You know me. I’m a currency guy.
As each of us “eventually” find our specific area of interest, be it options or futures, equities or bonds, currency or commodities, you’d like to think that – over time…..we get better at it.
After countless hours and many, many sleepless nights – finally……finally things start to come together. If you stick with it long enough “eventually” trade ideas and entry signals “literally” – come “leaping out of the computer screen”.
I suggested the other day that I was seeing weakness in the commodity related currencies. Those being the AUD, NZD as well the CAD. I also initiated a trade “short tech” last week – that is now about a “millimeter” from being picked up. The weakness in commodity related currencies cannot be ignored as…these currencies represent risk. Would it just be coincidence if we where to see the “short tech trade” get picked up , and see equities pullback as well?
I think not.
The currency market is like ” a gazillion times larger” than a single countries equities market, and it’s always been my firm belief that “currencies lead”.
You don’t get a “sell off in AUD” for example – because equities markets are looking weak. Equities markets “become weak” as “risk appetite” wanes. Appetite for risk is seen via currency markets “long before” it’s reflected in a silly bunch of stocks.
Take it for what it’s worth as everyone has their own views but…..to ignore movements in the currency markets, in exchange for headlines on the T.V, or perhaps an analysts opinion sounds like a great way to lose a lot of money.
I’ve entered “several new positions” short the commods against a variety of other currencies as my original “feelers” are looking quite good. GBP has been a monster, and CAD and AUD in particular have been taking some decent hits.
I’ve stepped into the market with a handful of trades, keeping positions very small – with relatively tight “mental stops”.
Seeing the commodity currencies stall early yesterday, I’ve got to keep pushing in order to continually pull money out of this “labyrinth” we currently call a market.
Not having the “larger time frame stars aligned ” in situations like these, often what I will do is jump down to the smaller time frame charts “regardless” and apply the same technical know how / skill – only with far smaller expectations, far smaller position size ( if that’s even possible these days ) and with a set % of risk, all-knowing I’m not in the “absolutely best place to place a trade”.
Often these “feelers” turn into fantastic starter positions as I generally “buy around the horn” but….one has to keep an open mind – considering the current market conditions.
That being – nothing is for certain.
USD continues lower, but fairly “unconvincingly” as JPY has shown the “tiniest bit of strength” although again – with little conviction. The commodity currencies are weak, but still hanging in there, creating an overall trading environment fraught with indecision.
I’ve entered long GBP/AUD as well GBP/USD , as well a couple “shots” at commods vs yen.
The question has never really been “Kong – should I buy gold?” but more so “Kong – WHEN should I buy gold?”
The long-term fundamental case for owning gold and silver is as solid today, as it will be tomorrow – and as it’s always been. You can’t go wrong owning silver and gold “if” – you’ve got a long enough profit horizon.
Up until now, gold and silver haven’t been a “trade” as the metals have “generally” fallen like mad, and sat consolidating in range for what feels like eternity. Silver is just a touch lower than the price a full 6 months ago. For the most part when any asset consolidates for this kind of “extended period” the move “out of this consolidation” is usually quite powerful. Very powerful.
In fact, in this case it’s very likely that the first move upward in both gold and silver will be so fast, and likely so large – that anyone who “wasn’t already in the trade” will be left chasing. Not to say that “you’ll miss the boat” as the PM’s (precious metals) have miles of upward potential – just that…..you may be looking to buy “EXK” for example at 7 dollars – as opposed to getting started, down here around 4 bucks.
We are very close to where I would suggest “starting to build positions”, and I feel that the “miners” will provide the largest “bang for your buck”.
It doesn’t matter which “silver miner” you look at as…the charts all look more or less exactly the same. I like EXK as a “trading vehicle” to make a play in the space – but a pile of others will also move in tandem when the PM’s move.
Check out “GPL” for a super low value play – currently trading at .76 cents!
President Xi Jinping is expected to unveil a new economic framework for the country after the “The Third Plenum” (simply the third time that Xi Jinping will meet with his top brass in his role as the party chairman) wrapping up on the 12th.
Traditionally reforms are expected at the Third Plenum, with new leaders having had time to consolidate power. A senior Chinese official has already promised “unprecedented” reforms.
Xi Jinping is under tremendous pressure from many parts of Chinese society to unveil radical changes so – alot rides on the outcome.
We all know how significant a role China currently plays on the world stage with respect to it’s economic importance and influence on the U.S.A. Large reforms in the banking sector or increased suggestion of “tightening” can and “will” have significant impact on global markets so…..whatever you “think” you hear next week on CNN don’t be fooled.
China will move the markets, as continued coverage of “locker room bullying” takes a back seat.
Shoot me now, as I’m not sure if I can hang on another day. CNN has the “battle of the burgers” and “locker room bullying” rounding out the top stories of the day.
The following a direct quote from Glenn Robert Stevens – an Australian economist and the current Governor of the Reserve Bank of Australia.
“The foreign exchange market is perhaps another area in which investors should take care.
While the direction of the exchange rate’s response to some recent events might be understandable, that was from levels that were already unusually high.
These levels of the exchange rate are not supported by Australia’s relative levels of costs and productivity. Moreover, the terms of trade are likely to fall, not rise, from here. So it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today. “
You’ve got to love it when a central banker:
- Tells the absolute truth.
- Tells the absolute truth.
- Tells the absolute truth.
Short AUD has been ” and will continue to be” an absolutely fantastic trade moving forward, as perhaps “finally” we get the correlation to “global appetite for risk” back in vouge.
With every single headline, and every single website singing high praise to the “economic recovery” in the U.S , with disasters averted left and right, and an equities market seemingly “constructed out of pure titanium” – it’s difficult entertaining ideas that “anything” could go wrong.
One always has to keep in mind that when “too many people” are leaning hard in one direction, markets have a tendency to “correct that” – often with incredible efficiency.
Even if you’re of the mindset that “nothing is going to stop this train” you’ve still got to consider the normal market dynamic known as “profit taking” – where traders / investors simply decide to “take a little bit off the table”.
The recent moves upward in both U.S equities as well the Australian Dollar are highly correlated here, as the two both represent “risk on” market sentiment. It’s difficult to comment on the “never-ending rise” of U.S equities in light of recent events, however what I can tell you is that the Australian Dollar (AUD) is as “overbought” as it’s been for months , “if not” over the last entire year – on continued decline in volume.
If for no other reason than purely “technical trading” ( let alone with combined fundamentals ) short AUD is setting up for an extremely low risk / high profit opportunity here.
An opportunity I intend to take considerable advantage of.
Trade ideas include: long GBP/AUD as well EUR/AUD, as well short AUD/USD, AUD/CHF and AUD/JPY just to name a few.
Stock traders can have a look at the ETF: FXA
I’ll plan to “tweet” entries / ideas in real-time moving through the week. Should the correlation stand, I’d also be looking for downside action in equities.
I’ve “scooped” 3% overnight in a number of “long USD” trades, the largest of which being NZD/USD ( you were alerted to on Sunday night, then again via twitter last night ) as well long USD/CAD and short GBP/USD.
These pairs are still very much in play , only that these days when I see money on the table – I just flat-out take it. The short-term tech will kick in here soon, as we again can likely look to Thursday as the market pivot.
The Yen (JPY) has shown considerable strength in the past 24 hours, as every JPY related pair has seen reasonable moves ( a couple 100 pips even ) over the past few days. I still hold a couple trades ( still in the weeds ) long JPY.
The Insanity Trade is still holding as well, and in case any of you looked into following this pair (EUR/AUD) over the past week now – I hope you’ve seen “the light”. Dipping as much as 150 pips in a matter of hours, then back again etc….still hanging in profit but a wild ride if you’ve leveraged / are trading too large. Insanity Trade 2 has still yet to get picked up.
Otherwise…..another hum drum Tuesday on deck here today, as SP/ U.S Equities have certainly “come off” but nothing to write home about.
Gold continues to grind anyone silly enough to think they can actually “target an entry price” on an asset worth 1300.00. 30 dollar moves are nothing, and pointless to debate.
Good luck out there.
I’ve got my eye on the “Kiwi” regardless of which pair, for the pure reason that it looks severely overbought.
Overbought – A situation in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to levels that do not support the fundamentals.
Now, The Bank of New Zealand has recently made mention of a possible “hike” in interest rates (which has most certainly been the tail wind behind the latest advance) but the Kiwi still represents a “risk related currency” and is subject to large moves when appetite for risk wanes.
Have a look at the daily chart and see how “84.00” looks like a solid area of resistance.
Now, “86.00” doesn’t look completely out of the question, but with the usual “staggered mutli-order” approach, I’m seeing the risk vs reward looking pretty good for a short up here.
Another full day’s downward movement will likely trip the Kongdicator ( as I am free wheeling here on this one so far ) so we’ll keep our eyes peeled for that.
In case you’ve forgotten about it. The “insanity trade” is still very much alive. So much so in fact, that I want to (not only bring you up to speed) – but also introduce……..Insanity Trade 2!
Not much different from the original “insanity trade” we’re talking about EUR/NZD this time.
Ok. Wrapping your head around the “reasoning” or the “fundamentals” behind these trades is a stretch for even the most experienced of traders. Pitting the Euro against AUD and now NZD? What the hell? Why? How? What could you possibly be thinking about “fundamentally” to consider such a bizarre trade / pairing? Now?
I’m not going to tell you.
These are the Insanity Trades remember! You need to be insane to take them, and possibly insane to understand them!
I am placing an order long EUR/NZD a full 100 pips above the current price action – my order to buy is at : 1.6260
The current insanity trade is currently sitting EXACTLY BREAK EVEN at 1.43 ( what? you think I sold / freaked on the Fed? Hell no! ) – It’s an insanity trade.
That’s it. Do not try this at home.
In case you haven’t noticed – commodity currencies are strong across the board this morning. The Kiwi , Loonie as well the Aussie all making reasonable moves upward against nearly everything under the sun.
Generally associated with “risk” I do find it interesting that these currencies are exhibiting relative strength a short 24 hours ahead of the Fed’s Announcement. Further “blurring” the markets expectations of a “modest taper”, a “super taper” ( highly unlikely ) or no taper at all , seeing these currencies on the move could be perceived a couple of ways.
- Ramp job into tomorrow’s announcement ( with consideration/expectation of “selling at higher levels”) and selling the news.
- Heightened expectations that “everything is gonna be just fine” and money flowing into these currencies early.
Unfortunately it requires “speculation” as to which way things are gonna go tomorrow as the market isn’t “giving it away” that easily. Low volume is also a contributing factor as price moves are exaggerated.
The Kiwi in particular is on a real tear this morning but “just now” bumping into its resistance zone.
I’ve stopped out on a couple of scalps from the night prior, as I’ve no intention of holding anything “for fun” under the current market conditions. JPY longs are a long-term hold regardless, and I’m out of all USD related pairs, more or less 85% cash – looking for entry after Wednesday’s announcement.