMI (bellow 50),German Maufacturing PMI (way bellow 50) wage growth, industrial production, economic sentiment, private loans,German economic sentiment, business climate,investor confidence

Weaknesses of EURUSD:

  • the huge increase of the yields of EFSF (+68bps in one week) needs to be further investigated.
  • German goverment halted expectations for German GDP growth in 2019 to 0.5%.
  • EU-USA trade relations will be the next point of focus.
  • downward revisions of expected GDP growth from European commission, ECB, OPEC and IMF
  • deteriorating macro readings: inflation, retail sales, current account, service PMI, , PPI, consumer confidence, German factory orders, German industrial production, German retail sales, European industrial production

Watch / New Releases:

  • Monday is a holiday. On Sunday, Spanish elections will take place.

  • consumer confidence

  • Next monetary meeting of the ECB on 6 June.


Short GBP at 1.3248 and 1.3220

The flexible extension of Brexit until the 31st of October is a reality, so the focus should now turn to the performance of UK’s economy, which is poor.

The wierd thing is that the UK will participate in the upcoming EU parliament elections unless Prime Minister May manages to pass her revised Brexit deal within the 26th of May. UK would sent MPs, that will leave the parliament the day Brexit actually happens. The unblushing Nigel Farage is set to participate in these elections and YouGov poll was giving him 27% of the votes, vs 22% to the Labor party and 15% to the Tories (May’s party).


  • GBPUSD is currently testing the 200 Day Moving average, and a bounce is likely
  • improving macro releases: GDP, retail sales, unemployment, M4, industrial production, construction PMI (below 50), Manufacturing PMI, average earnings and wages, trade balance


  • BOE was the only central bank communicating that inflationary pressures exist and that an ongoing tightening of monetary policy at gradual and limited extend is appropriate. However, inflation remained unchanged at 1.9% against market’s expectations of 2.0%.
  • UK is still hitting headlines with introversion news, like the ongoing disruptions activists were performing in London during the previous week.
  • downward revision of GDP growth in 2019 from the IMF. (from 1.50% on January, to 1.20% now. Note that the projection assumes that there will be an orderly Brexit withn 2019.
  • deteriorating macro releases: consumer’s confidence, retail sales, current account, Business Investments, Service PMI (below 50), construction output, manufacturing production, industrial order expectations, high street lending,lending to individuals, home prices

Watch / New Releases:

  • Monday is a holliday

  • house prices, high street lending, public sector net borrowing

  • Next Monetary Meeting of the Bank of England on 2 May, in two weeks.


Issued by Labis Michalopoulos, CFA




I am thanking Petros Kalligas,CFA. The cooperation has been enjoyable for both of us. It was very valuable for me to have a reader of my report, willing to correct syntax errors and typos before publishing the report and sending it to you. Without having the structure, nor the funding of a news organization, I had enjoyed the privilege to have an editor, editing my writings.

Redistribution is allowed as long as the author and his contact details are referenced.

My net returns are published in real time at www.forexfactory.com/dxmix I was experiencing an Annual Sharpe Ratio of 1.73 for over 45 months (montly Sharpe ratio above 0.5) . On 24 August, I mistakenly ordered to open a position 10 times bigger that I am used to. My equity level is currently back on track, but my statistics are no longer impressive. My 48 months monthly Sharpe Ratio, that includes the leveraged AUDUSD trade, now stands at 0.30, equal to 1.03 Annual Sharpe Ratio.

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

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.

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 been independently produced 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.

Opinions expressed in the report do not represent the opinion of Zulutrade and do not constitute an offer or invitation to anyone to invest or trade.


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