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ED1! trade ideas

On the Verge of a Global Market TsunamiCME: Chinese Yuan (CNH) Euro FX (6E), Micro S&P (MES), Micro Nasdaq (MNQ) The US government is within ten days of defaulting on its debts. If this unprecedented catastrophe were to happen, what could it trigger? Risky assets, from stock, bonds, FX, to commodities, will go through a violent period of reset and repricing. Weaker economies could be hit hard if the crisis prompts a flight of financial assets out of the country. Gold could reach a new record as the primary safe haven asset. Bitcoin and other crypto currencies could also be a winner. US dollar and Treasury bonds, which lies at the core of this market turmoil, could actually gain from it. Past crises show that investors could pick them as the “least bad” option in a flight to safety. US Government Financials in a Glance The federal government is in very bad shape, financially. Data released by the Treasury Department shows that: • The total national debt through May 18th is $31.46 trillion; • In 2022, US collected $4.90 trillion in revenue and spent $6.27 trillion, contributing to a budget deficit of $1.42 trillion; • In fiscal year 2023 to date, we have $2.69 trillion in revenue and $3.61 in spending, and already created a budget deficit of nearly $1 trillion; • Interest rate on national debt has been creeping up since the Fed rate hikes, and reached 1.89% by December 2022; • Treasury operating bank account has a cash balance of $316 billion. The low cash balance is shocking. At a burn rate of $523 billion a month, it could only support government spending for 18 days if no new revenue comes in. It is not enough for 6 months of interest payments on debt, left alone paying down the debt. Where We Are at the Debt Ceiling Negotiation On May 15th, in a letter addressed to House Speaker Kevin McCarthy, Treasury Secretary Janet Yellen warned of the looming catastrophe: “We still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1.” The GOP controlled Congress passed a responsible debt limit increase bill last month, but it was rejected by the White House due to its budget constraint requirements. The two sides are sitting down at the negotiating table last week. But the talks are not going smoothly. House Speaker McCarthy complained about the lack of sincerity from the President who takes overseas trip at the blink of government bankruptcy. It is still possible to reach a last-minute deal, but a default is no longer unthinkable. Event-Driven Trading Strategies In the past, I set up event-driven strategies with Game Theory and Binomial Tree. I think it is useful to discuss two of them before introducing the current strategy. During the US-China trade conflict in 2019, I used COMEX Gold Options to replicate the risks that global markets would be up against with. “When Trump tweets, Limit Up.” “When Xi calls, Limit Down.” The former shows the tariff fight to intensify, the risk goes up, and so is gold price. The latter indicates that the two sides would engage in negotiation, the risk to deescalate, and gold price will go down. In the midst of the Russia-Ukraine conflict, I picked CBOT Wheat to replicate the risks to global food supply. The two countries collectively account for 28% of global wheat export. To predict the probability of conflict outcomes is difficult but unnecessary. Long Strangle options strategy would buy out-of-the-money call and put options simultaneously. It would make money if wheat price had a big move, either up or down. At the time, $12-strike call was priced three times higher than $9-strike put. The conflict dragged on, but Turkey brokered a deal to allow Ukraine to ship grain cargoes through the Russia-control Black Sea. Wheat futures fell 28% and the Put value went up 1749%. The links to the above two trade ideas are available at the end of this writing. Opportunities amid Catastrophes Taking a one-step binomial tree, the early June debt limit deadline could be expressed in two outcomes: Deal, or No Deal. In the first outcome, a deal to raise debt limit is reached. Investors are relieved and risky assets shall go up in general. In this case, there are no low-hanging fruits to pick. I am more interested in the second outcome. The talk breaks down. Financial markets freeze up. Panic selling would push good assets into oversold bargain prices. Here is my thinking: Would the US government turn into a deadbeat if no deal is reached? Take a look at the annual federal budget showdown. Talk broke down triggered government shutdown. Millions were furloughed and bills were not paid on time. But when the resolution is reached, the federal workers got called back, and the pass-due bills would all be paid. Since January, the Treasury Department has been operating in a crisis mood. Legal obligations are still paid on time, while other lower priority spending get pushed back. A No-Deal scenario would result in more payment delay and some furlough. My conviction is that a “US Default” would be a technical one, and all the government obligations would be satisfied eventually. There are many means to ensure this outcome. In my April 17th writing, I explained that the top 1% of income earners paid 42% of all federal income taxes. Raising tax to the riches would anger 1% of voters but may gain support from the remaining 99%. This is an easy political decision. Ultimately, all US debts are based on US dollar. We have the money printing machine ready, and it only needs authorization to turn on. A US default would be a good reason. If a US default occurs, I expect an emergency solution to be reached within days. In addition, the Fed would definitely stop raising rates in its June 14th meeting. When to Start Bargain Hunting On the day of US default and a week after, market chaos would present many buying opportunities. What considered a bargain? For major stock indexes, a one-day drop of 5% or a one-week drop of 10%. CME Micro S&P 500 futures (MES), Micro Nasdaq 100 Futures (MNQ), Micro DJIX Futures (MYM) and Micro Russell 2000 Futures (Y2K) are all good choices. For individual stocks, the threshold goes up to 10% a day and 20% a week. We all have our favorite stocks on our wish list and were previously turned away by their lofty prices. A big crisis could turn them into bargains, with limited negative impact over time. For foreign exchange, I would focus on CME Euro FX (6E), British Pound (6B), Japanese Yen (6J) and Chinese RMB (CNH) futures. I think the Dollar could take an immediate beating whenever the news of default hits the wire. However, as soon as a resolution is reached, full faith and credit of the Green Back would be restored. This may give us a few days of opportunity window for bargain trading. The minimum tick in FX quote is a “pip”, which is the fourth digit after the decimal point. The daily range of price move for the above-mentioned currency pairs is between 30 to 80 pips. My threshold for bargain is a 200-pip daily move and 500-pip weekly move. Let's take a look at the CNH exchange rate. It experienced four distinguish trends recently: • Stable rate: Stayed in a tight range of 6.3-6.5 yuan per dollar before March 2022; • Fast depreciation: Strict Zero-Covid policy pushed the yuan down to 7.3; • Fast rebound: Reopening in October ignited hope of economic expansion, and the yuan quickly bounded back to 6.67 in two months; • Fast depreciation: The “Wondering Balloon” incident abruptly stopped the yuan’s rise. Disappointing recovery data sent the RMB into falling again. June futures quotes 7.0325 in the morning of May 22nd. I think that the Chinese government would like to see the yuan weakened to aid its export. The down trend could continue, and the yuan may retouch 7.3. If the US dollar fell against the yuan by 500 pips, for example, from 7.0325 to 6.9825, it would be a good point to establish a long position, in my opinion. Each CNH contract has a notional value of $100,000. When the exchange rate moves 1 pip, a futures position would gain or lose 10 yuan. CME requires initial margin of $21,100 per contract. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:6E1!Long
by JimHuangChicago
1
IPDA on EURO FUTURES CONTRACTSellside and Buyside Have both been Purged Since the New Yearly Open with price Resting at the Midpoint of the overall Neutral Order Block we are currently sitting inside of. I am Neutral Until I see a significant Displacement Leg Form; Shifting Market Structure to a More High Probability Setup. For now I will Simply use the Weekly Range(s) of Liquidity on a Daily TF to Locate 4H Swing Highs/Lows for 1H Model Frameworks - allowing LTF 5min 3min 1min Entry Setups At HTF and MTF PD Arrays. Running sentence, sorry. #ICTStudent ** NOTE: Even though Long Term I am Neutral - I am Bearish on the Short Term till price Reacts off of the Bullish Breaker, because we are in a Bearish Weekly Candle with a confirmed Daily Swing High for Monday, Tuesday, and Wednesday that has drawn a Daily Bearish FVG.
CME:6EM2023
by GhostlyFutures
EURUSD seems approaching an extreme point.Sentiment regarding TVC:DXY seems extreme (13 year old asking Warren Buffett how he prepares for end of USD reserve currency status, newspapers printing quite some headlines about gold). I looked at the CoT in FX:EURUSD - Futures ($6E): Historically (last 10y), commercial hedgers seem to nail it, regarding tops and bottoms in the market. When Open Interest is high and starts to decrease again, to make money one should stand on their side of the bet. Now they are being quite short, with the Open Interest being comparably wide to previous extemes in the last 10 years. I think, fundamentally it is time to look for short setups (aka long USD) here...
CME:6E1!Short
by Vollchaot
Euro Soars with Dollar WoesOne thing about tables, they turn. This time last year, the dollar was unrivalled. Now, it is being challenged amid a banking crisis, recessionary fears, and a debt ceiling drama. Having stepped up on the rates faster than the rest, the US Fed’s combat against inflation fuelled a dollar rally . It now finds itself between a hard place and a rock. Many expect the Fed to pause. In contrast, the ECB, having been slower off the block, has gradually lifted rates with ample headroom for further policy intervention to fend off a resurgent Euro area inflation. This paper explores fundamental forces driving a rally in the Euro and the headwinds facing the dollar. With EUR/USD making a golden cross on March 27th, this case study posits a long position in Euro using the CME Euro FX Futures delivering a 3x reward to risk ratio with entry at 1.1025 and target of 1.17 hedged by a stop at 1.08. Crushed and Bruised Euro is Fighting Back 2022 was a crushing year for the Euro. Geopolitics plunged Europe into an energy crisis. Bleak prospects plus soaring inflation meant deep recession. The Euro was wounded. The Euro was dealt another blow as the ECB was slow to lift rates. Key eurozone rates were well below those in the US, as the Fed was all pedal to the metal with unprecedented hikes. Higher yields in the US attracted foreign funds, boosting the dollar at the expense of other currencies. Tables turn and times change. Euro's rise is in part thanks to milder European winter. Warmer than normal and prudent energy consumption has kept gas prices in check. The region may well avoid a recession. In fact, it posted a surprise output growth in the final quarter of last year. A hawkish ECB also well supports the Euro. It continues to hike rates to tackle inflation, which remains stubbornly high. As rates in Europe rise while those in US stall, the Euro will attract capital inflows from across the Atlantic. Dollar’s dominance is being challenged Over the last 10 years, the Dollar Index (DXY) has gained ~25% while the EUR/USD has shed ~19%. The rotation away from the dollar is underway. Not only Euros, but the dollar has also been losing ground against other majors, including the sterling and the yen. Easing inflationary pressures should spell victory for the Fed allowing it to tone down its fighting monetary stance. Premium for insuring against US government default spiked to its highest level in more than a decade amid political impasse related to debt ceiling. While this political embarrassment is likely to be inconsequential, the tiny risk of a dollar debacle cannot be ignored. Investors hedging against this risk are likely to push the dollar lower. Is this De-dollarisation? The de-dollarisation camp shouts loud. But ignore the noise. Surely, the weaponisation of the dollar has alarmed nations. Not surprisingly, many are attempting to wean away from dollar dependence for trade settlement. The dollar’s share in forex reserves used to be 71.5% at the turn of the century and has gradually declined to 58.3% as of the end of 2022. The dollar remains at the core of global trade and finance. The dollar forms 88% of FX transactions. Distant second is Euro at 31%, according to 2022 BIS figures (aggregates equal 200% as each transaction involves two currencies). Transactions involving the Chinese yuan having grown at 70% over last three years represents a mere 7% of the total. About 60% of the world's forex reserves aggregating to USD 11 trillion are still denominated in dollar. The dollar will continue to play a pre-eminent role in global trade and as a global reserve for a long time to come. Absent a credible alternative, albeit weakened, the dollar is here to stay. Rate Expectations Point to the Fed Pausing Earlier Than ECB CME’s FedWatch tool shows a 78% probability of another 25bps rate hike at the next meeting on May 3rd and a 67% probability of no rate hike at the June meeting. Fed pause before pivot remains market expectations. Meanwhile, Reuters reported that the ECB is expected to raise rates by 25bps at its next meeting in May. Crucially, ECB survey of professional forecasters points to another 25bps rate hike in Q2 before pausing. Asset Managers & Funds are positioning for Euro to rally CFTC’s Commitment of Traders (CoT) report shows that leveraged funds and asset managers are bullish Euro. Asset managers increased net longs by 7.4% over the last 12 weeks. Leveraged funds have flipped from net short to net long, increasing long positioning by 125%. Meanwhile, the CoT for DXY futures shows that asset managers are still net long but have reduced long positions by 20.5%. Options Market are signalling bullish Euro and bearish Dollar Monthly options on Euro FX futures are trading with a put-call ratio of 0.87 pointing to more calls than puts, indicating Euro bullishness. Euro buoyancy is particularly apparent for June expiry options which have a put-call ratio of 0.6. Meanwhile, thinly traded options on DXY futures expiring in June have a put-call ratio of 1.66 signalling that market participants are bearish dollar with 1.66 puts for every call option. Trade Setup Each lot of CME Euro FX Futures provides exposure to 125,000 Euros. Every 0.00005 increment in the contract represents a trading P&L of USD 6.25. ● Entry: 1.1025 ● Target: 1.17 ● Stop: 1.08 ● Profit at target: USD 8,440 ● Loss at stop: USD 2,810 ● Reward-to-risk: 3x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:6EM2023Long
by mintdotfinance
3
EUR/USD's hidden clues & key levels? Here’s an interesting chart: the inflation differential of the US and the EU plotted against the EUR/USD pair. If we approximate the range of the inflation differential with an upper bound of 1.5 and a lower bound of -0.5, we get a compelling signal for trading the EUR/USD pair. Buying EUR/USD when the inflation differential bottoms has resulted in success 4 out of the 5 times this signal was triggered. Repeating the analysis using the preferred inflation measures for both central banks – PCE for the Federal Reserve (Fed) and EU HICP for the European Central Bank (ECB) – yields similar results. Is this spurious correlation or is there more to this? Our guess is that the inflation differential drives expectations of one central bank’s move versus the other which affects the currency pair. The upcoming US PCE release on 28th April will provide insight into whether the inflation differential between the US and EU will continue to narrow. The validity of this data remains to be seen, but it's certainly an intriguing observation to consider! The rather eventful economic calendar over the next two weeks offers opportunities for this pair. Starting with the PCE Price Index released on April 28th, it is followed by the Fed meeting on Wednesday, May 3rd and the ECB meeting on Thursday, May 4th. With these events in mind, we want to position ourselves for the flurry of announcements coming out, which could play into EUR/USD strength. The long-term price action still seems to point towards an uptrend, with the 100-day Simple Moving Average (SMA) crossing the 200-day SMA and clearly marking previous swings. The current price is also consolidating at the 1.1000 psychological level, with parity and 1.2000 levels roughly marking the EUR/USD range for the decade. Zooming in, the EURUSD has been trading in an uptrend. An attempt to break above the 1.11 level was quickly rejected, with prices trading back to the trend support shortly after. We are currently witnessing another attempt to break this same level once again. Hence, a risk-managed trade could yield opportunities here with the upcoming onslaught of announcements. Setting up a long position at the current level of 1.1074 with a tight stop just below the trend support at 1.0945 and take profit level of 1.1400 would give us a risk-reward ratio of roughly 2.5. Each 0.00005 increment per EUR in the EURUSD futures contract equal to 6.25$. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com
CME:6E1!Long
by inspirante