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Monthly Archives: March 2015

The last 24 hours is certainly a time to remember.  What a roller coaster ride!!!

The market jumped at 2am this morning when Fed’s statement took out the word, ‘patience’, the EUR and GBP jumped by more than 100bps, with the EUR peaking at 1.0926 at 4am in the morning, a 264bps move!

The story was the same with the GBP locking in 303bps at 4am.

Today’s story was different; all through Asian session and into London at now into the US session, it was the south pole for the EUR and GBP, giving up most of the gains from the massive move last night and currently, holding at levels no different from pre-FOMC.

Why?

As Janet said, taking out ‘patience’, doesn’t automatically mean we are going to be impatient!

What is the meaning or interpretation of ‘reasonably confident’? And, what does she mean by we also don’t want to end up being behind the curve?

I think Janet Yellen is carving out a neutral path for herself to either extend accommodating monetary policy or to raise interest rates, depending on the data as it comes in over the next few months.  I believe the operative word is, ‘reasonably’, to me that means, it’s neutral.

And this means that currency levels should go back to where they were pre-FOMC which is what is happening now.

The overall economic picture has not changed for Euroland and the UK, both having to fight economic battles and both extending their quantitative easing policies.

THE WORLD HAS BEEN DIVERGING!

However, I believe when the timing is right which will be in the near future, the best trades may be to buy long dated call options in the majors against the USD and be the biggest winners for 2015.  The premiums are not going to be cheap, for example a one year call option for the EUR and the GBP is currently about 550bps and for the AUD about 250bps.

The much awaited FOMC meeting and statement.

Not knowing where the market would go, but confident that the market swing would be significant, I decided to put spread spot trades on a stop if bid or offered basis.

EURUSD: 1.0690 and 1.0625 with spot at 1.0662

GBPUSD: 1.4760 and 1.4700 with spot at 1.4730

AUDUSD: 0.7690 and 0.7630 with spot at 0.7665

I squared the position just before the press conference; EURUSD at 1.0775, GBPUSD at 1.4848 and AUDUSD at 0.7728.

I locked in 211bps of trading profit…………Yum Yum!  Thank you FOMC….(“,).

The past two weeks saw focus by BOE and the media on the strength of employment and job creation in the UK.  Today’s Claimant Count and Unemployment Rate would be in focus.

I decided to do a stop if bid and offered spread.  At about 5:25pm, spot rate was 1.4750 and I placed a LONG stop if bid at 1.4775 and SHORT stop if offered at 1.4720.

The data came out just slightly weaker with unemployment jumping up to 5.7% and claimant count increasing slightly.

Market didn’t like it and sold the GBP down to 1.4620 at about 6:45pm, but I squared the position at 1.4672 at 5:45pm before leaving the office.

Made a tidy trading profit of 48bps.

Yesterday, was an interesting day.

At 1:30pm, weak China data; lower industrial production, poor retail sales and lower fixed investments, didn’t do much to the AUD, as I believe the AUD has already been taken down quite a fair bit.  Nonetheless, just based on flows into the US session, the AUD was about 50bps+ lower to 0.7564.

I must have been something that was said by Draghi at 4pm during his speech, because the EUR tanked from 1.0700 down to 1.0527 during NY midday session.  It has now settled at 1.0509.

I was focusing on the UK and manufacturing and industrial production at 5:30pm yesterday as it was a topic much talked about for the past two weeks leading up to it.  Therefore, I felt that if there is going to be any off data, there will be significant moves on the GBP.

At about 5:20pm when spot was trading at 1.5055, I decided to place a stop if bid/offer spread at 1.5080 and 1.5020.  As it turned out, the data came in very weak, in fact, in negative contraction.  However, the market didn’t really respond to it…………till the NY session.  At NY opening, the GBP was taken down severely.  At about midnight or midday session, the GBP was trading at 1.4937.

At that time, I decided to square off the trade for a trading profit of 83bps.  Not bad.

Yesterday’s trading was a classic case of if the market doesn’t respond during London session, it certainly will respond during the NY session.  As we all know, both the London and NY markets is where the bulk of the flows reside.

I am still interested in what Draghi said, because the EUR really collapsed.  Will find out and comment on it.  Looks like market sentiment, the media and flows are really going to push the EUR towards the parity level?!

When the dust settled after the rate cut by RBA on February 3rd, and looking at my charts, it seemed at that time a potentially good trade to do the 3 month call option.

If you recall my breakeven is 0.8097, the spot is now 0.7625, so we are more than 400bps+ away from my breakeven.

This is the currency markets for you.

Seems the RBA is more concerned about rejuvenating growth than to tame asset bubbling.

Well, we still have time and who knows anything can happen.  Time is still in my favor.