FX Trading - Fragile

It's been almost a month since the last post, and guess what, nothing seems to have changed.

Greece still dominates the headlines, threatening to throw the financial world into turmoil even as European officials struggle to save the day. The Greek parliament meets this week to vote on austerity measures, and nobody really expects the vote to fail, but implementation is a totally different matter. So while a slight sense of optimism creeps into the market, it feels more like players getting tired after the recent sell-off. In case anyone has a short memory (that's all of us traders), Greece has a glorious history of defaulting on its debt to save its behind, and the only thing keeping them from doing so now is the somewhat illogical tie to the EUR. 

EURUSD - Still some life left?

But why worry? China comes to the rescue! Chinese Premier Wen Jiabao and company are on a European tour offering the west a chance to sell their troubled souls to save their tainted faces. Who's your daddy?!?! The one with the fattest wallet, of course. And he attempts to save the world, calming fears of endless tightening in China and even, according to some, signaling a move towards easier monetary policy. So we're all safe now, no worries, go invest all your cash.

Unless you're in the UK. Officials have finally come clean and admitted the possibility that further easing might be needed, as the current bout of inflation is expected to be transitory, of course. Witness the crude sell-off last week (thank you for the oil, IEA!). And growth remains elusive.

GBPUSD - we've seen happier days

So let's end this little update with a look at the S&P, as good as any a barometer of the health of the Global Economy.

S&P - teetering on the edge

The chart says it all. We're just about going over the edge but not quite. There's still some optimism left but like it says in the song...'sometimes I feel so fragile'....

Will we fall into the abyss, or will China save the world? Stay tuned, but don't hold your breath....

Peace

FX Trading - Hey Joe

Been busy on several fronts and have been neglecting this blog. So here's a catch up with updates to remind myself of these interesting times in years to come.

Since the last post, the world looked like it was going to end again (apparently the 21 May 2011 date was a little off), as European concerns weighed and dollar buying picked up speed. Then we hit bottom and markets started to correct back, with most currencies and commodities, and the equity markets slowly and tentatively clawing higher after the recent huge sell-off. Whether this is just a pause before another leg down, or a reversal in the works, we'll have to see; 'cos most all fundamentals remain weak.

USDJPY

USDJPY - JPY still a safe haven currency ?!

Since our last post and the last peak circa 82.20, USDJPY still managed to spend some time above 82.00 before the bottom gave out on Thursday. Possible reasons? Well, US yields slid quite fast after weakish numbers out of the US, which led to USD sales across the board. Of course, don't forget the earlier statements from the BOJ Governor (see previous post). EUR, on the other hand, had other things on it's mind...

EURUSD

EURUSD - Nice chart to draw lines on

EURUSD was happily near the top of its channel on the recent correction when Junker's comments about possibly holding back aid to Greece took the market down over 100pips. Bot near the lows when heavy volume appeared to stop the sell-off, but never expected the strong move up in Asia on Friday morning. Excuses for Friday's move include a thin, stop-driven market, with China setting it's Yuan rate at another record high forcing Asian countries, notably Korea, to buy dollars to stem their currencies' appreciation. All these dollars were of course recycled into EUR's and such, according to anecdotal evidence.

GBPUSD

GBPUSD - X marks the spot

No prizes for naming the pattern. Got in late and nervously held to target; the move was counter-intuitive in most ways but if the chart says jump you jump. A big move lower in EURGBP kept GBP strong in recent days, and then dollar weakness on Thursday cemented the rally. UK fundamentals aren't exactly stellar, although one bright spot may have been an MPC member seemingly ready to support a rate increase, just as ultra-hawk Sentance is finishing his term.

So What's Up?

S&P - the representative chart

The S&P chart is rather representative of what's been going on so far. Worries abound of a global slowdown led by China and an anemic western world, and so you see the chart looking ready to roll over; although looking at the big picture this is nothing more than a correction in a crazy bull market. The line defining the up-trend may be broken yet, but even then we still have a long way to go before we see a meaningful correction of this last rally from around mid 2010 (I'm talking about those amazing numbers traders like to see from Mr Fibonnaci). 

So whatever happens folks, it's not the end of the world, yet. Species extinctions take place over long periods of time, and for you to actually witness the end of the human race in your puny little lifetime is more unlikely than winning the Powerball.

Peace.

FX Trading - The Fast & The Furious: Tokyo Drift

The title explains it all; everything was falling like so many bricks in a pool while USDJPY drifted higher. Yep, it was a resumption of USD strength as we had suspected, with analysts pointing to risk aversion; though we like to think of it as a return to sanity. If it was true risk aversion Gold would have been bid and USDJPY would have sunk too. USDJPY moved out of it's downward channel, so a case may be made for further strength, though we would not buy here.  

One thing to remember: GBPUSD's spectacular reaction to the BOE's inflation report; how the pair gained over 150 pips on the day only to close slightly negative. Whatever the reason, it pays to ignore the inflation report.

Time for a summary: ECB officials continue to flood the wires with hawkish comments, BOE is uncommitted, the US is rather happy with its idea of a strong dollar, AUD's fate is tied to that of the precious metals for now, and Japanese exporters are fretting over the strong JPY. Markets are nervous as hell, having created a nice little bubble, but we think Wednesday's move has cleared out most of the weak hands and we'll more likely see a correction now than a continuation, especially since everyone is looking in the latter direction.

'And they will dance if they wanna dance 
Please brother take a chance 
You know they're gonna go 
Which way they wanna go 
All we know is that we don't know' 
- Oasis, 'The Masterplan'

Peace. 

FX Trading - Dancing In The Dark

The market has regained some of its sanity since the last post, as precious (very, very precious at these prices) metals correct aggressively and EUR fell off a cliff. AUD is pulling back from it's huge sell-off, being the big benefactor of yield differentials, and GBP falls victim to dwindling expectations of a rate hike.

UK releases it inflation report later today, and in our view whatever it says should not be taken too seriously when trying to judge the possibility of rate changes. Fact is upcoming figures may change the scene drastically, even as officials seem reluctant to act on the rate front, quite convinced of inflation returning to target next year. Didn't Bernanke just say that recent inflationary pressures are only transitory?

Not much clarity at these levels, we may be seeing dollar correct its recent strength but a continuation is the preferred scenario, even as the US tries to convince China its holdings of US Treasuries are safe while at the same time trying to teach them how to run a country. Would you listen to someone on the verge of bankruptcy?

We're looking at USDJPY on a downward channel, rebounding after threatening a move to historical lows. Perhaps this is what an 'orderly' move looks like, which means the Japanese authorities may not be too alarmed; meaning a green light to sell the pair, barring a close above 81.00. Let the brave take the lead.

USDJPY - Is this orderly enough, Noda-san?

Peace.

FX Trading - Benny & The Jets

Well, The Man has said his peace and you can see what markets make of it. No point adding to the noise on the wires, but this being my blog, i'll just note down my take on it; which is this:

Basically, Benny told the whole world to carry on and have their fun, not to worry, he'll let us know in good time when the party's ending. 

It is really quite brilliant that they (or is it him alone) have decided to communicate their intentions in a more regular and structured manner; and while he still makes non-statements and presents a nice buffet from which you can take away whatever you want, at least we get some hints along the way.

And it must be real cool to have your book plugged by none other than the Reigning Fed Chief; you can't have missed the bit where his old buddy mentioned the book he wrote. And what was that thing about Japan? Must be a nice chap, this chairman. 

Party on, Plebeians!

One last thing. It seems clearer to me now. Yes, the US wants a strong USD; all those Tsy Secretaries, Fed Chiefs and other such important officials over there haven't been lying through their teeth. I just failed to understand that what they meant was a strong USD for US citizens living and spending on US soil. They haven't been talking about the FX market or anything like that, what they mean is as long as you earn and spend dollars in the US, and inflation is maintained around the 2% level such that you don't feel your bank notes losing their worth (in the short time spans which mark human memory), then all is well and the USD is 'strong'. Localised spending power - Simple. It's just that rising commodity prices tend to muck things up a bit but hey, like Benny said, it's all China and the emerging markets' fault. To think that I thought they gave a hoot about EURUSD or other such nonsense....  

Trading-wise, our GBPUSD position was taken out before the show began, and apart from a little scalping, we basically missed the chance to go shopping for a yacht this weekend; in the States, of course. We shall remain vigilant and partake in the party the Fed is hosting; 3 cheers for Benny!

Peace

FX Trading - Do It Again

We're coming out of the long weekend to a historic week; for traders, punters and all us plebians!

First up, Mr Bernanke and friends begin a new tradition at the Fed, holding 4 press briefings a year after FOMC meetings, starting with this week's meet. Releasing the statement earlier than usual, the prez will present all his committee's economic projections after they're done; we're just wondering if he'll entertain questions. Come to think of it, if each of the members backed up their predictions with money, this will be just like a soccer pool in the office.

Then on Friday, the UK is closed for business for the Royal Wedding! Here's a note on the financial aspects from Bloomberg:

The Federation of Small Businesses calculates the extra public holiday to mark the nuptials in London’s Westminster Abbey on April 29 may cost the economy as much as 6 billion pounds ($9.8 billion). That’s 10 times the 620 million pounds Verdict Research, a unit of Datamonitor Plc, estimates that sales of wedding memorabilia might add to the economy. (emphasis mine)

Well, if there's a tradable UK Happiness Index Derivative at least we'll see a pop, which I'll definitely fade.

Trading

Our GBPJPY long was stopped out on a quiet Monday for a small profit. Looking at the action these few days, we'd say the market's consolidating for another round of USD selling; so will probably look for pullbacks to buy GBP or EUR, especially after the strong rejection of lows seen earlier today. May consider GBPJPY again but wary of volatility, and the deathly look of USDJPY after failing to stay above 82.00.

On Wednesday we have UK GDP and the FOMC taking centre-stage, followed by US GDP the next day and Eurozone CPI while the royals get married.

So all in all, it'll be an interesting week we trade in.

Peace

FX Trading - Changes

Since everyone's so focused on rates, here's a look at GBPUSD with rate actions marked-out. Make of it what you will.

GBPUSD Weekly; rate changes

Notes:
- amounts in basis points
- last hike 05 Jul 07, 25bps to 5.75%
- last cut 05 Mar 09, 50bps to 0.50%; Start Asset Purchase Prog. (AP)
- last increase in AP 05 Nov 09 to GBP 200b

Peace

FX Trading - Straight to Hell

For the USD, of course. If you're the optimistic kind looking at equities, commodities and every other currency, its 'Boom! Zoom! To the moon, Alice!'

Everyone's well and happy heading into Good Friday and such, so there's nothing much to add here, safe that the momentum on this thing is enough to keep it going, regardless of anything. For instance, rumours were circulating in Greece yesterday about some sort of debt restructuring announcement over the holiday period, but nobody seemed to pay any attention. Even then, the Greek authorities got hold of the email which they said originated from a certain investment bank and will be investigating this bit of irresponsible fear-mongering. 

And apparently Asian CB's helped the EUR along this morning, when South Korea and Malaysia at least were seen buying USD to slow down the advance of their own currencies. Of course, after buying USD they wouldn't want to hold on to it so by all accounts they've been selling it for the EUR instead; we all know the Eurozone can use a stronger currency.

Our USDJPY long was stopped out; while a good trade, we'd ignored our own advice to buy on a higher close, which never happened. We'll only know at day's end if the break of support holds, but in the meantime we've gone long GBPJPY.

GBPJPY - back to buying levels?

The cross looks to have reached levels worth buying after rallying out of the base and falling back again. This is also a way to play GBP strength having missed the GBPUSD move, and we expect as long as the risk play is on, JPY strength should be limited. Our stop is at 134.40 under the previous's day's low, giving us limited risk.

Let's see if this party holds into the long weekend, it'll certain warrant breaking out a few bottles of champagne.

Peace. 

FX Trading - Ship of Fools

What rates do you use in your calculations in place of the risk-free rate of return? T-bills for short-term and bonds for long-term right? I wonder if the guys at Standard & Poors still adhere to that practice, seeing as how they've just put the mighty US of A on negative watch. Why should we care anyway? They were the same guys who told everyone US mortgage debt was pristine, just before all hell broke loose. 

It saddens me to think we even pay attention to all these clowns; the politicians who threaten to bankrupt a government with no thought for their citizens, and those snake-oil salesmen playing with just the first few letters of the alphabet. Oh, let's not leave out the whole European circus - I think i'll install the fabulous 'bull filter' so I can focus on actual news and rid the wires of meaningless official talk. And to think yesterday you had the US and Europe commenting on each other's wonderful economies instead of minding their own business....the nerve of some people...

So why the USD strength? It's that whole safe-haven thing which still boggles my mind, if you've read my earlier posts. I don't know about you, but when the world threatens to fall apart I'd rather buy gold. Of course, gold will still take a hit when the going gets tough 'cos people still need to liquidate profits from somewhere, right? Hell, let's all do cash. 

But if you think about it, when funds lose faith in the US they might just decide to go to....the emerging markets! Asia, anyone?

Ok, let's ignore all this nonsense and get back to business. GBPUSD is nicely within it's well-worn range, so I won't bother with the charts again. Nothing to do at this moment. EURUSD is threatening to head lower but you just know the buyers are all lined up, so we'll need the speculators to turn all net long before the terrible squeeze. Rallies should present selling opportunities. USDJPY is near it's trendline support so we'll look to buy on a higher close. 

For now we'll go take a refresher course in critical thinking and cleanse our brain of all the nonsense clogging it up.

Peace 

FX Trading - Scary Monsters

We finally see a nice sell-off in EURUSD at the start of the week. Perchance traders have had time to actually read the news and noticed the scary debt monters and super creeps lurking around. 

A report in a Greek newspaper said that the government had approached the IMF/EU earlier this month about restructuring its debt, egged on by the US Treasury Secretary, no less. This was probably the reason for the drop in EURUSD before Greece came out to deny any such thing. So will they or will they not restructure? That's the million-dollar question. Markets are demanding ever higher yields for PIGS debt, so we'll have to see how long they can hold out.

Markets have also gradually pared down rate expectations for Europe and the UK, which seems reasonable given the over-optimism seen just a couple of weeks back, giving further fuel to USD gains this Monday. No charts needed here, we all know how toppish everything looks against the dollar, but at the same time we've seen the incredible penchant for dip buying that continues to frustrate anyone trying to pick a top . While we await BOE minutes on Wednesday, focus may shift to the unfolding debt horror we're witnessing instead of the more agreeable sport of pondering yield differentials. 

Turning to the 'Most Happening Party in Town!' which took place over the past few days attended by the who's who of finance officials, we've decided to give an award to Guido Mantega, Brazil's Finance Minister.

Mantega with a suspiciously insulting gesture

We loved his statement to the IMF, which, to us at least, seemed to reflect reality, something rarely seen from those in officialdom. We love it so much in fact, that we've included the link here so that you can enjoy this little bit of sobriety from one guy in an expensive suit:

http://www.imf.org/External/spring/2011/imfc/statement/eng/bra.pdf

An excerpt, if i may:

Equally worrisome are the risks associated with policies adopted by advanced countries that attempt to export their way out of difficult economic situations. Major reserve currency issuing countries continue to resort to ultra-expansionary monetary policies, the primary trigger of many of today’s economic woes. Excessive liquidity contributes to rapid credit expansion and asset price booms, as well as oil and other commodity price bubbles. Rises in oil and commodity prices increase the cost of living, especially for the poorest.

On the other hand, the World Bank meeting was mostly doom and gloom and we dislike such pessimissm so we'll leave you to go depress yourself over it.

So back to trading. Is it time to buy dollars by the truckload? We would if we were young and brash, but alas, we're old and would 'require confirmation', as any cautious analyst will tell you.

'Hmm. Control, control. You must learn control.'

- Yoda

Peace

FX Trading - Manic Depression

'Bipolar disorder involves periods of elevated or irritable mood (mania), alternating with periods of depression. The "mood swings" between mania and depression can be very abrupt.' 

(from the PubMedHealth site)

Wait a minute, are we talking about EURUSD here? If you saw the slide and recovery on Thursday you'll know what I mean. So on the one hand we've got rate differentials and expectations holding the single currency up, on the other we've got debt woes weighing. Traders are thus advised to meditate and hold off the coffee.   

Finance ministers and other very important folk who travel with a large entourage have started gathering to decide all our fates, beginning with the G7 (or is it 8 or 9 now?), then G20, followed by the IMF and World Bank meetings this weekend. On the cards is a probable inclusion of the Chinese Yuan and possibly Russian Ruble  in the SDR basket. If you're not familiar with the IMF's Special Drawing Rights, it doesn't really matter (unless you're in charge of your country's finances). This has been used as an excuse for USD weakness but in the whole scheme of things, the impact is debatable; the move seems more symbolic then anything else, a kowtow to the Chinese and all us USD haters if you may.  

As USDJPY threatens to head lower again, Japan is resorting to their (in the past) oft-used method of verbal intervention, but having spoiled the markets with a coordinated intervention, maybe what we need is coordinated verbal intervention. They're all in the same place for the meetings anyway.  

GBPUSD is holding its own, keeping a low profile amidst all the news coming out. We're out of our longs and have decided to stand aside for now as we're not fans of wild mood swings. But all said, GBPUSD longs still seem to be the way to go for now. 

It's Friday, US CPI's due later, and if there's one prediction to be made it's this: expect volatility. Maybe we should all trade options instead.

Peace.

FX Trading - Obscured By Clouds

EURUSD threatened a reversal on Wednesday with losses accelerating after repeated failures at 1.4520 recent highs, followed by the release of a relatively upbeat Beige Book report. But hey, if you've noticed anything recently it would be that dips are only to be bought into. So that's what happened early Thursday with USD selling across the board. 

UK Consumer Confidence numbers came out better than expected (what was that 'action for happiness' piece in the Telegraph again?), giving a boost to GBPUSD (amazing how it's been building a bottom these past couple of days). Singapore's MAS adjusted the super-secret SGD trading band, allowing the currency to appreciate to record highs against the USD, (with CNY following suit) adding to the theme of USD weakness. China denies earlier reports of Spanish investment, the BRIC countries again bring up the reserve currency issue, and no one is sure if Obama's speech means anything to the markets, although it's clear the man talks well, that's for sure. A whole bunch of Fed officials will be trying to match that later today.

So boys, looks like it's back to the same for now - sell USD, buy everything else.

GBPUSD - a lesson in foundation building

Trading

Yesterday was an atypical day for us, as we reversed initial longs in EUR & GBP only to remain long GBPUSD by day's end, with the range bottom almost tested but still intact. Too much action in too short a time, as nervous markets and traders get spooked at the slightest hint of risk unwinding. We have since took profit on half of the GBPUSD longs as the pair nears the top of its previous range. Stop for the remaining position lies at 1.6280. 

Peace.

FX Trading - Absolutely Curtains

It's a beautiful sunny day out, and markets seem to have brightened up from Tuesday. None of that nervousness was evident as commodities steadied, equities put in a bit of gains and currencies were busy napping. 

Big red bars on the dailies have put a damper on the likes of GBPUSD and AUDUSD, but EURUSD remains in the lead. Apparently huge interest at 1.6225 is keeping a floor on cable, and we may be looking at a range with a bottom circa this level and top at recent highs ard 1.6440, while EURUSD looks like a buy at any level.

China has offered Spain a helping hand, playing its new global role as lender of last resort, and was said to be the driver behind EUR gains yesterday. Buying today in early Europe through BIS was also said to be from the Chinese.

UK jobless numbers are due later; it would be interesting to see if there's a leak today like there was for the CPI on Tuesday, something the UK Office of National Statistics said they were aware of and are investigating. What about the rally last week 2 minutes before the release of services data, i wonder. 

Anyway, while searching for rate news, i came across this piece from the Telegraph:

'Experts warn that unless we undergo a “radical cultural change”, Britain will slide into unprecedented depths of despair blighted by rising rates of suicide and depression.

A group of eminent British thinkers from the worlds of education, economics and politics – backed by the Dalai Lama – yesterday launched a campaign to halt the nation’s psychological decline.

Action for Happiness, a mass movement to promote mental wellbeing, calls on people to address 10 key deficiencies in their lives to counter our growing gloom.'

Explains the retail sales numbers yesterday, now when's the next consumer confidence release?

Peace

FX Trading - Fear on the Bridge

The story so far...

Risk on: On Thursday last, the ECB and BOE gave traders what they expected, though the real action took place on Friday as the USD was sold off to its lowest levels since late last year. All was well in the FX markets, no one broke a sweat. The US even managed to avert a government shutdown. Hurrah!

Pause: On Monday, consolidation was the name of the game with no major releases and only a Fed dove on the cards. 

Risk off: Early Tuesday, the IMF threw a spanner in the works downgrading growth forecasts for the US, Japan, Australia and New Zealand, generally offering a rather pessimistic view of things, although China's still shining bright of course. The nuclear crisis level in Japan was raised to a Chernobyl-equivalent 7, and continuous aftershocks only serve to make matters worse. So we saw all the recent out-performers coming off their highs in Asia, along with the equitiy markets in trading. 

Currencies

With all the recent excitement, GBPUSD still seems trapped in a wide 1.60-1.64 range. Failures above 1.64 has seen the pair pull back as low as 1.6265 so far, while markets await UK CPI later today and jobless numbers Wednesday. Housing data released earlier gave little joy to sterling as players look for rate clues. Still looks to be a range play.

GBPUSD - Feeling trapped

Unsurprisingly, EURUSD retains much of its strength given yield differentials and continues to look unbeatable for now.

EURUSD Weekly - don't fight this

USDJPY lost some of its shine on Tuesday but good buying was evident in the mid 83's, suggesting that this pair has not given up and buyers seem lined up all the way to the low 82's. Wouldn't buy here, but worth watching.

USDJPY - It's not over yet

Also, things look pretty shaky on the equities front, as can be seen from this S&P chart. Volumes have been low, players have been cautious and the market looks vulnerable at the moment. Earnings season is coming up so we'll probably see volatility increase. 

S&P losing momentum

Trading

An attempt to profit from JPY weakness obviously failed early Tuesday and positions were stopped out. Markets seem to be taking a breather after the recent craziness, although early European trading has seen some of the usual risky plays come back in. We'll let the market sort itself out a bit and see how things go from here.

Peace.

FX Trading - Here Comes The Sun

Greetings fellow traders, I was just surveying the news for 7th April 2011 and here's what i read.

The Bank of Japan ended its 2 day policy meeting by announcing a rate hike, the first in anybody's memory, as it seeks to attract more funds into the country. They expect a resultant boost in bank reserves to lead to increased lending, which will help industry and firms as the country attempts to recover from the recent disaster. In other news, workers at Tepco realized that their radiation detectors were calibrated wrongly and radiation levels are actually 100 times lower than reported so far.

The Bank of England hiked rates by 12.5 basis points as policymakers decided to come to a compromise and wondered why they had to restrict themselves to a 0 or 25bps increase. Number crunchers rallied against the extra decimal place but are expected to be pacified with a pint or two on the house.

The ECB held off a widely expected rate increase as it decided that an extra 60bps here and there in inflation numbers hardly warranted 'making things difficult' for Portugal, Ireland, Italy, and Greece. 'The fate of many is more important than my sterling reputation', said Trichet, in what could have been a poor translation.

The US announced an immediate government shutdown as politicians 'simply gave up', according to reliable sources. President Obama later appeared on national TV and apologized to US citizens on behalf of his dysfunctional and inept government, and also to the world for the failings of the United States, promising to relinquish the role of World Superpower to any takers, proposing a 'World Idol' TV show to select the next global leader.

The ensuing Gold rally eclipsed all other moves in the markets.

Oh, and we've taken out half of our GBPUSD longs to lock in profit while waiting to see how far it ventures into the 1.6350-00 area, and our GBPJPY stops have been adjusted higher. There's UK IP and manufacturing numbers out later followed by Eurozone GDP, so there may be some interesting moves ahead even before tomorrow.

Peace.

FX Trading - Eruption

The currency markets awake from slumber as we see some action on Tuesday. EURUSD had been on a weak footing the whole day and took a larger hit as Eurozone PMI and retail sales came out below expectations. Have traders shifted focus from the impending rate hike to Europe's woes? Who knows, but the colorful candles seemed to have suggested the action so far. Monday saw the pair pop just above it's recent high and top of the range only to close back below; not quite an evening or shooting star, but the implications were obvious (a similar pattern is seen in AUDUSD). Too early to call a turn, something we'll only know on Thursday at the earliest.

EURUSD - 6/6 hindsight

GBPUSD was a much different story, with no bearish signs on the charts. The pair shot higher with the help of a strong UK PMI number, breaking out of its mid-range sojourn in one sudden move. Suspiciously, the rally took place a couple of minutes before the actual release of the figure (leak, anyone?), which probably explained its ferocity as everyone was taken by surprise. The move above 1.6200 took us long as there's not much to keep it from heading to range highs in the 1.6350-00 area. Will re-assess on a move back below 1.6150.

GBPUSD - run to the hills!

 

These contrary moves of course meant a sliding EURGBP and our stop got hit. Our little adventure there ended earlier than we'd thought, but we may still consider longs if the cross trades to the 0.8680-00 area. On the other hand, GBPJPY remains firm for the time being.

Other Trading-Related Stuff

While it's a holiday in China, the central bank announced a rate hike effective tomorrow, trumping the Reserve Bank of Australia which kept rates as they were. More Fed speakers on the cards later today after Bernanke said earlier that inflation must be watched 'extremely closely'; basically telling us what he should be doing everyday anyway, no? US ISM's coming out, which should be interesting, although the FOMC minutes may not make any waves especially since we have the latest views from the Fed Presidents coming at us almost everyday. 

And now for something to tell your boss about. A British study has found that those working 11 hours or more a day had a 67% higher risk of heart disease. Hmm....

Peace

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.

FX Trading - Living on the Edge

We have an interesting day lined up for the fx markets, as Germany hits us with its CPI data before UK releases its GDP numbers. The US will not be left out and will be handing us Consumer Confidence data during its trading day. Also, St. Louis Fed Presisdent Bullard will be talking again; remember a couple of days back he expressed his disapproval of the 'extended period' of low rates, pointing to risks of a liquidity trap. 

In anticipation of all this excitement, we went long both EURUSD and GBPUSD! Fundamentals aside, we saw both pairs bounce from the lower end of their recent ranges and deem it a good enough reason to buy. See charts below:

GBPUSD, recovering back above 1.6000 (so far)

EURUSD, recovering from a drop near 1.4000.

Fundamentally, an argument can be made for the currencies either way, so we'll just trade what we see, mindful of being proved terribly wrong, so we have stops in place and stand ready to act. That said, we may adjust our EUR stop at 1.4015 and GBP stop at 1.5960 as we approach the data releases, depending on where prices are trading.

Amongst all the news floating around, the most interesting to me at least is Siemens' restructuring plans which will include a public listing of its unit, Osram. The world's 2nd largest light bulb producer is said to be worth between 5-7 billion euros, and the ipo will probably take place in fall this year. Interesting to me simply because I use a bunch of their bulbs :)

So today, while officials from 40 countries (quick, name any 40 countries off the top of your head) meet in London to discuss the future of Libya, and the Japanese face a partial nuclear meltdown, we'll be watching markets closely and arguing about rates and USD strength/weakness and such - what joy.

Peace.

FX Trading - Seasons in the Abyss

Ah, the sweet scent of flowers in spring time. As we prepare to enter Oster-monath, or April to all you modern sorts out there, let's do like farmers of old and take a look at the good 'ol almanac to see what it has to say about currencies. For us, it'll be the Commodity Trader's Almanac 2011, an interesting little tome.

'The euro has weakened in April the past 3 years...British pound best seasonal long trade from March signals an exit on or about April 20...yen best seasonal short trade from March signals an exit on or about April 1.' (emphasis is mine)

It must be said that if you had followed the suggestions for Hreth-monath, or March, you would not be in the best of spirits right now; short EUR March 15, short JPY March 14 (1st trading day after the earthquake), and long GBP Mar 21, although you would still be holding the latter 2 positions so you could still end up with a profit. 

We'll look back again in May and see how things work out then. (oh, how I wished I could tell you now).

In the immediate future (this week itself), we have everybody's favorite market-moving release coming out on Fri ( *chant* NFP! NFP!), German CPI, UK GDP, and US Consumer Confidence on Tue, a bunch of Fed speakers on the cards and a whole lot of other stuff I've stupidly missed. So stay alert, stay focused, but for god's sake, relax.

Peace

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