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Monthly Archives: October 2013

Trade: Bought a 1 month AUDUSD Put Option expiring 22 November 2013

I looked at the AUDUSD, felt that it is too strong given, the weak economy, structural weakness, impending inflation and poor job numbers.

I decided to BUY a 1 month Put Option on the AUDUSD, strike at the money spot of 0.9640, expiring 22 November 2013, premium of 107bps and breakeven of 0.9533.

I am looking at a 1:1 payout at 0.9425 and a possible 2.24:1 payout at 0.9293.  Let’s not forget that it was barely three weeks ago that the AUD was at 0.9280.  I believe the likely outcome would be about 1.6:1.  We’ll see.

Trade: Short GBPUSD

I was watching the screen and at about lunch time, I noticed the pound starting to slide.  I quickly looked at my charts and I noticed that the stochastics were turning down, the ichimoku; tenkan had just the kinjun from the top down, and the price trend broke through the cloud.

I confirmed it at both the 15 minute and 5 minute time frame……………looked really good, so I short the GBPUSD at 1.6230 with a SL at 1.6250.  The pound started a slow grind downwards and at about 330pm, an hour before the MPC and BOE minutes at 430pm, I decided to square the position and bought back the pound at 1.6155 for a 75bps pop!

Thoughts; Never bet on politics and politicians

Well, as I expected last Thursday was a massacre on the USD by the other majors.  The half baked solution carved out by the US was not surprising and yet at the same time so predictable.

It was time for the US to reopen the government offices, it simply could not continue this embarrassing situation.  So now the government is reopened but it’s fate is shifted to January 15th, 2014.

I knew the Republicans and the Democrats would not come to an agreement regarding the increase in the debt ceiling limit and rather than to continue to push a bad situation, what do they do?  Suspend it, or rather postpone it to February 7th, 2014, in the meantime, the US has a ‘carte blanche’ to keep on printing new monies to meeting all it’s obligations till next February!

What a way to go United States of America………………which is why the fx market decided to punish the US dollar and it did with a vengeance.

Lesson learnt; never bet on politics and politicians, better to wait till it’s over and then focus back on fundamentals and technicals.

 

Trade: SHORT USDJPY

I placed as SHORT USDJPY stop if bid at 98.00 when the spot rate was at 98.33.

When the weaker non farm payroll number came out the JPY strengthened to 97.87.  My order was filled at 98.00 and I squared the position at 97.90 for a trading profit of 0.10.

Trade: Short GBPUSD

Who really knows what the non farm payroll number is going to be; could be stronger or weaker.

I did three spot trades; the first one was going LONG EURUSD, going SHORT GBPUSD, and then going SHORT USDJPY.  All three trades were placed on a stop if offered or bid.

In the case of the GBPUSD, I was hedging against a possible stronger non farm payroll number, so I SHORT GBPUSD stop if bid at 1.6100 when the spot was at 1.6131.

As we all know, when the weaker non farm payroll number came out at 148K versus expectations of 180K, the USD got clobbered and the GBPUSD when up to 1.6200.

Trade: Long EURUSD

I was betting on a poor showing of the non farm payroll and so placed a LONG EURUSD stop if offered at 1.3690 when spot was trading at 1.3675.

When the weaker non farm payroll number came out,  the spot shot passed my order and my trade was executed.  I then squared my spot position at 1.3734 for a 44 bps trading profit.

Hollywood; The drama surrounding the debt ceiling limit

The Americans are so into the theatrics, they just love Hollywood, they love to create a Wow factor at the 23rd hour 59th minute………good or bad.

I believe the debt ceiling limit will be raised again, why?  Simply because it was raised twice before during the past 14 months; from US$14Tn to US$15Tn to US$16.9Tn.  However, as responsible people in positions of power and responsibility, they just can’t simply raise it without giving the impression to the public and the world that they have grieved over finding a solution and ‘cracking their heads’, and finally, they have no choice but to resort to raising the limit again.

The basic government revenue model is flawed as the inflows is less than the outflows with each passing year.  The government does not have any proactive revenues, all their revenue stream is the traditional passive; taxes and duties.  Until they solve the basic revenue and expense model, the deficit will never be reduced, unless, there cutbacks in the outflows.

Today, the US credit rating is not in question so far, though both Fitch and Moodys have changed their view to ‘negative watch’ but still ‘AAA’.  If the US doesn’t increase the debt ceiling limit, by the end of November when a huge sum of monies is required to pay for the coupon on the outstanding treasuries held by governments and central banks around the world, will not be honored.  This will have a tsunami effect across global financial markets.  Can the US really afford this to happen, let’s not forget that the backlash to the US will be greater than the pain caused by the US to the rest of the world.  Can the US afford to have a credit rating downgrade?  I do not believe so, the US will defend its AAA rating with its life.  Let’s not forget that Japan and China has majority stake in all outstanding treasuries around the world.  If they dump the treasuries, what will happen to the US?

The American people have been living off credit and borrowed monies for the past two decades, if there are going to be casualties, they can only blame themselves.  I mean the US government is the biggest culprit of living beyond their means and running deficit for the past 10 years.

However, because the the huge uncertainty, it is nearly impossible to work out a strategic potential trade.  Coming up with a risk adjusted trade idea based on fundamentals and or technicals is a better bet than betting on the whims and fancies of politicians……..we are guaranteed to lose………and lose big time.

Thoughts; GBPUSD

The daily chart shows a double bottom or a ‘W’, one leg in March and the other leg in July, affirming that for the near term, the bottom is well supported at about 1.4875.  Recent top at 1.6225.

gbpusd daily chart 16 oct

The 4 hourly chart is trending sideways just above the 200 day MA of 1.5942 and currently trading below the cloud.  Bollinger bands are squeezed indicating a possible breakout.

gbpusd 4 hourly chart 16 oct

The technicals tend to indicate a potential softening in the GBP, however, all bets are off the table because of the US crisis and the debt ceiling deadline tomorrow.

Making a calculated risk trade based on fundamentals or technicals is fine, as there is rationality and logic involved in the process, whether we win or lose will depend on how good our analysis was.

However, betting against politicians is always a losing proposition.  Politicians cannot be trusted and are double headed snakes.  Nonetheless, like Hollywood, the Americans love the melodramatic and I believe they will some relief to the financial markets when they announce a positive outcome at the 23rd hour 59th minute………….they usually do, just check back on the two previous times when they increased the debt ceiling limit within the past 14 months.

Thoughts; EURUSD

In the daily chart, recent highs in the EUR was at 1.3645 in February this year and the lows was in July at 1.27790 and the 200 day moving average at 1.3142.

Bollinger bands are squeezing into a bottleneck…………ready to burst…………and then again………..burst up or burst down??

Looking at the 4H chart, the signs are more compelling that the EUR may be at the start of another down trend, towards the low established in early September of 1.3110.

eurusd 4 hourly chart 16 oct

 

Could possibly be a good option trade, but I am just not comfortable with the US crisis and the debt ceiling deadline on Thursday.  I really don’t want to lose bullets buying options only to give it up because the markets went crazy.

eurusd daily 16 oct

Thoughts; Gold maybe on the way down to last low of $1,198

I was just studying the 4H and Daily charts on gold, and everything from; Ichimoku to fast and slow stochastic is showing me that there is possibly more weakness in the gold with chance of moving back to the last low of $1,198.

Then, again what’s happening in the US may whack everything out the window.