Hello, Ledges! Doing good or not!?
This year is being a real challenge for money managers. Fundamentals are screwed, seasonality is almost nonexistent and all the released measures are not to stimulate or to create a healthy environment or event to help a specific sector, the measures are only to diminish collateral damage. It looks like we are seeing the world through Darth Vader’s mask, but it’s exactly at moments like this that great opportunities arise.
Coronavirus disrupted entire supply-chains in many sectors, and this is something that we can’t fight and it’s pointless to discuss right now, but this tragedy is also the event that is creating the opportunity for us to add profits to our portfolio. The main attention now must be focused on commodities, as the resumption in demand for these products is the certainty that the trigger for the global recovery is happening. And it’s no wonder that countries like Australia and New Zealand are already benefiting from this.
Australia is a big exporter of iron ore with Brazil being its biggest competitor. The Bolsonaro country is facing major political problems and this is causing iron ore supply-side disruptions. Add to this the fact that China reopened its economy first than everyone and the demand from Chinese steel mills are booming. Iron Ore is one of the better-performing commodities in 2020.
Aussie(AUDUSD) also has a strong positive correlation with copper prices, while EURAUD has a strong negative correlation with copper. If you go now to the Cot Tool you will see that big specs changed their Net Position in Copper from short to long and they did in a big way.
The only negative thing is this:
Chinese state media slammed Canberra for its “ringleader” role in calling for an international probe into the origins of the coronavirus and warned that China could impose curbs that would hit the Australian economy hard. According to Wood Mackenzie, Australia’s iron ore and LNG exports to China are up 8% and 9% year-to-date, respectively, compared to a year ago. Chinese imports of Australia coal are also “way ahead of where they were before the pandemic.” source: Talkmarkets
As this is a lose-lose situation even if Australia moves ahead with the probe, China will do nothing as they need Australia’s iron ore. China is one big economy, but they are highly dependent on commodities countries, and they are fighting a war against the USA that they cannot afford to lose, I think they already did, but we are not here for this!
EURAUD – COT INDEX POSSIBLE TOP
You all know the power of COT INDEX acting like a big normalizer of net positions. COT Index is calculated on top of Commercials positions. While some inattentive trader calls this group of players of smart money, this is not the truth, as you already know the reason, if you don’t read it here. One thing we cannot deny, most of the time trend changes when these boyz have a huge position to the side of the trend. Having the ability to spot suddenly spikes in their positions is the edge we are taking advantage of here. The famous or infamous dead cat bounce!
According to the volatility tool EURAUD has space to drop to 1.6015 and this is a conservative estimate, considering 0 standard deviations.
AUDJPY – BULLISH BIAS
When we look at the synthetic AUDJPY cot data we see the same EURAUD pattern. Another important to note is wages growth in Japan is negative, while in Australia, despite the fact it is dropping, it still positive.
JPY Trend in dominant bearish across the board, you can see it on COT BIAS and in volatility table
New Zealand is also a commodities-based economy and has a strong correlation with dairy products, you can check here why. And, again, with China reopening its economy the demand for these products has jumped.
This was reported some weeks ago in a REFINITIV report, that is available on the dashboard. Just go to the reports section and filter by source.
Fonterra says China dairy imports jump in March as lockdowns ease New Zealand’s Fonterra said on Friday China’s global dairy import volumes climbed 10.1% in March after two consecutive months of declines, as the world’s secondlargest economy reopens after coronavirus-induced lockdowns. The jump in China dairy imports, however, may not be sustained as inventory levels are rebuilt. New Zealand also reported a 13.6% drop in dairy exports, dragged down by lower demand from Thailand, China and Saudi Arabia, according to global dairy data from Fonterra.
In the last WASDE Report, we got some interesting words about dairy products. Things that are making market’s participants increase price forecast and it make this already trade with a very interest premium risk on top of it.
Milk production for 2020 is raised from last month on higher expected cow numbers. The fat basis import forecast is raised from the previous month on higher imports of butterfat products, while the fat basis export forecast is reduced on lower expected sales of cheese. The 2020 skim-solids basis import forecast is raised from last month on recent trade data and expectations of higher imports of a number of dairy products. The skim-solids basis export forecast is raised primarily on higher skim milk powder and lactose exports. Price forecasts for cheese, butter, and nonfat dry milk are raised from the previous month on recent price strength and stronger anticipated demand. The whey price forecast is lowered from last month. Class III and Class IV prices are raised for 2020. The all milk price forecast is raised to $16.65 per cwt for 2020.
The 2021 milk production forecast is raised from last month on higher expected cow numbers and stronger growth in milk per cow. The fat basis import forecast is reduced while the export forecast is unchanged. The skim-solids basis import forecast is reduced from the previous month while the export forecast is unchanged. For 2021, cheese, butter, and nonfat dry milk price forecasts are raised from the previous month while whey is lowered. The 2021 Class III and Class IV price forecasts are raised from last month. The all milk price forecast is raised to $16.20 per cwt for 2021.
NZD – NONFAT DRY MILK CORRELATION
I am holding BULLISH VIEW in the following pairs:
That’s it for this week ledges! If you are part of the community I will upload in the next hours the video with the trading plan with entry and exit points, and two more assets I am taking a position.
Well if you are not do not take the opportunity, as this is the last weekend with the promo prices. There 9 more spots only.
Have a great weekend Ledges!