Making Sense

On the NFP Print, the headline print show total Non-Farm Employment rise by 353,000 for the month of January 2024. The January print follows upward revisions to both November and December numbers to the tune of +9000 and +117000. The payroll employment increased by an average of 255K for 2023. The U/R was steady at 3.70% over the last 3 months. The AHE rose 0.55% mom and 4.48% yoy , reversing the deceleration seen since Aug 2023. Under the hood, the change in Labor Force is to the tune of -175000 driven by a change of -144000 in Unemployment level and -31000 in Employment Level. The Labor Force has shrunk by 621000 over the previous 4 months. The average weekly hours have also reduced to 34.10 weekly hours. The average number of hours worked, hit its lowest level since 2010, barring the dip during Covid. The below graph is a good way to visualize the NFP data. This month’s data also had a lot of noise on account of benchmark revisions. It involves comparing the monthly employment...

On the EURUSD Trade initiated on Jan 24,  shorts initiated at 1.0900 level   (update 2)  exit 75% of the position for 100 pips of profit and on the balance 25% we trail our SL to 1.0855 and move our TP Target to 1.0765

We established a tactical short here as discussed in the morning post  with SL at 1.0945 as the PMIs point to improving prospects for the EZ but Germany and France (two of the largest economies in EZ) weigh on the EZ recovery. Eurozone PMIs painted a mixed picture EZ Mfg PMI 46.6 prior 44.4 German Mfg PMI 45.40 prior 43.70 France Mfg PMI 43.2 prior 42.21 EZ Services PMI 48.40 prior 48.80 German Services PMI 47.60 Prior 49.30 France Services PMI 45.00 prior 45.70 Key Takeaways Recession persists into 2024 though the Jan decline was the smallest since July 2023 The downturn continued to be led by France , where output fell for an eighth successive month and at the sharpest rate since last September thanks to steepening contractions in both manufacturing and services. Output also fell at a steep and accelerating rate in Germany , albeit a moderating downturn in manufacturing helping offset a worsening service sector situation. In contrast, the rest of the eurozone as a whole returned...

 Finally the trade  (click the link to refer to the trade) is performing after the long hold. Nov swap points traded a high of 1.78%.

 Earlier Posts  Initiation Update  We now wait for a pull back to ride the seasonality through December.

 Post the Fed Policy announcement (to be covered in a later post), USD is getting sold. EURUSD has so far traded a high of 1.0887. We like holding on to the position  for 1.1000 levels.

I posted the Trade Idea to pay forwards  on Oct 25. Simply put, Forwards are the interest rate differential between U.S rates and India Rates and if forward expectations for US rates were to move lower, the spread would widen and hence paying on the long end of the curve made sense.  The hypothesis was that Dec 24 implied Fed Fund pricing is finding resistance at 4.80% - 4.85% level and the bar for market pricing to converge towards guided Fed Path of 5.10% is higher. Hence, Risk reward favors a move lower on the market pricing of FFR, esp in light of lower inflation prints in the US.  Markets have a way of surprising as interest rate differentials are not the only determinants of the forward curve. Global Economic Policy uncertainty, Banking system liquidity and intervention in forwards also drives forward premia.  We have seen a sharp move lower in forwards driven by the front end of the curve as Cash Tom (C/T), Tom Spot (T/S) and Cash Spot (C/S) points collapse. C...

Form a main idea and anticipate what may change to reverse the idea The main idea here is for the current trend in USD index to continue. As China is out for national  day Golden week, expect USDCNH to be range bound. Moves in AUDUSD are likely to be the result of the broad USD move or large surprises in Services and Composite PMI data and AUD trade data.  RBA Rate decision - Michelle Bullock's first policy statement was largely unchanged from the Sep meeting. RBA kept the interest rate unchanged at 4.10% as uncertainties regarding the lag effects of monetary policy and uncertain economic outlook continue to weigh on decision making. Inflation continues to be elevated with price pressures on goods inflation easing while prices of some services and oil continuing to rise. RBA expects inflation to decline to within the 2-3% range in late 2025 and U/R to gradually rise to 4.50% late next year.  AUDUSD broke the recent 46 day, 32 trading day 0.6360 - 0.6500 consolidation rang...

 The concluding remarks of the Monthly Bulletin are beautiful. It says, "In mythologies across civilisations, the sun is depicted as riding a chariot typically drawn by four horses. In Indian mythology, the sun's chariot is drawn by seven horses. The seventh horse represents dreams, aspirations and the future. It is said that even if the other six horses are injured or exhausted, the seventh horse can take the sun's chariot to it's destination" So dare to dream big and reach your destination whatever that may be. US markets were closed yesterday. Today the activity is muted with strength seen in USD index, higher US Treasury yields and domestic rates higher.  Yesterday, LAF injection stood at inr 41k crore with SDF at 105K crore and O/S Repo operations at 146K crore. WACR traded at 6.56% as liquidity tightens on GST outflows. OIS rates are about 1 - 2 bps higher / India 10Y Gsec is trading at 7.38% / Modified Mifor is 3 odd basis higher while forwards are trading ...

 India released the Merchandise + Services Trade data on 15th Feb 2023.  The trade data showed a welcome moderation. The merchandise trade deficit came in at $ 17.75 bn, lowest since Jan 2022 and the services surplus posted a record surplus of $ 16.48 bn. Overall trade balance recorded a net outflow of $ 1.27 bn.  It appears the worst is behind and the services sector outperformance has helped bridge the merchandise trade gap. On a FYTD basis, we are running a Merchandise + Services Trade deficit of $ 112 bn. Broad USD strength on the back of strong NFP print / CPI print and Retail Sales data (released today showed headline Retail Sales rose 3% mom following a 1.10% mom contraction in dec) is likely to weigh on the INR.  Positive surprise on trade data and stable FPI flows so far in Feb along side INR at the top of the support zone of 83.00 have me biased to short USDINR with stops above 83.20. But I'd wait for the USD to turn before establishing any meaningful short...

"Optimism isn't a belief that things will get automatically get better, it is a conviction that we can make things better" Hi everyone, so this has been an extremely action packed week both on the domestic data front and global data front. For this article, we will be purely focussing on the EURUSD Trade  recommended earlier to sell at 1.0950 with a SL at 1.1000. Unfortunately, we got stopped out of the trade. What I have realised during the course of trading is to give ourselves some leeway in terms of time for the view to play out. It is also helpful to understand whether a trade is driven by technical considerations or there is a catalyst to drive a pivot in price. If a trade is driven by technical considerations then you wait for the price to consolidate to give you a clear entry and exit point. However, if the trade is driven by a catalyst, then you study the catalyst and dive in.  In this trade, we were driven by technical levels and hypothesis around fundamental fa...