ARMITA MERRIKI

Choosing Offers After The Amplify Programme

Armita Merrikhi

University of York (Economics)

Like many students Armita was unsure what role in finance she should pursue, or how to pursue it. Having not made any applications before the programme she talks about how the intensive training helped her to decide on the multiple offers from different firms she received after the programme.

In this interview, she also addresses key questions students may have in terms of applications, interviews and assessments to secure the right role in finance for you.

ARMITA MERRIKI

Diving into the Sales and Trading Division

Why did you choose to join Amplify Trading's program?

I decided to join Amplify Trading’s program because I’m interested in Sales and Trading and figure out that Amplify Trading will be great for my CV and allow me to experience a bit of what the trading floor is like, given the fact that my instructor is Xiao and he has the experience in Morgan Stanley trading floor before.

We understand you have just completed an internship from BAML, can you tell me more about what you do?

Yes, I just completed an internship from Bank of America and I did get a full-time offer from the Sales and Trading role. I had 6 weeks of internship, which 3 weeks for training and 2 weeks for the actual project making, and 1 week for the final presentation.

So in my project, I was being rotated with G10 FX trading as well as the securities lending division. In G10 FX trading, essentially, I had to use Excel as well as VBA to create a tool in which the user can look out at the information of the correlation, the implied correlation, as well as the realized correlation of any two FX currency pairs, and it's linked to Bloomberg, etc. I would recommend any one of you to learn VBA and Python. If you're interested in the trading floor.

On the other hand, in securities lending, I get to know all the different laws that governed the securities lending laws in various markets in Asia, Japan, Hong Kong, Thailand, etc. That's what I did.

And finally, I presented to a panel and an audience of hundreds of people, which comprises of senior leaders, etc. And that is during my virtual internship.

How did the Amplify Trading experience help in your career development & landing your current role?

I think one was in regard to the interview, I think the interviewer was interested in my experience at my Amplifier Training experience. It kind of shows that I was at least knowledgeable about several financial products. I suppose that having (the experience at) Amplify Trading in my CV shows that I am interested in Sales and Trading and not other division like Asset Management or Investment Banking.

How likely are you to recommend the course to a friend?

I would highly highly recommend like five out of five because it really helped me a lot in the interview process, help me a lot to get to know what the actual role is, and I feel that Xiao is such a great instructor.

What was the biggest highlight of the course for you?

I think the first and biggest highlight is definitely the trading simulation platform, where students can learn to be on the sale-side as well as the buy-side, and create paper trading. The second highlight of the course is that Xiao gave us a lot of interview tips and he interviewed us in front of the class, and we also need to do a simulated final presentation.

And the fact that during the entire course, we have to wear formal clothing, which really ‘amplifies’ the experience. To sum up, the course is very professional and fun, you can learn a lot and it helps you with your CV, that's the highlight of the course.


An Interactive Teaching of the Finance Sectors

Why did you choose to join Amplify Trading's program?

I chose to join this program out of two incentives.
First, this course could let me peer into major sectors in finance within only a few days. I was eager to understand what each sector was like in real life but was simply lack of time or opportunity to try everything out through internships. The course was designed in a way that helped me truly understand the life of different roles in finance within a short period of time.
Second, I regarded it as an opportunity and platform to meet elite peers/practitioners and broaden my network.

We understand you have just gotten a placement offer from Morgan Stanley, can you tell me more about what you'll do in MS?

During the six-month internship, I rotated within two trading desks, China trading and G10 trading. Both desks focus on macro products (FX and rates).
On a day-to-day basis, I assisted the traders in trading operations and worked on ad-hoc projects including research, automation, data analysis, etc.
Being on the trading floor, I also got the chance to talk to people from other teams to understand how different parts of the business integrated with each other to form a “bigger picture”.

How did the Amplify Trading experience help in your career development & landing your current role?

Three things I found helpful from this experience to my career development and internship recruiting process:

First, this course gave me an efficient “one-stop” exploration of different finance sectors and helped me discover what I wanted to do for a career – trading. This narrowed down my choices in seeking internships, so I could focus more on pursuing what I was really passionate about.

Also, I met a lot of like-minded peers here. I learned a lot from them and further established my network. The encouragement I got from those friends made during the course helped me get through the stressful recruiting season as well.

The last thing was that the course instructor, Xiao, gave us many practical tips for job interviews, coffee chats, networking, etc., which worked really well when I implemented them during the recruitment season and eventually landed me in the current role.

How likely are you to recommend the course to a friend?

Very likely. I would say no matter what your ultimate career goal is, you are likely to find something beneficial from this course. Be it you want to learn about different sectors in Finance, or you are eager to make friends and build up your network, or you would like to get practical tips for internships and interviews, it is already prepared for you in this course.

What was the biggest highlight of the course for you?

For me, the biggest highlight of this course was that it could quickly walk you through major sectors in finance in an interactive way.
Within only a few days, you could experience the life of a trader/sales/investment banker/hedge fund manager through different kinds of simulations and group activities. All those activities were carefully designed to help you truly understand what the practitioners would do on a daily basis through “role plays”, instead of just “describing or lecturing” about what it should be like. These simulations and activities helped me discover my keen interest in trading over other roles in finance.


From Amplify Trading to Credit Sales at Goldman Sachs

Why did you choose to do Amplify Trading’s Summer Course?

I did it to prepare for my internship at Goldman Sachs. I wanted to make sure that I am up to speed with relevant terminology, theory and market news. I felt prepared to go into my internship and having done the course helped me convert my internship to a full-time job offer.

What was the biggest highlight of the course for you?

The simulations and getting to meet many different people. The simulations worked well to solidify the theoretical knowledge. They definitely exceeded my expectations; I have done other trading simulations before and Amplify Trading’s is my favourite.

Is there anything you didn’t expect to either be taught/gain on the programme, especially in landing your role in Credit Sales?

I didn’t expect to be taught details about regulation / MIFID II and how it impacts the finance world. That was directly relevant to understand how investment banks and the nature of their business changed post-global financial crisis.

How has Amplify Trading helped in landing a role at Goldman Sachs?

Generally speaking, Amplify Trading acted as a bridge between the theoretical knowledge I learned in university and the practical knowledge I learned at Goldman. Throughout Amplify Trading's training programme, I was also given training to stay up to date with markets on a day to day basis that allowed me to navigate the FT and other resources more effectively. Thereby, I started my Goldman internship being well prepared on what's been happening in the markets recently and felt comfortable talking about it. I also felt comfortable building my own view on specific markets. At last, Amplify Trading helped me grasp more of the typical finance-lingo; which is in my opinion the biggest barrier to quick learning in finance. Once you understand what specific lingo means; the concepts themselves become much easier to grasp.

Did you find you had more clarity on what role in finance you wanted to pursue, after completing the internship?

Yes - Amplify Trading does a really good job at this. Usually, everyone in their first or second year doing a bachelor's just wants to go into investment banking; without really knowing what an investment banking analyst does, let alone what an analyst in global markets, asset management or private wealth management does. Amplify Trading demystifies this through simulations and talks with professionals that are currently doing these jobs. A lot of my friends were set on going into IBD; then they did the Amplify Trading programme, and now they realize they actually prefer global markets and vice-versa. Amplify Trading gives you a great deal of insight on what job suits you best.

How likely are you to recommend the course to a friend?

I have already recommended this course to my friends - and, as a matter of fact, I did the 3-week training programme with 3 of my friends.


Sales and Trading - Morgan Stanley

Why did you choose to pursue Amplify Trading’s Summer Analyst Programme?

I had been keen to explore what a career in investment banking would be like, however with so much information out there it was always a challenge to filter through to the most useful and quality insights into the job. Amplify Trading’s programme was the most well-structured and comprehensive source to learn about the various front-office roles as well as practically explore what the day-to-day would involve through simulations.

What is the biggest highlight of the course for you?

The biggest highlight for me was to be able to use Amplify Trading's trading platform. It allowed me to engage in a live trading simulation, understand risk management and trading psychology. Being able to compete with other students gave it a competitive and fun edge.

How has the training met/exceeded your expectations?

The program was more wide ranging than I previously thought. It provided me with an in-depth overview of both sell-side and buy-side roles, as well as an insight into all the different types of asset classes. This was extremely useful as it allowed me to narrow down my interests within finance, something which I had been struggling to do.

Is there anything you didn’t expect to either be taught/gain on the programme, especially in landing your role at MS?

Amplify Trading taught me how to structure and build a portfolio depending on various economic climates including how to hedge my positions and rebalancing portfolios when news came in. This was particularly useful in my assessment centre at Morgan Stanley, where I have been asked to do something very similar.

How has Amplify Trading helped in landing a role at MS?

Amplify Trading made me confident in my applying my finance knowledge. The program, through the simulations, allowed me to put into practice all my markets and corporate finance knowledge in different real-life scenarios.

Did you find you had more clarity on what role in finance you wanted to pursue, after completing the internship?

Yes. After completing the internship, I realised I enjoyed taking part in fast paced trading simulations and that encouraged me to apply for sales & trading positions.

How likely are you to recommend the course to a friend?

For anyone who is keen to enter finance or even if they aren’t sure whether it's for them, Amplify Trading is the perfect programme out there to equip you with the skills, confidence and financial knowledge to make a strong application when applying. I would recommend it 100%!


Pilots Swap the Cockpit for Trading Screens - FT Review

The Financial Times reviews Amplify Trading's Pilot Training Experiment.

Please click here to read the full FT article (FT access may be required).

This summer Amplify Trading selected five furloughed pilots to go through an intensive training programme to trade a funded account, live and online through the AmplifyLIVE Trader Hub.

The experiment was to see if their approach to process and control would enhance their ability to trade in an environment of uncertainty and risk. The pilots' behavioural profile were clearly different to the control group, but they still faced their own challenges when it came to trading.

KEY FINDINGS

Our experiment focussed on key behavioural variables to examine whether pilots had a natural advantage in trading.

“It’s absolutely possible for pilots to pivot towards trading roles” Jason Sippel, Head of Global Equities Trading at JPMorgan

The pilots were assessed in comparison to a control group of 8 other new traders who were trained and monitored in exactly the same way.

There were clear comparisons between the challenges of managing the risk of aircraft control and managing the risk of a trade as discussed by Kate North-Hill with Amplify Trading's Managing Director Will de Lucy.

ABILITY TO MAINTAIN PROCESS AND CONTROL

The pilots exhibited a natural discipline in sticking to the predefined rules of their trading strategy, which resulted in them taking fewer trades and holding their positions for longer with more conviction.

In live market trading, the pilots would spend almost twice as long in the trades they chose to execute, and took only 1/3 of the opportunities taken by the control group. As many new traders suffer from over-trading and indecision, this was a clear advantage for the pilot group.

RISK AND RETURN

The pilots had a higher percentage of profitable trades and a lower percentage of losing trades in comparison to the control group. This reflects their selective approach to decision making, following a clear trade plan before executing a position.

However, when they did have a losing trade, that position would be more costly to the pilot than the average of the control group.

CONCLUSION OF THE STUDY

We expected the pilots to show an outperformance in following the trading process as a result of their years of aviation training. This was proven to be the case and was clearly one of the strongest parallels between flying and trading.

The pilots ability to hold profitable trades was clearly a game changer and shows excellent potential for those who continue to trade with Amplify Trading.

However, this discipline and control also meant poor trades were held on for too long. We think this may be due to the fact that a key part of day-trading can be the ability to follow intuition and impulse, when the time is right to do so. This is something the pilots would not be accustomed to doing.

As every trader knows, it's a difficult balance to achieve. Self-awareness and the ability to monitor and manage behaviour is a key part of the Amplify Trading philosophy, and core to much of the training and development delivered to our new traders.

To receive free access to all the training content received by the pilots, and to connect with Amplify Trading LIVE throughout the day please access your trial to AmplifyLIVE here.


WHERE WILL THE DOVISH DIP BUYERS RE-EMERGE?

WHERE WILL THE DOVISH DIP BUYERS RE-EMERGE?

The US Dollar has been falling in correlation with the dovish theme. Massive Fed easing, falling real-yields coupled with huge supply injections via SWAPs to prevent the US Dollar from strengthening back in March. Since then, the Fed undertook another dovish move, namely, the implementation of Average Inflation Targets (AIT), which aims to allow inflation to rise above the Feds target of two percent for a period of time, in order to average two percent inflation over the medium term. To achieve this, interest rates would have to remain at the Effective Lower Bound (ELB) for an even longer duration, as the Fed would normally begin increasing rates as inflation approaches two percent. The "lower for longer" commitment from the Fed, should help to keep the dovish theme in play, and the US Dollar on the back foot. I would expect US Dollar rally's to be brief and short-lived for time being, even though positioning is extremely stretched across the dovish trend.

Euro, on the other hand, is relatively strong against its major peers due to the EU recovery fund, which is a major structural change for the bloc, enabling the Euro Area to raise capital jointly via Eurobonds on the global stage, which greatly increases credit ratings across the Euro Area. The interest rates for these bonds will be dramatically lower, allowing the bloc to raise larger sums of money to invest, greatly benefiting countries such as Italy, Spain, Greece, who have higher borrowing costs and are much in need of financial injections to stimulate their economies. In other words, Europe can spread out the debt load across member states. This is hugely bullish for the Euro currency.

The combination of both these factors, weaker US Dollar and stronger EUR is the reason we've seen this strong rally on the upside since mid-May. We see this trend continuing into next year, but we still must time our entry's correctly with price fluctuations. Positioning for the EURUSD is extremely stretched, and so a pullback from the 1.2000 test was predictable. The question now is... Where do the dovish dip buyers re-emerge?

Technically, 1.1700 looks like a great level of support. Corresponds with the 94.00 resistance on the US Dollar index. If, and only if, there is evidence that the bulls are buying into 1.17000 would we initiate a long position aiming for a move back up towards 1.19/ 1.20. With a stop-loss at 1.1650 that gives the trade a five to one reward to risk ratio. Daily stochastics are shallowly on oversold territory, the set up looks good.

However there is a caveat. Rarely at Amplify Trading do we ever use a single scenario, so here are a few others.

1.1700 breaks to the downside, causing nervous bulls to stop out below support, in this scenario we'd be short below 1.1700 if momentum builds on the downside. Likely down towards 1.16/1.15 where there are major levels of support. Once again, looking for any signs of bullish evidence at these levels for the trade back up towards 1.2000. If this scenario plays out, we will release a new and updated piece describing what's happening, as it happens.

For now though, will the dovish dip buyers re-emerge at the 1.1700 area?


Don't miss Amplify Trading's Daily Morning Briefing, where Head of Market Analysis: Anthony Cheung explains what's happening in global financial markets each morning, focusing on what's driving price today. Please visit the Amplify Trading YouTube channel to find out more.


ECB Preview 10th September 2020

SUMMARY

- The ECB Policy Meeting Thursday 10th September

- With inflation low and a stronger currency, what can the ECB do?

- What are the likely scenarios and how does the meeting fit into the overall macro picture?

INFLATION

European central bank's (ECB) primary objective is to "maintain price stability". The ECB has defined price stability as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) of "below but close to 2.00% over the medium term". HICP is core inflation.

Looking at euro area HICP over the last decade, the ECB has consistently missed their primary objective and in fact, core inflation has trended lower, testing zero before bouncing to 0.40%. And the overall inflation rate fell to below zero, into deflationary territory for the first time in four years.

Falling inflation is bad for an economy because if the cost of goods is falling, businesses and households may hold off spending to purchase at a cheaper price in the future. This in turn leads to lower demand for goods and services which slows growth, potentially leading to a recession.

 

Above: Euro area HICP vs. Above: Euro area inflation.

EXCHANGE RATE

Exchange rate directly effects a country's economy. In a globalised world where goods and services are exported and imported, exchange rates play a huge role with a country's domestic inflation.

In a very simplistic way, the diagrams below illustrate the effect a stronger currency has on imports and exports.


IMPORTS

Country B imports USD 1mn of goods from country A. 6 months later the change rate strengthens 50% in favour of country B. The purchasing power of country B has now increased 50% is now able to buy USD 1.5mn of goods from country A for the same amount of euro's. This means country B's import prices has fallen (deflation). Which may lead to households and businesses delaying purchases now in favour of purchasing in the future at a lower price, slowing economic growth. A strengthening currency will cause downwards pressure on domestic inflation.

EXPORTS

Country B exports EUR 1mn of goods to country A. 6 months later the exchange rate rises 50% and the purchasing power of country A decreases. On the global stage this makes country B's exports less attractive in relative terms if country C sells similar goods for a cheaper price. This may also slow inflation and economic growth as demand for exports may fall eventually hitting domestic businesses.

A strong currency can be a sign of a strong economy relative to others. The current macro landscape is that economies are still recovering from the post-covid recession, where growth, employment and inflation all fell sharply. Therefore, the main job for governments and central banks is to boost these three metrics.

 

A cheaper domestic currency facilitates growth in two main ways:

1) Import prices rise encouraging business and household demand, boosting inflation

2) Boosts demand for exports on the global stage. Therefore, post-recession it's best to have a weaker currency in relative terms

Since June, the EURUSD rate has risen more than 10% from 1.0800 used in the last inflation projections, this then means that in the September inflation projections (due on 10th Sept) will have to be revised lower for 2021, 2022. Which presents a problem for the ECB, how to boost inflation and prevent a further rise in the EURUSD?

WHAT'S DRIVING EURUSD?

1) The coronavirus recovery fund is a structural change for the euro area allowing the block to raise capital on the global stage using Eurobonds. We've covered this subject in depth in previous articles, this should keep  EURUSD supported over the medium term.

2) Ultraloose monetary policy from the Fed. During covid lockdown, a shortage of USD caused the greenback to skyrocket. In response the Fed opened SWAP facilities massively increasing the supply of USD's to calm the storm. Next the Fed implemented huge Quantitative Easing (QE), narrowing US yield spreads vs European peers meaning investors no longer had an advantage holding US assets, further weakening the USD.

3) Finally, the Fed outmanoeuvred the ECB implementing Average Inflation Targeting (AIT) at its strategy review for the next decade after revising its approach to meet its mandate, which the fed admits failing to achieve over the last decade. The Fed also haven't implemented explicit forward guidance or needed to use any other tools. This ultra-dovish policy led the USD into a bear trend, US equities to rally sharply, Gold rallied sharply and real-yields reached record lows.


INTERVENTION

On September 1st, Phillip Lane verbally intervened when the EURUSD rate moved above 1.20. He said: "The euro-dollar exchange rate does matter"..."We don't have a specific target but EURUSD is important". This means the ECB are now openly watching the currency.

Historically, intervention only really works when the collective efforts of the G7 physically intervene in the markets. Examples being 1970's intervention in USD, 2011 intervention in USDJPY, and the Swiss National Banks multiple physical interventions with the Swiss Franc.

As stated by an analyst at the German financial services firm Allianz "Verbal intervention lasts a day or two, then the market gets back to focusing on policy" to which history completely agrees. So, if ECB President Lagarde follows through on lane's comments, we may see an initial dip lower, but asides from verbal intervention, what can the ECB actually do?

This leads me to believe that the ECB may be able to slow the EURUSD ascent and cause a retracement in the near term, but in the medium term the ECB won’t be willing to take major actions until higher up.


REMARKS FROM ECB OFFICIALS CEMENT THIS VIEW FOR ME FURTHER:

- Its a growing concern, though not yet huge, and if the trend continues it will be a concern and we will have to watch it" said an ECB member.

- "In the last few weeks there has been an appreciation of the euro, which is always worry-some when you have weak demand, especially as the euro area is the most open economy in the world and is unusually dependent on global demand". - ECB member.

- "The boost to global trade from a weaker dollar could offset a drag on eurozone exports from the strong euro. At the moment I’m not worrying too much about exchange rate developments". - Isabel Schnabel, ECB executive board member.

- "Euro's strength stemmed from positive factors such as the EU's recent EUR 750bn recovery fund and the eurozone's stronger than expected rebound from the coronavirus pandemic". ECB member.

- "We have to think about how we're going to see off an unnatural appreciation of the euro, there is no immediate need to act forcefully -- we are still awaiting signs of how the recovery is progressing".

This doesn't sound like consensus view that action must be taken to weaken the euro. And there is a mix of views as to whether the current rate is too high.

To me, this gives the green light that if the price was to break above 1.20 with conviction that the ECB aren't ready to do anything about it. It will of course be interesting to hear Lagarde's comments on Thursday.


POSITIONING

Remains close to record highs according to CFTC data. The bullishness creates a potential for a pullback towards the 1.18/17 area. "On that front, I’m not sure there's all that much the ECB can do to weaken the euro". Since the last report, EURUSD has fallen 2.00% which will show up in next week’s data.

The major trend is up for the euro and would expect dovish dip buyers to re-emerge at lower levels.

WHAT CAN THE ECB DO?

PEPP

The bank could increase its Pandemic Emergency Purchase Programme (PEPP) purchases. PEPP is a form of Quantitative Easing (QE) launched in March 2020 to combat the effects of Covid-19. It's a temporary Asset Purchase Programme (APP) currently standing at EUR 1.35trl. The ECB may choose to increase it by EUR 350bn to combat tighter financial conditions, to boost inflation and attempt to weaken the EURUSD rate, a figure derived from a recent Bloomberg survey.

There is a risk this could happen at this weeks meeting, but the ECB may want to refrain from implementation to monitor incoming data and if inflation is still weak in December to implement policy changes at the end of year meeting.

One word of caution here, the reaction isn't as straight-forward as normal, as we're not in normal times. Usually QE is bearish for the currency as it increases the supply of currency and eases financial conditions. However, in June, once the ECB increased PEPP by EUR 600bn the currency rose! As PEPP boosted market-based inflation expectations! Will be interesting to watch how price reacts if ECB increases PEPP (low likelihood at this upcoming meeting)

DOVISH

The ECB could begin dropping hints about further easing during Thursday's meeting rather than actual implementation. Which would initially be perceived dovish but may leave EURUSD bears disappointed.

SURPRISE STIMULUS

Could see EUR 350bn in PEPP with mention of the possibility of a deposit rate cut in the future. This would be more bearish for EURUSD pushing the pair down towards the 1.1700 area of support.

KITCHEN SINK

ECB could go all in and implement EUR 500bn PEPP with a strong signal to cut rates in the near future. In this scenario EURUSD could fall below the 1.1700 area, coupled with major concerns over the inflation forecast.

DEPOSIT RATE CUT

Many analysts believe a rate cut is super unlikely but is a way the ECB could weaken the EURUSD rate.


CONCLUSION

In my opinion, the Fed have outmanoeuvred the ECB with their AIT framework review and realistically the only way the ECB can get level is to conduct their own strategic review which eventually leads to AIT in the euro area.

ECB strategic review isn't due to be published until next year! Until this is completed and implemented the USD will remain offered and the EURUSD strength is likely to continue medium term in my view. Even though positioning may cause a further correction to the downside in the near-term.  Although I’d like to see price action confirm this thesis. Any major breaks of support with "kitchen sink" scenarios -- I’d be more open-minded to change my view.

If Lagarde talks down the euro on Thursday, may see a pop to the downside initially but price likely to find support and would expect buyers to re-emerge and for the uptrend to restart.

If Lagarde disappoints the market, i.e. isn't as dovish as everyone’s hoping, and the bar is pretty high, then the uptrend will likely continue right away.

If the ECB implement further PEPP without mentions of deposit rate cuts, unsure the reaction on price as it's not as clear cut as "QE is dovish and bearish for currency at the moment" as there is an argument for both sides.

If price hits the 1.1700/50 area and fails to break lower, I would look for the longs back up towards 1.20. If price rallies off the bat up towards 1.20 would also look for the longs in this scenario up towards 1.20. A breakout with conviction above 1.20 would be more bullish in the near-term.

A breakout below 1.1700 in the “kitchen sink” scenario may wash out shorts and rebalance positioning being more bearish in the near term and would re-assess the situation.


Written by - Alex Clark

Alex will be joining the Head of Market Analysis Anthony Cheung and the rest of the Amplify Trading team tomorrow to cover the ECB event in full via the Amplify Trading YouTube channel


NFP and the Dovish Dip Buyers

SUMMARY

- Non-Farm Payrolls is unlikely to change the macro landscape of the dovish major trend and over-stretched positioning in the near-term.

- EURUSD rejects major resistance around 1.2000 with eager dovish dip buyers lurking.

- ECB expresses concerns about the current strength of the Euro, with the ECB meeting on 10th-September.

NFP

Consensus is for 1.55mln to be added to non-farm payrolls in August - a slower pace than July's +1.76mln. Covid cases in the US peaked in late July, and with the July reading printing solidly, this put to bed any worries that the resurgence in cases was going to impact employment and slow the economic recovery. With covid cases on the decline over recent weeks, the employment situation should continue to improve, reflecting analyst expectations.

Initial jobless claims have continued to trend lower throughout August along with continuing claims. PMI sub-indices have moved higher. It's likely that a downside surprise is limited given the high frequency data points, but analyst expectations are still enormously wide. ING’s base case is for a below consensus print, while Capital Economics forecast is more bullish.

The range of analysts’ expectations is 750k on the lower end, up to 2mn on the higher end of the spectrum, reflecting a still deeply varied range of estimates. Any reading that falls outside of these lower/higher ranges will have more market impact. Of course, that's going to be difficult.

The unemployment rate should remain roughly unchanged, likely a touch lower. Also, remember that as the recovery has been underway for quite some time now, a slowdown in the pace of job growth is to be expected but that's a healthy sign. At first glimpse, 1.4mn vs prev 1.76mn may look bad but it’s important to take the overall picture in to consideration.

Looking at the NFP from the 2008 recession, it's clear there are three stages to the post-recession pace of job growth:

1) Mass unemployment as the economy shrinks

2) A sharp recovery in employment

3) The pace of recovery slows and becomes more consistent with historical averages.

Therefore, it is normal to see the pace of job growth slow after a sharp recovery.

The only difference in 2020 post recession is the speed of the recession and the depth of unemployment. But on a macro basis, what's happening here is normal. The only real risk of course is a resurgence of covid, which seems to of peaked in late July. Now in the coming months, the pace of job growth may slow, or even turn negative, on the longer timeframe is likely to stabilize back towards the normal mean, towards the 200k mark.

TRADING

Think trades could be disappointed, as I personally don't believe employment situation is the current driving theme. So unless the print falls outside of analyst expectations then may not be much movement.

On Tuesday-01st September was a stronger ISM non-manufacturing print, which saw the USD strengthen. This was likely due to positioning, an unwind of USD short positions rather than related to the report itself.


POSITIONING

Positioning across the dovish trend is extremely stretched, with EUR/USD long positioning now higher than in 2017 during Macron's rally. Price has rallied almost 13% in 24 weeks from low to high since March, without much in the ways of a retracement. In 2018 price rallied almost 17% in 37 weeks, including the consolidation prior to the rally.

Price is testing the 1.2000 mark, July'12 low, which is solid resistance, in recent weeks the rally has been losing steam first around 1.1900 and now 1.2000. All this makes the EUR/USD vulnerable to a correction lower in the near term, towards 1.1750/00.

Chart below illustrates the points made above on the price chart. Additionally, the weekly stochastics, measure of overbought/ oversold conditions, is near the highs printed at the end of the major up-leg in 2017. This simply indicates overbought conditions in the near-term

ECB

Phillip Lane, Chief Economist at the ECB piped up yesterday saying: "the ECB has an inflation mandate and we care about the overall performance of the European economy"..."We've seen a repricing in recent weeks to some degree [of the EUR/USD fx rate]". Expressing that the exchange rate is important to the ECB's policy decisions. This is the first verbal intervention from the ECB expressing their concern with a sharply higher euro.

Currencies and inflation are linked, when a currency depreciates, as post Brexit in 2016, inflation rose over the subsequent quarters with a delayed effect, and as the currency began to recover inflation then peaked around 3.00%. As shown in the GBPUSD vs UK CPI figure.

When a currency falls significantly, it forces up import prices which causes inflation, and makes the country's exports cheaper which is good exporters.

In the case of Europe, inflation has been falling since late-2018, and now inflation is below zero and continuing to fall. This presents a problem for the ECB whose mandate is for inflation "below, but close to 2.00%". The ECB would rather a weaker currency to help boost inflation, but have the opposite. So what do they do?

A sharp 12% appreciation the euro during a time when Europe is trying to recover from post-covid recession will put the breaks on inflation. This is why ECB's Lane talk down the euro at the 1.2000 mark on Tuesday, and will certainly be interesting to hear what they say on the 10th-September meeting about the current value of the EURUSD, and importantly how they plan to deal with it.

Growth and inflation forecasts will likely be lowered as the previous forecasts were issued when eurusd traded 1.1000 back in may, well the currency is now trading near 1.2000. Lower inflation forecasts may force the ECB to implement more PEPP, which previously had a positive impact on the euro. So how does the ECB boost inflation while keeping the euro low when the reason the euro is higher is due to the "reflation trade and negative real yields".

HOW WILL IT AFFECT PRICES?

All in all, the NFP doesn't change the current narrative. If it's worse than expected then this strengthens the Fed's dovish view "to do whatever it takes" to support the economy. If it's better then expected the fed will remain on it's current path, with many more tools left to be unveiled in the future.

So the dovish major trend set to continue in the medium term, although due to over-extended nature of positioning and concern from the ECB about the current level in the EURUSD, price currently rejecting resistance on the 1.2000 mark and support near the 1.1700 mark for the time being. 1.2000 being a tough nut to crack, but of course if price was to breakout over 1.2000 with conviction would be more bullish, but below 1.2000 more bearish down towards major support. Would expect the eager dovish dip buyers to buy the EURUSD 1.1750s.


About the Author - Alex Clark

Alex began investing 6 years ago. He loves the game of solving problems before other people and watching how price reacts to confirm his original thesis. He loves to see the madness of crowds play out directly in front of him, and think about how he can get involved while keeping the risk managed.

Macro investing is his passion, because you have to learn about something you know nothing about quickly and accurately. Keep you on your toes and your reward is profit. Alex started working for Amplify Trading as a trader and mentor in Jan 2020 where he teaches new traders how to trade and coaches and mentors traders currently trading.


Dovishness continues and it's decision time for Euro

SUMMARY

- US jobs report unlikely to change, regarding the dovish monetary policy theme.

- Decision time for EUR/USD

- Gold prices likely to rally if real-yields continue to fall

JACKSON HOLE

Post Jackson Hole reaction was tricky with dovish initial spike, followed by hawkish reversal  -- finally closing the week dovish; DXY on the highs, US equities on ATH's, Gold held the 1900.00 support level and yields initially rallied Thursday but pared gains on Friday.

Market based inflation expectations rose on Thursday and Friday post Chairman powell's speech, with the 5-year 5-year forwards rising to 1.86% from 1.81% Wednesday; and 10-year breakeven rate rising to 1.77% from 1.72%.

Nominal 10-year yields initially rose to test 78bps on Thursday, post Chairman powell's speech but pared back gains to close the week at 73 bps.

The real yield story is still driving markets. For real-yields to continue falling, inflation expectations will need to continue to rise and nominal yields will either have to remain flat, or resume the recent downwards trend. So these are the key things I am keeping an eye on.

Powell made no mention of explicit forward guidance, while he did say that "inflation would run moderately over 2.00% target for some time, but not extend over long periods". The new updated statement on longer-run goals could set the stage for the Fed to release more detailed Forward Guidance, perhaps at the mid-September meeting. Powell's remarks do cement the dovish outlook for policy. The median expectation at the Fed is for the next rate hike until after 2022.


JAPAN

Early Friday morning, Japanese president Shinzo Abe resigned, causing the JPY to strengthen sharply 1.50%, which is further putting downwards pressure on the USD. If this theme continues to play out then is further dollar weakness factor.

Both PM favourites have expressed concerns on Japan's monetary regime under Abe and this could potentially put the job at the BOJ under pressure, which is Yen positive. Also the Yen is a safe haven asset and will strengthen in times of uncertainty. Will be one to keep an eye should the Yen continue to strengthen significantly then would add downwards pressure on the already weak US Dollar.


DATA

Main data is August jobs report release on Friday. Looking at the July numbers, a rise in COVID-19 cases did not impact the economic recovery or employment numbers, despite some states reimposing lockdown measures. High frequency data has showed growth in employment conditions in August, initial jobless claims have been ticking lower, continuing claims has also improved on the month.

In terms of the overall dovish picture, it's unlikely the jobs numbers on Friday change the landscape much. If the number is worse than expectations this would further cement the "lower rates for longer" and strengthen the argument for further dovish Fed policy. And if the numbers are better than expected, then market based inflation expectations may get a boost, but this will not influence the Fed's current stance on monetary policy.


GOLD

With market based inflation expectations rising and yields falling on Friday, Gold price rallied 2.20% closing at 1965.00. With the Fed committed to AIT gold price could remain supported. Technically, the 1900.00 area of support is really key in the near term, if price can stay above then is more bullish. Price also moved above key trendline resistance which may help the bulls open up towards the 2000.00 mark and the 18th-Aug high at 2020.00. Above there is the ATH at 2090.00.

Risk is below the 1900.00 mark, although if price breaches, that level may not necessarily mean bearish view just yet. For a bearish view we would like to see real-yields higher.


EURUSD

Persistent US Dollar weakness is strengthening all major currencies, and the EURUSD is back on the 1.1900 mark and the July high. This is the fourth test of this resistance with a brief breach above on 18th-August, this level has yet to be broken with conviction. Medium term fundamentals (reflation story) still remain bearish for the US Dollar, however positioning is what makes this trade difficult.

However on the daily timeframe the Stochastic, a measure of overbought-oversold conditioning, is actually less overbought than price looks. Since August, the stochastic has trended lower from it's 95 reading mid-July, as price has consolidated sideways, it's allowed price to work off it's overbought condition. There's two ways to interpret this:

(A) Some would say there is a bearish divergence here between price and the stochastic and thus price will fall. And that with price on mighty 1.1900 resistance this could well be the case, price falls back down towards daily support at 1.1700.

(B) The bullish thesis is that the current USD weakness has been very persistent, and I would not at all be surprised to see the EUR/USD move above key chart resistance at 1.1900 onwards up towards 1.2000 and beyond although 1.20 has been tough to crack, and the fact the stochastic is now lower, may enable bulls to now drive the stochastic back into overbought territory and allow price to push up above resistance.

All in all, super key area here for the EUR/USD, above 1.1900 with conviction more bullish and below more bearish. Lean more towards the bullish side if real yields continue to decline, in line with my ultra loose monetary policy correlations theme. Might just be worth waiting and watching how price responds at present levels and not be the first man over the top so-to-speak.


About the Author - Alex Clark

Alex began investing 6 years ago. He loves the game of solving problems before other people and watching how price reacts to confirm his original thesis. He loves to see the madness of crowds play out directly in front of him, and think about how he can get involved while keeping the risk managed.

Macro investing is his passion, because you have to learn about something you know nothing about quickly and accurately. Keep you on your toes and your reward is profit. Alex started working for Amplify Trading as a trader and mentor in Jan 2020 where he teaches new traders how to trade and coaches and mentors traders currently trading.