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 - 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.

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 - Mama Said Knock You Out

Our GBPUSD long at 1.6358 was stopped out at 1.6313 for a 45pip loss, as the pound took a dive to the low 1.62's after the BOE minutes and into a highly entertaining budget speech (if you missed it, try looking on the net; I'll put up a link if I find one). Taking a look at the dailies, we see a textbook Bearish Engulfing Candle! Time to short? To stay on the cautious side, we'll wait for a test/break of 1.6200 or thereabouts. See the chart:

GBPUSD Topping?

Our EURGBP long at 0.8738 (so far way!) remains underwater, with stop at 0.8610. Prices are still within last week's range, so we shall not be clever and try to second guess the market.

Over in Europe, the Portuguese Prime Minister quit like he said he would as parliament rejected the austerity measures, and it is looking increasingly likely that Portugal will have to ask for a bailout. The EU summit begins today, and a nervous market sold off the EUR amidst fears of another European credit crisis. Oh wait, maybe not another one but just a continuation of the last one. After this week's rejection at 1.4250, have we seen a top in EURUSD? Take a look:

EUR topping out too?

Apparently what's keeping a floor on the markets at the moment is that expectations for a rate hike from the BOE and ECB in coming months remains largely unchanged after yesterday's events. Well, even with inflation obviously a threat, a rate hike now would likely be very harmful to UK growth and European debt, and may ultimately hurt the global economy again. What do you think?

Volatility has tapered off and markets seem uncertain at this juncture. In fact, price action in the equity markets this week look like a mere consolidation after the large sell-off from the Japanese earthquake, and we may be set for another slide lower. Looking at the S&P chart, prices remain under resistance, and may have a hard time gaining more ground.

Emini S&P-strength not convincing

So what's next? Are traders being overly optimistic? Are we headed for a deep plunge into the abyss? With uncertainties in Europe looming over our heads while the European summit takes us into the weekend, it may be best to sit this out and keep positions to a bare minimum (short EUR?), as Monday may bring a rude shock. But we're getting ahead of ourselves, there's still a couple days of trading left.....

"Meditate on this, I will." - Yoda

Peace

Do Markets Need to Breathe?

The Japanese stock market was down over 10% at one point, but has pulled back a little since then. So shorts are playing out well, but make sure you can stomach strong retracements. Take some off the table, that would help.

Nikkei around 2-yr lows after HUGE plunge

Currency Moves Relatively Mild

Relative to the stock markets, of course. EUR was rebuffed early on  a test of 1.40 to test support at 1.39 (yes, I shall stick to 2 decimal places for now; remember these incredibly important levels mentioned in the last post?). Longs out on another failure at 1.40, so just sit back and watch how it plays out.

Japan pumped even more liquidity into the market, and word is that JPY repatriation is increasing - so don't forget all the other JPY crosses; they hold more than dollars, you know. USDJPY still sits pretty refusing to move much, threatening to break lower but held up by all the money the BOJ is flooding the market with. Oops, no pun intended, again.

The day is still young, and we shall see how things turn out. No meltdowns I hope (financial and nuclear), we wish everyone good health.

Peace