Well, two blogs ago, I had a post on going LONG on USD/JPY pair. BOJ has been trying to stem the Yen appreciation for a while now. It seems like it is finally able to move the YEN lower. Those who went LONG at 76.60 have seen an 80pip move since yesterday.
In the current market, correlations between asset classes, currency & economic outlook and many other variables, are breaking down quite frequently. JPY is usually a safe haven play and today depite all the rumors (10AM)about German debt downgrade, JPY is weakening. Gold is weak too; of course, gold is getting hammered because the 27% margin raise by CME.
Once again, this is a market for those who have nimble moves...moves that are in-tune with the headlines of the moment.
Thursday, August 25, 2011
Wednesday, August 17, 2011
Swiss Franc Weakens As Predicted
On August 9th, the day US Federal Reserve decided to keep the short-term rates at the current low rate (ZIRP - Zero interest rate policy)until mid-2013, the market had a violnet reaction for a very brief period. The markets did not see the extension of easy monetary policy in that announcement, as it was expecting a new round of QE. When there was no hint of that, the market ignored the historic announcement of ZIRP with a "time-bound" element to it. For few minutes the market was extremely negative and that's when the EUR/CHF LONG opportunity presented itself. The pair reached its low of 1.0088! But, in my blog on that very same day (prior to the FED announcement) I had predicted the "imminent" SNB intervention and subsequent weakening of the CHF from 1.05 to 1.15. After a brief violence to the downside, the markets violently reversed and finished 400+ DOW points higher for the day! Safe-haven currencies got hammered, "Risk-on" trade was in full force until the end of the US session.
What I want to convey today is that, the prediction came true. EUR/CHF pair hit 1.15 yesterday. So, those who managed to stick with the call made 1000 pips in a matter of 4 days! An amazing move and opportunity to make money. Even an investment of $2,000, which gives a leverage of taking a $100,000 position (considering margin requirements, for this pair, it could have been slightly higher), and in this case EUR 100,000 would have resulted in a profit of approximately $13,500! That's almost 600% profit in 4 days!
These are extraordinary times in the financial markets and especially, the currency markets are witnessing historic fluctuations on day-to-day basis. Traders have to display a high level of agility in terms of moving with the headlines. Moreover, it's about anticipation of new information from various sources, and in this case, I was very much tuned to what was going on with SNB, as CHF got stronger across the board. I relaized that there are serious consequences to Swiss economy and its export sector, if the Swiss currency continued to get the push due to European and US problems. Swiss authorities had to send a market signal to stem the tide. It happened, as anticipated.
Market presents these opportunities and a trader has to be always ready to grab them. It's a combination of mental focus, market knowledge, agility with which the trades are made, acute awareness of risk tolerance and respect for the market wisdom. Market is always right; trader can only hop between probabilities. Trader should know how to mentally assign a probability to a trade going in his direction based on funadmentals prevailing at the time, market mood, techincal indicators and potential new information that could alter the trade dynamics. If things go against despite all calculations and analysis, then it is imperative that trader sticks to her risk parameters and gets out of that trade. Once again, MARKET IS ALWAYS RIGHT!
What I want to convey today is that, the prediction came true. EUR/CHF pair hit 1.15 yesterday. So, those who managed to stick with the call made 1000 pips in a matter of 4 days! An amazing move and opportunity to make money. Even an investment of $2,000, which gives a leverage of taking a $100,000 position (considering margin requirements, for this pair, it could have been slightly higher), and in this case EUR 100,000 would have resulted in a profit of approximately $13,500! That's almost 600% profit in 4 days!
These are extraordinary times in the financial markets and especially, the currency markets are witnessing historic fluctuations on day-to-day basis. Traders have to display a high level of agility in terms of moving with the headlines. Moreover, it's about anticipation of new information from various sources, and in this case, I was very much tuned to what was going on with SNB, as CHF got stronger across the board. I relaized that there are serious consequences to Swiss economy and its export sector, if the Swiss currency continued to get the push due to European and US problems. Swiss authorities had to send a market signal to stem the tide. It happened, as anticipated.
Market presents these opportunities and a trader has to be always ready to grab them. It's a combination of mental focus, market knowledge, agility with which the trades are made, acute awareness of risk tolerance and respect for the market wisdom. Market is always right; trader can only hop between probabilities. Trader should know how to mentally assign a probability to a trade going in his direction based on funadmentals prevailing at the time, market mood, techincal indicators and potential new information that could alter the trade dynamics. If things go against despite all calculations and analysis, then it is imperative that trader sticks to her risk parameters and gets out of that trade. Once again, MARKET IS ALWAYS RIGHT!
Thursday, August 11, 2011
Japanese Yen
I am once again intensely observing the currency markets. My blog, two days ago (8/9/2011), was about the high probability of intervention by the SNB (Swiss central bank) in the currency markets and possible appreciation of USD and EURO against the CHF (Swiss franc).That seems to be playing out today. After a brief period of "panic-driven" slaughter of all those who were SHORT against this safe haven currency (I was short too!), right after the FED rate decision (at 2:15 PM on Tuesday), during which the CHF made a historic run against the EUR to 1.00889 and I think close to 0.70 against the USD, SNB stepped in, on Wednesday, as I predicted, and has since then released several statements about how it is going to stem the appreciation of CHF in order to keep its export sector competitive. And, today, as I write here, the CHF is up more than 800 pips from its recent lows and 400 pips from the recommendation I made. News about SNB contemplating pegging the CHF to EURO is driving the current EUR and USD rally agaimst CHF.
Today, I am looking at USD/JPY pair. JPY is below 77 and that's not sitting down well with the major exporters in Japan. Just recently, at this level, BOJ had intervened, and for a short period of time JPY did depreciate; however, that was short-lived. The global economic slowdown and the European debt issues took center stage and since then JPY has rallied again. There is definitely lot of pressure on BOJ to do something about the the strength of JPY against the USD. So, I think, there will be some sort of action by the BOJ to devalue the currency.
So, here is my trade: Go LONG the USD/JPY right away; right now, the pair is at 76.60 - 76.80 area. Put a STOP LOSS at 75.50 and you could stay on this trade and take profits at 80.0.
This has a high probability of success. The reason I say that is, the safe haven JPY has not further rallied beyond 76 even under these extremely stressfull global market conditions and despite US debt downgrade by the S&P. That shows that the traders who are LONG on JPY against the USD are not inclined to add to their existing positions and any BOJ intervention will precipitate a "fast and furious" unwind of this crowded trade.
Good luck!
Today, I am looking at USD/JPY pair. JPY is below 77 and that's not sitting down well with the major exporters in Japan. Just recently, at this level, BOJ had intervened, and for a short period of time JPY did depreciate; however, that was short-lived. The global economic slowdown and the European debt issues took center stage and since then JPY has rallied again. There is definitely lot of pressure on BOJ to do something about the the strength of JPY against the USD. So, I think, there will be some sort of action by the BOJ to devalue the currency.
So, here is my trade: Go LONG the USD/JPY right away; right now, the pair is at 76.60 - 76.80 area. Put a STOP LOSS at 75.50 and you could stay on this trade and take profits at 80.0.
This has a high probability of success. The reason I say that is, the safe haven JPY has not further rallied beyond 76 even under these extremely stressfull global market conditions and despite US debt downgrade by the S&P. That shows that the traders who are LONG on JPY against the USD are not inclined to add to their existing positions and any BOJ intervention will precipitate a "fast and furious" unwind of this crowded trade.
Good luck!
Tuesday, August 9, 2011
Market Turmoil Creates Great FX Trades
Looking at the recent history of market interventions, I am almost certain that one is due sometime this week, even as early as tomorrow, if not today. The Fed meeting today will be a really important one. There are calls for concerted global intervention and that will come to fruition.
What does that mean in the FX market? Go LONG the EURO against CHF (EUR/CHF pair) if you can take a position above 1.05 (and up to 1.065) there is an excellent probability of profiting from this trade; but do it with confidence. Put a STOP LOSS at 1.04 just in case the market violently whipsaws. My market intuitioin tells me that this time the intervention on the part of global central banks will take the EUR/CHF pair all the way back to 1.15. SNB is too eager to stem the Swiss Franc appreciation while ECB and the rest may just do enough to "temporarily" prevent the EURO crisis.
I also think that Australian Dollar (AUD) will bounce from its yesterday's low as soon as oil stops going down. Establish a LONG position in AUD/USD pair above 1.00 and this will go back to 1.08 very soon. But please do have a stop loss at 0.99 because, if it does go below that the fall further down will be precipitous!
Good Luck!
What does that mean in the FX market? Go LONG the EURO against CHF (EUR/CHF pair) if you can take a position above 1.05 (and up to 1.065) there is an excellent probability of profiting from this trade; but do it with confidence. Put a STOP LOSS at 1.04 just in case the market violently whipsaws. My market intuitioin tells me that this time the intervention on the part of global central banks will take the EUR/CHF pair all the way back to 1.15. SNB is too eager to stem the Swiss Franc appreciation while ECB and the rest may just do enough to "temporarily" prevent the EURO crisis.
I also think that Australian Dollar (AUD) will bounce from its yesterday's low as soon as oil stops going down. Establish a LONG position in AUD/USD pair above 1.00 and this will go back to 1.08 very soon. But please do have a stop loss at 0.99 because, if it does go below that the fall further down will be precipitous!
Good Luck!
Monday, August 8, 2011
Dow Down 600 points! What's the reason?
S&P credit rating agency downgraded the long-term US debt by a notch just after the market closed last friday. As expected, the markets started tumbling even before the regular session started, as indicated by the Dow futures, which was down 260 points, pre-market. As the PM session took hold, Dow had a precipitous fall from down 300 to down 600 points. It was reminiscent of May 6, 2010, "flash crash."
But, oddly, the US dollar and the US treasuries were doing well! In fact, while traders sought the safe haven currencies like Swiss Franc (CHF) and Japanese Yen (JPY) across the board, USD did well against, AUD, CAD and EURO. So were the Treauries; the 10-yr yield slipped further down by 21 basis points to 2.339%. This is completely in contradiction to what should have happened after a downgrade of the Government debt. A downgrade entails higher interest rates, as investors demand higher returns commensurate with higher risk of owning a debt instrument whose potential for default is higher than before.
The reason for continued buying of US treasuries offers a great lesson for traders. While S&P downgrade spooked the markets, the fleeing investors/money mangers had to find a safe parking for billions of dollars. And, despite all the debt-related issues, US debt is still perceived to be the safest instrument out there. Until that perception is shattered, the money will still run to Uncle Sam.
Gold jumped by $65/oz today to $1700/oz. another safe haven play. EUR/CHF hit a low of 1.0615. Japanese Yen continues to appreciate against the USD despite a 200% debt-to-GDP ratio. This is all confusing, as many things look highly contradictory. But, what one must understand, at least in the short-term, is that, a trader would do well to run to gold, US treasuries, CHF, Yen, whenever there is a clear "risk-aversion" in the markets. Either you stay out of the markets or hedge your positions with the above instruments to avoid complete decimation of your account. And, "elevator down" events in the markets can turn out to be highly irrational, gripped by intense fear, a stampede of sorts, that can kill the faint hearted. Today, just like Thursday (8/4), was one of those days.
I think, more than the US downgrade, it was the Euro-zone debt issues, and the global economic slowdown--a potential "double dip"--primarily driving the markets today. In the absence of Fed's largesse through QE, and the inability of ECB to provide a "backstop" (they lack funds to stem the debt-deterioration in major economies like Italy and Spain), markets are bound to suffer further.
So, my conclusion is, QE 3 is very much on the horizon. The great market bear, Marc Faber, made a very sarcastic (I think it was sarcastic)comment last week: "Next week we will see whether Ben Bernanke is a true money printer or just an amateur." I have to concur with Marc. I think, if the market continues its slide, then QE 3 is very much the next monetary policy move from the US Federal Reserve. That means, gold will be heading toward $2,000/oz+. Equities will make a turnaround; treasuries will head down; so will the US dollar. So, brace for further loss of our buying power. Find a way to protect your dollar-based assets. It's a grave situation and sooner you plan to protect your assets, better you will be.
Good luck!
But, oddly, the US dollar and the US treasuries were doing well! In fact, while traders sought the safe haven currencies like Swiss Franc (CHF) and Japanese Yen (JPY) across the board, USD did well against, AUD, CAD and EURO. So were the Treauries; the 10-yr yield slipped further down by 21 basis points to 2.339%. This is completely in contradiction to what should have happened after a downgrade of the Government debt. A downgrade entails higher interest rates, as investors demand higher returns commensurate with higher risk of owning a debt instrument whose potential for default is higher than before.
The reason for continued buying of US treasuries offers a great lesson for traders. While S&P downgrade spooked the markets, the fleeing investors/money mangers had to find a safe parking for billions of dollars. And, despite all the debt-related issues, US debt is still perceived to be the safest instrument out there. Until that perception is shattered, the money will still run to Uncle Sam.
Gold jumped by $65/oz today to $1700/oz. another safe haven play. EUR/CHF hit a low of 1.0615. Japanese Yen continues to appreciate against the USD despite a 200% debt-to-GDP ratio. This is all confusing, as many things look highly contradictory. But, what one must understand, at least in the short-term, is that, a trader would do well to run to gold, US treasuries, CHF, Yen, whenever there is a clear "risk-aversion" in the markets. Either you stay out of the markets or hedge your positions with the above instruments to avoid complete decimation of your account. And, "elevator down" events in the markets can turn out to be highly irrational, gripped by intense fear, a stampede of sorts, that can kill the faint hearted. Today, just like Thursday (8/4), was one of those days.
I think, more than the US downgrade, it was the Euro-zone debt issues, and the global economic slowdown--a potential "double dip"--primarily driving the markets today. In the absence of Fed's largesse through QE, and the inability of ECB to provide a "backstop" (they lack funds to stem the debt-deterioration in major economies like Italy and Spain), markets are bound to suffer further.
So, my conclusion is, QE 3 is very much on the horizon. The great market bear, Marc Faber, made a very sarcastic (I think it was sarcastic)comment last week: "Next week we will see whether Ben Bernanke is a true money printer or just an amateur." I have to concur with Marc. I think, if the market continues its slide, then QE 3 is very much the next monetary policy move from the US Federal Reserve. That means, gold will be heading toward $2,000/oz+. Equities will make a turnaround; treasuries will head down; so will the US dollar. So, brace for further loss of our buying power. Find a way to protect your dollar-based assets. It's a grave situation and sooner you plan to protect your assets, better you will be.
Good luck!
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