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Category Archives: Thoughts

This is where we share all our thoughts relating to the foreign exchange markets.

AUDUSD

audusd_weekly chart_7 june 2013

I am of the view that the AUD has been trampled on too much and at the current level of 0.9525, could be an opportunity to place an option strategy.

The lows in the AUD: –

1 June 2013  –  0.9708

3 Oct 2012  –  0.9525

7 June 2010  –  0.8102

October 2008  –  0.6674

The above lows is to give us all a ‘feel’ the AUD.

I do not believe that the Aussie economy is worse off than back in 2008 to 2010.

From Black October, the AUD has powered from 0.6674 all the way up to 1.1075 in July 2011.  During the crisis in both the United States and in Europe, the AUD has always been trading between 1.03 and 1.05 despite the declining economic health in China.

Yes, Australia is paying for it today by being to resources export dependent and to China.  Today, Australia has a structural and fiscal problem, if appropriately fixed, the AUD should be well back above the parity level.

Currently, the weak AUD is helping the economy, making exports more competitive.  What is comforting is that consumption is still healthy and housing is stable.

A few more months below parity and the benefits of the weaker AUD will filter into the economy.  I do not believe there’s a need for RBA to further cut rates.

I am considering buying a call option when the volatility is lower.

Post Carnage from last night

eurusd 7 june 2013

 

gbpusd 7 june 2013

After last night’s spectacular moves by the EUR and GBP averaging more than 190bps, the current spot is at the 50% retracement level.  The market can now make very violent swings given the current volatility.

While I am of the opinion that the non farm payroll numbers will probably disappoint given the earlier poor showing of the ADP numbers, we are going into Spring and the start of new job placements.  On the off chance, that the non farm payroll numbers coming in stronger than forecast, we should see USD powering back against the EUR and GBP.

Volatility in equities and forex are high right now, and hedging through the options or CFD market is very expensive.

If one is being prudent to potentially capture either the upswing or downswing, buy a call/put spread option would be a safe bet, as one would WIN either way.  However, the cost of the spread option till Monday 10 June is a hefty 114bps.  So is it worth it?  NO.

Which means, one will have to take a gamble on one side.  My advice is to place a stop loss as it is our only protection.

I am deciding to stay out of the market today and instead, spend time with my wife going to the spa and a nice dinner.

Here’s wishing all of you a great weekend.  Remember, in the forex market there is always another day of opportunity, so if you don’t feel comfortable…….don’t push yourself.

 

ADP Non-farm employment and ISM Non-manufacturing/Factory Orders at 8:15pm and 10pm respectively Singapore time

What do I think of the above data?

I believe the data will disappoint, but it may not have a big impact in the marketplace as the EUR and GBP have already retraced to the 61.8% level.

Upside will be limited, however, if the data comes in strong, then, the downside risk is much higher.

Although, I feel and believe the data will disappoint, however, purely from the risk and reward ratio, if the data surprises on the upside, then, the meltdown in the EUR and GBP will be big.

So, I may put on a contrarian trade and place a sell limit order on the EUR and GBP.  Maybe, instead of placing two orders, just do a cross, that is, EURGBP.

Anyway, we still have another 3 hours before the data is out and more time to access the opportunity.

 

GBPUSD: Services PMI @ 4:30pm Singapore time

What do I do???

Looking at the chart it appears that the current spot is at about the 50% retracement level between the high of 1.5581 and the low of 1.5023 established in the month of May.

This means that the GBP can literally swing either way, depending on the PMI data.  I believe the data will outbeat the forecast of 53.1.  The past 3 months has been showing an uptrend and there’s no reason to be otherwise.

gbpusd_hourly chart_may 2013_6 june 2013

Checked the option, to buy a call option till this Friday seems rather expensive at 68bps.  So it looks like I may have to place a limit buy order or maybe, even a spread order, that is to buy and to sell the GBP.

 

Australia GDP tomorrow at 9:30am Singapore time

Tomorrow’s GDP number will potentially be a market mover for the AUD.

Watch out for it.

RBA Rate Decision Tuesday, 4 June 2013 @ 12:30pm Singapore time

What can we expect from the RBA?

Will the RBA reduce rates again?  I am not so sure that they will as the Aussie economy is not in such bad shape.

I will share my thoughts with you and also potentially a trading strategy.

Tune in.

Why is the AUDUSD so resilient?

The AUDUSD took out the critical 0.9580 last support level and established a new low of 0.9539 which started me thinking is there a bottom to the AUD?

Then again, the AUD staged a great comeback by defending the low and is currently trading at 0.9665.  So, the real question here is, is the AUD going to go to 0.92 like what the street is saying?

I am not convinced.

I am going to undertake an analysis of the AUDUSD and share my thoughts with all of you next week.  Maybe, the time is near to do a long dated call option on the AUDUSD to capture the BIG move back up?  Possible?  Maybe?

 

Update on 2 month EURUSD call option strike 1.2990, BE 1.3175 expiring 21 June 2013

Time for me to do an update on the 2 month EURUSD call option that I  did back on 24 April 2013.  My cost was 185bps and the breakeven was  1.3175, the current spot of 1.2895, appears to be still very far from my  levels.

There is a real possibility that I  may have made a wrong call on this one and then again, I  may not, it’s really hard to say right now.

The tide which was very bullish USD may be turning this week and we might see the return of the bulls for EUR, GBP and AUD.

Mid week is going to be critical, Wednesday is the release of the BOE’s policy minutes, and also Bernanke speak on that day.

Thursday is crucial as fresh numbers on the flash PMIs will be out.

Friday is when Draghi speaks.

My hunch tells me that we will see alot of action and volatility in the latter part of the week, favoring a weaking dollar.

Missed Opportunity: Long AUDUSD

Quiet day on the economic front, however, a feeling told me that the AUDUSD will move today and it did twice today.

The slow and fast stochastic including the ichimoku were spot on!

It happened once this morning at 9am from 0.9741 to 0.9784 and then again when London opened at 3pm at 0.9750 to 0.9789…………………..oh what a waste!

The trades were so so so sweet.  I am only to be blamed as I was too busy replying emails all day and missed it.

Oh well………..cie la vie………….the good thing about the forex market is that everyday is a trading opportunity, so there’s always tonight US time or tomorrow.

I am going to walk away from my screens for now and maybe come back when New York opens, and then, again maybe not, might just spend the monday night enjoying a good dinner with my wife.

Enjoy your Monday everyone.

Update on Gold

dji and gold

The above is a chart that superimposes both the gold price graph and the Dow Jones Index.

Generally, there is a negative correlation between gold and the equity markets.

During the boom years of 2006 and 2007, look at how poorly performing gold was, and we see it again during the latter part of 2011 and this year.  Every time there is good economic data on the recovery of the economies and growth story, the price of gold will drop.

However, it is a reality today that gold is an asset class that is part of the asset allocation in an investor’s wealth portfolio.  It is no longer looked upon as a traditional hedging instrument.  It has come of his own in the past 12 years.  Today, there is a deep enough and broad enough market, that is, sufficient retail, corporate, institutional and government are and have invested in gold.

Today, it could be argued that gold is a pseudo currency, it has liquidity, it has an underlying value and it can be used in trade.  When the world is flush with liquidity and interest rates are low, confidence wanes in currencies as investors feel that the underlying value of the currency is weak, given that the global economies are weak, except for the emerging markets and Asia.

I believe the worse is over the the United States and for Euroland, there are still some bumps ahead, however, both economies have exhibited resilience and tenacity, they have turned the corner.  Now, just because they have turned the corner does not mean that the road to economic growth will not have hiccups, it will and we should expect it.

We believe the medium term 3 year outlook for gold would be that it will find a base at about $1,000/-.

Right now, institutional investors, that is, the fund managers are all selling gold or calling for a sell in gold.  The gold market is extremely bias short futures which will continue to add downward pressure to the price of gold.

What is the recommendation?

If you have gold holdings or gold ETFs, do consider rebalancing your asset allocation back to more equities.  The outlook for equities is positive and yet dangerous.

Right now, equity markets are driven and supported by liquidity and not by fundamental growth in the economy nor healthy earnings from corporates.

If the transition to a healthier economy and strong corporate earnings happen when QE is pulled back and interest rates rises, than equity markets will continue to rise.  If this transition is not handled properly, then, we may see some significant correction in the equity markets.