Trading Tips

A Sample of Professional Market Analysis

I received an email a short while ago outlining the three reasons an analyst at CIBC World Markets has for buying EUR/USD right now.

1) Diverging perceptions of interest rate policy. Fed’s Bullard talks about extending asset purchases beyond the March cut off time while the ECB appears to be taking the 1st step in a exit strategy, tightening ABS standards. Nothing creates a better trend than diverging interest rate policy.

2) EU positive M&A interest (Reliance’s EUR 10 bln bid for LyondellBasil) should put an underlying floor under the market.

3) IMM spec longs were cut in half, taking over $2 bln out of EUR positioning. Spec’s are now as flat as they have been since the 1st week of Sept, leaving plenty of room for positions to be rebuilt. EUR/USD is running higher on the broader risk outlook but this will likely only further pressure fast money to get back involved.

Target the 1.5300/50 area for now, using the 55-day MA (1.4790) as a risk point for now.

I’m not in any way presenting this as a recommendation, nor do I make any judgement on the validity of his analysis. I only show it to you to give you an idea of the sorts of things market professionals look at in their work.

This is a real mix of methods. The first reason is fundamental. The second one is focused on flows. The last reason comes from positioning data (Commitment of Traders). The target and “risk point” are derived from technical analysis.

This sort of analysis is not atypical. Market analysts use an array of tools and techniques. They also write to an audience which themselves uses different methods, which means they have to frame their arguments in a way which is going to resonate with their readers. That means speaking to the types of things those readers are looking at and thinking about.