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Monthly Archives: August 2015

Thanks to China, my AUDUSD call option expiry this Friday, August 28th will be worth nothing and I have basically lost my premium of US$3Million.

No wait a second, I didn’t.  Apologies for the silence the last two days as you can well appreciate the financial markets, that is, the equity markets and the fx markets were crazy.

Given, all the bad news coming out from China; devaluing the renminbi, slowest growth in the past 5 years, PBOC cut interest rates twice and then again today, no short selling on 500 stocks in Shanghai and Shenzhen markets, lowering bank reserve ratios, buying less raw materials such as metals and ores, lowest exports in the past 4 years……………..all these pointed to China going down South!

This means SELL SELL SELL SELL AUDUSD!

So, silly me decided to be brave and stupid and chase the market, but of course with stop losses as well.

The deterioration in the AUD since last Friday from 0.7353 and downwards…………

The drop off the cliff on Monday at about 9pm Asia time, gapped from 0.7232 down to 0.7032, then, stabilising at 0.7142 and went back up to a high of 0.7232, right back where it started.

Last night, at about 8:50pm, my Ichimoku told me to sell the AUD, after cutting up and down two times within the last 24 hours, so I short the AUD at 0.7207.  By 2am in the morning, the AUD has fallen to 0.7157.  I decided to take profit and go to sleep for a trading profit of $1.25Million or 50bps on a nominal size of $25oMM.

So, I have now improved my call option losses from $3MM to a lower $1.75MM.  You really can’t win all the time………life!

The real issue now is where do we go from here?  Do we look at shorting the GBP and the EUR?  Well, let me share my thoughts with you in my next article on ‘Thoughts’.

I also have a thought provoking view that a conspiracy was started by China to encourage if not compel Janet Yellen from raising interest rates next month.  Again, I will share my thoughts with you soon, so stay tune.

Having a strong hunch that the BOE rate decision will be a volatile event, I decided to place a straddle trade at about 6:50pm: –

Spot: 1.5600

Stop if Bid; 1.5630, SL 1.5600

Stop if Offered; 1.5570, SL 1.5600

It was no surprise when the decision was announced, where the rate was held at 0.50% and asset purchase maintaining at 375Bn.

What is more important is what Carney is going to say.  I was of the opinion that he would talk the GBP up as the UK wanted to cool down property prices as the property market was showing signs of a bubble.  However, as it turned out the comments revolved around inflation and the fact that inflation went down to zero in June, rather far away from the target of 2%.  I believe the UK should adjust its target going forward much like the U.S.  In the case of the U.S., the inflation target was lowered from 2% to 1.6%.

Reasons given by Carney for the low inflation environment is because of low commodity prices and underutilized capacity.

As it turned out the GBP collapsed to a low of 1.5465, however, the real flows were at about 1.5488.

My trade was triggered but in the opposite direction from my hunch which was fine.  It triggered the offer trade at 1.5570, and I squared the position at 1.5500 for a trading profit of 70bps on a trade size of 3Bn.

The GBP is now rising back to 1.5530 on slightly elevated unemployment claims out of the U.S.

This is a great lesson in not trying to second guess what the central banker is going to do, or for that fact, what the data is going to be, what’s more important is to ascertain whether the event is going to be a volatile one or not and if it is, then, my fx strategy will ALWAYS work!

What a TRADE!  I am done for tonight!

 

After the AUDUSD went down again below 0.7300, I felt that there might be a short term retracement, so I decided to buy a one month call option expiring 28 August with the following details: –

Spot: 0.7275

Strike: 0.7300

Premium: 100bps

Breakeven: 0.7375

Let’s see what happens