Latest news from FXWW
Getting back into the swing after a few months hiatus, so here's what's going on:
- Our funding program for traders with <$5m under management is about to launch. This has been a huge bugbear for us as institutional investors will simply not look at anyone with an AUM of <$5m. We have devised our own program with guaranteed allocations starting at $50k and rising to $3m pretty quickly. The program is receiving excellent feedback from institutional allocators so hopefully this will be the missing link in our career chain. (Contact me directly for more information).
- One-on-one mentoring is still available to managers with a minimum 2-year track record.
- For those who haven't already done so, adding crypto-market knowledge and trading experience will greatly benefit your asset management business. Time to educate yourself!
- On the jobs front, there is still a very heavy bias towards quants and there isn't much happening for discretionary traders right now.
Time to help an old friend if we can
Gerry Davies, what a character. I loved working with Gerry to get ForexLive established and he never ceased to make me laugh. He didn't take himself seriously and he had a great way of putting trolls in their place.
Now he needs a bit of a leg up, so if plenty of us can give a little, then I'm sure that will help him a lot. I'm a bit late to the party, having been under a rock for the last few months, but better late than never.
Here's the link: https://www.gofundme.com/f/zgamw-help-gerry-get-back-on-his-feet
Evergrande: Bondholders to bear the brunt, contagion to be limited
Chinese property developer Evergrande, one of the world's most indebted property developers with borrowings of around US$300 billion, is edging closer to defaulting on it's loan obligations if reports that it has missed some final payment deadlines can be believed. Such a default would have a snowballing effect, especially in the property development sector, but fears of a major contagion event in financial markets seem to have eased considerably since Evergrande's problems first came to light a few months ago.
The Chinese government has made it pretty clear from the outset that it has little appetite for bailing out global bond investors and that it would concentrate its efforts on supporting homeowners and the real estate market in general. Both the government regulator and the People's Bank of China have been very vocal in their criticism of the Evergrande management team, blaming individual mistakes for a crisis which will not impact wider market stability. In other words, they will ringfence Evergrande as best they can to stop it's troubles from infecting the rest of the Chinese property market so that if-and-when the developer officially defaults, the losers will be contained to on-shore and off-shore bondholders, who will take a severe haircut, and equity investors who will probably lose their entire investments.
Whilst not completely ignoring any potential ramifications of an Evergrande default, the global financial markets are taking a business as usual approach with any fallout expected to be limited to the lower investment grade bond markets. Global stock markets remain buoyant and typical risk-off trades are showing no signs of gaining traction in any financial markets. Investors are not taking the potential fall-out of an Evergrande default too seriously. Even reports yesterday out of HK that trading in another property developer, Kaisa, had been suspended amid reports that it also was unable to meet a payment deadline have failed to rattle investors.
If the global financial markets continue with these non-reactions to Evergrande headlines, then the headlines will gradually disappear. On the other hand, at the first sign of contagion, watch for risk-off instruments like the JPY crosses in the FX market (lower) or the precious metals (higher) to be leading indicators that the market is indeed more nervous than it's making out to be.
'Tis the weeks before Christmas, only the brave get involved!
It is good practice for me to regularly revisit all the major factors influencing the instruments that I trade and see if anything has changed and if I should be adjusting my approach. Market positioning, fundamental indicators, technical analysis and risk factors will all have a significant bearing on what moves and on how far it moves.
'Tis the weeks before Christmas, and we all know what that means, position reduction in increasingly illiquid markets. In the FX markets, one of the biggest shifts in positioning in 2021 has been in USD/JPY, with a significant move from lows near 102.50 in early January to highs at 115.50 a few weeks ago. USD/JPY could well be renamed the 'inflation expectations' trade with a pinch of oil prices thrown in. With both of these variables moving in the same direction, it's little wonder that USD/JPY has risen as well. This has happened in the face of regular 'risk-off' Covid-related headlines which goes to show just how powerful the trend has been. But, it's December and traders/investors will be sorely tempted to book some profits or leave trailing stop-loss orders below the market so my instinct in this case is to play the contrarian card. The Fed has spoken and the news that rates will likely rise in the US sometime in mid-2022 is already written into the USD/JPY price so barring any major spikes in oil prices, I don't really see any major short-term risk higher.
The market loves a possible Head&Shoulders formation so the trade I like here is to sell on the approach to 114.50 and add on a failure, looking for a move back towards 110.50.
Cable is probably my favourite pair to trade in the FX market as it usually gives you chances to trade out of bad positions. But I'll say it again, it's the weeks before Christmas and this pair can move very fast indeed. Macro positioning is still thought to be slightly long although we must always temper these types of market predictions with the fact that no-one actually knows the true extent of speculative positioning in the FX space. Recent UK economic data has been decent and with UK interest rates expected to start rising early in 2022, there should be some optimism for the pound but that's not what the price action is telling us. The risk factors such as Covid/Omicron and supply chain worries seem to overly affect the GBP and the short-term risk for cable does seem to be to the downside.
I am looking to sell rallies towards 4-hr resistance near 1.3350 in expectation of a pre-Christmas sell-off below 1.30.
It would be logical, as I'm basically bearish GBP/JPY, that I would at the very least be neutral (if not bearish) on USD/CHF, but that's not the case. This is one pair where we can be very confident of overall positioning. Despite the interest rate situation, we see massive amounts of hedging/security buying of CHF and this has been going on for years. The big question is, will this buying continue or will a black swan emerge and send this hot money scurrying back to where it came from. With this in the background, it's impossible for me to be comfortable about being short USD/CHF so I basically leave it alone until such time as I see a good reason to buy it. Not very open minded I know, but we all live with our ingrained biases.
The AUD/USD touched .7000 last week on risk-off sentiment but has rebounded after the RBA statement and less-apocalyptic Omicron headlines. As we all do, I remain hopeful that this latest Covid strain is less severe than the last, but in regard to the RBA, I'm not sure that it's overly AUD positive. QE does seem likely to be significantly tapered possibly as early as February 2022, but the overall tone of the statement was still dovish and with Australian household debt at increasingly high levels, it's hard to see the RBA raising rates anytime soon.
The 21-day MA has often proven to be a very reliable indicator for the AUD/USD, so my preference is to sell rallies towards .7205 with expectations of a re-test of last weeks lows at .7000.
Finally to the EUR, which has been having a bit of a tough run of late across the board. This is despite increasing murmurings from the ECB that they have doubts about how quickly inflation could fall once the special Covid circumstances have changed. There are of course other factors at play including tensions with Russia regarding Ukraine so my preference is to avoid EUR/USD for now and possibly look for intraday trading opportunities in the EUR crosses.
A quick look at the long-term chart shows a bearish cross on the weekly MAs with resistance now firming at 1.16 and potential for a fall towards 1.09. Based on present risk, fundamental, technical and positioning factors, I find it unlikely that we will break out of this range in the next 3-6 months.
GBP: Looking for test of 1.30 before Christmas
Sterling in December is a vol-lovers Heaven and I am expecting the next few weeks to be no different. Cable has felt, for quite some time now, that it's down the elevator and up the stairs and I suspect that some of the more entrenched macro longs might also get a bit antsy as the holiday season approaches.
Last week's weekly close below the 100-week MA will not inspire confidence amongst the GBP bulls. 1.3350 has proven to be a bit of a pivot in recent times so I will look selling opportunities there. There isn't much in the way of strong technical support until the 1.25-1.27 window, another fact which will be lathering the bulls in sweat!
From a fundamental perspective, the short-term outlook for the UK economy and interest-rate cycle isn't looking a whole lot different to any of the other major economies but any new supply-chain hiccups will definitely affect the GBP more than other currencies. This risk, alongside the volatile Covid landscape, would be enough to convince me to exit GBP longs until early 2022.
Silver: Reinstate longs on dips to 22.20
I've had a bit of a mixed bag recently in my Silver trading, probably getting too caught up in the long-term view and forgetting to book profits when I had the chance. Maybe I will have learned my lesson in another 35 years!
Let's forget about that and move swiftly on to what's in front of us now. I still prefer the long Silver trade and with a possible short-term base in place at 22.00, I will buy intraday dips towards 22.20 with a fairly tight stop. It's December, and momentum/volatility is much more important than any technical indicators so I will stay patient and wait for levels that suit.
By the way there is one significant player in particular who is very active in Silver during the Asian session on a regular basis. Their modus operandi is to shift the market 1% (either way it seems) and hold the market until Europe opens when they unwind their trades. Easy money if you can get it and all will be well until the day they get caught on the wrong side (but I'm sure they will have booked plenty of profit commissions for themselves before that happens).
USD/CHF: Lot of catching up to do
The recent attraction of inevitable rate rises in the US has been more than outweighed by the 'risk-off' buying of the CHF and this has meant that (very annoyingly for me), USD/CHF has been unable to catch a bid tone like almost every other USD-denominated pair. The algos undoubtedly love this pair as its been stuck in an .87-1.02 range for the last 7 years and neither side has at any stage been able to generate any significant momentum.
Experience can sometimes be a negative trait when it comes to FX trading, as for decades I was used to trading USD/CHF in the 1.40-1.50 region and deep down its very difficult for me to be bearish on something which is already 50% below that area. The flows of international money into the CHF, which are overwhelmingly for security/hedging purposes, show no sign of reversing and until they do, USD/CHF will continue to defy anti-gravity (if that's a thing?).
So I've got 2 choices; do nothing or keep trying to pick a bottom. I'm going to stick with the latter and try and jump on any short-term bullish momentum in the expectation that when the tide turns against the Swissy, it will turn with a vengeance.
The daily chart is showing us some decent support/resistance around .9100/.9350 so I will wait and see what happens at either of those levels.
Long Silver, waiting for other levels to come into view
It's been a frustrating few months in the FX space for me at least and I'm trying to stay around breakeven while waiting for the next big thing to arrive.
My only position at the moment is long Silver, with a target at $32 and a review in place should we close below $24.50.
AUD/USD is recovering slowly off its recent .7290 lows but I'm unconvinced either way and am leaving alone for now. Similarly EUR/USD and USD/JPY are unappealing so I'm looking elsewhere for shorter term opportunities.
Cable has potential to reach 1.45 this time I feel so any 100-150 pip dips are worth buying with strength starting to emerge in quite a few GBP crosses. My longer term view is to sell aggressively in the mid 1.40s but lets deal with that if/when we get there.
USD/CHF is my other trade of choice and I'm a buyer on dips waiting for an aggressive up-turn to emerge. First support is the big big figure at .9000.
NFP lottery tonight but I'm not expecting much more than the usual stop-loss run. Good luck out there.
Edging into long USD/CHF position
I've been caught in the washing-machine tumble cycle for the past few months and my most recent efforts to pick a short-term reversal in USD/JPY came to naught.
Overall signals are still mixed in my view; the metals look bullish but are rangebound, USD/JPY feels solidly well bid, cable feels like it should see a test of 1.45 and both EUR/USD and AUD/USD are still in medium-term bullish mode but looking tired (the technicians will call it 'working through over-bought conditions').
I am going to have another go at picking a turn in USD/CHF. I could go into a number of technical and fundamental reasons for this trade, but if I'm really honest with myself, I can probably look harder and find just as many reasons to be bearish. No, this is more of a feel trade, where I think the market overshot at various times and will eventually move back towards long-term neutral levels closer to 1.20. As we well know, opinions are irrelevant and the only thing that really matters is timing, but at some stage we will get 'lucky'.
Reasons to be cheerful, Part 3
Stopped myself out of USD/JPY and what have I learned? First lesson was that the Tokyo market was consistently buying USD/JPY, regardless of what happened overseas. There is obviously some speculative component but the relentlessness of the buying heavily suggests that real money buyers were behind it. Lesson 1- never mess with the real money!
Lesson 2, is basically a repeat of every lesson from the last 35 years of FX trading, stay out of slow markets; they don't suit my temperament. (I have never claimed to be a fast learner!)
Lesson 3, add Ian Dury on Spotify: https://www.youtube.com/watch?v=CIMNXogXnvE
USD/JPY: Shorts in play
I quite like the prospects for a short-term reversal in USD/JPY and have started building a short position below 110. Some of the price action in the metals and equity markets suggest that we may see a long overdue adjustment in the market's risk profile. I'm playing this angle via USD/JPY with initial targets around 105.50. I will reduce the position on a break back above 100 and re-assess.
Patience getting sorely tested but trying to keep ammo dry until lights get brighter
- EUR/USD: Pretty hard to get excited one way or the other, so if in doubt, stick to range trading. Clear and confirmed break above 1.2350 would change that view but for now, sell rallies looking for lower end of range.
- Cable: Favour selling rallies into 1.43/1.45 window.
- AUD/USD: Range fairly clear now .7550/.7850.
- CHF: I remain very bearish but will be reliant on degree of luck in order to get the timing right. I really don't want to sit on a position in a sideways market for 3-6 months!
- Cryptos: Coulda, shoulda, woulda..............
Algo Watch: Increase in short-term volatility likely
Last week's price action in the FX market suggests that the big systematic market makers may well be entering the "Corridor of Confusion", where conflicting signals lead to increased risk-aversion. Basically this means that the spreads may be a little wider and market support (size of bids/offers) will decrease until the AI becomes more comfortable with trading signals.
Algos in the FX market: What to look for
The behemoth Algos tend to operate across all financial markets. You will have heard them mentioned in the GameStop mania of a few weeks back, and they are similarly active in futures and commodities (less so in cryptos but this is changing).
They have such huge capital at their disposal that positions running into the billions of $$ is an everyday occurrence. Of course the FX market is very deep and no one player can consistently move it, but having the ability to hold large positions for relatively short amounts of time is a massive advantage for these machine traders.
The underlying rules of all of the big players used to be very simple and unusually similar (because the same guys wrote the rules!) but the advent of machine learning has meant that the underlying strategies and risk management models have evolved. Nevertheless, do not be surprised if the underlying rules are very simple like MA (moving average) crossovers and overstretched RSIs.
These funds are so big, they can basically dictate what happens in many markets at least part of the time. They may not be able to boss USD/JPY around during the Tokyo session but they can pretty much boss everything else at that time of day. Similarly cable and EUR/USD might get a bit big for them during early European trade but the underlying math is so fast and so clever, its unusual for them to ever lose money.
The real risk for these Algos is when a fundamental shock occurs, when real money starts to run for the exits and when the machines efforts to keep the market corralled leaves them with significant exposure. As we know in all markets, its when the positions get really huge and 'samey' that the big big reversal moves occur.
So should you consider trading short-term in the FX market and taking on the Algos? In general I'd say No, unless you are the 0.1% trader who has developed an uncanny synchronicity with your chosen market instrument.
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GBP: Consolidating strength, always a good sign
GBP/JPY made a sharp impulsive move this week which has certainly helped our bullish cable set-up and our next target is around 1.38/1.39. We are currently consolidating quietly near recent highs at 1.3275 and I expect support levels to be very solid now in the 1.3030/1.3130 window.
Macro hedges are tending to be short GBP across the board and I'm hoping that some positive Brexit headlines might encourage these hedges to start unwinding. The fact that GBP continues to show strength despite the ongoing Brexit uncertainty is giving me even more confidence.
In short, stick with the plan, buy into any decent-sized dips and book interim profits on impulsive rallies.
Cable update: All about the USD but don't forget Brexit!
I've been unusually patient with this trade and I still am sticking with my core long cable position and looking to add when momentum turns bullish. Must say I haven't been overly flash hot on the latter part of the strategy but we live in hope.
I still suspect that there are some serious short positions in cable which will not panic until we start breaking clearly above 1.35. The expected USD volatility hasn't quite eventuated (yet?) but I feel that one favourable Brexit headline might be enough to drive us above 1.35 and get that short-covering underway. If that does happen, then my target at 1.43 should be achievable.
On the downside, I expect recent lows at 1.2900 to provide support with stronger levels at 1.2680.
In the short term, a break above 1.32 will open up a bit of clear air. Good luck out there++
EUR/AUD: Stay in dip buying mode
Some excellent intraday opportunities in this pair and it looks to me as if an interim base has formed above 1.60 and we should see a test of 1.75 before Christmas. No big fundamental changes here, just usual market swings and roundabouts.
Buy into intraday dips looking for 200 pip profits; rinse and repeat.