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Articles by Mark De La Paz

January 5th, 2015 @ 11:23 am by Mark De La Paz

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Many brokerages and banks stayed close on the 2nd of January exacerbating the typical problem of illiquid markets, vulnerability to supply and demand imbalances. After tanking sharply Friday we have currency markets reopening with a renewed respect for the strong dollar theory as the opening hours from Wellington saw a quick dip across the board in some cases taking out or getting near key psychological area.

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Going forward we note some of the developing themes for the market.

1) A US Rate Hike

Whether this will be symbolic or the start of a real tightening cycle this possibility has driven much of the story line for 2014 and will likely do so atleast for the first quarter, until march when we may see the Feds hand. A symbolic move by then may already be priced in considering the greenbacks gains across the board the past year though sustained tightening will be a different story.


Perhaps an even bigger story for the market will be if the ECB will actually engage in full blown QE. So far Mario Draghi has deftly weaken the currency with his combination of announcing readiness to take action, without actually doing so which would open a hornets nest with the Bundesbanks’ Weidmann.

3) Aussy at 7500

With the commodity supercycle now clearly bursting, the Miracle economy is in need of a break and the the RBA’s Stevens has already sounded a rallying cry, the Aussy at 75 cents to the greenback. While this may not be enough to bring back the manufacturing sector such an exchange rate may improve the feasibility of several resource projects put on hold by the big mining companies.

4) Yen Debt Monetization

With the December elections proving to be a vote of confidence to the Abe administration, the team up of Kuroda and Abe should now have more chutzpah in rekindling the Japanese economy after the latest data that trickled in last December showed the economy in worse shape than expected. While hand prints the money the other should be able to use the Cash to pursue national interests.

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December 18th, 2014 @ 7:01 am by Mark De La Paz

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Following some interesting tweeks in the usual FOMC statement across the board action saw a firmer dollar as bulls hyped the statement changes to mean that hawks will be getting their way in the FOMC soon. Most notable in the changing text was the omission of phrase “considerable time” when referring to how long the ultra accommodation policy stance were to remain which some took to signal a symbolic tightening this March. Interestingly the recent collapse in oil prices appear to be having very little impact on inflation expectations for the Fed as it sees a gradual rise to the 2% area still.

Meanwhile the decision was far from unanimous with Minneapolis Fed Pres Kocherlakota, Philly Fed’s Plosser and Richard Fisher of the Dallas bank still airing their usual hawkish tones.

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Note after all is said and done it is strange that we did not get to see a follow through of the sell-off at the Asian open suggesting that the move was more speculative than anything else and we are likely to see a quick technical recovery.

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December 17th, 2014 @ 3:24 pm by Mark De La Paz

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The Pre-FOMC action has been to see a firmer dollar today though aside form the commodity pairs down under ranges have been limited thus far. Meanwhile our latest US releases does not exactly support the idea of a Fed that will be tightening soon as inflation metrics once again fell short of expectations remaining well below the unofficial 2.0% target.

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Up ahead we have one of the more important FOMC announcement with the Fed adjusting its Economic Projections, just in time to account for the recent collapse in oil prices and growing unease for the emerging markets. While as usual we do not expect any change in policy rates, the subsequent press conference 30 minutes after has the potential for fireworks. Here we should ask two things?

1) What is the impact of oils drop on inflation expectations?
2) Is the Job market anywhere near the potential to overheat.

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For now we are looking for an answer to both questions that could move the markets these are:

1) Oils drop will have a deflationary effect
2) We want further jobs gains as the slack remains

Such a combination could see the dollar with a 180 turn.

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December 17th, 2014 @ 12:12 pm by Mark De La Paz

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After Tuesdays strange dollar dumping we are seeing a broadly firmer greenback with the commodity sets sans Loonie, taking a beating as fears of an emerging market/commodity producer sell-off persist despite Russian government assurances that they were on top of the situation with respect to the rubles decline. As for financial markets linked currencies the price action has been limited though to us this simply means a potential for further action later. For now euro charts are suggesting a possible ‘dark cloud cover’ for the day though proximity to the 21D EMA prevents us from calling any shorts until we actually go under 1.2443. In Cable the long tail for today and prices push back up of the EMA merely reiterates the potential for a further surge up, after all we did see a daily close above the prior lower high of 1.2530.

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Ahead key release going forward will be CPI numbers for the US though consensus forecasts as seen below does not bode well for the strong dollar story as weakening inflation measures could see the Fed adopting a more wait and see attitude preferring to have greater jobs numbers entrenched before it actually commences any tightening.

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December 16th, 2014 @ 12:02 pm by Mark De La Paz

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After more than a week of steadily pushing the lows ever higher in the daily charts and bouncing around the EMA lines we have EURUSD knocking on the doors of a 1.2500 break with the days high now reading 1.2529 as we look to push past the previous lower high of 1.2530 of that sell-off from the 8th of May. Note we have been calling for the need to square up with the approaching close of the calendar year as bonuses need to be calculated and this has certainly helped us bounce the past two weeks. A big catalyst right now however is the Buba’s Jen Weidmann who is again actively deflating expectations of a full blown QE in the EU. As always the Germans are discounting just how effective QE could be under a European setting while underscoring their main objection, they don’t want none performing governments to free ride on German credit rating.¬†Clinically precise Herr Weidmann tells us that nothing new has come out of Europe of late that would require some form of a policy response from the ECB.


From our charts, key will be the ability toclose the day above 1.2530 which would underscore how agressive we should be in looking for this end of the year rally.

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December 15th, 2014 @ 3:04 pm by Mark De La Paz

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As if a Central Bank Governor calling for a 700 pip-drop in the exchange rate were not enough, the Aussy was again hammered today on a hostage taking incident in a Sydney cafe forcing some of the banks nearby to suspend operations. At this point we would note that Aussy is well supported at the 0.8065 to 0.7945 (61.8 Fib of area) with the key psychological at 0.8000 also in the way. Just because Glenn Stevens wants 0.7500 does not mean it will get there without any accompanying action else USDJpY would now be at 130, Kuroda’s fervent hopes. That said though we shall forget about year end position squaring plays for now and look at how do we join the ride down to the said price zone.


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December 12th, 2014 @ 3:11 pm by Mark De La Paz

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Knee-jerk response for the stronger than expected preliminary consumer sentiment figures has been for a stronger dollar with hourly Pinocchio candles forming in EURUSD and GBPUSD and a solid close for USDJPY. Note we had the latest read at 93.80 jumping even higher than the consensus of 89.5 off the prior 88.80 keeping the hopes alive for retailers to have a happy holidays. Ahead we no longer have any major event for the day though the weekend and mondays open will be tricky with the Japanese elections Sunday.

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Given where prices are and the structure of most intraday charts we should be looking for further dollar strength across the board with Cable likely failing its attempt at a daily descending wedge break, at least for now, and Euro risking a close backunder the 21D EMA. Where we can look for speculative plays is USDJPY given that an Abe victory could see us gaping higher at the open.

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December 12th, 2014 @ 1:53 pm by Mark De La Paz

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The Japanese Yen has spent the past week pulling back from last weeks 120 pop as traders evaluated their books ahead of Sunday’s elections in Japan. As such we have now seen prices at the 21DEMA, after spending the previous month above it and expanding the gap last week. With the market more or less now neutral the big question will be where will we find the currency come monday? A big Abe victory should mean that the tandem of Abe-Kuroda on fiscal and monetary policies will remain intact providing fuel for a surge past 120 again with some calling for another 1000 pips. A defeat could slow things down a trigger a pull back which will just make us even more interested in going long off 116.


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