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Tuesday, March 21, 2023
Danske Bank economists maintain their strategic case for a lower EUR/USD , predicting the pair to reach 1.02 in the next six-to-twelve months. They argue that this will be driven by tighter financial conditions, relative rates, and asset demand, along with new energy and real rate shocks. In this article, we will explore Danske Bank's reasoning for this forecast and the potential implications for traders and investors.
Introduction
The EUR/USD has been trending downwards, with the pair currently trading at around 1.19. Danske Bank economists have long predicted a strategic case for a lower EUR/USD , citing factors such as relative terms of trade, real rates, and relative unit labour costs. However, they now also see the potential for a short-term dip in the currency pair due to tightening financial conditions, relative rates, and asset demand.
Factors Driving the EUR/USD Forecast
Danske Bank's forecast for a lower EUR/USD is based on a combination of long-term and short-term factors. These include:
Relative Terms of Trade
Danske Bank economists argue that the Eurozone's terms of trade have been deteriorating relative to the US. This is due to the EU's high dependence on exports and a less competitive manufacturing sector compared to the US. As a result, the bank expects the EUR/USD to trend lower over the long term.
Real Rates and Growth Prospects
Danske Bank also believes that real rates and growth prospects are more favorable in the US than in the Eurozone. The bank notes that the US has outperformed the Eurozone in terms of GDP growth, and that US real rates are higher. This gives the US a relative advantage, which is likely to drive down the value of the EUR/USD .
Relative Unit Labour Costs
Finally, Danske Bank argues that relative unit labour costs are also more favorable in the US than in the Eurozone. This is due to factors such as wage growth and productivity. As a result, the bank expects the EUR/USD to trend lower over the long term.
Tightening Financial Conditions
In addition to these long-term factors, Danske Bank also cites tightening financial conditions as a potential driver of a short-term dip in the EUR/USD . The bank notes that financial conditions have already tightened recently, but expects more tightening to come. This could be driven by factors such as relative rates and asset demand.
New Energy/Real Rate Shocks
Finally, Danske Bank notes that a return to the September lows would require new energy and real rate shocks. While these are difficult to predict, they could have a significant impact on the EUR/USD .
Implications for Traders and Investors
For traders and investors, Danske Bank's forecast for a lower EUR/USD has important implications. Firstly, it suggests that long positions in the EUR/USD may be less favorable than short positions. Secondly, it suggests that traders and investors should be cautious about entering long positions in Eurozone stocks and bonds.
Conclusion
Danske Bank's economists maintain their strategic case for a lower EUR/USD , predicting the pair to reach 1.02 in the next six-to-twelve months. This forecast is based on a combination of long-term factors such as relative terms of trade, real rates, and relative unit labour costs, along with short-term factors such as tightening financial conditions and potential new energy and real rate shocks. For traders and investors, this forecast suggests that short positions in the EUR/USD may be more favorable than long positions, and that caution should be exercised when investing in Eurozone stocks and bonds.
EURUSD chart short
Thursday, March 16, 2023
Wednesday, March 15, 2023
A lot of talk on who is to blame for the SVB Financial collapse – this is the first big casualty of rapid rate hikes and tighter policy, but who is to blame and what are the next steps?
-SVBs management – they invested short-term deposits in longer term fixed income assets – where a large % of its $120b securities portfolio lacked any kind of interest rate hedge (payers swaps were clearly needed)
-SVBs management – In the past 8 months SVB had no risk manager - fortune.com/2023/03/...-chief-risk-officer/ - no one knows how they efficiently managed risk
-SVBs management – the accounts showed they held $91b of its $120b securities in its HTM (assets Held to Maturity) book – these are assets they intend to hold until maturity but the accounting rules detail, that they don’t need to mark-to-market the moves in the underlying and report the ballooning losses – which again were not hedged.
-SVB deposit mix - 93%+ were above the FDIC insurance limit – this makes depositors v sensitive to any capital concerns at the bank
-SVB deposit mix - VCs had a rapid cash burn, as projects they back are typically driven by changes in interest rates (think Net Present value and Internal rates of return) – depositors took cash off SVB’s balance sheet to fund operations – SVB subsequently had to sell assets as their liabilities fell – we then see realised losses from buying securities at much higher prices.
-Short sellers/investor base – shorts had an eye on unrealised losses from the worsening asset quality for weeks – the selling accelerated when the CEO/ CFO /CMO disclosed they’d sold a chunk of stock on 27 March – it was over when the SVB took a $1.8b hit on its AFS securities available for sale on Wednesday – management sold $21b of its $28b book and announced a $2.25b in equity/debt raising - investors knew with conviction that depositors were fleeing – who supports a raising when liabilities are falling – no one sensible, raising pulled
-The Fed - failing to know such a shift in rates would impact banks asset quality when its primary function is financial stability.
-Regulation - Basel 3 - banks being forced to buy govt paper against deposits - v low risk weighting (perhaps required a hedge
Hard to pinpoint this on one aspect IMO - I think there is a perfect storm going on – a lack of hedging of interest rate risk was clearly a dominant factor behind this. Top down this is a function of rapidly tightening monetary policy and the impact this had on both the asset quality and liability side of the balance sheet – we should recall SVBs model is not the same as others in the banking space, so its hard to say this is systemic – still we wait for the outcome on next steps on how deposits over $250k will be dealt with – we’re hearing they may get 50% back initially but a buyer would be the best solution
The issue for regional/smaller banks comes if is we see some sort of haircut on the deposits claim over $250k – that could see a loss of confidence in holding deposits with other smaller banks names – we shall hear more soon, but broad contagion through the financial system seems unlikely, but it is a possibility given nearly 1/3 deposits in the banking system are uninsured – any bank with a large asset base and low equity are in the spotlight
As said Friday this could be a nothing burger or have real impactions on economics - the big issue happens this week if we see no clarity on how depositors are dealt (seems unlikely) with and we get a hot CPI print
Financial collapse
Tuesday, March 14, 2023
GBPUSD broke out of the descending channel .
Price action created a bearish harmonic pattern .
The market reached the psychological level at 1.22000 and the structure resistance level.
If price prints a double top at the resistance level , then it is likely to test the support level.
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Share your opinion in the comments and support the idea with like. Thanks for your support!
GBPUSD trading chart
Hello traders ,what do you think about USDJPY ?We expect this pair to drop at least to the specified zone after the pullback to the broken level.
If this post was useful to you, do not forget to like and comment.❤️
USDJPY trade short
Monday, March 13, 2023
Hy dear Members . Hope you all are enjoying our ideas and analysis. Now we are here to discuss about GBPUSD . GBPUSD is breaking falling Wedge Pattern. And this wedge indicates that we will get a Bullish wave after this.
Here it has maximum Chances we can see a good Bullish wave.
We can see price around 1.27 soon. As this is daily chart so we can see small Retesting but overall we will see a good Bullish wave. Keep in touch we will update further soon.
GBPUSD trading
Sunday, March 12, 2023
- The price of bitcoin is currently near the 0.618 FIB. Usually it acts as a magnet when the price is near this very strong level.
- The market moves in waves, and wave A should end exactly at the 0.618 FIB. After we reach this level, we are going to go up to retest the previous major trendline because we have a huge unfilled gap and an untested pattern. After that, we are going to go down again to 17600 - 17400 to fill the previous GAP and complete the ABC correction.
- I recommend you buy Bitcoin at these levels with a profit target of 30k+. I will make an update and you will know exactly when to sell, so make sure you follow me and also hit the like button right now if you want more updates on BTC!
- There is a pretty good chance to visit the 10k level; if you haven't seen my previous analysis, make sure to check it out in the related section down below!
- On the chart, you can see the most likely scenario for Bitcoin . Let me know in the comment section: what is your plan? I want to know your opinion, and I will answer your comment!
- The price action on Bitcoin is very well readable. The structure is well-made at this point. Make sure you also have a bearish and a bullish scenario on the table.
- This analysis is not a trade setup; there is no stop-loss, entry point, profit target, expected duration of the trade, risk-to-reward ratio, or timing. I post trade setups privately.
- Thank you, and I wish you fun during your trades!
Bitcoin - Last crash before a pump!
Hello traders ,what do you think about GBPUSD? This pair has reached an important resistance zone . We expect it to fall to the specified zone with a little fluctuation in this area
If this post was useful to you, do not forget to like and comment.❤️
✅MY FREE FOREX &CRYPTO SIGNALS TELEGRAM CHANNEL:
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GBPUSD chart
EURUSD | Structure Analysis Ahead of ECB
This week Eurozone has one of the most important events.
The European Central Bank is expected to increase the interest rates by
50 bps and also they will release the Monetary Policy Statement.
More details can be found in the video!
Thank you and Good Luck!
This week Eurozone has one of the most important events.
The European Central Bank is expected to increase the interest rates by
50 bps and also they will release the Monetary Policy Statement.
More details can be found in the video!
Thank you and Good Luck!
EURUSD technical chart what next?
Saturday, March 11, 2023
The S&P500 is on a medium-term correction following the February 02 rejection just below the 1W MA100 (red trend-line). The long-term pattern is a Cup formation and the price is approaching its buy Zone.
Right now though it sits on the Higher Lows trend-line that has formed the medium-term Channel Up and is an ideal buy for the long-term, with limited downside. The 1D RSI is on the December Support and if the perfect symmetry with the downtrend of the Bear Cycle holds, it means it is on an the inverse path of February 22 - June 16 2022.
There are obvious Resistance Zones within the Cup pattern, while also the Fibonacci retracement levels align very well. Buy and target next the 0.618 Fib and the bottom of Resistance Zone 2 at 4300. That is marginally below the August 16 High.
S&P500 technical chart
Recently investors started to care about economic data too much.
Always advanced economic data is making the market, not the current data.
Of course right now is very bearish cycle.
But Dollar is getting weak and Powell is very dovish and stating the disinflation's possibility.
We have to predict May's data not the March's.
Data dependant investing always lead to the failure.
I think the economy will move as what the Fed is wanted now near future.
I see a reversal Head and shoulders pattern from DJI.
I am bullish from now on.
Always advanced economic data is making the market, not the current data.
Of course right now is very bearish cycle.
But Dollar is getting weak and Powell is very dovish and stating the disinflation's possibility.
We have to predict May's data not the March's.
Data dependant investing always lead to the failure.
I think the economy will move as what the Fed is wanted now near future.
I see a reversal Head and shoulders pattern from DJI.
I am bullish from now on.
Economic data chart
Friday, March 10, 2023
Hello traders, welcome back to another market breakdown.
Fundamentals:
Based on the last Testemonial from Powell:
1. Rates will go higher than previously expected
2. The Fed doesn't think they have overtightened and need to do more
3. They think they can sort out inflation without 'significant'
downturn (notice the abandonment of 'soft landing'
4. Unemployment needs to rise.
5. States the road of bringing down inflation will be 'bumpy'
Correlations:
US10Y is inverted for 245 days.
US03M is inverted for 132 days.
New rate hikes at the 1M, 3M , 6M and 2Y
EFFR @4.48%
RRP 2.168T, which has increased from 2.412T from the previous week
We need another 100bts to get to 5.5% Fud rates with probablity of 56%, so maybe +25/50bts in March, May and June.
Technical analysis: The USDCAD currency pair has been experiencing a bullish trend , with the price consistently breaking higher. Furthermore, on the monthly time frame, the price has rejected a major key level. In addition, the Dollar index DXY has also rejected a macro level, indicating further strength in the dollar. This, coupled with the US10Y bond market breaking its structure higher, makes it seem like a wise decision to invest in the dollar during its pullback phase.
The scenario I'm looking at:
Broken resistance becomes support.
USDCAD technical
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