2012 - First Day of Trading

From 3rd Jan 2012, Tuesday

-Higher mfg numbers from major countries, equities rally, S&P futures gaps higher
* Aussie PMI 50.2 (hi since Jun'11), back above 50
* China PMI 50.3, back above 50
* India PMI 54, Swiss PMI 50.7, UK 49.6 (from 47.7)
* US ISM 53.9, all higher.

. USDJPY <77, no strength
. XAU pattern long
. GBPNZD turned long
. NZD pattern failed
. EURCHF in play

+ watch EURUSD possible formation, 4h
+ watch ES futures possible formation, 4h

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 - 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 - 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 - 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

Rockin' FX Trading - Jump They Say

Ok, we totally missed the move in GBPUSD. As observed in the post yesterday, a Bearish Engulfing Candle was formed on Wednesday, and prices subsequently traded through support at 1.6200 to hit lows just under 1.6100. Well, you can't have it all. 

On a brighter note, EURGBP staged an impressive rally to put our position back in the money. We're taking this as a mid to long-term position, so we'll only be adjusting our stops on a weekly basis.

And of course EURUSD recovered a good part of Wednesday's losses, confounding anyone who's been looking at recent events which bring fears of the debt crisis to the forefront again. It seems that market expectations for an ECB rate hike in April is topmost in traders' minds right now, nevermind the EU summit or Portugal's woes.

Stock indices also held their strength, with the S&P closing nicely above the 1300 level, and this above all seems to signal an amazing wave of confidence in the markets.

Well, Japan's MOF just released data that showed impressive net foreign buying of Japanese shares last week (almost US$11 billion worth), their biggest net purchase since records began in 2005. And it confirmed that Japanese investors were net buyers of foreign bonds in the same time period,  putting paid to talk of JPY repatriation. 

On top of this news, it was interesting to note that Japan's Finance Minister said that they will only intervene in JPY when movements are excessive, effectively suggesting that they're targeting volatility, not price. 

Putting 2 and 2 together, this sounds an awful lot to me like a green light to buy JPY again. USDJPY lies dead in the water around 81.00 precisely because the market wants a strong JPY but are afraid to sell USDJPY due to intervention fears. But once this fear is removed, we should slowly see a return to USDJPY weakness again. What do you think?

Me, I think we'll sit things out on this last trading day of the week, being neither confident of EUR strength or GBP weakness, and wondering whether profit taking will kick in after a week of buying in the equity markets. 

"Tired I am, rest I must." - Yoda

Peace

FX Trading - Never A Dull Moment

We're out of EURUSD, after the pair turned around just shy of 1.4250 and headed lower. We've had a good ride and now wait to see what's coming next. Today we have the Portuguese parliament voting on their austerity measures, with the Prime Minister threatening to quit if it does not go through, which is what punters are expecting. So all the old European debt fears are coming into fore again just ahead of the EU summit on Thursday. Yippee.

We're long GBPUSD after Tuesday's strong UK CPI numbers, but today the UK budget comes into focus, ahead of which we have the BOE minutes. An interesting day expected, and we may adjust our 1.6285 stop before all the excitement. Here's a weekly chart to show why we expect a higher GBP:

GBPUSD looking strong

Our EURGBP position comes under threat as the pair closes below trendline support on Tuesday. Nevertheless, we maintain our stop under last week's low; after which we will re-assess the market.

Failed break higher in EURGBP

USDJPY is starting to look heavy as the effect of intervention fades, and even a close above 81.00 is looking increasingly difficult. We are watching closely for any opportunities here.

USDJPY, heavy

A glance at positions on a couple of online brokers' sites show traders heavily short EUR and GBP against USD, which increases the likelihood of a squeeze. But who said retail's mostly wrong? Well, be careful out there, keep your stops in place and think before you pull the trigger.

Other Interesting Market Related News

Remember the strong recovery in the Nikkei after the huge fall last Tuesday? Here's a chart to jog your memory:

BOJ to the Rescue!

Well, guess what? It's the amazing BOJ propping up the market! Apparently the iShares MSCI Japan Index Fund traded on the NYSE was home to US$692 million in inflows on Tuesday, mostly believed to be from the BOJ. Well, if you pumped money into the ETF, the fund would have to buy shares in Japan when trading began the next day, and the MSCI and Nikkei indices share many of the same component stocks. 

Support for the Japanese stock market is especially important after the earthquake. Japan's top 3 lenders reportedly hold over US$ 1trillion worth of Japanese shares, and a huge plunge in the market would erode their capital base and cause them to tighten their lending. Well, the government would hate to see that as money is desperately needed to fund the upcoming reconstruction efforts.

In other news, Libya's Gaddafi * gives another one of his brilliant speeches, unrest escalates in Syria, Yemen, and...wait...why's there so little news out of Bahrain, full of protesters and Saudi troops battling each other? Makes you wonder, doesn't it.

Ok, let's see how the trading day turns out.

Peace

* “In the short term, we’ll beat them, in the long term, we’ll beat them,” Gaddafi said. Well, isn't that what we  all try to do in the market :)

How to Make Lots of Money Trading FX, or at least Fake It

Opening bell...Nikkei plunges over 5%, USDJPY threatens recent lows....BOJ to the rescue!

Japan's central bank injects a huge amount of liquidity into the market and shows it's commitment to prevent a market meltdown, while staff at the nuclear plant in Fukushima rush to head off a possible nuclear meltdown; wow, excitement all around, of the kind we could use less of, especially on a monday morning.

USDJPY briefly threatened to commence a major sell-off, but as of this writing, has managed to keep it's head above water (i'm sorry, but i have to emphasize - no puns intended - anywhere in this post).

USDJPY keeping afloat - just.

 

We'll have to see how this pair closes over the next few days, to determine whether it's still worth holding on to the remaining JPY longs. As for the determined JPY shorts out there (and there's a lot, i know), well, sometimes it's good to hang back and look at a long-term chart to get things into perspective:

Whoa Nelly! What a rally in USDJPY!

What the hell was that! Well, the Kobe earthquake back in '95 (amongst other things) triggered a major USDJPY bull market that lasted a couple of years or so. Is history going to repeat itself? We'll see. It's quite clear the levels we should note, so just react accordingly (yes yes, easier said than done but it's quite do-able i assure you).

And what about the EUR?

No, it's not the Eurovision song contest, just some finance ministers in yet another very important meeting discussing very important issues. How's it affecting the single currency? Who has got the traders' votes? What brilliant world-saving ideas have they come up with? So much excitement...

Well, EUR rallied in very early trade (while the genius here was still in deep slumber after much vodka-induced madness) but met the thugs, sorry, sellers waiting just below the psychologically mind-numbingly important but ultimately meaningless 1.4000 level. After that action has not been very interesting (until now at least), safe to note that traders seem to be watching another psychologically mind-numbingly important but ultimately meaningless level and taking that as support - 1.3900. Wow, why don't we just trade to 2 decimal places. Still long. Still waiting. I was sure Yoda was talking about me way back then when he said. "The boy has no patience."

As I'm writing this, the boys stateside have just put down their coffee and started work selling shares and such, but I'm in no mood to participate much. The news coming out of Japan has been depressing. But I take comfort in seeing their resilience; "bravery in the face of adversity" as they say. 

To all those affected by the disaster, and traders jumping into the fray, i say, "take care, and may the gods smile upon you".

Disasters & Markets - Trading for Profits While the World Crumbles Around You

11th March 2011, just after 1445hrs local time in Tokyo. 

There was a sudden surge of activity in the currency markets. Orders to sell JPY across the board flooded the lines after a sleepy Friday morning of trading. My screen had come awake as prices changed in double-time, green and red, green and red, and shouts of 'what's going on?', 'who died?' flew across the room, until somebody mentioned the headline in red that just flashed across the newsfeed; 'Earthquake in Japan.'

USDJPY - It's Alive!

Japan is no stranger to earthquakes, with at least 2 reported just the month before, and markets had largely brushed aside those events. What's so different now? Could this be The Big One?

As the trading day unfolded, the markets did what markets did (move around in a seemingly illogical fashion while analysts and talking heads on TV come up with obvious explanations after the fact - in as loud and forceful a voice as they can muster), and the media was all over the story; all I could do was stay glued to the screens with a sense of wonderment at how the markets (or more specifically, traders trading the markets) were reacting to this disaster.

Someone somewhere in Japan was fleeing for his life as the resulting tsunami claimed all his worldly possessions, while we traders around the world were busy trying to figure out how to profit from this situation. And most of those same traders are probably losing money by the minute, if you believe reports and studies that claim 95% of people lose money speculating.

What's wrong with that picture? Nothing really, it's just the way the world works. In recent months we've witnessed the unrest in the Arab countries (suddenly Libya is off the radar), natural disasters in Australia and New Zealand, and, cynical as it sounds, still the world turns.

What's interesting about the picture, is the way markets reacted.

1st reaction. Sell JPY, sell stocks.

Stock Index futures around the world were sold off, with Asian indices expecially hard hit. This sort of made sense. In the immediate future, a lot of companies based in or having dealings with Japan are going to lose a lot of money, although some are eyeing local construction companies.

Remember Kobe? In January 1995, the big Kobe earthquake sent the index spiralling down for almost half a year before it recovered to pre-disaster levels by the end of the year. This was the event that led to the downfall of one prestigious British Bank, thanks to a single derivatives trader in Singapore.

Some may argue that Japan is not in a secular bear market as it was back then, so the effects may not be so hard-hitting, but who knows? Oh yeah, those brilliant analysts and loud talking heads. Me, I'll just stick to the charts. Short Japan is a no-brainer for the short-term. 

More Downside for the Nikkei?

Oh, but did you notice the little rally in US stocks later that day? That's another story for another post....

But sell JPY? that was the initial reaction, which is typical of all disasters around the world at any time; sell the currency of the affected country. But look how brief that move was. Hope you're not long (USDJPY, i.e. short JPY), like every trader and their uncle since time immemorial.

Look at the chart, simplistic as it is. Is this the event that's finally going to flush out all the JPY shorts?
But wouldn't Japan need to lower rates (indirectly of course, have you looked at Japanese rates lately?), borrow and print more money to pay for reconstruction efforts? Weren't their debt just downgraded recently?
Ah, who knows. Sell USD/JPY, if you're wrong, that's what stops are for.
 

USDJPY Breaking Lower?

Right now I'm still following the news coming out of Japan, and my heart goes out to all the wonderful people of that country, whose hospitality I had the privilege to enjoy just late last year.

As for the markets, they'll always do what they always do, and whatever happens to the traders; well, unlike the Japanese, we asked for it.

Peace.