USD remains under pressure in early Asian trade
EUR/USD traded up to 1.2270 in very early Asian trade, 50 pips above Friday's close, after positive headlines regarding German coalition talks and more uncertainty regarding the US government funding situation.
The early-year trend of a lower USD looks like it might still have some legs and I am not looking for a reversal just yet. Cable remains on track for a test of 1.45 and EUR/USD is starting to look comfortable above 1.20. USD/JPY still looks like a medium-term range play (107-114) so I am trying not to get overly bearish as we near the lower end.
USD/CHF is still the most likely pair to give the USD bulls some joy as I feel the CHF has more scope for losses on the crosses, especially against the GBP, AUD and NZD. I'm not jumping in just yet but and will certainly sharpen my pencil on any impulsive sell-offs.
The Banks are hiring FX traders again
It's been a very lean few years for anybody seeking employment in the FX industry but green shoots are starting to appear and banks are hiring again. Many of the jobs require significant levels of IT competence but there are also pure trading jobs getting posted.
The regulatory environment surrounding bank trading and the separation of capital has become more transparent and banks are seemingly more willing to start taking proprietary risk again. Not sure we will ever get back to the good old days of 500 global dealing rooms smashing the market around, but we live in hope :)
Have a look through the eFinancialCareers website for jobs in your jurisdiction https://www.efinancialcareers.com/.
We are happy to help you out with your application for any pure trading jobs which might require the presentation of a track record. Enquiries to support@FXWW.com with Job Application in the subject line.
Trader Sentiment & Positioning, week ending Jan 12th: Market still very square
There doesn't seem to be much point in going through the currencies one-by-one given the low levels of positioning and general dis-interest! That said, one of the bigger US prop desks has reportedly started to pile into an early USD short position against the JPY and Gold in particular.
The Algos are still dominating the market and it will take some significant news to get momentum started but with positioning at such low levels, we would seem to have the potential for a move to emerge if indeed a black swan arrives from left field.
There has also been some notable buying of AUD/NZD today, a perennial favourite amongst Asian investment managers, and with some technical bullishness also emerging, this is another pair worth watching.
On USD/Asia, offshore managers buying local bonds is providing some downward pressure.
The notion of 'notional' capital
During the The Qualifying Series it is a challenge to compare different traders' approach to money management as well as assessing their skill levels when it comes to picking the right trades and optimising profit potential.
The smart algorithms at PsyQuation are adept at picking the skillful trader but we are often asked how we can compare a trader with a 5k account typically using 20:1 leverage with a 100k account using 5:1 leverage. And more to the point, how can we then assess how this trader will react when they are managing $20 million? We do this by focusing on the returns on 'notional' capital rather than the returns on actual capital.
In order to attribute a notional capital amount to a trader, we look at what the traders maximum Net Open Position (NOP) was during an evaluation period, what their typical trading size was, and if there are any major fluctuations in either of these. Based on this information, and using the fact that institutional-sized allocations will hardly ever use any leverage, we assess what the notional capital amount is that the trader is trading.
As a very rough guide, using the above two examples, the 5k account would likely be notionalised to around 50k- so all returns would be reported as a percentage of 50k, not 5k- whereas the 100k account would be notionalised to around 250k.
If you're not at least semi-automated, then you will struggle to get funding...
We all the knew what the future held for traders in all markets, I'm just flabbergasted to realise that the future is already here.
I've been hearing the same arguments from institutional investors for the last 6 months- 'if the trader is unable to logically explain what they do in such a way that can be systematised, then I'm certainly not going to fund them!'. They aren't talking about black boxes either. They want trading methodologies and risk management processes to be largely automated. The trader can then adjust bias and other parameters as often as they see fit.
Of course the top class discretionary trader will still get backing, especially the ex-institutional trader who is skilled at managing larger risk and liquidity. But these are a dying breed.
For the younger, self-taught trader, being able to put most of the processes into a system takes care of one big box-ticks for the investor; it takes trade size and psychology out of the equation to a large degree.
By the way, when you are building your trading system, don't worry too much about finding the right developer, they are relatively commonplace. What you really need to find is the expert Business Analyst who will help to extract your trading logic from your traders' brain and into language that any developer can understand. That's where you need to make the proper investment!
USD/JPY opens higher, more short-term gains likely
The Clinton email saga continues to impact on the FX market and USD/JPY is the proxy trade for betting on the election result. News that the FBI won't be pursuing any further action against Hillary Clinton has caused USD/JPY to gap higher on the open, up to highs near 104.30 from a NY close on Friday nearer 103.10.
I have closed my USD/JPY position for now and am officially clueless. I will look to re-sell any rallies onto the 105 handle but with fairly tight stops above 106.00.
I've got no idea what to do with EUR and GBP, and my bias towards buying the AUD is also on hold until after the election storm has died down.
This feels like a 'reactionary' market where it's best to keep all powder dry and to take advantage of all silly moves and believe me, there will be plenty of them!
USD/JPY: Happy to stay short for now
I'm expecting a volatile day in USD/JPY ahead of the final weekend polls for the US election. From what I can gather, hedge funds are generally speaking still long of USD/JPY, especially the shorter-term players, and I suspect that they will start bailing out if we get below 102.50. There is still plenty of dip-buying demand from Japanese asset managers especially in the crosses like AUD/JPY and NZD/JPY but if the leveraged masses start buying JPY, these corporate bids won't hold it for long.
I've got a medium-term short with a partial profit target at 100.40. If we look like closing tonight above 103.50 then I will reduce my position over the weekend.
Short USD/JPY but otherwise confused...
- I'm quite comfortably short USD/JPY with a 100 pip stop above 106.00; if prices get there then I'm wrong.
- I've cut all of my long AUD positions against the USD and the crosses; I remain bullish but I'm not sure on the timing. Gold still looks bullish and EUR/AUD is surely a sell-on-rallies proposition but I will keep my powder dry until bullish momentum starts returning to the AUD.
- I'm clueless on the GBP and am trying to trade cable intraday in very small lots, hoping for the 'feel' to return.
- Positioning is reportedly quite light across the board, apart from macro short GBP, and it's hard to see the market getting overly aggressive ahead of next week's US election.
Levels to watch- Friday October 21st
I'm still long AUD/USD after buying the 'dip' at .7670 yesterday. I'm still comfortable with the position but will try and improve my average by hopefully picking the intraday ranges correctly. Interestingly Morgan Stanley have put out a very bearish strategy on the AUD/USD ("MS looking at short AUD/USD at .7670 on PULSE, sl .7750...target .6500" ...from the FXWW chatroom).
- AUD/USD: Any initial rallies to .7650 are likely to attract selling interest, first up, so I will lighten my position near there. I expect technical and market support to be extremely solid near .7570/90 so I will add or re-buy there, market conditions allowing of course.
- USD/JPY: 104.20/25 is expected to attract decent supply from Japanese corporates and that should prove toppy in early trade. Stale shorts will undoubtedly welcome any dips towards 103.60 and I expect this level to provide strong support during the Asian session.
Sorry no strong views or information on other majors.
AUD/USD: More topside likely, targeting .80 cents
There has been a lot of AUD and NZD bought in the last week and this mainly real-money demand is starting to have an impact. After last week's moves in the GBP, we cannot rule out any sort of silly market gaps and I believe that the structural speculative shorts in AUD, NZD and CAD are very vulnerable.
Any intraday dips to .7670/80 are now clear buying opportunities in my biased opinion. I'm not sure which level will trigger any bullish acceleration but it could happen as soon as a .7760 break.
AUD/JPY: Range trade before higher
- From a technical perspective, I expect some 600-pip range trading on a medium-term basis roughly between 76.00 and 81.50;
- Flow wise, there has been a lot of noticeable buying from Japanese real money accounts of both the AUD and NZD in recent weeks;
- This pair is traditionally one of the favourite 'risk-off' plays but with a Trump election win looking increasingly unlikely, I expect many of these trades to be reversed before the vote commences.
I remain a USD bear around current levels so therefore I prefer the long AUD/USD leg as opposed to the long USD/JPY leg of this cross trade. In fact I will feel quite comfortable in selling USD/JPY rallies if/when resistance is reached and confirmed in the cross.
That said, my preferred trade is to be long AUD/USD on all time-frames. For now I see medium-term support holding around .7500 and short-term support at .7600/20 providing a good entry level.
FX Price-Less market: What happened in GBP this morning and why these unwanted liquidity events will continue
I know all of us old interbank market dinosaurs will be driving you crazy with our "I told you so's", but we did! Whether for regulatory, commercial or technical reasons, the very core of the FX market no longer exists; namely the hundreds of interbank traders who sat at their desks and provided pricing no matter what the conditions. Yes the prices may have been wide and in small amounts at times, but there was always a price in the market. This morning we had another example of a Price-Less market!
Most of the market's liquidity is handled through a small-ish number of interbank trading platforms with prices being derived via prime brokerage agreements with hedge funds, asset managers, corporates, and retail brokers etc. All of these big interbank trading platforms have algorithms which track liquidity and constantly analyse risk. I suspect that these algorithms are basically written with the same underlying rules. In other words, when one platform panics, they all panic.
What we think happened this morning is that there was a large knock-out option at 1.2600 and once this level broke, a number of automated stop-loss sellers entered the market. As it was early Asian trade, there was very little immediate buying interest to soak up this supply, so the 'clever' machines simply matched the supply to wherever the demand was positioned on their platforms. Not many participants place their bids at levels >200-250 pips away; most prefer just to wait until the market starts trading there and then decide what to do. This means that there was a massive black hole with no prices for a rational market participant to make decisions off.
To add insult to injury, another massive 1.2000 knock-out simply compounded the problem and basically the sellers below 1.26 were joined by the sub-1.20 sellers in a matter of seconds. More panic!
Based on the price action since this morning's events, I would safely guess that if this had happened 15 years ago, we would have seen a nasty sell-off from 1.26 to possibly 1.2400/1.2350 in increments of 25/40 pips before the demand took over and stabilised prices back around 1.2400-50.
Instead of this we will have retail B-book brokers glorying in their 'record' profit days. So what exactly is the regulator's main duty?
USD rally gathering momentum
The precious metals, the JPY and the GBP have been the main sufferers at the hands of a bouncing USD with the CAD and NZD not far behind. The EUR and AUD remain strong on the crosses but are also losing a bit of ground against the greenback. The prospect of a Trump presidency is looking increasingly unlikely which would seem to be the main reason for the USD bears exiting the market en-masse.
It would seem that the market was significantly over-positioned in Gold, Silver and JPY in particular but I for one remain willing to take on the cable bears, if and when exhaustion starts to set in (so not yet!).
I'm not seeing any easy trades at the moment so I'm happy to sit and hope for some obvious opportunities when vol is high.
Plenty of bottom-pickers in the GBP crosses
As you all well know, I'm an inveterate contrarian and this trait is currently on show through my short EUR/GBP play from Friday. Unfortunately I do not think that this is a good position and I'm exiting with a slightly bloody nose before I do any more damage.
It seems to me that most traders are trying to pick bottoms in the GBP pairs like GBP/AUD, GBP/JPY, EUR/GBP and of course GBP/USD. In fact no serious speculative traders that I've spoken to in recent weeks is heavily short the pound. We know already that the big real money players are very short sterling but they have deep pockets and limitless patience. Leveraged speculative players have neither of these!
With some Brexit deadlines starting to emerge, the focus will return to the potential GBP downside and we can expect another serious test of those big technical support points in the above mentioned crosses.
BOJ and Fed: What the professional traders think... and what's the Outlier
Analysts, economists and commentators have been having their say for weeks but what are professional traders thinking?
BOJ: Short-term risk is still to the downside according to most surveyed, with an almost unanimous expectation that the BOJ will introduce its adjusted policy framework but will be light on policy changes. Perhaps a token 10bps cut, deeper into negative rate territory, but with very little else in terms of actual policies.
If this is what eventuates, traders expect USD/JPY to be testing 100 later this evening.
Most seem comfortable with a range trading strategy and don't expect any huge moves either way. Levels towards 98 are seen as good-value buys, especially given the large long JPY positions on many of the cross pairs. Levels above 104 are likely to attract plenty of corporate selling again and should cap rallies if the BOJ does surprise with additional easing measures.
FOMC: If the Fed raises rates then traders expect the GBP and AUD to bear the brunt of USD buying. Equity markets will dip sharply on any rate rise followed by hawkish tones, and this will impact immediately on traditional 'risk' currencies.
If the Fed keeps policy unchanged, but signals a post-election rise (which seems to be the favoured consensus), then traders expect very little movement in the major pairs apart from the usual chase after short-term stop-loss orders.
OUTLIER: The big risk in the market is still that USD/JPY has an explosive move back below 100 forcing corporate and option-market hedging to accelerate. This would be caused by inactivity by both central banks. So if both do and say nothing new, expect USD/JPY to be well below 100 by week's end.
None of the traders I spoke with will have any major risk in play heading into the events. Like every good trader, they will wait and see what the market tells them post event and then act accordingly.
Good luck++
USD/JPY: "Follow the Money" suggests downside risk for USD/JPY ahead of BOJ meeting
There has been a perception in the Asian market for decades that the big Japanese corporates somehow had the inside rub on major policy shifts by the BoJ. The idea being that hedging amounts tended to increase or decrease significantly in the lead up to major meetings. Next week's meeting is looming as a major one, with market expectations increasing that we will see a deeper dip into short-term negative rates as well as additional policies aimed at steepening the curve (increasing longer term rates).
Market information sources are certainly not as clear as they once were but from what I can gather, there have been huge offers from Japanese corporates on all rallies over recent weeks. Two weeks ago I heard reports that a big US investment bank bought billions of USD above 104 and could have had billions more, with huge corporate offers every few pips. On Wednesday of this week we had more huge tranches of USD buying go through the market between 102.85/103.30 running into more very happy sellers.
We will have to wait a few weeks for more exact positioning analysis, but I suspect that large speculative JPY longs have been exiting the market ahead of the BOJ but this JPY selling has been gratefully soaked up by un-leveraged JPY buyers.
It seems to me that the topside in USD/JPY is pretty much capped for now and we could encounter some significant downside risk before Thursday's decision.
FX Industry: Careers and Opportunities update- Q3 2016
FX trading opportunities in the interbank space continue to contract with banks hamstrung by increasingly onerous regulatory requirements. The major clearing banks are increasingly unwilling to take any risk on board, operating as pure e-brokers, and this obviously means that there are very few dealing jobs and no trading jobs. (I'd be thrilled to hear from any young traders who've managed to get a job (non-intern of course) with a bank in recent times).
That said, demand for traders in the retail space is on an exponential curve. This demand seems to be coming from 2 main areas; firstly there are traders who have tried to manage their own accounts but through lack of time and/or lack of expertise have failed to make much progress. These participants, who want to stay active in the FX market, are increasingly turning to managed account services. Secondly, and this has been a very interesting development, has been the development of the Chinese market. These participants, particularly the bigger accounts, seem more interested in investing with well-performed traders rather than trying to learn a new skill themselves.
Also in the retail space, there seems to be a gradual move away from the signals and copying model. The UK FCA has already introduced regulatory requirements for trade copying and it is probably only a matter of time before other regulators follow suit. I suspect that most investment products going forward will be some variation on the managed account model and will all come under a regulated environment.
The Hedge Fund and Fund-of-Funds markets remain robust with seemingly no lack of wholesale funds still happy to take on some market risk. 10 years ago it was nigh on impossible for an individual trader to get a seed allocation from a hedge fund and I seem to remember that there were around 70 boxes that had to be ticked before one could get even a small starting allocation. These requirements have been heavily diluted across the industry, mainly due to the lack of trained traders coming out of the interbank space. There are also an increasing number of advertised jobs and trading positions, even for juniors, with Quant Traders particularly sought after at the moment.
For all young traders starting out, remember that trust is still the key ingredient when it comes to investment. Build a consistent trading profile for yourself and take all the necessary steps to ensure that you are compliant.
[p.s. Don't be shy in pressing your case forcefully with us if you think you have the talent to become a professional trader. Fill out the form and follow it up regularly; there are thousands of hopefuls and you need to set yourself apart.]
Alpha-factor in prop traders
A good interbank spot trader had the capacity to generate $2 million in profits in a good month and whilst a certain percentage of this could be attributed to 'franchise' business, it still required a particular psychological mind-set which allowed the trader to fully take advantage of the times when they were reading the market correctly.
Prop traders operated a bit differently, usually taking bigger and longer term positions and often with the help of the options market, but they too also had that rare ability to squeeze the maximum amount of profit out of their good ideas and positions.
Life is certainly more difficult for the emerging trader today who has to operate without the large flow information that the bank trader had. Nevertheless it is obvious that this alpha-factor gene is alive and well in the FX market. The ability to generate profits is still the most sought-after trait and if you have this, the drawdown management side can be learned.
https://fxww.com/premier-traders-application/