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Te Mata

Why The Pound May Turn

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Folks

As Dr Bubb pointed out in another thread COT data can be usefull information for finding when markets could turn.

The pound may turn northwards...simply because the Dollar may head south. This is what seems to be indicated by COT data. (This is, of course, not foolproof. Consult your financial advisor before making trades Yada yada yada)

The charts I use are indexed over an 18 month period. They show the net short or long positions of commercial traders (orange line) , large speculative traders (green line) and small traders (the blue line. these are the mugs like you and me :lol: )

Here's how it works: We want to see commercials and speculators at opposite ends of the index. When both are at extremes, expect a change of direction. I stress that its not always, and we don't know how far, normal trading rules and risk management still apply.

We are looking for the instrument to go AGAINST the spec and for the comms.

Lets look at the US dollar index:

COT__US_Dollar_Index.gif

We see the extremes here. the comms are short at extremes, and the specs are long at extremes.

Conclusion: we are looking for the dollar to go down...positive for the pound.

But that not all. As other major currencies trade in the futures markets against the dollar, we can also cross-reference these other currencies to see if they're telling the same story. For this to carry weight, we expect comms to be long on the other currencies...lets look.

First the yen

COT_Yen.gif

Yep, they're long!

Euro

COT_Euro.gif

Yep!

Aussie

COT_Aussie__.gif

Yep

The Pound????

COT_Cable.gif

You betcha

So what I'm saying is that there seems to be a lot of concern about the pound, probably justified, but no panic stations as it looks to have some support in the big end of town and the USD could be in trouble. How far it may go, IF it turns is anybodies guess.

Again this is not advise, just opinion, don't do anything based on what some clown on the internet says, but I know you wouldn't anyway

Cheers

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If I wasn't expecting the dollar to drop next year I'd have shipped all my house fund out of sterling rather than just the majority of it. However, the Euro seems to be pretty weak lately, so it's possible that the dollar will prove to be less worthless than the competition.

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On other threads on the main house prices forum, it has been suggested that as US interest rates rise to parity (2 more quarter point rises) with sterling then there will be a significant move of money away from Sterling in to the Dollar. The argument goes that for an equal return investors would prefer the stability of a larger economy ie. The US over the UK.

So the Fed has signalled parity in 2 months?? Then what...

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On other threads on the main house prices forum, it has been suggested that as US interest rates rise to parity (2 more quarter point rises) with sterling then there will be a significant move of money away from Sterling in to the Dollar. The argument goes that for an equal return investors would prefer the stability of a larger economy ie. The US over the UK.

So the Fed has signalled parity in 2 months?? Then what...

Well it's all guessing games isn't it. The theory behind the COT is that the commercials have access to the best quality information....and it is they who move the market.

They are the "they" lol

Not to discount what is a valid argument, but the commercials are one group I keep a sharp eye on. (as much as possible)

Cheers

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Well it's all guessing games isn't it. The theory behind the COT is that the commercials have access to the best quality information....and it is they who move the market.

They are the "they" lol

Not to discount what is a valid argument, but the commercials are one group I keep a sharp eye on. (as much as possible)

Cheers

I'm inclined to agree with you,but things like 10yr bond yield are quite volatile.

I don't think anyone in the city really quite knows what's happening.IR's SHOULD go up to protect sterling.if they don't then there is a serious risk of imported inflation in future(which may be what they want).

if they do it stunts domestic growth...and house prices.

I'm buggered if I know which way they will go....it ought to be up but with crash gordon's cronies on the board it could easily be down and then into a 1970's style inflation-fest.

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How many Fed rate hikes has the market got factored in? 2 more? 3? What's the expectation on here?

Will Sterling start to come under pressure from the ECBs intentions too?

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Well Trichet may have just messed things up for the short term. :huh:

"They" loved what he said yesterday...for the USD that is.

It will take a couple of weeks to see what reaction the comms have to this.

Pound rally cancelled....for now.

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Well Trichet may have just messed things up for the short term. :huh:

"They" loved what he said yesterday...for the USD that is.

It will take a couple of weeks to see what reaction the comms have to this.

Pound rally cancelled....for now.

A site (wallstreetcourier.com) I look to for sentiment metrics says this about treasuries:

It might be worthwhile to take a closer look at the bond market. Small Traders (dumb money) have the highest short position for more than 10 years while commercial hedgers (smart money) have the lowest (see thumbnail) . Another bullish message comes from our widely respected colleague Mark Hulbert. The bond timing newsletters he tracks at the Hulbert Financial Digest have never been more bearish than they are right now. And that, according to contrarians, is bullish for bonds. A week ago the readings from the Hulbert Bond Newsletter Sentiment Index (HBNSI), which reflects the average exposure to the bond market among a subset of short-term bond timing newsletters, stood at minus 67.4%. That means that the average of the timers included in this sentiment index is recommending that two-thirds of the amount subscribers have allocated to the fixed income market should be invested on the short side of the bond market. That's an aggressive bet that the bond market will decline and bullish for contrarians. There has been only one other time when the HBNSI dropped to as low a level as where it was last week. That was early last April, very close to its low for the year. The 30-year Treasury bond proceeded to rally by nearly 7% between then and late June

They seem to be suggesting US rate tightening may ease sooner rather than later - ultimately bullish for sterling vs USD. This would dovetail with the COT data. I know you're a short term trader but I'd like to hear your thoughts.

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Edited by Sledgehead

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They seem to be suggesting US rate tightening may ease sooner rather than later - ultimately bullish for sterling vs USD. This would dovetail with the COT data. I know you're a short term trader but I'd like to hear your thoughts.

Well Dr B. posted the COT data for treasuries, and agrees with your commentator.

I am also a fan of contrarian theory...particularly with futures.

But certainly, there are dumber things for "dumb money" (us apparently LOL) to do than to try to track what the smart money is doing. I'll follow them, subject to my own technical rules, anyday.

Lets face it, the general quality of information general available to the private trader is pretty poor. Hence the technical nature of most traders methods. We don't have as deep pockets, or phyiscal commodities to hedge off against like a lot of commercials do. But tracking them, attemting to catch the train along with them, along with technical and risk management practices to suit our account size surely can yield favourable results

I see this point is time as a great opportunity to hop on the start of a significant trend with low risk. I will ride a longer trend if it's in the offing. Thats where some fabulous gains can be made eh?

Cheers

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They seem to be suggesting US rate tightening may ease sooner rather than later - ultimately bullish for sterling vs USD. This would dovetail with the COT data.

Fed Raises Rate to 4.25%, Drops Reference to `Accommodation'

Dec. 13 (Bloomberg) -- Federal Reserve policy makers raised the main U.S. interest rate to 4.25 percent, the 13th rate boost in a row, and signaled they may soon end their run of increases

Edited by Sledgehead

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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