Cable and EUR/CHF technicals updated
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There are plenty of stop-loss orders reported close to the market in a variety of pairs and if they are still live tomorrow morning, then we should see even more volatility. Should be another interesting Monday morning in stop-loss city, I mean Sydney :)
EUR/JPY: The move to 130 was foretold on October 19th last year
Unfortunately not by me, but by an emerging hedge fund manager, and here's the link that some of you have been asking for.
Why didn't I listen to him!
EUR crosses on the rampage
EUR/GBP and EUR/JPY are the stand-outs with long-term players exiting EZ short strategies across all financial markets. Any thoughts that these trends might be due to slow down were well and truly put to rest on Friday night.
EUR/CHF and EUR/AUD have lagged a bit on this particular leg but it is the nature of these big cross moves that they move irregularly at best.
I got stopped out of my AUD/JPY short trade and it's best I leave the AUD alone for a while as I'm not timing it very well. I'm sticking with my USD/CHF long trade as I feel we may soon experience a strengthening in the USD across the board. Congrats to those who sold the cable at 1.5865, nice little earner as Arfur Daley would say.
EUR staying ueber bid across the board
I'm not quite sure why EUR/CHF is the exception, perhaps just to spite me, but the EUR is still going gangbusters against the JPY, AUD and GBP. I certainly don't fancy getting in the way of this train.
Nevertheless I'm sticking with my short AUD/JPY and long USD/CHF trades, and even though my positions are small, the latter position is becoming painful.
And on to the contentious issue of fair value
Just like the age-old questions of 'what's the best song ever written' or the 'greatest goal ever scored' there's of course also the thorny issue of 'fair value' in the FX market. Where should the major pairings be trading? Well my tuppence-ha'penny worth is as follows:
- USD/JPY; in a period of USD strength could trade 100/105 but in periods of USD weakness should be closer to 75/80.
- EUR/USD; I'd put the long-term fair value somewhere between 1.20/1.25 with 20% variation either side based on prevailing sentiment.
- AUD/USD; 90 cents, max!
- Cable: Has traded near 1.55/1.60 since I've been in the market (1986).
- USD/CHF; tough one as this game has changed, but for me probably above 1.10.
I think we are seeing a period of extreme over-valuation in the JPY crosses which will eventually turn around as the market rationalises. The missing ingredient at the moment is the USD, which is almost trendless, up against the JPY and the GBP, lower against the EUR and the CHF, steady against the other commodity currencies. Once the market gets over this period of over-extension, then we will start moving back towards more neutral levels.
Yen selling begets more Yen selling
The FX market is like a great big herd of sheep, constantly looking for direction and then all piling off blindly in one direction just because one led the way.
After chatting with quite a few people, it seems to me that the market is continually selling Yen because it's the directional thing to do. Not a lot of thought going into it, but if everyone else is buying EUR/JPY then I should be too! Real-money, hedge funds, CTAs and retail traders, all doing the same thing.
Is EUR/JPY headed to 140? Or even 150? Possibly, I have no idea. But if you want to see what happens when the herd of sheep reaches the edge of a cliff, simply look back at AUD/JPY during the GFC when it was falling by 15% in half a session! That's what happens when you trade blindly in one direction without an underlying fundamental reason.
USD/CHF orders: Stops building below .9055
Some prop traders (with usually good info) have their stops placed below .9055. This usually means that they know of bids ahead of there (.9065/70) and hope that their stops will be protected. Often works the first time but gets smoked on a second try.
Real money buyers all over the JPY crosses
Thanks for all the emails outlining exactly who has been buying the Yen crosses in recent days, and it seems most of the blame can be laid at the feet of big asset managers. There has been universal Yen selling although I must admit I haven't really seen any evidence of mass exodus out of JGBs by foreign entities (anyone help here?) and the Nikkei has been exploding higher so I'm presuming foreign managers are buying there as well? Does that mean that the market was long of Yen, or are these players all 'panicking' into short trades? I wish I knew the answer right now but I will find out.
Retail platforms reporting very heavy turnover in recent weeks
All of this volatility is encouraging lots of turnover and retail platforms seem to be universally reporting very heavy activity. I'm not sure if this is a good thing or a bad thing for most retail traders but at least we cannot complain about the lack of opportunity.
Looks like I'll be busy this evening, I've got small 'out of the money' positions in USD/CHF and AUD/JPY so I'll need to be smart and lucky to trade my way out. It would be very boring (I think) if all positions went straight into the money (but I wouldn't mind giving it a go for a while).
Reducing my AUD/JPY short position
This JPY trend is just too strong so I'm reducing my AUD/JPY shorts by 1/2, taking a small loss, and making me less likely to make any panicky decisions on the balance. Let's see what Europe makes of all this!
USD/JPY: Just keeps on making new highs
Nobody seems to be able to tell me exactly who is buying this pair, but someone is that's for sure with new highs being made every few hours it seems. At this rate, we will be trading close to 100 by the end of February. EUR/JPY is still the main driver I feel but once again, I haven't been able to find out who the big buyers are there either.
Market settles down for quiet afternoon post-PMI
Wishful thinking perhaps on my part. I've added to my AUD/JPY short position and this is one where I am following my gut-instinct 100%. As I said earlier, dealers are reporting decent buying interest in the AUD/USD from asset managers but I still get the feeling that the AUD is ripe for a big downmove. The riskiest and most volatile pair is of course AUD/JPY, so here's hoping that my instincts don't let me down. I'm keeping stops fairly tight anyway so the risk is definitely limited.
Official PMI was quite disappointing, which surprises us conspiracy theorists who don't believe a word the NBS has to say! The HSBC reading was better than expected but the AUD has not been able to rally! A bearish sign perhaps?
AUD/JPY: Time to take a risky short position
I've just gone short at 95.50 with a tight-ish stop above 96.00. I have no set level yet but will chop if we break new highs. If the market consolidates below 95.80 I will increase the position size.
AUD/USD: Don't get too bearish near range lows
The official Chinese PMI data was lower than expected and now we await the HSBC version. There were rumours yesterday of some worse-than-expected results and these rumours do now seem to have some credibility.
Nevertheless, dealers say that asset managers remain committed buyers on dips with plenty of bids between 1.0335/65. In my experience, they are always 'committed' until the price starts collapsing and then they panic sell just like everyone else.
EUR/USD: Some decent offers reported near by at 1.3625
Dealers tell me that there is some decent selling interest close by at 1.3625 but with EUR/JPY now having taken out the 125.00 level, it's surely only a matter of time before these sell orders get taken out as well.
EUR/USD: No corporate sellers reported on move through 1.36
Looks like the European corporates cancelled their sell orders before tha Asian session began. EUR/JPY has again been the main driver with stubborn bears forced to give up after the strong technical reaction yesterday at 123.00.
USD/CHF, cable testing technical levels
All the levels mentioned below have proven to be very relevant.
- Corporate sellers have capped EUR/USD ahead of 1.3600:
- Cable is stalling around technical resistance at 1.5865:
- USD/CHF is holding near technical support at .9080/90:
- Important technical level at 123.10 has been confirmed in EUR/JPY.
Conclusion = Buy USD/JPY dips.