#64 Simultaneous strengthening of USD-Oil-Equities

Simultaneous USD-Oil-Equities strengthening

Terrorist attack in Cristian Churches of Sri Lanka, Persuasive US Equities Earnings and 1Q19 US GDP growth.

Produced the Goverment of Sri Lanka following last weekend terrorist attacks in Churches and Hotels that killed 359 people. The map summarizes the terrorists attacks against Cristians during Eastern.

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:

As of the last week, USD has been treated as a safe haven that strengthens when the risk-off mode prevails. This filter needs to be re-examined as USD is strengthening during risk-on mode.

Global economy is not completely out of the woods yet, but the rebound scenario continues being confirmed by several macroeconomic releases.

With the exception of the GBPUSD forecast, that has not been triggered, all of the last week’s forecasts failed. The long EURJPY trade is 42pips in the red, the long AUDUSD trade is 53pips in the red, the short USDindex trade is73 cents in the red and can easily rally for another 50 cents. No forecast was given for USDCAD and the call to exit the long EURUSD trade, that has been opened since the 15 of April week, proved to be correct .

Major events of last week:

  • USA-China: Nothing new in this front. The current milestone of the sighing of a deal continues being the end of May-early June, before the G20 summit in Osaka.
  • China: More than 3 dozen leaders attended the One Belt – One Road Chinese initiative.
  • EU-Japan: President Abe met with Jean Claude-Junket and Donald Tusk to follow up on the new EU-Japanese trade deal and get prepared for the upcoming G20 summit.
  • USA-Japan: President Trump and Prime Minister Abe met in the White House, accelerating the ongoing trade negotiations between the two countries, as we are heading to the upcoming G-20 meeting on June in Osaka.
  • N.Korea: Kim Jong Un blamed the USA for bad faith, at his meeting with Putin. Since March 2018, the North Korean leader has held four meetings with Chinese President Xi, three with South Korea’s Moon, two with Trump and one each with the leaders of Vietnam and Singapore. Putin called for UN sanctions against N. Korea to be eased.
  • Oil: Mike Pompeo announced the end of waivers granted to China, India, Turkey, Japan and S. Korea. Saudis and UAE are supposed to step up production as waivers are expiring on May 2nd.
  • US Equities: So far the earnings of 1Q19 have been very persuasive. Amazon has posted a record profit margin and revenue continued double digits year on year growth of 17%. Microsoft hit the 1trillion market capitalization mark.
  • France: President Macron addressed the nation, offering tax cuts, cutting the size of the country’s huge civil service, promising a greater investment in early childhood education and reforming the pensions scheme. His fight is far from over.
  • Cryptos: Total market cap keeps rising at $181bn, +4.62% w/w, -77.9% from last year’s $821bn peak in a week when the identity of Satoshi Nakamoto (the name of the creator of the white paper that set the foundation for the development of bitcoin) was about to be released by McAffee (founder of McAffee antivirus and crypto enthusiast)

Major events of next week:

  • 1 week long holidays in Japan for the new Emperor. Normal business activity resumes on May 7.
  • 1Q19 earnings Calendar: Google on Monday, Apple on Tuesday.
  • Monetary policy meeting of the FED on Wednesday and the Bank of England on Thursday.


Long EURJPY at 124.17 and 123.54


Strengths of JPY:

  • Domestic demand is expected to pick up due to increased government spending and the current monetary policy. Yet, economy needs to overcome the upcoming consumption tax hike, scheduled to be imposed on October.
  • improving macro readings: GDP (yet, it is expected to decrease in 2019), inflation, retail sales, trade balance, M2, current account, manufacturing PMI (but bellow 50), average cash earnings, capital spending, industries activity (but remains negative for 4th month in a row), housing starts, consumer confidence, consumer sentiment, bank lending


Weaknesses of JPY:

  • The source of concern are the exports due to the moderate global growth. Indeed, the trade balance fell.
  • deteriorating macro readings: unemployment, trade balance, Services PMI, industrial production, monetary base, household spending

Watch / New Releases:

  • no market moving announcement is expected during the 10 days long holidays

  • next Monetary Meeting of the Bank of Japan on 20 June.


Short AUDUSD at 0.71.08



  • China’s latest macro releases confirm that the expansionary fiscal policy produces positive results.
  • Australian new budget, a few weeks before May’s elections, is the first surplus budget of the decade and includes 75bn AUD for infrastructure, tax cuts for low and medium income families & 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, unemployment increased and inflation fell.
  • 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, inflation (fell significantly, way more than expected) unemployment, job advertisements, inflation expectations,manufacturing PMI, home sales,company operating profits, decreasing capital expenditure, business confidence

Watch / New Releases:

  • Private sector credit, manufacturing index, new home sales, building approvals

  • Next monetary meeting on May 7.


Long USDCAD at 1.3383 and 1.3369

Strengths of CAD:

  • housing market is expected to pick up in 2H19, following the stabilization in Toronto and Vancouver.
  • global trade is expected to pick up in 2H19.
  • before Mike’s Pompeo announcement that waived the waivers, I was giving a low probability of such a decision happening. Now, the 2.7million barrels that Iran was producing daily, are set to be lost from the global markets. Saudi Arabia and UAE are supposed to step up production, so that the market is not under-supplied.
  • 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:

  • downward revision of expected GDP growth from the BOC.
  • fiscal policy expected to have a -0.2% net effect in GDP growth.
  • Increasing US oil inventories.
  • weak government until the upcoming elections on October.
  • deteriorating macro readings: wholesale sales, labor productivity, capacity utilization, Manufacturing PMI, Ivey PMI, corporate profits,foreign securities purchases, building permits, manufacturing sales

Watch / New Releases:

  • GDP growth, manufacturing PMI

  • Next Monetary meeting of the Bank of Canada on 29 May.


The USDindex could easily rally for another 50cents testing the 98.28$ level. Yet, keeping the short trades, exiting at 97.18$ and go long at 97.00$ is prudent.


Strengths of USD – Risk off points:

  • GDP q/q growth at 3.2%, way higher than the expected 2.1~2.8% range.
  • Geopolitical risk is rising again in North Korea and Iran.
  • 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 postpone any upcoming recession scenarios, for at least 7 more months.
  • Improving macro readings: GDP, inflation,inflation expectations, capacity utilization rate, trade balance, unemployment, retail sales, consumer sentiment, unit labor cost, trade balance, durable goods orders, manufacturing Index, industrial production moving lower, new home sales, vehicles sales

Weaknesses of USD –Risk on points:

  • the yield curve is getting worse, despite the recent high number of GDP growth and the increased inflation expectations.
  • Deteriorating macro readings: core PCE, factory orders, current account, wholesale inventories moving higher, services PMI, manufacturing PMI, Non-manufacturing PMI, consumer credit, optimism, construction spending, consumer confidence, personal spending, capacity utilization rate, existing home sales

Watch / New Releases:

  • PCE index, personal spending, consumer confidence, manufacturing PMI, vehicle sales, unit labor cost, unemployment, services PMI, non-manufacturing PMI

  • Wednesday’s Monetary Meeting of the FED.


No forecast for EURUSD. Fundamentals are pointing to a continuation of the downtrend, but are not sufficiently disappointing to make the pair cross south the next technical significant levels.

Strengths of EURUSD:

  • The week will be begin having learned the results of Sunday’s Spanish elections. The resulting uncertainty is already priced in (40% of voters were indecisive at the latest votes). Before the elections date, each party focuses on what differentiates it from the rest. Given that it was known in advance that no party could reach the majority, on Monday it could easily be revealed that negotiations between them have already reached the point for a new stable government coalition.
  • The shift of power in the upcoming EU elections is not expected to be significant.
  • 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 yield differential between the Eurozone and the USA remains historically elevated.
  • Last week the yields of EFSF increased significantly (+68bps in one week). This week the move has been reversed (-101bps) resulting in a -33bps move in 2 weeks.
  • German GDP growth expected at 0.5% in 2019. Downward revisions of expected European GDP growth from the commission, ECB, OPEC and IMF
  • EU-USA trade relations will be the next point of focus.
  • Commerzbank possible merge with Deutsche Bank collapsed.
  • 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:

  • Spanish elections results on Sunday’s market opening. Wednesday is a holiday.

  • M3, private loans, unemployment, German retail sales, manufacturing PMI, inflation

  • Next monetary meeting of the ECB on 6 June.


No forecasts for GBP

The Brexit soap-opera managed to not hit the global headlines for the last 7 days. Prime Minister May is having more troubles with her Scottish MPs, as nearly 40 percent of voters who backed the Scottish Tories two years ago have now switched to the unblushing Nigel Farage.



  • improving macro releases: GDP, retail sales, unemployment, M4, industrial production, construction PMI (below 50), Manufacturing PMI, average earnings and wages, trade balance, increasing public sector net borrowing, high street lending


  • GBPUSD has crossed south the 200 Day Moving average and now this level is behaving like a resistance.
  • 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 remains unchanged at 1.9%.
  • 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, lending to individuals, home prices

Watch / New Releases:

  • Consumer confidence, home prices, manufacturing PMI, lending to individuals, M4, construction PMI, service PMI

  • Thursday’s Monetary Meeting of the Bank of England.


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.


  1. I haven抰 checked in here for some time as I thought it was getting boring, but the last several posts are good quality so I guess I will add you back to my daily bloglist. You deserve it my friend 🙂

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