Proprietary Trader /

Global Macro Investment Manager

Global Macro & Currency Markets

Global Macro & Currency Markets

Global Macro & Currency Markets

Global Macro & Currency MarketsAs we have been explaining in previous posts, economists and financial professionals are trying to explain what is actually happening right now in financial markets and where are we placed in the economic and business cycle.

Whether inflation targets will be met in major economies are still rather unclear as well as future projections about the economy.

There is also increased speculation about monetary policy.

For example, due to higher inflation outlooks and improved GDP growth in the Euro-zone there are talks about a possible “tapering” by the ECB before the end of the current QE. At the moment the ECB stays committed to the task but it’s important to notice how easily sentiment and speculation about the future can change.

There are similar thoughts about the US economy and the FED. What will happen if Q2 data will be “soft” and the economic conditions don’t improve? Will the FED become more accommodative and change their current monetary decisions? When will the first interest rate hike occur?

The point is that in today’s environment, fundamentals alone will not be able to explain in full market movements and we will have to consider how sentiment and speculation about the future can affect current prices. This phenomenon is mainly caused by the lack of monetary guidance by the Central Banks and the mixed signals we receive about G10 economies mainly. Is the glass half full or half empty?

Therefore in our own currency strategy, at least for now, we will employ shorter term strategies because we take into consideration the lack of clear direction set by monetary policies and we also take into consideration the possibility of increased volatility and choppiness because of important events in teh future. In simple English: it is easier and safer to reach short term targets ranging from 1 week to 1 month, anything larger than that might prove risky and it’s difficult to make medium – longer term predictions at the moment.

So let’s focus more on the short term.

Global Macro & Currency Markets

Which were the catalysts that affected price movements last week?

A major catalyst was the sharp decline of the German Bunds and the rise of German yields.

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I read a plethora of articles and analysis right now explaining why did this happen but it would be nice to read all these before the event!

The question is, is this the bottom? Has the decline stopped? Some argue that the EURUSD has seen its highs and can only go lower from here.

My simple answer is that I am not certain for that yet. Trading the EURUSD at the moment doesn’t offer a good risk/reward to me and I don’t have a strong conviction about the fundamentals yet.

Many will depend upon US data this week and whether they have improved overall in Q2 or not. There is a possibility to see 1.1500 and 1.1800 levels if US data continue to be soft in the second quarter as well and at the same time inflation outlook and GDP improves in the Euro-zone. A higher conviction trade for me would be the Australian Dollar.

In their latest policy statement the RBA said last week that:

1) They are bearish on their outlook about non-mining investment

2) They are forecasting weaker growth

3) They also see downside risk in Chinese growth which is extremely important for the Australian economy.

4) They have downgraded their view for unemployment and wages growth, as well as growth and inflation forecasts.

They said they view the depreciation of the AUD as both “likely and necessary”.

The reason it hasn’t moved much is because it is not expected to have another interest rate cut until November and also the RBA has the view and I totally agree that further and aggressive cuts will not help much and will not contribute bringing the growth back quickly, especially when income growth is at multi-year lows.

Iron Ore and Steel prices remain at very low levels as well and the lack of demand especially from China, has contributed very negatively in the Aussie GDP.


Negative news from China and weak economic data will greatly impact the AUD to the downside. In order to explain my short term strategy please have a look at the AUDUSD Market Profile chart below:




I have established a short position from close to the 0.8000 levels. At the moment this pair has a balanced structure and it’s moving inside the value area. I need a brake below 0.7810, the Value Area low to confirm the downtrend to the 0.7600 level which is my target. My stop is above the 0.8060 level so I have a very good reward/risk outlook.

I wish you well!

Fotis Papatheofanous

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