The aftermath trade of Yellen’s Cake&Arse party. The Great British Pound&Canadian Dollar pitch and the Rise of Bund yields, all covered in a digestible format.
GBP enjoys repetitive hawkishness from BOE members (more fear driven than anything else). Thus, on the back of rising guilt yields, the 10yr guilt tanked, only suspended by last week’s bond auction (which revealed that pension funds are running out of cash to swallow up supply, as they traditionally do) and left to drop massively further after breaking a well established uptrend. Pound is set to gain much more against USD,YEN and possibly NZD if data doesn’t pick up for the kiwi.
ECB presser up this Thursday, market is pricing in less Dovish communications from Draghi and keeping euro bid. Yet to be seen is if he delivers or leaves the best ’till Jackson Hole symposium, the ‘best’ being a possible move toward a taper announcement in September. However, with Bund yields on a steady surge, any dip in the Euro is a cheaper option to buy more. Likely to see Euro consolidating higher prior to ECB presser on Thursday. I believe that Draghi will take the opportunity to keep a Dovish tone to buy himself time until Jackson Hole, while hammering Euro lower (pure speculation at this point in time).
Yellen’s Bravo Sierra (BS) performance in the two day testimony event lead to a massive head and shoulders pattern on the 4 hourly 10 year US yield chart, pointing at a crash. There is little to suggest why USD should find further traction until next FED minutes, inflation data or stark FED hawkish comments. On the back of a flip flopping Yellen, Japanese investors are having rack time (sleeping) and keeping their beer tokens (money) to themselves despite overall risk-on mood. Expect money to flow back out after BOJ monetary policy statement and presser which usually drives YEN lower.
Unlike other CBs, BOC is very confident that they will hit inflation target. That is why they are keen on raising rates this year once more. Couple that with resurging OIL demand in the second half of 2017 and all of a sudden CAD longs are starting to trend. Noting that COT data revealed that we are not many contracts away from turning net positive on Canadian dollars (exciting times). Data due this Week should lend hand to bulls.
Good Luck To Us All
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