FX Trading - Wind of Change

The US dollar, $, US$, USD, greenback, or dead presidents, is the currency against which all other majors are traded. 75% cotton and 25% linen, this globally recognized and widely accepted piece of paper is seldom even seen in the hands of traders unless they happen to be in the US of A.

What - Me Worry?

Obama's wallet-filler has been heading towards it's production value of $0.04 since the financial crisis all those years ago (yes, most traders' memories and time-frames are quite short), and recently (just last week - that's why we remember) we've witnessed record highs in Gold and AUD and such quoted against the USD. 

But seems to me there's growing talk of a bottom in the greenback. While this shouldn't be surprising because there's always top and bottom callers around predicting a trend-change, what was surprising was the fact that on Friday and over the weekend, no less than 3 Fed officials came out with talk of exit strategies and hawkish hawkish views. What has changed since the end of Guitar Hero?

You go look it up, but apparently economic data is starting to look better, treasury-junk bond spreads are narrowing, money market funds are shrinking, etc. etc., and most interesting of all, the US Treasury is starting to unload its portfolio for mortgage backed securities. 

But no matter. It's market expectations that count. While expectations are high for an ECB and BOE rate hike (in that order), there's still little talk of a US hike 'til at least 2012. Looking at traders' positioning though, non-commercials are the most net-short USD since time immemorial (it's that trader's memory thing again), and while very net-long EURUSD and such, options data suggests increased hedging against downside risks. Sounds a little like USD shorts are screaming 'Eat Me!'.

So BUY USD ON MONDAY MORNING! No such thing. You need to give these things time to play out. The market doesn't seem too perturbed by the whole European circus, Arab/North African unrest, Japanese radiation fears, and a million other things; go look at the VIX. That said, perceptions can change in the blink of an eye. So stay alert.

On the practical side, we're moving the stop for our EURGBP 0.8738 long to 0.8645, under last week's low (yes, we're just going to do this the lazy way every week) . EURUSD and GBPUSD have reached their range lows after the falls on Friday, so we'll have to see whether it breaks or bounces. USDJPY surprised with it's strength (sign of overall USD strength?), but remains under 82.00. And it's the start of a new month, so US Payrolls' due.

Note to self: Do not overcommit. Watch your leverage. Stay in a comfortable position. Comfort = No Fear. 

  

"Fear is the path to the dark side. Fear leads to anger, anger leads to hate, hate leads to suffering." - Yoda

Peace

ps. for a rather more proper version go here:
http://rockinfxpro.blogspot.com/p/fx-futures-articles-insights.html