FX Trading - Can I Play With Madness

We went long GBPJPY on Thursday as London's trading day was winding down, and not for the usual reasons. Although JPY weakness is evident after the G7 coordinated intervention, (and possibly additional JPY selling after that by the BOJ alone) what prompted our buy was the fact that a look at position holdings on a few online FX brokers' sites showed a huge short bias; one broker's data showed GBPJPY shorts at 92% at one point after a failed test of 134.00! We love this kind of extremes, which do not come by very often, and seeing no adverse technical signs, we decided to go long. 

Our stop is currently at 133.11 for our 132.97 long, but we may make adjustments or liquidate half the position later in the day. Although GBPJPY looks strong for now and may warrant a longer holding period, this pair is extremely volatile and we do not enjoy seeing the huge swings that occur regularly.

EUR & GBP hold their ranges and the NFP numbers may just be the ticket to give them a shove either way. But before that, we do have UK PMI and Eurozone Unemployment data to set things in motion.

While markets mostly brushed off the Irish bank stress test results, just looking at the numbers shows you how bad things can get. The banks will need to raise another 24 billion euros, bringing the total cost of the bailout to 70 billion euros. To put this in perspective, Ireland's 2010 Q4 GDP was 40.651 million euros, and with this latest round of additional capital required, it's debt to gdp ratio is expected to rise to 111% in 2013. This in a country with a population of around 4.5 million. Wow.

Crystal-ball gazing, we think that if a stronger NFP release strengthens the USD initially, EUR & GBP buying will kick-in on a sell-off and take those two to the highs of their ranges and possibly an eventual break above. We wonder how strong a number is needed to mark a turning point for USD at this moment when everyone's focused on rates.

Well, all we can do is stay calm and centered, and not let the markets pull us every which way.

Peace

P.S. ...and Google never disappoints with their April Fool's pranks :)
http://mail.google.com/mail/help/motion.html