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Tag Archives: audusd

On Monday morning, I looked at the charts of the 4 majors and noticed that late US session on Friday, the USD was starting to claw back some ground.

I felt strongly that my hunch of a USD reversal is on the cards!

So I decided to get pricing to buy ATM put options expiring 29 April 2016 with the following details: –

EURUSD   –   Spot 1.1253, Premium 140bps, B/E 1.1113

GBPUSD   –   Spot 1.1253, Premium 180bps, B/E 1.1.4282

USDJPY   –   Spot 111.47, Premium 1.27bps, B/E 112.74

AUDUSD   –   Spot 0.7596, Premium 106bps, B/E 0.7490

I decided to execute all 4 put options with notional amounts of US$100Mn each.

It’s 6:38pm on Tuesday evening and where is the spot rate for the majors?  Well, it’s: –

EURUSD  –  1.1211

GBPUSD  –  1.4276

USDJPY  –  111.62

AUDUSD  –  0.7592

Looks like I am also breakeven on my GBP, a little ways for the rest, however, as I mentioned earlier, I feel strong that there will be a USD reversal within the next 30 days.

I mean look at how the majors moved against the USD at FOMC and more so post FOMC, on average about 400bps moves against the USD.

I don’t believe for a moment that these counties can survive on such strong currency valuations when their respective economies are anemic.

Ok, fingers crossed and toes crossed!!!

Good luck in your trading.

Since last Friday, the back of my neck was feeling itchy and I couldn’t thinking that the USD was oversold after the FOMC.

I decided to look at the 4H charts on the GBP, EUR, JPY and AUD and here they are: –

4H_usdjpy

4H_eurusd

4H_audusd

From a technical point of view, isn’t a USD reversal a high probability???

Janet Yellen’s speech and Q&A did not warrant such a strong sell down in the USD, this is my personal opinion.

I am looking at buying put options against the majors till maybe end of April, will have to check the premiums to ascertain whether it’s expensive or not.

The saga continues……………..

You will recall that I was a strong believer in the AUD and the Australian so much so that I bought two large call options.

The first with the following details: –

Spot: 0.7015

Premium: 288bps

Breakeven: 0.7303

Expiring 26 August 2016

I decided not to stare good fortune in the face and sold the option at 0.7603 for a 300bps trading profit.

Though the absolute amount of the trading profit is nice at US$5.4Million, from a risk reward ratio of near 1:1 (as the option cost me US$5Million), it wasn’t exactly a good trade.

However, I was not about to continue waiting for the Australia economy, I have somewhat lost faith in its rebalancing and rejuvenation away from mining.

The remaining AUDUSD call option expiring 9 July 2016 has a breakeven of 0.7420, I will take a chance and keep this option as I still have time on my side and who knows, maybe, some of the private banks are correct when they are forecasting AUDUSD at 0.7900 within the next 3 months.

If you recall, I executed an AUDUSD call option on July 8th expiring Nov 27th with the following details: –

Spot: 0.7390

Strike: ATM

Premium: 200bps

Breakeven: 0.7590

The high on November 27th was 0.7234.

Oh well, you can’t win them all.  I still have two other AUDUSD call option expiring in July and August 2016.

Every country is looking at economic growth, labour, CPI and unemployment.  Australia is no different.

So at 8:23am, I put on my straddle with the following details: –

AUDUSD   0.7045   –   0.7065   –   0.7085 with spot at 0.7065 and SLs at spot

Employment came out whopping strong at 58K vs 15K forecast and unemployment rate dropped to 5.9% from 6.2%.

The AUD spiked up triggering my stop if bid order at 0.7085.  I sold half the position at 0.7140 and keeping the other half till Asia opens and clients starting coming in in the mid morning.

Unfortunately, the AUD didn’t really move very much more, so I closed the other half of the trade at about 10:30am at 0.7145.

Trading profits was 55bps and 60bps for an average of 57.5bps on $100Mn trade size.

Coming into the RBA rate decision, the media was somewhat noisy with the great majority believing that the RBA will not cut rates.  Then again, there are extremist who believe that the RBA likes to catch the market off guard.  The RBA dropped rates twice in 2015 catching the market by surprise.  Then again, somehow, I don’t have a whole lot of confidence in this event, however, as a trader we also need to be there.

Would this have been the case as well?

Instead of my usual straddle, I decided to just place a Stop if Offered on the downside with the following details: –

AUDUSD  –   0.7150 with spot at 0.7172 and SL at 0.7170

As it turned out, the market was wild!!!!!!!!  RBA kept rates on hold and said that it will continue to maintain an accommodative policy.

Within 15 seconds, the AUD gapped down to 0.7110 and then gapped up to 0.7205 and settled at 0.7163.

So my trade got triggered at 0.7150 and then got stopped out at 0.7170.

It’s 45 minutes later now at 12:15pm and the AUD is at 0.7204.

In hindsight, it was a fortunate thing that I only did one leg and not the full straddle otherwise I would have been triggered and stopped out on both trades!!!

So the moral of the story is?  Nothing is guaranteed and nothing is for sure, even the best strategy can be whacked by the market.  What is important is discipline and risk management; manage your trade size and please please place stop losses.

Ok for this trade I made a trading loss of 20bps, but if I had not placed a stop loss, I would not be staring at a 50bps loss.

Later this week it’s BOE, what can we expect?

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.

 

 

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 still a strong believer in the Australia economy and the Aussie Dollar.  I believe the economy will turn around next year and that the current levels will be a thing of the past.

I decided to buy a plain vanilla call option, strike ATM spot with the following details: –

Spot 0.7140

Premium: 280

Breakeven: 0.7420

Expiry: 29 July 2016