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Monthly Archives: February 2015

It’s interesting the whole world was focusing on Janet Yellen’s speech and responses at the Senate Banking Committee on Tuesday and Wednesday.

All the major banks have concluded together with the media that the word, ‘patience’, will be dropped in March and any rate hike if any will happen in June.  Two dates momentarily cast in stone for now.

In my view, jobs creation, employment and unemployment are more important data compared to inflation for Janet Yellen.  Though, recent CPI data suggests low inflation and that the revised 1.7% target rate may not even be hit is a lesser concern, then non farm payrolls and unemployment.

If I study the history of the past Fed chairmans including Greenspan and Bernanke, they usually get ahead of the curve and market expectations.  They don’t like to be dictated by the media.

In the same tone, I believe Yellen will not subject herself to the pressures of the media, which is why her responses to Congress was non committal.

I believe she will pre-empt the markets and raise interest rates earlier than June.

I believe she will surprise the markets by raising rates in May.  As long as non farm payrolls stay above the average of 200,000 and higher, it will give her the confidence to make the decision.

A strong US dollar is not necessarily a bad thing for the United States.  Let’s not forget that the U.S., is a domestic economy and it only exports barely 6% of its GDP.

Therefore, ensuring that employment stays strong and wages bouyant will give Yellen the confidence to raise rates.  High employment and good wages means American can better support consumption which is a main driver of the economy.

I believe inflation is on the rise in the U.S., although it doesnt seem to be manifesting in the data.  Real estate prices are at all time highs and so is the financial markets thanks to cheap liquidity.  However, can it be said that the fundamentals are supporting the real estate market  and financial market?

Let’s see.

AUDUSD_4H

 

AUDUSD_daily

I am just looking at the AUDUSD and it looks so ripe to do a Long Call Option.

The Daily chart and the 4H chart suggests technically that the AUD has turned from the bottom.  In fact, it is about to cut up on the 200 day average of 0.7898 in the 4H chart.

Therefore, I am confident to buy a 3 month call option strike at 0.8000 with a premium of 97bps, a breakeven of 0.8097 and expiring on 29 May 2015.

Let’s see what happens.

horse calligraphy _4

Here is wishing all our business friends, business associates, clients, investors and shareholders a Very Happy Chinese new Year.

We have stopped all business at HWH Inc., The Panthenon Group, Singapore 360 and absolutelypassionate till the end of this week.

We will resume business as usual on Monday, 23 February 2015.

The much waited UK inflation report to confirm whether or not BOE will or will not cut rates of hold rates of increase rates.

I really didn’t know whether the market was going to go because the last clue from the BOE was that they will stay put for a while and maybe even consider cutting rates.  However, the media had a different view.  All the media spots were gunning that the BOE would be more hawkish.

Since, this data has been put on the pedestal, I thought I might as well try to see whether I can squeeze a trade out of it or not.

Since, I had no inclination one way or another, I decided to put a straddle spot out of the money trade.

At about 6:20pm, I placed a stop if bid at 1.5250 and stop if offered at 1.5185 when spot was trading at 1.5220.

When the data came out the GBP shot up to 1.5320 within 15 minutes.  My stop if bid order was triggered at 1.5250, I decided to wait till about 9:30pm and squared the position at 1.5353 for a trading profit of 103bps.

Thank you BOE!

Market was anticipating the much awaited non farm payroll numbers and the unemployment numbers to confirm that the U.S., is on track in its economic growth recovery.

Wednesday’s ADP number was not encouraging at 213K against forecast of 224k, however, it was mitigated by the upward revision of December’s number from 241K to 253K.  This means that there is a possibility that the non farm payroll numbers could surprise on the upside of forecast.

Market was steady at about 9:10pm Singapore time.  My hunch told me that the non farm payroll numbers would be better, so I decided to bet on my hunch.

Orders: –

1.  GBPUSD – Stop if Offered at 1.5290 when spot was at 1.5323

2. EURUSD – Stop if Bid at 1.1500 when spot was at 1.1486

3. EURUSD – Bought a put option expiring Monday, February 9 with a premium of 36bps, spot at 1.1486 an breakeven at 1.1450

4. USDJPY – Stop if Bid at 117.60 when spot was at 117.28

Of course, all of us knew what happened, the non farm payroll numbers came out at 257K busting forecast of 236K and the highest in the past 6 years.

Market sold off the GBP, EUR and the JPY in a BIG way!

At about 11:15pm, I decided to square off all the trades.

Squared off the GBPUSD at 1.5248 for a trading profit of 42bps.

Squared off the USDJPY at 118.88 for a trading profit of 128bps.

EURUSD stop if bid order was not triggered.

Sold off the put option at 1.1326 for a trading profit of 124bps.

In absolute terms, we made 294bps in totality for all 3 trades.

WHAT A NIGHT!  THANK YOU UNITED STATES OF AMERICA!

2014 was a year of I don’t know what to say!

Practically, the first half the year was dead boring with the markets not really moving anywhere and we saw that in the low volatility.

Nonetheless, we as traders owe it to ourselves to sniff out trades to the best of our abilities.

What made me feel very uncomfortable was the fact that the global economies were diverging which means that through time uncertainty will spike up volatility.

I decided to reduce our leverage in our trading from our usual 5X to 10X down to 3X to 5X, this of course, means that our absolute returns will also be affected.  However, my view is that it is better to be safe than sorry.

Our average leverage throughout the year was 4X of our principal.

We did 28 trades throughout the year both spot trades and options which was less than half of the trades we did in 2013.

We decided to stop trading at the end of October as the markets was just getting too crazy with too many central bankers talking too much and at the wrong time.  The markets was just swinging like a see saw………violently.

We locked in an absolute return for 2014 of 68.36% p.a., a far cry from the 290% p.a. we did in 2013.

I shall be writing my thoughts for 2015 in the near future.

Ever since RBZ lowered its rates last month, speculation was building in the marketplace about whether the RBA would or wouldn’t lower its interest rates as well?

A week coming up to Ferbruary 3rd saw numerous analysis put out by Bloomberg, Reuters and of course, the banks.  Speculation that the RBA wouldn’t lower rates because it is concern about the high property prices and high cost of living.

Guess what?

At 11:30am, the RAB announced a 0.25% rate cut down to 2.25% from 2.50%.  Surprise surprise!!  Then again, I do not believe it was a surprise, however, none of us have a crystal ball, so he really can’t say for sure what the RBA was going to do.

However, my hunch was that it would cut rates because of mounting pressures.  So I placed a stop if offered level at 0.7765 when the spot rate was 0.7805, about 10 minutes before the announcement.  I also placed a stop if bid at 0.7835.  In addition, since my inclination was rate cut I decided to gamble with buying a put option at 0.7765 for one day with a premium of 35bps, expiring on February 4th 10am NY time.

When the announcement came out, the AUDUSD fell off the side of the cliff falling over 100bps within 5 minutes.

My stop if offered order was activated at 0.7770 and I squared the spot trade at 0.7659 for a trading profit of 106 bps.

I also decided to buy back the option and locked in another 100bps trading profit.

Thank you RBA, I secured a 206bps trading profit within 10 minutes of the announcement.

What a great start to the month of February.