CPI data for the UK is a hot data on the radar screen because BOE, Carney is watching CPI, GDP, employment, housing prices, etc in his decision to raise interest rates next year.
At 4:25pm, I decided to put my straddle trade on the GBPUSD as follows: –
GBPUSD – 1.5300 – 1.5325 – 1.5350
Spot rate was 1.5325.
I squared the trade at 1.5245 for a trading profit of 55bps. Not bad for half an hour’s work.
On October 9th, there wasn’t any noise about industrial production in the Euro area.
So to prove a point that ‘noise’ in the media creates volatility, I decided to place a EUR straddle trade as follows: –
EURUSD – 1.1255 – 1.1285 – 1.1315
As it turned out industrial production numbers came out weaker but guess what, no one really cared.
The EURUSD hardly moved, so I withdrew the order.
The point I am making is that once we know where the economy if going then we need to follow the data that supports where the economy is going. Couple with noise in the media nearing the release of the relevant data, then, the currency will potentially be volatile when the data is out. Sounds reasonable? Of course.
On September 28th I shared an article with all of you about my findings looking at three currencies and over laying it with Fibonacci.
It showed that all three majors werre tradinig at their low 23.6% range taking into consideration the recent highs and lows of the 4H chart.
This morning when I looked at the three currencies, their were hoving at 0.7188, 1.251 and 1.5306. This effecitvley works out to a move of 157 bps for the AUD, 115bps for the GBP and 50bps for the EUR.
Although, I am not a technical chart trader, this is an interesting observation. It just took 9 trading days for the majors to bounce back against the USD after laying in the trough for about 11 trading days.
It would be interesting to back test further other observations to ascertain the timing intervals between bounce backs from the high or from the low.
It could reveal a patten that may allow us to capture trading opportunities in the future. However, I feel the appropriate strategy would then be using a vanilla option to buy time for the market to come to us.
What do all of you think?
For some unexplained reason there wasn’t much noise revolving around the BOE decision, however, I felt that with the uncertain UK economy and Carney’s earlier comments about raising interest rates early next year that possibly we may see some reaction from the marketplace.
At about 6:55pm, when spot was hovering around 1.5350, I placed my straddle; Stop if Bid at 1.5370 and Stop if Offered at 1.5330. with correspondingly stop losses at 1.5350. Yes, the straddle is tighter at 20 bps higher and lower to spot rate. Then again, because there was little nosie in the media, I didn’t think volatility would be great on this event.
As it turned out, BOE held interest rates and votes were the same to hold rates and also for QE. Minutes indicate a ‘no hurry’ stance to raising interest rates and BOE will probably only consider doing so in the second half of 2016.
The GBP went south, triggering my Offered trade at 1.5330. I was still in my car when I did this trade, so within half an hour of the data release, when GBPUSD hit 1.5280 I decided to square the trade and go for dinner with my wife. Locked in trading profits of 50bps.
BOE, Carney to speak tonight at 2am Friday, morning Singapore time. Will there be any surprises from him?
It will also be the same time that FOMC minutes from the last rate decision will be released. Will the minutes illuminate why Janet Yellen decided not to raise interest rates?
I was expecting that the non farm payroll numbers on Friday, October 2nd will be closely watched as a signal for whether Janet Yellen will be raising interest rates this year. The noise in the media was playing up this event.
I on the other hand, had to make an urgent business trip to KL on Thursday through Saturday.
It was so funny, I was out for dinner in the Subang area where the internet connection is not always the most stable. I was with a group of business people having dinner. At about 8:25pm I excused myself from the group saying that I needed a few minutes to catch up with an old friend at the bar. I went up to this lady at the bar and explained to her that I needed to access the fx markets on my Iphone and that I would be most grateful if she would pretend that we were long lost friends and keep me with her for about half an hour. She hugged me and started acting up the role…………TOTALLY SURPRISED ME.
It’s terrible trying to do an fx trade on an Iphone, the screen is small and at the back of my head was the worrying fear that I may lose connection anytime.
I decided to do a straddle on the GBP and EUR: –
EURUSD – Stop if Offered; 1.1130, Spot; 1.1163, Stop if Bid; 1.1190
GBPUSD – Stop if Offered; 1.5120, Spot; 1.5150, Stop if Bid; 1.5180
As we all know, the non farm payrolls came out way below expectations of 201K at 142K, but what was more surprising that the markets reacted negatively was the adjustment to the previous month down to 136K from 173K. I don’t know how this will affect the running average, but for the time being, it’s SELL USD.
By this time, I already knew this lovely lady’s name, Cassandra and she was watching the fx markets with me on my Iphone, totally fascinated and what was happening in front of her eyes.
As it turned out the EUR popped up aggressively, the GBP was more of a roller coaster ride. Cassandra was getting so excited grabbing onto my hand, screaming, wanting to know when I am going to get out of the trade. She was quite distracting! My group who was watching from the other end of the restaurant was wondering what was going on.
At about 8:50pm, I decided to square off the trades in fear that the whole thing may get out of hand and also the fear that I may lose internet connection.
Squared the EURUSD at 1.1291 and the GBPUSD at 1.5216 for a trading profit of 101bps and 36 bps respectively on $10Bn trade size each.
Cassandra kept on screaming and grabbing onto me while I was trying to get out of the trade, really, you need a very strong resolve to focus and concentrate when you have a beautiful woman distracting the hell out of you.
I thanked her for helping me out, ironically, she thanked me as she said she never experienced something like this ever before, she whispered in my ear that she had an orgasm. I burst out laughing and she blushed.
I returned to my group and they were all drilling me on what the F_ _ _ happened at the bar. I just told them that my old time friend was excited seeing me after a 10 year lapse.
My blog followers have been asking me whether I hooked up with Cassandra again later in the night? Yes……………and that’s another story……….PG.
When I finally woke up in the morning on Friday after staying up at the office till about 3:30am, it was interesting to see how the fx rates have developed during Asian time on Friday.
If I had kept all the trades open, what would have happened?
AUDUSD would have been stopped out at 8:17am.
GBPUSD would have been stopped out at 8:28am
EURUSD would have been ok
However, the big winner would have been the USDJPY. You will recall, I squared the position half an hour into the press conference with no win no loss, that is, all square. If I had kept the position opened till late Friday morning, I would have made one big figure on the JPY, that is, 1.15 yen. Wow!
Then again, it is not our business to hold spot positions opened for so long and more so, unsupervised. Whenever, we have an open spot position, we will monitor it on screen till we square off the position and that usually happens within an hour or at the most two hours.
I really don’t know or didn’t know which way the flag was going to blow, simply because the media was creating alot of noise on both sides of the coin; one camp of FIs says Janet will raise interest rate, and the other camp of FIs says that Janet will hold.
As for me, I really don’t care, all I care about is the potential volatility coming into the rate decision. The more noise the higher the volatility. I am more interested in the verbiage in the statement and more importantly, the press conference.
I decided to put my straddle trade but with a wider goal post for safety reasons at about 1:44am: –
EURUSD – Stop if Bid; 1.1370, Spot; 1.1330, Stop if Offered 1.1290
GBPUSD – Stop if Bid; 1.5560, Spot; 1.5529, Stop if Offered 1.5480
AUDUSD – Stop if Bid; 0.7210, Spot; 0.7165, Stop if Offered 0.7125
USDJPY – Stop if Bid; 121.20, Spot; 120.85, Stop if Offered 120.35
All stop loss levels were at spot.
When the announcement of ‘HOLD’ came out, the market spiked triggering all my trades, but it also quickly settled back down and I was potentially looking at being stopped out. Thankfully, the majors slowly moved back up before reaching my stop loss levels.
At about 2:16am, I decided to square off all my trades as follows: –
EURUSD – Squared at 1.1400, minus 1.1370, trading profit was 30bps
GBPUSD – Squared at 1.5600, minus 1.5560, trading profit was 40bps
AUDUSD – Squared at 0.7210, minus 0.7210, zero trading profit
USDJPY – Squared at 120.35, minus 120.35, zero trading profit
We did US$10Bn on each trade and all orders were OCO, which meant that we didn’t have to double up our collateral for margin.
The press conference is ongoing now, but I think I will go to sleep now because I believe her responses to questions will be to be supportive, not necessarily accommodating, probably quite neutral.
I was really expecting alot more volatility but it really didn’t happen, oh well cie la vie. 70bps trading profit isn’t too bad since we did the trades on size.
As expected ECB kept the minimum bid rate the same, maintained the negative deposit rate and repurchases.
As I followed the media and news, coming up to the press conference it appeared that the market was expecting Draghi to be more accommodating and supportive, more importantly, to be more aggressive to easing if necessary.
So I decided just before the press conference when EURUSD was holding at 1.1226 to put in a straddle trade with the following details: –
Stop if Bid: 1.1250 with SL at 1.1220
Spot: 1.1226
Stop if Offered: 1.1190 with SL at 1.1220
When the press conference started, the EUR started coming off. As Draghi reiterated his position to keep an easy monetary policy, the EUR went further south.
Then, Draghi started talking about potential deflation and weak growth, and expressed concerns about emerging countries. He is clearly concern about China and let’s hope that G20 can uncover some of the mysteries that is unfolding in China.
At about 8:55pm, the EURUSD had already fallen all the way down to 1.1120, so I decided to take profit on half the position. Five minutes later, it went down to 1.1110, and I decided to sell the remaining position for an average of 1.1115 or 75bps trading profit with a trading size of $5Bn. IL Borro, Tuscany for Christmas.
This trade was long in coming and certainly helps to make up for the dull past 3 months, thanks to Greece!
Will we have another fun time come September 17th???!!!
What is BOE going to do next week?
Two more opportunities for this month.
The UK economy has been wavering back and forth with no strong solid trend. I felt that today’s UK Services PMI could be a telling sign as to where the economy will be heading and potentially a volatile data event.
So at about 4:25pm, I did a straddle trade with the following details: –
Stop if Bid: 1.5300
Spot: 1.5263
Stop if Offered: 1.5230
When the data came out at 4:30pm, it was weaker at 55.6 compared to expectations of 57.6, unfortunately, the the GBP didn’t really dip that much, it went to a low of 1.5238 and rebounded. It didn’t trigger my trade, so I decided to pull the trade out.
It’s now 9:20pm and the GBP is holding at 1.5264. So in hindsight it was prudent to pull out the trade, as nothing really happened going into early NY session.
I guess the world is more focused on tonight’s ECB and Mario Draghi!!!
I decided to add on to my position when the AUDUSD came off some more, with the following details: –
Spot: 0.7015
Premium: 288bps
Breakeven: 0.7303
Expiry: 26 August 2016
I am born in the Year of the Tiger.
The Panthenon Investment Group 