Black Swan – Cyprus Blows Up

What happened in Europe yesterday is yet further proof that nothing has been done to repair the underlying fundamental issues surrounding the EU Zone financial crisis .

For those who don’t believe the government is prepared to take extreme measures that may include the seizing of retirement accounts, cash savings or even gold, look no further than Cyprus, the latest recipient of bank bailouts.

As of this moment, citizens of Cyprus are scrambling to withdraw funds from their bank accounts after the EU, with agreement from the Cypriot government, announced they will decimate funds held in personal bank accounts to the tune of up to 10% of existing deposits.

The European Union has made the determination that the people of Cyprus are now responsible for the hundreds of billions of dollars in bad bets made by their government and bank financiers, and they are moving to confiscate money directly from the bank accounts of every citizen in the country.

Could this be the black swan event I have been looking for in prior posts?

EU Zone Catalyst – USD Saves Face

I expect things to get pretty interesting here this evening as  markets get moving – and look to interpret the news. We will keep a very close eye here later this evening and into the early morning on Monday, as this “news” does line up pretty nicely with my previous posts  – and suggestions of getting to cash and exiting markets mid March.

This “could” certainly be a catalyst in my view.

Trade wise  (if indeed we get a strong move on this news)  I would be looking to dump USD shorts immediately and reverse these trades – as well get long JPY, dumping the commodity currencies…….pronto.

25 Responses

  1. kreks March 17, 2013 / 8:50 am

    Hey Kong,

    I think the key is how the European population reacts to this news out of Cyprus. It’s being sold to them as a unique/special circumstance (of course) because of the massive size of the banking system compared to the economy (I think something like 80%) and massive presence of laundered money in many of the large “savings” accounts that are being targeted. Who knows if this will work. If Europeans freak out and starting moving money out of Italian and Spanish banks, it will drive that risk-off move you’ve been talking about. If Europeans buy the BS being fed to them, however, and see this as a way of getting Russian gangsters to pay the bulk of the bailout, then we could as easily see a Euro rally.

    I’m sure we are going to see some volatility tonight, but I am more interested to see what happens in the coming days.

    The other issue on the horizon is the FOMC on Wednesday – they flagged they would be talking about the continuation of QE moving forward.

    • Forex Kong March 17, 2013 / 6:35 pm

      Kreks!

      Im not sure how I missed your comment…but as usual – bang on you’ve got it 100%.

      I would not all be surprised to see this go the other way and find reason to rally EUR. As it stands, Ive not had much volatility / fun around here for some time so…..I’m gonna keep a keen bead on this – and do a little trading around it.

      FED on Wednesday as you’ve said so……back n fourth she goes!

    • Forex Kong March 17, 2013 / 9:15 am

      Cal

      Gold itself has (obviously) pretty hard to nail down here as of the last few weeks/months, but as I see it – Gold should take the lead when we finally get ourselves in a situation where “a store of value” is actually needed ( as currently stocks have been offering excellent returns – why sit in gold) SO……..I do believe that Gold’s turn upward will come when we enter a time of “risk off” market behavior.

      Could this be the catalyst? Or perhaps Wed Fed Meeting suggesting again “less QE” in the future? I can’t say for sure – but do look for these types of “news alerts” – when markets are sitting at such stretched highs.

      Ill be on this from the get go here SUnday night – and will plan to blog / tweet regularily.

  2. Mr.T March 17, 2013 / 9:16 am

    Is this confirmed that money will be taken from ALL accounts? I am asking as in my country (Slovenia) the media talk is not certain and it appears as money will only be taken from saving accounts. In any way, the panic is spreading fast and many Slovenes will tomorrow withdraw money from the banks.

    • Forex Kong March 17, 2013 / 9:18 am

      It appears to be a “percentage” of holdings held at a few given banks….but the implications are extremely alarming.

      I appreciate you checking in from your geographical location – please get back to us here, with further updates on when you see happening there!

      • rolo March 17, 2013 / 12:27 pm

        Hi Kong

        It’s all bank accounts in Cyprus including (any) ‘good’ banks – eg local SocGen bank savings accounts. So that is a big worry for depositors in any country that might come under financial stress

        Specifically, Cyprus will impose a levy of 6.75% on deposits of less than €100,000 – the ceiling for European Union account insurance, which is now effectively gone following this case study – and 9.9% above that. The measures will raise €5.8 billion, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, said.

        “As it is a contribution to the financial stability of Cyprus, it seems just to ask a contribution of all deposit holders,” Dijsselbloem said, noting the country’s financial industry was five times the size of its economy. The plan includes “unique measures” that address the “exceptional nature” of Cyprus and show “inflexible commitment to financial stability and the integrity of the euro area.”

        • Forex Kong March 17, 2013 / 12:37 pm

          Awesome Rolo – thanks for the clarification and additional news.

          Let’s see what markets choose to do with it.

  3. illutionz March 17, 2013 / 12:57 pm

    zerohedge.com/news/2013-03-17/fx-market-opens-eur-hammered-chf-bid-sp-open-30pts

    Risk off day has finally come, Kong. I was about to leave the house but I think I’m staying put to monitor this situation. Had to quickly close my AUD position :/

    Will this be the catalyst for correction?

    • Forex Kong March 17, 2013 / 3:44 pm

      Well – its a tad soon to tell but…..this does fit the scenario I’ve been envisioning for some time.

      Thus far – the reaction in EUR itself makes obviously sense, but across the board I don’t see “massive risk off type moves” YET.

      I think its too soon to tell. Hilarious – I put on a couple long JPY’s Friday afternoon and just banked 142 pips and 120 short AUD and CAD. Ill take the cash – and am still holding short usd against AUD,NZD,CAD – with these positions aprox 30 pips in the red.

      Im reading now some “EU backpeddling” and also understand that Cyprus banks will be on “holidays” for Mon and Tues. I guess we’ll just have to see how Asia then Europe and the U.S react – one at a time.

      Im planning to get in there and trade it a bit!

  4. schmederling March 17, 2013 / 5:45 pm

    Kong – too soon to tell on PM’s…. read your comments from the last post and agree. However we could very well see the metals rally hard from here. Small break-out at open but nothing to write home about but the $1600 level has been broken and currently holding. I am still lonng the metals 90% in silver however not gold…. we will have to see how this plays out…

    • Forex Kong March 17, 2013 / 5:57 pm

      This could be exactly what kicks off the Pm’s ……..if indeed we get the “real fear” that’s needed.

      My gut says we’ll see a “catch save here” – and things will hobble along a lil while longer.

      I am look hard at getting long JPY soon though.

  5. timfrec March 17, 2013 / 8:59 pm

    Mr. Kong .. i beg some questions here: what news sources you look at first besides price actions?
    It seem you always on the right side at market direction and mostly at RIGHT TIME. While i keep gong long. long and USD/JPY and long Comodity pair and get suck again.

    How to ‘dance’ the market like you do here ? geting short, reverse trade then take profit. Then wait .. enter again and so on.
    How do you do that man .. how do you conect fundamental backdrop, global capital cahs flow and the news ?

    I hold you in highest regard. Do keep up your very good effort. Free stuff is never taken for granted, not even the air we breathe

    Tim

    • Forex Kong March 17, 2013 / 11:30 pm

      Hi Tim.

      Great questions.

      The “news” is always the one that can catch you – as it brings with it the unexpected. Or does it? – Could pure price action perhaps have given some indication “prior” to the news…..that something was going to change? – Well…..not like a “crystal ball” but to a certain degree – yes I believe so. “Price action” and the ability to “filter news”…….. then apply it to the current fundamental backdrop -yup.

      Practice Tim….lots n lots of practice!

  6. timfrec March 17, 2013 / 9:02 pm

    may be you could forward some article while i waiting your paid subsribing service. How long it will be release to sucker trader like me.

  7. schmederling March 17, 2013 / 10:15 pm

    Well that was fun…. I have waitied a little longer then usual before entering positions…. but have pulled the trigger…

    Long all three commods AUD NZD & short USDCAD…. I will stay with these for now…. good enough for me…

    • Forex Kong March 17, 2013 / 10:19 pm

      Great patience – great looking trades.

  8. zkotpen March 18, 2013 / 3:57 am

    Hi Kong!

    Sounds like you’ve had a great weekend, mate! Cool.

    As usual, I keep up on your fine blog, & following on Twitter. A couple of quick Qs for ya:

    1. When you say “gaps are filling” on the Yen, do you mean you are shorting the Yen as it goes back down from its overnight highs? It spiked a double spike & is now almost back down to its weekend level. (Whereas the Euro has recovered much of its dip, but is still substantially down since this weekend). Silver has been struggling, but Gold seems to be moving with the Yen, but more resilient vs. the USD.

    2. Now comes the interesting part. We’ve got a bunch of market agitation in some tiny isle in the Med and what is most affected? The NIKKEI in Japan — clobbered. Do you think the Nikkei has madly overreacted? Furthermore, with the new BoJ leadership taking the helm in the overnight (Tuesday here in Asia), do you think it makes sense to capture the righting moment (I was a sailor in a previous lifetime 😉 ) — in both entities, Yen + Nikkei compounded for an overnight trade? (Is what I call “righting moment” the gap you refer to?).

    Namely, does DXJ, Wisdom Tree Hedged Japanese equities fund, look like a good move from Monday into Tuesday?

    I called a solid move on DXJ on your blog last week… was unable to act on it because my funds were tied up in GDX puts — which I finally sold on Friday (could have done better, much better, I know, I know… but still a profitable trade after those lousy 54 calls!).

    Qué te parece?

    • Forex Kong March 18, 2013 / 6:26 am

      I had cautioned that the Nikkei was ready to correct didnt I ZKot!

      The gaps are seen very clearly in charts such as a AUD/JPY 1H where it fell to 97.90 ish on it’s open. I took this trade (as well as many others) SHORT YEN – YES…so the gap in AUD/JPY would be filled (as you can now see – indeed that “empty space” in the chart has now been “back filled”).

      This is often a neat little trade strategy when you can define your risk so clearly. You have a stop ( or in my case “mental stop ) “juuuuuuuust below” the level that it originally gapped down to. So in a sense you now have odds that:

      1.price will CONTINUE lower ( and in this case even 20 or 30 pips and you would be out as per your stop )
      2.price will reverse ( and with more likelihood ) rise to fill the “gap”.

      the entire trade is clearly outlined ( as you also have your “take profit zone” defined that being the top of the “gap”…or the price from which it originally “gapped from”.

      Done!

      I still see the Nikkei as at highs and in need of reasonable correction before I would be a buyer – but that’s just me. If you want to be “safer” you can place orders to buy “well above” the current pric action – and let the price come to you ( as I often do ) so in the case that it does go lower first…..your orders won’t be picked up.

      • zkotpen March 18, 2013 / 7:02 am

        Thanks Kong. A couple of comments.

        First, yes, you did mention the Nikkei was on its way to a correction. The move I called would have just been overnight from Thursday to Friday in America, getting out quickly, before the weekend… just in case (and the just in case actually happened).

        Second, wow! Amazing idea of letting price come to you. If I understand correctly, what you describe is, essentially, buying on strength??? So much discussion on SoS and BoW… buying on strength, eh? I don’t even know how to place such an order.

        Otherwise, I watched Chaplin’s The Gold Rush over the weekend… highly recommended; the parallels to trading are uncanny.

        Cheers!

        • Forex Kong March 18, 2013 / 7:13 am

          Placing an order “above or below” current price action is more like a “momentum” play.

          Essentially you are saying to the market “I want to be involved with you – IF – you move in this direction”. If there is actual momentum then you may only miss a few points having your order “floating above”…but that’s not important. What is valuable here is that – you WILL ONLY BE INVOLVED if price moves in the direction you are seeking.

          Price moves in the opposite direction ( you will miss the move ) and be glad! As you’ve now allowed the market to make up it’s own mind (which it alllllways will) but have kept your self clearly positioned on one side. I like it.

          Following BoS and BoW is a 100% complete and total waste of ones time…..as these figures vary day to day , week over week while the big boys are building positions that take MONTHS. One day’s strength or weakness is a tiny drop in the bucket and means nothing.

          • zkotpen March 18, 2013 / 10:20 pm

            Hi Kong,

            Thanks again for your reply. BTW, I was NOT talking about FOLLOWING BoW and SoS, but rather DOING the opposite, per your suggestion: BUYING on STRENGTH, which I did not realize was even possible to automate!

            I have bought on weakness and sold on strength in the past — no big deal there — using limit orders. Not reading about and analyzing what others have done, but placing a limit order, and letting it fill — or not.

            You have inspired me to poke around a bit with my brokers website and there I find the “Stop Limit” selection, where I can set a Stop, then place a Limit order once that stop is reached, as you suggest.

            I like this idea already!

          • Forex Kong March 18, 2013 / 10:40 pm

            The ability to enter orders “the way you see fit” is imperative as many trades / strategies employ different order entry tactics.

            Yes Zkot you should definitely go through your brokers “order entry” options and learn everything you can!

            I use “if” then “one cancels other” as an order instruction and it’s proven quite valuable.

          • zkotpen March 19, 2013 / 5:56 am

            Hi Kong,

            Hope your Tuesday is off to a great start. I just got back in from a couple of urban oasis stops, one at the Buddhist temple, another at a park in Taiwan. Gave me lots of peace of mind and agreeable surroundings to ponder.

            Not only do I like the “buy on strength” tactic, I also like it as a strategy. Yesterday, I made the mistake of NOT adding to my ALXN long position. Why? Because my strategy was to buy on weakness: At 10 a.m., right after the second morning dip in the security, with the price at 91.91, I decided to add if the price dropped to 91.75, i.e., buying on weakness. What a mistake! ALXN soared 2.5% from there, before paring back gains in the afternoon. Buying on strength would have been a solid money maker for me… as a strategy, not just a tactic.

            On the positive side, I have learned the lesson, and now have more tools at my disposal. Remember, I’ve only been trading since last August. Got out of the hospital in Quetzaltenango minus an appendix, charged the bill on my credit card one Friday. Got into trading the following Monday. It has been a rough ride, rather precarious since jumping on the November-December bandwagon of the gold bugs. I lost a lot of money. In January, I began thinking more for myself. Picked some really good trades, but was unsure of my choices as they took their time in meeting my objectives. I sold to cut losses… which ended up cutting profits. Can you say GDX Mar 16 42 puts?? I also had AGQ options — calls on leveraged silver — sold them just before that one massive up week in January. Hope you will read my comment #185 on Gary’s blog, “March 16 chat.”

            So now here I am, trying to get some traction. Trying to work on how to get in and out of the market effectively.

            Hey… you help me write my rags to riches story, I’ll help you live your dream life around the world.

            Here’s a pic from where I like to spend the waning hours of daylight:

            flickr.com/photos/[email protected]/8542812760/in/photostream/lightbox/

            Cheers!

          • Forex Kong March 19, 2013 / 8:14 am

            Zkotpen!

            This is fantastic news – I am so pleased that you’ve taken something from my trade strategies / concepts and have made it work for you!

            It takes a while, but with alot of practice and some good discipline – you’ll have this market singing to you in no time!

            The photo is beautiful.

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