In addition, the necessity for a market hedge has become less relevant, or at least less rewarding, over the past two decades. Now we see cash-rich investors worrying that their cash becomes less relevant and they start looking for hedges in the next great disruptor field, digital currencies. The big challenge is of course to find traders who actually know what they are doing in a market that is still so new to everyone.

But there exists an even bigger problem that the financial community hasn’t quite gotten to grips with yet. The people who truly understand the digital space, the young twenty-something technologists and evangelists, distrust the traditional banking world with a passion that probably isn’t misplaced. The world’s financial markets have always operated on the assumption that everything has a price; in the case of the oft-maligned post-millennial generation, this assumption may be seriously challenged.

John from MNI, who always has impeccable sources, is reporting in the FXWW-RM chat room that a big US player is behind the 50 pip fall in GBP/CHF over the last hour or so.

CHF/JPY took out consolidation highs near 107.25 and spike highs near 108.70 (see chart). I don’t know what’s behind this move and won’t touch it until I find out.

Good luck today and TGIF.

EUR/JPY is 50 pips lower on the session, a mixture of risk-aversion and ‘buy-rumour-sell-fact’ reaction to the Japanese election. I’d like to try selling this pair again but after being stopped out of a short position last week, I’m leaving it alone for now.

Conclusion: Short GBP/AUD still looks like a good directional play but its already fallen quite sharply so pick your entry levels carefully. The so-called risk on trades like AUD/JPY and AUD/CHF also look like decent dip-buying plays.

The weekly technicals show that the big multi-wave move from .5730 to .8080 has now retraced 38.2% (see chart), so if you are a long term bull on this pair and are looking for value trades, this could well be one?

• AUD/JPY has broken up out of a consolidation phase (see chart) and could quite easily now enter a retracement phase which would take it back towards 95. The fact that the Chinese credit crunch seems to be a managed event by the PBOC should reduce panic and cause an oversold market to start short-covering.
• EUR/JPY is less of a clear case (see chart) with both currencies likely to suffer in the short term, but we could easily see a move back towards 131.00 in the short-term.
• CHF/JPY is not a pair I look at very often but if you really want to buy the Yen, this looks like the best risk-reward play (see chart)?

Obvious conclusion is that I should be buying AUD/CHF; best I go have a look!

• Aggressive tapering by the Fed will have a big impact across all asset classes and encourage macro and hedge  funds to exit positions built up over many years. We will see panic selling in certain markets, gold will fall back towards $1250, and the risk trades like AUD/JPY will fall hard. USD/JPY will fall towards .9350 and AUD/USD will test lows at .9325. The CHF will outperform whereas the GBP will underperform, in the very short-term at least. In this scenario GBP/CHF could be trading near 1.4100 and AUD/JPY near 87.00.
• A timeline is set for gradual tapering; then we will get a much reduced version of the above and in fact we may not get too much reaction at all. I sense that the market is prepared for this scenario.
• No change at all and no mention of tapering: This will see the risk trades like GBP/CHF and AUD/JPY rally hard, maybe 1.46 and 93.00 respectively.

That’s how I see the world and I think that quick cross traders might get some excellent opportunities after the event.

Now that EUR/CHF is headed back towards 1.2200, should we be buying this ‘cheap’ dip or should we be avoiding? I didn’t even mention going short, as it’s hard to imagine anyone going short ahead of SNB bids but I know of at least one very experienced trader who thinks that EUR/CHF will be back at 1.10 by mid next year (on the back of a renewed EZ banking crisis).

I think its probably worthwhile buying dips towards 1.2200 in the hope that the bull trend can re-emerge, but my confidence is slowly eroding.