#68 May leaves on June

Huawei’s drama, Modi re-elected, US navy in Taiwan and the Persian Gulf

12 minutes read report, 8 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:

Soon we will have a clear picture of the political landscape in the European continent. We will find how the Christian Democrats are doing without the leadership of Chancellor Merkel, how President Macron is doing having responded to the “Yellow Vests” movement, how big will be the victory of the unblushing Farage in the UK, the momentum of the League in Italy and how convincing will be the result in Greece, where polls are giving the first place to the pro-growh party of K. Mitsotakis. Markets have entered a waiting mode.

Last week’s forecasts played well, with the long EURUSD trade at 1.1110 hitting bull’s eye. The long GBPUSD trade is paying off, the long AUDUSD trade that was oppened since last week is currently 44pips in the red. The EURJPY, USDCAD, US index forecasts have not been triggered.

Major events of last week:

  • Geopolitics: (a)Three US military vessels headed back to the Persian Gulf and (b) another two US military vessels sailed through the Taiwan Strait. The state-run China Daily reported With tensions between the two countries already rife, there is no guarantee that the presence of U.S. warships on China’s doorstep will not spark direct confrontation between the two militaries”. (c) North Korea warned the USA to return the seized cargo vessel (since May 9) exporting coal. UN’s official line is that the seized vessel issue should be resolved bilaterally.
  • UK: Prime Minister Theresa May will step down and the Labor’s leader Corbyn asked for General Elections. UN decided with a 116-6 votes that the UK should return the Chagos Islands, UK’s last foothold in the Indian Ocean and a US military base. The USA, Australia, Hungary, Israel and Malvides were supporting the UK. Germany, France, the Netherlands, Portugal, Poland and Romania abstained. Greece, Austria, Ireland, Spain and Switzerland voted against the UK.
  • USA-China: The Huawei (Chinese 5G infrastructure provider and smartphone manufacturer) drama is getting bigger as US companies, like Google, announce their plan of action to meet last week Trump’s executive order, that practically bans Chinese firms from being supplied with US technology. Meanwhile, Trump said that the Huawei’s case could be part of the trade negotiations with China.
  • USA-Japan: Trump started his 4 day visit to Japan today. Following the recent lift of tariffs on the Canadian steel and aluminum, a similar move towards Japan is within the range of probable scenarios
  • Elections: Scott Morisson managed to be reelected in Australia and increased the Liberals-Nationals’ coalition seats at the Parliament. Prime Minister Modi has been reelected in India.
  • Cryptos: The market cap increased for the 5th week in a row. $252.8bn, +9.67% w/w, -69% from last year’s $821bn peak.

Major events of next week:

  • Monetary Meeting of the Bank of Canada on Wednesday
  • PMI releases for the Chinese economy on Friday.


Long EURJPY at 121.49 and 121.10

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, average cash earnings, capital spending, household spending, industries activity (but remains negative for 4th month in a row), housing starts, economy watchers sentiment, consumer sentiment, bank lending

Weaknesses of JPY:

  • Trump’s visit to Japan can bring possitive news, triggering a risk-on mode that does not help the JPY.
  • downward revision of expected GDP from OPEC.
  • The source of concern are the exports due to the moderate global growth. Indeed, the trade balance fell.
  • deteriorating macro readings: unemployment, current account, manufacturing PMI (crossed bellow 50), Services PMI, industrial production, machine tool orders, consumer confidence, PPI(prices sold to corporations)

Watch / New Releases:

  • inflation, unemployment, insdustrial production, retail sales, housing starts

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


Kee the long AUDUSD positions until 0.6968, short at 0.7036


  • The Liberals-Nationals coalition, under the leadership of Scott Morrison secured a greater margin of seats at the Parliament, than they used to enjoy before the elections, contrary to the expectations of the polls. This translates to significant political leverage of Scott Morrison. Australian is currently having the first surplus budget of the decade.
  • RBA kept rate unchanged while the Central Bank of New Zealand proceeded with a rate cut.
  • improving macro readings: current account, unemployment, M1, service PMI, Manufacturing PMI, private sector credit, private capital expenditure, AIG manufacturing index, construction work done (but is still in a negative territory), household consumption, consumer’s sentiment, wage price index


  • Decreasing manufacturing PMI numbers are expected to be released next week for China.
  • 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.
  • deteriorating macro readings: GDP, inflation gauge, unemployment, job advertisements, inflation expectations, retail sales, trade balance, manufacturing PMI, home loans, home sales, building approvals, AIG construction index, company operating profits, decreasing capital expenditure, business confidence

Watch / New Releases:

  • building approvals, private capital expediture, private sector credit,the manufacturing PMI of China.

  • Next monetary meeting of the RBA on June 4


Short USDCAD at 1.3528 and 1.3580 (same entries as the previous two weeks)

Strengths of CAD:

  • tariffs for the Canadian steel and aluminum imported to the USA have been lifted.
  • OPEC’s latest monthly report inlcuded no downward revision of the global demand growth, and no increase of the Saudi Arabia’s and UAE’s production. Iran’s production during the last month of granted waivers was 2,5mb/d. The only troubling reading is the increase of US Crude oil inventories for the second week in a row.
  • housing market is expected to pick up in 2H19, following the stabilization in Toronto and Vancouver.
  • Iranian oil is supposed to be out of the market, pressing prices upwards.
  • improving macro readings: unemployment, inflation at the BOC’s target, Ivey PMI, retail sales, wholesale sales, manufacturing sales, employment change, current account, trade balance, housing starts, building permits, corporate profits


Weakness of CAD:

  • downward revision of expected GDP growth from the BOC and negative m/m GDP.
  • fiscal policy expected to have a -0.2% net effect in GDP growth.
  • weak government until the upcoming elections on October.
  • deteriorating macro readings: GDP (negative m/m number), wholesale sales, labor productivity, capacity utilization, Manufacturing PMI (bellow 50), Ivey PMI,foreign securities purchases, manufacturing sales

Watch / New Releases:

  • current acount, GDP, input prices for manufacturing (RMPI and IPPI)

  • Wednesday’s Monetary meeting of the Bank of Canada.


Short USindex at 97.88$

Strengths of USD – Risk off points:

  • GDP q/q growth at 3.2%, way higher than the expected 2.1~2.8% range, resilient job market. OPEC made an upward revision for GDP growth and expects 2.6%
  • Geopolitical risk is rising again in North Korea,Taiwan and Iran.
  • Improving macro readings: GDP, inflation expectations, personal spending, trade balance, unemployment, wholesale inventories moving lower, consumer confidence, consumer sentiment, optimism, unit labor cost, manufacturing Index, housing starts, building permits, vehicles sales

Weaknesses of USD –Risk on points:

  • the first rate cut of this business cycle can happen as early as at the October’s meeting.
  • The yields of the short term government bonds, continue decreasing less than the yields of the longer term bonds.
  • Economy is experiencing zero inflationary pressure with home prices increasing at a slower pace and unit labor costs decreasing.
  • Deteriorating macro readings: inflation, unit labor cost, core PCE, PPI,capacity utilization rate, retail sales, factory orders, durable goods orders, industrial production, business inventories, current account, manufacturing PMI, services PMI, Non-manufacturing PMI, consumer credit, construction spending, existing home sales, new home sales

Watch / New Releases:

  • home prices, consumer confidence, GDP, trade balance, core PCE index, inflation expectations, consumer sentiment

  • Next Monetary Meeting of the FED on 19 June.


Keep the long EURUSD possitions and re-enter long at 1.1168

Strengths of EURUSD:

  • polls on EU elections suggest that the shift of power in EU will not be significant. A rally that would follow EU elections, seems likely.

Source: Financial Times


  • Tariffs on autos have been postponed. Nevertheless, the trade relations between the USA and the EU are the next hot issue for 2H19.
  • improving macro readings: GDP, inflation, unemployment, M3, German GDP, German Trade balance, German factory orders, wage growth, consumer confidence, industrial production, business climate, investor confidence

Weaknesses of EURUSD:

  • negative yields are back to stay.
  • deteriorating macro readings: retail sales, current account, trade balance, private loans, PPI, German industrial production, German Manufacturing PMI (way bellow 50 and falling), German retail sales, European industrial production, EU Manufacturing PMI, sevice PMI, economic sentiment, German economic sentiment

Watch / New Releases:

  • consumer climate, M3, private loans, German retail sales

  • Next monetary meeting of the ECB on 6 June.


Long GBPUSD at the opening on Sunday 22.00 GMT, taking advantage of the probable gap.The forecast should not be followed if the Brexit party of Nigel Farage wins more than 29% of the votes.


  • Theresa May’s recent resignation helps resolving the stalemate. Worth remembering, that the latest swift of power from David Cameron to Theresa May was very quick.
  • Upward revision of GDP growth from the BOE (1.2% February’s expectation, 1.5% May’s expectation) coupled with Carney’s comment that “it will require more, and more frequent interest rate increases, than the market currently expects. Inflation is peaking up.
  • Unemployment fell and is expected to further fall to 3.5% by 2022.
  • improving macro releases: GDP, inflation, unemployment, industrial production, construction PMI, Service PMI, wages, trade balance, increasing public sector net borrowing, high street lending, lending to individuals,


  • polls for the EU elections are presenting the unblushing Nigel Farage in the first place
  • property values predicted to fall by 1,25% within 2019, according to the BOE
  • deteriorating macro releases: retail sales, average earnings, consumer’s confidence, current account, M4, Business Investments, Manufacturing PMI, construction output, manufacturing production, industrial order expectations, home prices

Watch / New Releases:

  • home prices, high street lending, M4, mortgage approvals, lending to individuals

  • Next Monetary Meeting of the Bank of England on 20 June.


Issued by Labis Michalopoulos, CFA




For the readers of the report:

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

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 investment decisions 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.

For qualified perspective clients of the advisory service:

GIPS standards are all about full, fair, consistent and comparable presentation of actual returns of the past. No models, no back-testing, no promises. I am doing that. I am publishing in real time, via a 3rd party, my actual returns since inception where one can see the most strict, comparable, revealing metric of the industry: the monthly Sharpe ratio.

My current monthly Sharpe ratio stands at 0.27 as can be found at www.forexfactory.com/dxmix

My current annual Sharpe ratio is 0.27 multiplied by 12 = 0.27 x 3.46=0.93 Annual Sharpe Ratio

The numbers used to stand at 0.5 monthly Sharpe ratio and 1.73 annual Sharpe ratio up until the August of 2019 for 45 consecutive months. On 24 August 2018, 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 as impressive as they used to be. My 54 months, since inception, monthly Sharpe Ratio (that includes the leveraged AUDUSD trade) stands at 0.27, equal to 0.93 Annual Sharpe Ratio.

I cannot claim that I will be performing with the return of my best months, but I can tell that I will hover around my average returns. Claiming with a 95% confidence, that my next month* return will be within my average monthly return ± 2 standard deviations is a well educated statement I can make anytime.

My average monthly* return ± 2 standard deviations is from -16.54% up to 20.49%

My average monthly* return ± 2 stadard deviations becomes -5.74% up to 9.47% , excluding the 4 months effect of the one time mistake trade.

* the monthly returns are the actual returns within a month. They are not presented on annualized basis.

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