We were swindled by the market last Thursday and Friday.
Data out from Australia was weak; employment weaker, unemployment higher.
PM Gillard commented that there was room for RBA to lower rates.
All these is suppose to put pressure on the AUD, but it didn’t, instead it powered all the way up to 1.0582. We believe it’s because the direct AUDCNY started on Thursday and we were just fighting the flows.
We were convinced that AUD overshot last week on Thursday and Friday, despite the bad economic data.
This morning we short the AUD JPY at 103.50 based on technicals and then when the GDP and industrial production for China came in dismal at 10am Singapore time, the AUDJPY collapsed, we squared off our position at 102.00, the low was 101.65. We made a trading profit of 1.50bps or 1.47%.
We are vindicated from losing monies in the AUDUSD put option last week!
We bought a put option on the AUDUSD this morning on the back of poor Westpac consumer sentiment number.
Let’s see what happens in the next 24 hours.
We executed three call options during the month of March; AUDUSD, EURUSD and GBPUSD, we won in the AUD and GBP and lost in the EUR. Our absolute return on equity was 18.4%.
Our accumulative ROE till end February was 27% and including March, it brings out absolute ROE to 45.4% year to date.
Our sell order of 1.05 was triggered last night during New York time. Our realized trading profits is 135bps or 1.28%.
The non farm payroll numbers was clearly a surprise at 88K, when the market was expecting about 198K. This was enough to initiate a selloff in the US Dollar, the Euro and Sterling rallied more than 100bps respectively. The Yen moved more than one big figure still on the tails of Kuroda-economics.
I missed the non-farm payroll opportunity as I was out with my wife for dinner, Spanish tapas and a great bottle of spanish wine from the rioja region.
I will make an overall assessment this weekend with some thoughts going into next week.
It is great news that the IMF has advanced $1Billion on top of the earlier $10Bn by the ECB to Cyprus.
This is a vote of confidence that the IMF, ECB and EU are working together to try and solve the multiple problems in the Eurozone.
However, the real issue is not to keep on printing monies, buying up junk securities and bonds to provide the necessary funds and liquidity.
At the end of the day, the EU, ECB and IMF should try and help these troubled countries in the Eurozone to restructure the monetary policies and fiscal policies so that eventually, job will be created, income will be created, consumption will happen, growth will happen, GDP will come back.
Unless and until this happens, the Eurozone crisis will continue unabated.
The market has proven us correct, the AUD continues to build on strength, the current spot of 1.04961 is trading above the 50 day average of 1.0456 and the 150 day average of 1.0439.
The trade balance posted a strong number with deficit narrowing to (0.18)Bn compared to the previous (1)Bn, this is a very strong comeback.
Our target is to close out the option when we hit the 1.05 level.
Hmmmmm…………..this has been a disappointing trade, we knew back then when we were placing the option trade that the technicals showed a high probability of a breakout based on the bollinger bands, however, we didn’t know which direction it was going to break out on.
Our hunch told us that the crisis in the Euro should settle down for the time being, but the Cyprus issue really knocked down the Euro.
The current spot of 1.2805 is the lowest level for 2013 and way below our breakeven of 1.3180. It is unlikely that we are going to make any monies from this option and the premium paid of 81bps will be a loss.
This is an excellent example of risk management. We knew the Euro was going to breakout, but we didn’t know which direction, we made a bet on going long by buying a call option and we were wrong.
However, if we had a done a spot trade, we would be staring at nearly 200bps loss, in this case, we risk managed for a loss of 81bps.
The Daily Chart; shows strong support for the AUD, the trendline has broken through the cloud and is reversing the cloud’s declining outlook to a rising outlook.
You will recall that our breakeven is 1.0365 and the current spot of 1.0446, gives us a decent 81bps, I think we will hold this position.
I am born in the Year of the Tiger.
The Panthenon Investment Group 