Putting the use of the word ‘crisis’ in context

Last Friday September 23rd, the British Pound started seeing accelerated weakness against various currencies and most prominently against the U.S. Dollar. The ‘noise’ of calling it a crisis continued on Monday September 26th.

Readers of the September 24th edition (last week’s) of ‘Macro Extremes’ would have seen the GBP was already featured in the Oversold section.

From its close of 1.1256 on Thursday September 22nd it has fallen to an intra-day low of 1.04. Albeit a 7.5% move within 2 days is worthy of note.

Today, the GBP/USD is almost back to its price seen (1.1168) on that Thursday. Quite a roundtrip but hardly a crisis and more appropriately a reminder to taking a look if prices were already at an extreme and understanding if this is a continuation of an existing downtrend or an exhaustive move which catches the ‘noise-worshippers’ out?

On the week, the GBP/USD rose 2.8%.

Yet….we don’t hear the word ‘crisis’ being bandied about.

Some FX traders have lost 6% in a week, shorting the British Pound against the USD, at its lowest ever level.

Cleverly, I hope there were many bought Sterling at Sterling at what was nearly a 4-sigma event.

The previous all-time low vs USD was 1.0545 seen in March 1985.

Inversely, this past week we saw the Australian Dollar fall 3.1% against the Euro, it sank 4.7% versus the British Pound, declined 1.9% compared to the USD and has fallen 5.2% against the Yen in the past 3 weeks.

Once again, perspective and context is advised.

October 2, 2022

by Rob Zdravevski

rob@karriasset.com.au

Oracle’s earnings tells us more about currency effects

This week’s note highlighted USD currency headwind risk.

So, Oracle’s ‘currency headwind’ equated to nearly 15% of its quarter’s earnings.

No small change and it is a factual effect that the U.S. Dollar’s strength is having on American corporate earnings.

An extract from Oracle’s Q1 Fiscal 2023 earnings transcript is,

“The currency headwind this quarter was much higher than the 3% headwind that was present when we gave guidance. It was actually 6 points, even though due to rounding, it may look like 5%, and that’s a currency headwind to total revenue. It was, in fact, 6 points. And yet, we still exceeded our forecast on a reported basis, and we beat our constant currency revenue forecast by $200 million. We saw similar currency headwinds in EPS, which had an $0.08 negative effect, much worse than the $0.05 headwind present at the time of guidance in June.”

But with present USD strength being extended and stretched, in the spirit of positioning for ‘where the puck is going to be’, I’ll look for the contrarian effect to company earnings in the coming quarters.

In the meantime, well run Japanese companies should be ‘minting’ profits from their increasing competitive position of having a monumental weaker Yen.

September 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

The effect of currencies on income statements

And the corporate effect of what todays earlier currencies post translates to…..

Aussie companies selling products into Europe, the UK and Japan have been seeing weaker receipts, while those selling to U.S. customers or in USD denominated products (commodities) are booking handsome profits on favourable currency differentiation.

Japanese and European assets are considered cheap for holders of Australian Dollars while Americans (and their corporations) may see Australian assets as being ‘on sale.

Expect those respective benefits to wane while these ‘extreme’ currency movements correct and consolidate.

On a side note, the almighty strength of the U.S. Dollar seems to be a surprise……

2 years ago, I wrote this note when I remember reports of the pending death of the U.S. Dollar to be palpable.

Today, there doesn’t seem to be an opposite case against the bullish prospects of the U.S. Dollar.

September 12, 2022

by Rob Zdravevski

rob@karriasset.com.au

AUD high against Yen, Euro and Sterling

It is an appropriate and strategic moment for Australian Dollar importers and/or speculators to sell (a tranche of their intended or required) AUD and use it to either buy Euro (EUR), British Pounds (GBP) or Japanese Yen (JPY).

The (multi-timeframe) bullish trend for the AUD (against these currencies) remains intact as they register 5-7 year highs against these crosses.

It’s more perverse that the AUD is weak against the USD….and whilst it finds a floor, a rise in the AUD/USD (DXY is Overbought) will aide a few more percentages for an additional tranche of buying more EUR, GBP or JPY.

September 12, 2022

by Rob Zdravevski

rob@karriasset.com.au

Seriously long term Overbought extreme in the U.S. Dollar

Adding to last week’s post about the extreme move in the U.S. Dollar’s pendulum…….

…..the chart below reiterates moments when the U.S. Dollar Index (DXY) hits a Monthly RSI Overbought reading along with a 2.5 standard deviations above its rolling monthly mean……

but I have also added a notation to the chart showing the percentage amount that the DXY was/is trading above its 200 MONTH moving average.

The emphasis in this study is that it’s on a Monthly basis, being much longer than my usual ‘weekly’ observations. Day traders need not apply.

September 8, 2022

by Rob Zdravevski

rob@karriasset.com.au

Currency Trade Ideas

This week and today, we are also seeing an extreme in the U.S. Dollar (DXY) Index and as a result certain currencies are exhibiting notable weakness, which I think translate into an attractive buying opportunity.

My three strategic currency ideas are;

Sell USD and Buy EUR (current price is 1.1210)
– Once the Euro’s have been bought, I’m waiting for some specific stocks prices. Some on my list include SAP and ArcelorMittal.

Sell USD and Buy JPY (current price is 115.40)
– there are some Japanese equities on my buying list.

Sell USD and Buy SEK (currently 9.1130)
– Swedish equities have already rallied and benefitted from a weaker currency. The likes of Sandvik, Atlas Copco, Swedbank and Assa Abloy. The laggard is airline, SAS. This strategy is more applicable for those need to Buy Krona for corporate and business purposes.

The GBP (versus the USD) isn’t quite there. 1.3260 could be the place to buy Sterling.

November 25, 2021
by Rob Zdravevski
rob@karriasset.com.au

As goes Oil, so does the AUD

And as a follow up to the previous Brent Crude oil post,

the chart below may tell us what happens to the Australian Dollar compared to the U.S. Dollar…..

should Brent Crude decline

June 28, 2021

by Rob Zdravevski

rob@karriasset.com.au

Watching FX tells you a lot of things

The action is in the currencies;
overbought readings in the ‘risk’ currencies,
which marries up with the Nasdaq and Copper,
and no one likes the USD.

December 14, 2020
by Rob Zdravevski
rob@karriasset.com.au

Bitcoin is silently screaming

A month ago, I wrote the post linked below, the currencies mentioned have held their supports as did Bitcoin.

Since then, Bitcoin has advanced 40% in the past 30 days.

https://robzdravevski.com/2020/10/05/short-term-aud-fx-range/

November 5, 2020
by Rob Zdravevski
rob@karriasset.com.au

AUD – now Overbought at a Weekly Extreme

I feel markets are at another acute point.
It’s not about doom but rather to position for the opportunity.

In this note, I’ll start with the AUD and USD.

Since Buying AUD in the depths of March 2020, I’ve been advising clients to sell AUD against the USD in a tiered fashion at 0.66, 0.69 and 0.71.

With a weaker USD, we have also seen a commensurate advance in commodity prices. Note the link ?

I’ve been banging on about overbought readings recently each time they were registered on the “daily” charts, BUT now, significantly, we are seeing “Weekly” extremes.

Please take a look at the AUD/USD chart below and my annotations within it.

It’s only the 10th time in past 18 years that we have seen this and it’s the first time in 9 years.

I’m not calling a crash and of course and 0.7750 is entirely possible but I want to identify that such extremes are not common. Buying AUD at this end of the pendulums arc warrants thought to the probability of mean reversion.

September 1, 2020
by Rob Zdravevski
rob@karriasset.com.auAUD Weekly

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