EUR/USD : Targets reached / Time to be Neutral on EUR & Very Short Term bearish.

I refer here to January 12th post “EUR/USD  : Triple Bottom ? ”  in which i wrote :

“EUR/USD outlook starts to improve and the 1.0450-1.0600 might be a good level to buy EUR in USD portfolios / hedge USD in non USD portfolios. i believe one can refocus on targets in the 1.10-1.13 area especially should the 1.0650 50days MA be broken.”

EURUSD trades today around 1.1250 , in the upper part of target range mentionned in January . Some pause is likely due ; the move has been quick since first round of France election and traders sentiment towards Euro ( DSI see Daily Sentiment Index on trade-future.com) is  becoming extreme at 75%. Last such extremes – 86% in August 2015 & 78% in May 2016 – lead to 10% and 5% reversal reaction respectively .

1.0950 – 1.10 are the very short term target and 1.08-1.085 should act as base for further progress mid term .. if these latter  levels are reached again which i am not sure of.

On the up side a clear break of 1.1350 would propel the EUR higher to test 2015 & 2016 Highs at 1.16 / 1.17.

In a nutshell : Short term “risk/chance” to 1.0850 -1.1000 followed by more upside to 1.16-1.17 later this year.

 

USD Index : DSI index is at 5 % , the more extreme bearish reading on USd in the last 3 years which speaks for a USD positive reaction versus other major currencies like GBP (current 1.2950) ,  JPY current 111) and CHF ( Current 0.9720)

 

Political crisis in Brazil … again ! Market moves Overdone … buying opportunities !!!

 

Following reports President Temer would be involved in a bribery scandal , Bovespa lost on thursday 9% and Real 6.5% in a complete panic mode. Markets are fearing Brazil could enter another period of political trouble endangering ongoing needed social and pension reforms . The Msci ishares Brazil ETF is down 16% on the day !!! which might price already part of worst case scenario i.e. prolonged political uncertainty ( Temer resigning or not , no reforms being implemented,..)

Our recent Tactical Buy Vale opened yesterday at USd 7.49 and is trading today pre market at USD 8.25, just to show the extent of the panic. In my  ( .. and most of analysts this morning) opinion this is clearly an exaggeration.

Here below Petrobras chart : PBR lost 16% in USD terms …  / see also Barron’s on PBR for more fundamentals reasons why to step in .

Action : Buy 0.5 unit in petrobras at opening (Max USD 9.10) and 0.5 unit at yesterday’s closing price of USd 8.50 based . Rationale 1/ Panic move 2/ Volume 3/ Low end of trading range .

Action : Buy 1 unit in EWZ (iShares Brazil ETF) for an exposure to Brazilean market in USD terms (down 16% yesterday ) at opening (Maximum USD 34.75) .

 

Petrobras in Barron’s last week end :

Re-energized Petrobras Headed Higher – Barron’s

 

 

Tactical Portfolio : Sell Twitter – Buy Vale – Buy Schlumberger

 

Twitter : Sold

Profit booked at closing today – USD 18,54 – for a 30,50% profit . Momentum is slowing and reversing after recent after earnings sharp move higher but stock did so far not manage to surpass the USD 19-19,50  resistance zone . Should price go beyond USD 20-20,50 stock technical outlook would improve again. For the mid long term one has to keep in mind that stock remains a potential take over target . We might come back to it on a tactical basis later.

 

Vale : Buy

After a 5o% dramatice surge in the first 6 weeks of the year, Vale had early may nearly retraced this move bottoming at USD 7,84 with 200 days MA as first support around USD 7,75. Price -Momentum divergence appears and MACD is turning bullish . We buy at closing price today – USD 8,36. Vale is very volatile stock and only for “Dynamic – risk conscious ” investors . STOP LOSS below 200d MA i.e. USD 7,5 closing basis.

 

 

Schlumberger : Buy

Technical rationale : 1/ The more than 1 year USD 69-70 support held firmly at recent bottom and stock seems to reverse  2/ MACD turning bullish today  3/  RSI reversing above the 30 level  4/ the final (?) down move since mid april took place in above average volume wich is another potential reversal signal.

Buy at 72,67 // SL 68,50 closing basis.

Transocean (RIG) – USD 11,17 – as same sector alternative and technicals showing same reversal signals but RIG much more volatile than SLB – same remark as for vale … for risk conscious investors and only with tight stops .

 

 

European markets ready to play catch-up.

 

European equities (and Japan) have massively underperformed US equities in recent years especially for USD based investors . Not only equities return were poor but currency performance was very weak : – 33% for the EUR against USD  since 2008  (-31% since 2011 for the Yen).

Situation has started to evolve since early 2016 with SP500 underperforming Eurostoxx 50 :6.53% vs 8.84 %. Main  explaining factors are:

1/ Economic recovery in Europe is gathering pace  while some data out of US economy are a bit more on the negative side.

2/ European markets priced (and still partially do ) the risk of populist parties to win major elections with the attached questions about EURO survival. This risk has been reduced with Macron win in first round election in France .

3/ The much cheaper valuation of European equities compared to their US counterparts.

4/ Catch up potential (See Chart Below)  and rising interests from US investors seeing risk on their own market and opportunities in others .

 

Source : The Bespoke IG

Politics and Equity Markets … Don’t mix up to much

 

One of the most controversial leader in the world this year : Erdogan in Turkey  = Turkish Equity Market +19.98 % year to date , second best in the world since December 2016 

 

General Strike in Brazil last friday =  Brazil Equity Market +2. 87% in last 5 days , second best in the world on the period .

https://www.nytimes.com/2017/04/28/world/americas/brazil-general-strike.html?_r=0

“… austerity measures proposed by the scandal-ridden government of President Michel Temer…”

 

Donald Trump and multitudes of markets collapse warnings in the weeks before = US Markets up 15% for SP500 and 20% for Nasdaq since Election day .