There have been some short term changes over the last 3 weeks with AUD positioning back to neutral, CAD longs reduced and GBP longs starting to build. CHF and JPY shorts are also building albeit slowly and from neutral levels. The markets core positions of long USD and very short NZD still remain intact.

There are no major discernible changes underway and it looks as if the market is fairly comfortable and looking for the next impetus.

STRATEGIES:

NZD/USD: Range trade with a bullish bias.

GBP/USD: Range trade with a neutral bias.

As we know the market is now controlled by the big Algos, be they at the banks, prime brokers, or hedge funds. Whether we like it or not, these electronic links are making it easier to access knowledge regarding order levels in the market. Those with the knowledge and the buying power can easily shift markets far enough to trigger stops and just because it’s an Algo doing it doesn’t make it any less wrong!

There are many things we can’t change but there are some small things that we can change so let’s concentrate on them.

1. Check with your broker to ensure that they DO NOT share your order information through their Prime Brokerage arrangements. Orders should only be exposed to the market at large when the levels are reached.
2. Don’t leave any stop entry levels on a Monday morning in Asia. Set your system up so that your trades don’t come online until Tokyo open at the very earliest.
3. Use some common sense. Don’t be taking big leveraged positions over the weekend with tight stops.
4. Manage your own orders in so far as you can. Your entry and stop-loss levels are your own intellectual property. When you are able to manage your own risk, do so.

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.

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.

Overnight price action certainly doesn’t agree with these presumptions but it’s probably wise to keep this information at the back of your mind later today.

The big levels to watch topside would seem to be around 1.1550, as a break above that will have many re-assessing their medium-term strategies. On a shorter-term scale, I’d expect to see plenty of stops above 1.1460 based on what I’m reading.

One source tells me that this rolls off later today at NY cut.

Elsewhere on the order front, the same big European corporate was buying AUD/USD yesterday near .7770.

Huge 1.25’s rolling off Monday and Tuesday 5 yards plus on Tuesday. You have to think it wont go to far until they roll off

Just posted in the FXWW chatroom

There is an increasing expectation that the ECB will roll out some special easing measures as early as next week and that is fuelling the EUR bearish sentiment.

The market gapped nastily through 1.1100/10 to trade above 1.1150. There is very little technical resistance until 1.1200.

Sounds like a ‘buy-dip’ intraday strategy could pay dividends in NZD/USD and strong technical support at .8400 should attract plenty of defence.

August is also the traditional holiday month in Germany and the UK, so we can expect volumes to be reduced even further. That usually means long periods of nothingness followed by straight lines silliness in either direction. Oh to have a clean view of the big Prime Broker’s order book!

AUD/USD looks like it will now gravitate towards big option strikes/expiries at .9500 and .9525.

With little else to move the market at the moment, these orders may act like a magnet.

German corporates have been noted buyers of EUR/GBP on dips over the last few sessions and this may add to downside pressure on an already long GBP market, if it persists.

EUR and JPY are also making modest session gains against the USD but all 3 big currencies are range trading against each other.

Bids are being reported now quite close to the market at 1.6960/65 which does seem to support the idea that the short-term market is short and nervous.