Forgot About EUR

Flying under the radar of Fed headlines, amongst other things was the statement from Angela Merkel that EUR was too weak!

There are for sure some bullish factors that can actually propel the EUR higher. We've talked about them briefly in the past (here) But more importantly, her actions underscores one of the major actions of German chancellors in the recent past: Angela Merkel has disagreed with the direction for the Euro vs that of Mario Draghi. The direction as result of the disagreement has been clear:


EUR has been bid. From 1.05 to 1.12 on a rope. Seems to be me that fiscal policy wins here.

I think it's interesting that a few months back, we've had probably some of the most negative policy sentiments on EUR we've had in a while.

After such a rip like this, my first instinct is to fade this move. I think tactically you could probably bid EUR a little lower than here and still get filled.

But let's step back and see where we are in the long term:


Definitely looks interesting. Wondering if anybody out there is still betting that EUR/USD goes below parity.

And of course, this is in face of the Ariana Grande concert bombing (not trying to be insensitive but I'm a big Ariana Grande fan). I can only conclude, there is a strong bid under EUR.

Thanks guys, have a good weekend.
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checkmate
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May 26, 2017 at 8:26 AM ×

Depends on whether you're looking at where the ball is or where you think it is going. I don't think it's contentious to say that without the political risk of this year the ripple of recovery that started in the USA reached the UK was always going to reach Europe and the Euro would have caught a bid much earlier. The problem I have with Europe/Euro is it assumes really that the political risk was the only risk out there holding Europe back. I'm concerned at this stage that the easy credit cycle is much nearer the end than the start in terms of what it can do economically. Nowhere do I see any real uptick in fiscal policy that might take up the baton. That still includes the USA. If you follow that line of thought through how soon might we see what I think is a UK slowdown in European data? At what point of transparency would such data trigger a move to the historical safe haven of the dollar? As usual I have more questions than answers. However, I will say I doubt a drop in growth is going to end up being specific to the UK. These things tend to ripple.

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IPA
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May 26, 2017 at 5:04 PM ×

I was wrong on euro. In hindsight (dare I mention the word) it was a great reward to risk trade to go long at 1.0850 and put a stop below 1.08 especially when it was obvious that 1.0820 level would hold. As a trader I have to take a blame for being true to my belief and blind to the obvious. Enough said...

Crude is hopping again. It has become a gift that keeps on giving. This being said, I don't want to celebrate and would like to remain humble. Would like to take the first scale out on WTI here at 49.40 (+1.05) and move the stops up to 47.90 and would like to ride the wave up to 50 and 51 on the rest if given a chance.

I am gonna let them prove me wrong on ULTA, placing a hard stop above afterhours high of 311.88 and looking at how it is trading along with other positive retail reports today (BIG and COST) the theme seems to be sell the good news hard. Highs of the day reached on the first trade of the day. Still think it's a $250 stock by mid June.

Why is gold going up? Long weekend political worries? Confusion on Fed? Bitcoin craze? Physical buying? All of the above? There is a $40 flag pole distance on this bull flag breakout taking it to $1300 in a flash. Notably, GDX has not broken out of the flag yet. Opportunity to add before it does?

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johno
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May 26, 2017 at 7:49 PM ×

EURUSD has run ahead of relationship to rate differentials, but I'm certainly not fading. Not expecting any material news out of Italy for some months, and while everyone was focused on the YouGov/Times poll in the UK, the one that really caught my interest today was the OpinionWay poll showing Macron winning an absolute majority in parliament. If he does that, people will have more faith that he can deliver the reforms that will get Germany to make concessions on the Treaty, and that in turn means higher odds of the eurozone holding together and more investment flowing in and a higher euro.

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IPA
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May 26, 2017 at 9:53 PM ×

COT euro spec longs up 71% since 5/16 and highest since Oct 2013. Plug this into your model.

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May 27, 2017 at 5:34 AM ×

Dear President Macro Man. One last cable if I may before I retire from public service. Congratulations on your first 100 years of blogging. If I was to encapsulate you Presidency with one word it would be..... "money". I wish you good luck with that. God knows you cannot do much without it and, being the old timer you are I'm sure you going to have lots time to spend it and enjoy all it has to offer. Once again, good luck with that!

Kind regards.
Lonely mug punter ( from his mother's basement)

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abee crombie
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May 27, 2017 at 2:32 PM ×

Eur is still in a range, imo. Not very exciting but fine to range trade. Look at a weekly chart. Lets see how hawkish ecb wants to be with a euro at 1.15. Also remember big EM recovery led by exports into china. EU has nice leverage into that. Also while i agree with checkmates point on uk economy i think EU consumer is at different stage. Unemployment levels still relatively elevated in EU, unlike UK or US. Therefore i doubt draghi wants too strong euro, especially for weaker links.

Whats more interesting to me is Yen. I still think LT its headed higher but dont have any good feel for mear term. Classic abc correction i guess from dec to april. Thats about all i see. Otherwise interest rates seem to be driving the yen.

Brl back to normal already? Wow shows you how fast risk changes. Rub also seems to have lost any oil correlation. Gets me worried oil goes below 40. Im not so worried about supply as i am demand.

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abee crombie
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May 27, 2017 at 2:45 PM ×

Ipa re ulta, even though thier same store sales are flattered by including online sales in that number retail sales were still up 10%.. damn i hate bieng short companies like this. Even if its trading at 30x 2020 adj eps...they are doing something right.

Have to re think timing..bc i thought by now they would have felt the general retail malaise if they are going to.

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IPA
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May 27, 2017 at 6:28 PM ×

abee, I hear you on ULTA. I think we are not wrong, just early. I mean it looks like we are wrong at the moment. Ladies are going to their stores in droves, unemployment is low, they are all out there in public and need to look good. I know the ladies can't even take the trash out w/out the makeup on. I say it with respect. But here is what the idea stuck in my head tells me: one day, and the day is coming sooner than ULTA management thinks, the same craze that drives ULTA now, Snapchat/Instagram, will come up with fake makeup filters good enough for teens to throw on the faces in their pics and poof goes ULTA's biz overnight. Those filters are out now and getting better by the day. Hear me out... Once they saturate the market with their stores in a dwindling physical brick-and-mortar traffic the online sales can't take over those lost sales soon enough, simply not possible. Also, store leases are a pain in the ass to get rid off, the writedowns will be huge, EPS will take a beating, bottom line misses will take over any online sales growth while the inventory swells as the physical stores are shut. More importantly, new online sales will not generate the same profits, and once you are selling online only it's a wild west race to the bottom on margins as you are competing with Chinese sellers who don't have SG&A expenses to worry about and zero respect for the bottom line as they have nobody to appease (let alone shareholders).

I was early on Canadian banks, broad retail, wish I was much earlier on auto parts retailers, now I have a different target - ULTA. The body care product biz is not immune to overall retail slowdown, not like the ULTA management thinks it is. Their customer loyalty program can go off the rails once some other retailer wants to lure the ladies away from ULTA by lowering the heck out of the same products' prices. Has been done before. I am early, I know...

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abee crombie
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May 27, 2017 at 7:46 PM ×

Lets see ipa. if you are right it probably wont be good for one of my fav stocks, EL. I dont think make up consumption per capita will slow down with technology, ever. Styles will change as always but i am not sure about that part of your thesis.

I was looking at xrt. Such a wierd etf. Lots of dispersion. Biggest pain is in the mall retailers, as we all know. Off mall doing better but if you think strong malls reinvent themselves with more resturants and activities it leaves off mall more exposed. At least that is the thinking of starwoods sternlict.

Anyways i keep my shorts small bc of this untilthe market turns.

Recently thinking about shorting some semi / iphone8 plays as we grt closer to fall. Its worked with previous big iphone rallys in the past.

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IPA
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May 27, 2017 at 10:17 PM ×

abee, technology drastically transforms the way we shop. I say brick-and-mortar beauty and clothing stores take even bigger hit in traffic very soon as busy ladies stay at home to take care of their household and do this instead:

http://sanfrancisco.cbslocal.com/2017/05/13/silicon-valley-startup-creates-digital-mirror-makeup-mastery/

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Whammer
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May 28, 2017 at 5:55 AM ×

@IPA, I don't know if you're right, but the thesis is very interesting -- that makeup demand is driven for online photos in addition to F2F interactions. To the extent you're right, that could be a big deal.

I was making a vaguely related point recently about Internet advertising -- how much of the demand for GOOG and FB ads is "real" -- that is, does the targeting match the targets very well? If not, that biz faces troubles.

Anybody see the recent data about how Breitbart traffic has plunged in the last 3 months? Implies that a lot of the previous traffic may have been bots. If that is the case, do advertisers want to be paying to serve ads to bots? I don't think so.......

- Whammer

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IPA
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May 28, 2017 at 6:57 PM ×

Besides the actual EUR/USD currency pair I wonder how much cooperation, and more importantly, trade and joint business ventures will take place between US and Europe under Trump and Merkel when it increasingly looks like they simply don't like each other. I know, it's not only Merkel but also the rest of Europe that is irritated by Trump. What will be the consequences? Will German automakers finally feel the heat in US? Will American industrial and tech companies be punished in response in Europe? Can these behemoth economies coexist with that much animosity between their political leaders without consequences on business and trade after such negative rhetoric and undoubtedly some real action to follow shortly? I am not sure this is the time to panic but one has to be really concerned here. Even though Trump agreed to the anti-protectionism clause in the G7 communique, he has flip flopped on so many issues that it is meaningless going forward. Merkel is out this morning talking about going it alone and depending less on US.

https://www.bloomberg.com/politics/articles/2017-05-28/merkel-tells-beer-tent-rally-that-europe-must-plot-own-course

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dfdsfiol
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May 29, 2017 at 5:02 AM ×

https://www.thestar.com/business/2017/05/26/gta-home-sales-plunge-as-much-as-61-per-cent.html

it is only just beginning.

Every weekend I drive around my neighborhood in Richmond Hill (north suburb of Toronto) I see 6-7 open house signs at every residential intersection, yet I see no cars. No one is coming. This is going to end in total tears for many.....

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checkmate
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May 29, 2017 at 7:04 AM ×

Yes well, it's always been the case that people mindlessly in love with the idea of investing in property have no idea what the cost of liquidity actually is until they need it. Historically, buying their problems at auction as been a very good way to make money. Unfortunately, if you had not been prescient enough to raise cash to begin with you wouldn't then be in a position to do that.

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IPA
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May 29, 2017 at 5:09 PM ×

Cup and handle on WTI with a $2 distance. Price is bouncing between 50 and 200 sma on 4hr now and looks like it wants to go higher.

Please remember those who put their lives on the line so we could be here and do this. Salute!

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Polemic
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May 30, 2017 at 12:28 PM ×

the first rule of politics is if you stand accused of something blame something out of your control.

Germany is accused of running excess surpluses, so rather than change anything Merkel blames a weak Euro.

I see her statement not as one showing that Germany wish to guide Euro higher but one proving that Merkel has no control over it and so we should not be listening to her views on where Euro should be in the first place.


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