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Monthly Archives: February 2014

The carnage on the USD started last Thursday and the three currencies that battered the USD the most was the GBP, EUR and the AUD.

The question is whether it was warranted or not, or was it simply a case of fund flows?  Or did the market move against the USD because the BOE, ECB and RBA moved from an accommodating stance to a neutral stance?  Is that enough to move the market so significantly?  I do not believe so.

Personally, I expected the other central banks to move to a neutral stance, given that the Federal Reserve has already begun cutting back QE by two tranches of $10Bn each from $85Bn to now $65Bn.

Is there an opportunity for the USD to take back some ground from the majors?  Yes, I believe so, and it has started today with the GBP giving back about 60bps so far.  I should have captured this opportunity since I felt so strongly about it.

Unfortunately, I was taken away to focus on my private equity business in a company I invested that is involved in the tocotrienol business.

I saw and opportunity on February 12th to short the AUDUSD after I saw it fall past 0.90 and so I decided to short it at 0.8966 and shortly thereafter squared at 0.8930 for a trading profit of 36bps.

After my spot trade earlier in the day, I kicked myself for not keeping the spot position and instead write a call option as AUD continued to strengthen.

I suppose I was pre-occupied by my impending lunch with my father, so decided to just square off the spot trade.

Nonetheless, I saw the opportunity again later in the day, so I decided to buy a call option for one day at the strike of 0.8842 when spot was 0.8822 with a premium of 21bps and breakeven of 0.8863.  At about 2am, the AUDUSD looked alittle peakish…………so I decided to sell the option at 0.8935 for a trading profit of 72bps.

This morning I had a strong gut feeling that the RBA would begin to sound more positive and less dovish.

So prior to the RBA announcement and statement at 11:30am Singapore time, the spot was 0.8758 and I placed a spot order to stop if offered at 0.8778.  The order was triggered within 1 minute of the announcement and immediately AUDUSD shot up to 0.8845.  When it started coming off, I decided to sell the spot position at 0.8822 for a trading profit of 44bps.

It’s interesting how the forex markets can really give our hearts a good workout!

Gladly, I bought a call option on the GBPUSD and was prepared right at the get-go, to lose the premiums of 46bps.

As you will recall, I did the trade on January 14th; struck at 1.6390 with a breakeven of 1.6436.  After I did the option the GBP started to turn down to 1.6312 on January 16th.

Like all traders, while I was happy to lose the premiums that I paid for the option, the little guy at the back of your head always wishes that the analysis on your trade is correct.

On the fateful day of January 17th, the GBPUSD miraculously moved upwards based on very strong retail sales.  It moved all the way up to 1.6458 during London morning.

My option was due at 10am NY session or 10pm Singapore time.  NY opened with GBPUSD still staying quite firm and my option was eventually closed at 1.6449 for a very tiny profit of 13bps.  I am just happy I didn’t have to forgo my premiums.

The gold trade I did back in December 2013 and adding on a call option which I sold, received $30 in premiums and expiring January 30th, 2014.

Let’s recap some of the trade details; I bought gold at spot $1,232 on December 10th, 2013.  Gold steadily moved upwards from then on and I decided to sell a call option at $1,246 expiring January 30th, 2014, hoping to give myself sufficient time to ensure that the option was exercised.

While I was busy with Christmas and the New Year’s, I stopped all trading except this outstanding gold trade.  Having done the trade I was alittle nervous when gold decided to turn south towards the end of December reaching a low of $1,187 on December 20th.  It meant that I was facing a mtm of about $45 loss per kg.  Then, it started climbing up again, which was a welcome relief, however, I was beginning to think that I should have placed a stop loss level, as gold began dropping again, back down to $1,187 on December 30th.

However, since I had time and the fact that I know with a high level of confidence and comfort that whenever gold drops below $1,200, it will only be temporary and as long as I have time, I do not have to be unduly worried as the floor was established in June 2013 at $1,179.

Of course, I knew that gold was going to trade at a broader channel of between $1,200 and $1,300.  I didn’t think that it would go higher than $1,300, given that most central banks around the world has stopped increasing liquidity and if anything at all may begin to taper following the footsteps of the U.S.  So I knew the upside was somewhat capped.

Also, the fact that gold today is an asset class by itself, it would validate a fair price value of about $1,100.

From the new year onwards, gold just did a steady grinding path upwards.

On January 30th the high was during the NY session at $1,268 and the low was during the Asian session at $1,237 and since my option was expired at 10am NY time, I had the benefit of the uptick in gold prices.

The option was exercised against me, since the strike was at $1,246, so I delivered my gold at $1,246, after having bought it for $1,232 for a trading profit of $14 per kg.  However, I also benefited from the $30 per kg premium for the call option that I sold, so my total profit was $46 per kg.

Pretty good trade if I may say so, of course, with some anxiety during the past month and a half.

cny 2014