A different kind of week
This one is less a list of instruments and more thinking out loud. The bond market and the rate story are doing all the talking right now, so that is where most of this goes, and the euro closes it out.
Last week’s recap — bonds are getting torpedoed
Treasuries are getting torpedoed, both in the States and in France. England has stopped selling long paper altogether because of the way it has been moving.
This could kick off a new wave of movement in gold and silver. Though it is worth saying plainly: so far it is not clear how that is supposed to save anyone from an economic crash.
On Europe — France could easily have problems with the PMI, but while the tourist season is still running it probably does not show up yet. Germany for now is still fine. England is a real problem. The European Union as a whole is under active watch.
Rates, Warsh and the move into cash
The market right now doubts Warsh, and doubts there will be any positive movement with Iran. So everyone is going into cash.
At a minimum there is one more hike coming, because after that equities start going into cash as well. The market is already pricing two more hikes this year — logical for holding the Treasuries back from rising further — so 50 basis points is what is getting priced in.
From here it is one of two paths:
- Straight to 50 basis points in October. Then, once the hysteria is out of the way, that is exactly where the Treasuries turn and everyone starts coming out of cash — which means a lower dollar.
- Or it stays negative for the dollar through the end of the year.
Hormuz, incidentally, does not move the markets anymore. It shakes oil around and the market has stopped caring.
So what is actually being watched is the Treasuries and what Warsh does. An emergency Fed meeting and a hike before 28 October would make things simpler — but that will not happen until equities start falling. Once the Treasuries really get torpedoed and equities drop, that is when they convene and hike by 50 straight away.
EUR
Last week the big players showed little interest up at the highs. All of their latest portfolios were sells. June of next year, together with March, is exactly the base for those sells.
Into the close of the annual contract the expectation here is still a move to their central strikes at the open — so the calls can come out of the market, and so it becomes visible where they roll them next.
For now they are actively shorting with futures and possibly with spot, and showing nothing at all up top. The decay there is negligible, so they lose nothing in price from the current move down. On a correction toward the end of the year they will sell even higher than they bought, and that is when a new portfolio appears.
So: the range of the move at minimum runs through Wednesday. Looking at the chance of touching the levels, priority is with a spill down and a reversal into a pullback from there. Given that at the 1.14 strike over 6,000 puts have opened, with their breakeven right around the zone below, everything else is extraneous.
The plan, in one line
These are zones and scenarios being watched — the market decides, not the trader. Let price come to your levels and let the confirmations line up before you act. New to the terms? The glossary covers every structure named above — and if this is your first visit, where to start lays out a reading order through the free material.