FX Trading - Let's Go Crazy

Forget Ireland, Portugal, the Japanese nuclear crisis, North African/Arab unrest, and anything else that requires a lot of words to talk about. It's all to do with interest rate expectations and cheap money. There, I've just described the markets in a nutshell. You can head to the bar now. 

While simplification is always good when it comes to trading fx or anything else, that last bit about cheap money chills me to the bones and gives me countless sleepless nights. If you've watched that rather mediocre follow-up to Wall Street, Wall Street: Money Never Sleeps, you'll probably remember the liberal use of bubbles to describe what? A bubble economy, of course. Did you notice that most all global equity markets are at pre-Japanese disaster levels? Did you notice that most everything you can trade was a buy on dips? Amazing. 

Let's see. Who can burst the bubble? The one who started it all of course. The Fed. So are they going to raise rates or not? 'Cos I need to know when to bail. Here's a piece I grabbed from a news service talking about Fed officials talking: 

Market has been mesmerized all week by dueling comments
from Fed hawks and doves. Economist Chris Low at FTN Financial says he
counts six hawks, including Gov Warsh who is leaving and six "overt"
doves. "There will indeed be a lively discussion at the rest of this
year's meetings," he said, "but it is ultimately 11-2 against ending QE
early or tightening."  He also notes that the hawks are "more passionate
but there are only two hawks with a vote and the centrists are mostly in
the high-bar crowd."  Low says, " they believe the bar against ending QE
early is high, and the bar against a third round is also high."

But for this week we'll be looking to the ECB and BOE first. Expectations are for a 25bps hike from the former (but priced-in? maybe not quite), and nothing from the latter; maybe some hawkish noise. We also have Fed minutes on Tuesday and UK and Eurozone GDP estimates/forecasts on Wednesday.

Trading

EUR & GBP hold their ranges, recovering from a post-NFP sell-off almost as described in Friday's trading post. We'll see whether these ranges hold into the meetings on Thursday.

EURUSD flirts with recent high at 1.4250

GBPUSD keeps to bottom half of range

We're holding on to half our position in GBPJPY. Volatility in this pair dictates that we reduce risk by reducing size. You can tell the potential this trade has from the weeklies:

GBPJPY - 137.50-00 area next

Our EURGBP position remains and stop has been revised to 0.8745, under last week's low and just above breakeven for us. This and the GBPJPY stop may be adjusted as we see how mkts start the week.

Have a good week and go find some cheap money to spend.

Peace.