Proprietary Trader /

Global Macro Investment Manager

Global Macro & Equities

Global Macro & Equities

Global Macro & Equities


Global Macro & EquitiesIn previous posts we had identified the sharp sell-off in the German Bund as a major catalyst for the markets.

Again this is happening this morning.

The German Bund is moving strongly downwards causing European yields to spike higher.

What is the cause of this? What is driving prices?

We had highlighted a long time ago in one of our investment meetings that the impact of negative interest rates in the Euro-zone would be important. We also had leading financial experts such as Bill Gross of Janus Capital, calling short Bund positions the opportunity of a lifetime (because of the negative yields).

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As Reuters was pointing out today and I quote: ” When yields are close to zero, the pain of a market turnaround is higher than it would have been if the change in trend occurred at higher levels. The current low coupons cannot compensate for the fall in prices.”

Furthermore, improved European economic conditions, mainly inflation and soft US data provided more momentum into this move.

So is that it? Has the EURUSD bottomed and is it going to move higher from here? Shall we get out of the Dollar longs? Out of European equities that were initially boosted because of the QE? Is the deflationary cycle over?

I am asking these rhetorical questions in order to show you how “emotional” and unpredictable, these markets have recently become. The Global markets are driven now by sentiment, which can change very quickly in either direction. Since the Central Banks avoid offering specific monetary guidance, prices can shift either way according to very short term economic data and statements-comments made by officials.

To a certain extent, what will prove to be a dramatic catalyst in my opinion, is the reaction of the ECB towards these current trends. This is why I was asking all these rhetorical questions before: Is this the end of the European equities rally? Shall we expect higher EUR prices? Is the deflationary cycle over?

Allow me to ask some different questions and you will see where I am going: Is the ECB going to stop their QE program only after a few months? Is a higher EUR desirable by the ECB and Mario Draghi in particular?

There is definitely going to be a point where the ECB will be concerned about the higher currency prices and rise in yields, in a similar way as the FED was worried about the impact of a stronger USD in the economy. ECB Vice President Constacio was quoted saying in Bloomberg that: …“this was a correction and as such we don’t have a problem with recent developments”. That particular statement was very important for the current sentiment, as at the moment, the markets do not expect a reaction by the ECB.

But I think a macro catalyst will arrive soon by the ECB…..

As I was explaining in previous posts I am very conservative in my decisions lately, due to the current market environment. I am trying to have strong fundamental reasons before pulling the trigger. I have also explained that I am looking to exploit short term movements as the current environment is rather unstable for my tastes!

Global Macro & Equities

I am looking for opportunities in Chinese and Taiwanese Equities, fading Australian Dollar rallies and now I will start looking for getting long on European equities again, as I don’t think the QE will go away so easily. Potentially I will also start looking for a short EUR position as I still believe that the monetary divergence between Eurozone and the US has not gone away.




Ideally we could start looking to establish another long position close to support levels near the 3320 area. In the meantime, I believe shorting the Emerging Markets index (symbol EEM) has some nice reward/risk characteristics. Please have a look at the chart below:




It seems we are at the top of the balance area and it offers a decent higher probability trade to target the other side of the balance which is near the 36-38 level. Also please have a look of the market profile chart for the EURUSD:


Global Macro & Equities


For fundamental reasons, I explained above, I am looking for an attractive short position. The price is still within the balance, inside the Value Area, look how it reacted at the the Value Area Low, at 1.1138. Of course, there is potential for a retest of the balance highs but I will be looking to establish a short position below 1.1138, as long as we have acceptance of that lower area.


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