how to trade currency

U.S Debt Downgraded By Chinese

Forex Kong 19 Comments

Finally we get a solid move on the fundamentals, as last nights downgrade of U.S debt from Chinese ratings agency “Dagong” sent the U.S Dollar spiralling down.

Now Dagong is no “Moody’s or Fitch” ( currently rating on “negative watch” ) but this in itself brings about a very interesting point.

A Chinese ratings agency having such a significant impact on the dollar? Wow.

You might expect this kind of move given that a “reputable” agency in the U.S gave the “thumbs down” on the debt ceiling debacle sure…but a Chinese ratings agency?

As the largest holder of U.S Debt / Treasury Securities on the planet it is now painfully clear how much influence China truly has. The agency suggested that, while a default has been averted by a last-minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged. “Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future”.

Kicking the can a couple of months further down the road makes little difference when the U.S will just be back in the news then…..still unable to pay its bills.

The short USD trades obviously made big moves here overnight, but not exactly as expected. Great gains in EUR, GBP as well CHF but oddly the “commodity currencies” have shot higher. An interesting dynamic and certainly one to keep an eye on as NZD as well AUD approach overbought levels.

Gold up a wopping 34 bucks here this morning, so perhaps we’ve got the “risk off” flows on the move.

Trading The Swiss Franc – What To Know

Forex Kong 6 Comments

Switzerland’s currency, “the franc” plays an important role in the international capital markets.

Due to Switzerland’s history of political neutrality and reputation for stable and discrete banking, the Swiss franc is generally looked upon as a safe haven in international capital markets.

During times of international turmoil investors often flee to the safety of the Swiss franc. For that reason, when volatility rises in the financial markets  ( have you checked volatility as of late? ) , investors often bid up the Swiss franc at the expense of other currencies.

I rarely trade CHF as the Swiss National Bank is notorious for “forex market intervention” and have “on numerous occasions” entered forex markets with massive sales / purchases in order to keep the currency under control.

We are living in desperate times and in turn, desperate actions “may be required”  – in order to survive. I strongly encourage all of you to do a bit of research, in order to better understand the Swiss Franc and it’s role in global currency trade.

To make a long story short The SNB has scared the bejesus out of speculators so many times in the past ( as to keep the currency from rapidly rising ) that it’s become the “two-headed step child” of the currency market for years. Massive interventions ( as the SNB has close to as much money as god ) have allowed the Franc to stay at a manageable level but…….as we are living in desperate times…..get an eye on it. 

Trades “short commods” and “long CHF” would also make sense moving forward ( however dangerous to the novice ).

My Trade Ideas – October 11- 14, 2013

Forex Kong 7 Comments

Forex Trade Ideas – October 11 – 14, 2013

The US Dollar has now made a “swing high” here,  at a very important and critical junction.

As usual ( these days ) the implications are considerable, depending on which camp you’re in.

Off the top of my head, further ( and continued ) downside here would see USD trading “lower” in tandem with “risk” (also trading lower) – which in itself is troubling, as we would “usually” consider “risk off” activity to be good for USD.

In a situation where both USD as well U.S Equities where to fall in tandem ( as we have seen on several occasions over the past year  ) it is also very plausible that we see both NZD as well AUD fall “even more”.

There would be absolutely no question that JPY ( The Japanese Yen ) would rise.

Trade ideas “would include” some pretty bizarre set ups – in that I would consider things like:

  • short: NZD/USD as well AUD/USD ( where USD falls…..but gulp – commods fall even more).
  • long: GBP/USD as well EUR/USD ( where USD falls, and these two take in flows straight up).
  • short: USD/CHF ( where USD falls and the Swisse France takes safety trade ).
  • long: JPY vs nearly anything under the sun, but especially AUD and NZD.

It’s far to early to tell, and the outline above is highly speculative but…..should further evidence of this unfolding be seen – I WILL IMPLEMENT TRADES IN NO LESS THAN 12 PAIRS IN A HEARTBEAT.

You’ve got to “at least” have a trade idea / plan in mind, then allow it to either play out or fail, as opposed to just turning on your television. Getting this one right could generate some serious, serious profits but again……………you’ve got to have an idea, a plan – before heading out on the field.

 

 

Gold Priced In USD – Invest Don't Trade

Forex Kong 5 Comments

It remains to be seen as to what kind of “legs” this USD rally may have, and it’s implications with respect to the price of gold.

We’ve been over the “theory” as to why the Fed would prefer a lower price in gold as the US Dollar devaluation continues, but of course that’s all it’s been – theory. I fully understand the “short selling” in the paper market by Ben’s friends on the street, but to consider some kind of “global conspiracy” to keep the price “in line” with a sliding US Dollar would be a stretch for sure.

Looking at recent price movement we are “once again” in a position where both the U.S Dollar as well as gold have been falling together ( more or less ) where as just today, a decent “inverse” move with the dollar up and gold down another 17 bucks.

The analogy of “turning around a big cruise ship” as opposed to a motor boat comes to mind in that….these things play out day-to-day but are really moving on a much larger scale over a much longer period of time – and it does take time to turn that ship around. More time than most traders can bear.

It’s my view that anyone “building positions” in the precious metals around this area of price and time ( and lower ) shouldn’t really get into “to much trouble” looking longer term. It’s certainly not a trade, and it’s a big, big boat to turn so….weather or not you can take/manage the drawdown and slug it out is always a matter of ones personal trading / account / exposure / leverage etc…

Looking at specific “price levels” in an attempt to “nail it” on an asset worth 1300.00 bucks is a fools game, as fluxuation’s of 50 bucks here and there would apear normal ( % wise ) when trading “anything” of lesser value.

Hang in there is about all you can do.

Safe Haven Trade – USD Or Gold?

Forex Kong 5 Comments

Something important came up in the comments area last night, and I thought it worth pointing out.

When we consider the impact of a “flight to safety” ie…….a move in markets where “true fear” pushes investors to dump risky assets ( and to literally….seek safety ) it’s impossible not to consider the U.S Dollar as being “top of the list” as the place to run and hide.

Now, this may seem “counter – intuitive” considering the recent ( and ongoing ) blunders within the Unites States but – that’s not even the point. Take a look at the chart below and note the total % of global currency trading for the top 10 most widely traded currencies in 2013.

Trade_Currencies_Global_Forex_Kong

Trade_Currencies_Global_Forex_Kong

That’s 87% of transactions to include the U.S Dollar, compared to a piddly 33.4% for Euro and only 23% in JPY rounding out the top 3.

As a simple matter of “default” when risk comes off and investors get scared – there is absolutely no question that USD will take massive in flows, as risk is unwound and risky assets and investments in emerging markets are converted “back” to USD.

Now, we’ve still not seen a “true flight to safety” as global markets have so embraced the never-ending flow of “free money” coming out of both the U.S as well Japan – with the general investment climate being one of accommodation. This can’t last forever.

You’ll recall I had envisioned a time where “all things U.S would be sold” and to a certain degree I see that this has already happened. Starting with bonds ( as suggested ) then the currency, and lastly ( alllllways lastly ) stocks now starting to show their “true value”.

I’m not concerned with much further “downside” in USD at this point, as one has to keep a couple other “macro” things in mind.

How long do you think the Chinese and Japanese holders of American debt are looking to stand around and watch their U.S denominated assets decrease in value? How far do you “really” think that Ben and the printing presses can push before somebody “really” pushes back?

Food for thought no?

Get The Trades Via Twitter – And Comments

Forex Kong 10 Comments

A really nice spike in the U.S dollar today ( considering I’ve been long for days now ) with several trades paying off well. As well (specifically) foreseen weakness in GBP coming to fruition here overnight. I invite anyone who isn’t already following on twitter or “the comments section” here at the blog to join/follow as there are lots of great info from other traders here as well.

It’s been interesting to see this move higher in USD in line with “risk on” activity in markets today but then again not so unusual. We’ve seen equities and USD running in tandem several times over the past few months as hot money from Japan is converted in / and out of US in order to buy and sell stocks.

THERE HAS STILL BEEN NO REAL MOVE TOWARDS SAFETY.

Glad it’s the weekend here as I’ll be diving / snorkeling. Have a great weekend everyone!

Forex Repositioning – Booking Profits

Forex Kong 12 Comments

I’ve cleared the deck for a return of just over 600 pips since the posted trades some days ago.

Please keep in mind that several of those trades where held for almost an entire month  – through “this entire mess”. To realize profits / gains such as these during a time of such “market madness” takes considerable confidence in one’s market view and longer term ideas.

Mind you – holding several of these for the duration was no easy task, but as you recall – I was postioned for “risk off” several days “before” we saw the slide. Now a full 10 days down in SP/ U.S equities.

Where do we go from here?

It’s not looking good for “risk in general” – but of course “these days” markets celebrate when the U.S dodges bullets so….the outcome here “could just as easily” go either way right?

The uncertainty surrounding this shut down / debt ceiling talks etc leading up to Oct 17th is beyond and kind of standard “market analysis”, but I’m leaning towards “the longer this goes on – the worse it’s gonna get”.

How am I positioning?

Nearly 100% cash now, after taking full advantage of all long JPY trades, as well several other “risk off”related trades – I am now eyeing the U.S Dollar for the face ripper.

As we know “nothing moves in a straight line for long” in forex markets – what’s the worse case looking at smaller orders across the board with a “Long USD” theme.

EUR as well GBP looking ripe by the day….as the commods flounder around somewhere in the middle.

Trading October – Through Gorilla Eyes

Forex Kong 8 Comments

It was meant in jest as last Sunday’s post may have pissed a couple of people off.

Now in retrospect – 8 straight days “down in risk” and the “warning” doesn’t look half bad no?. In any case…..we’re smack dab in the middle of “yet another” challenging scenario for both bulls and bears alike.

It’s hard to get “overly optimistic” when the U.S Government can’t “govern” a sack of wet mice let alone themselves…let alone the largest consumer economy on the planet. Yet there’s still “Uncle Ben” lurking in the shadows, printing press in hand, there to “save the day” should things get “too far off track”. Talk about a gong show – and an extremely difficult environment to evaluate / makes sense of…let alone trade.

Every fundamental bone in your body itching to “short this thing into the ground” – while every Central Bank on the planet keep stacking their chips higher, higher and higher.

One thing we can say with certainty is that “this thing is gonna end really, really badly for a lot of people” as we are so far off the reservation now – there’s absolutely no chance of a happy ending. No chance.

What’s October looking like from a gorilla’s perspective?

I don’t waffle, and I don’t make “safe market calls” in order to stay credible. Frankly I generally don’t muck around “much” with intermediate type market calls” as I’m both macro – and micro.

What happens “in the middle” under the current market conditions is exactly what is “supposed to happen” when a significant turn / area has been reached. Confusion , indecision , sideways , churn , chop , grind. Call it what you want – it’s “by design” that accounts get blasted, nerves stretch, blood pressures rise – and traders / investors are pushed to the limit.

We need to look at the dollar (obviously) as well stocks and gold. Bonds fit in there too don’t forget so…..a look at “all things relevant” to follow – through gorilla eyes.

USD Face Ripper – Caution Ahead

Forex Kong 11 Comments

I’m not sure how “or why” I came up with it. Perhaps something in a dream or maybe something I read – I can’t remember.

Face Ripper ( as per Kong ) : A ridiculous move in the price of a given asset, when the complete and total “opposite” move is expected.

I know it sounds gross. And….essentially “it is” gross but…….. at least it gets the point across.

One day you’re making a trade, and feeling good, confident , “safe”. Next day – Boom….No face.

Wether or not it happens in a day or a week…or a month for that matter – this thing is setting up for an epic move. The overall complacency in markets is downright irresponsible, and reflects an investment environment that is so far “up in the in clouds” that a “trip back to Earth” is most certainly in the cards.

USD WILL RIP YOUR FACE OFF.

As most traders don’t truly understand the larger “macro” reasons as to why the U.S Dollar “rises” when things look to be at their worst….this is most certainly the case. Every penny that has been invested in assets / converted to other currencies in emerging markets ( as to make larger returns / gains ) comes flooding back into USD on the “slightest indication” that the party is over.

USD WILL RIP YOUR FACE OFF.

Enough said. This “gov shut down circus” is only the first act….as we’ve got several more to go.

CAUTION AHEAD.

Massive Divergence in GBP – The British Pound

Forex Kong 4 Comments

I see massive divergence in the recent move “upward” in GBP ( The Great British Pound ).

Fueled by talk of a “possible rate hike” out of the U.K coming “before” any kind of hike in the U.S, the currency pair GBP/USD has skyrocketed in “price” – yet floundered with respect to “strength”.

Coupled with the over all weakness in USD over the past few days, the combination of factors has pushed the pound ( guess where?) yup!  Right into a long-term area of overhead resistance.

How much higher can it go?

A better question might be “how much lower” as nothing “forex wise” moves in a straight line for long, and we are pretty  stretched here as it is.

I will patiently wait for “at least” a turn on a number of smaller time frames, as well “Kongdication” but in all – it really doesn’t matter. I will get short GBP soon.

After a move of over 1,400 pips ( so in nominal terms the pound has gained 14 cents on USD ) since July – what are the odds it gains another nickel before “retracing” a portion of this massive move?

Slim to none.

Talk about a decent short-term investment return no?

Who cares what the DOW did.