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Eur Usd long 09-03-2017hello dear traders & welcome to growing Forex All eyes on M.Draghi. As of tomorrow the EU said that all the 28 countries economy are growing at a faster rate from the US. Still political uncertainty in Europe its about Greece debt its about France elections it looks like Germany is all alone. Germany minister Wolfsgang said Germany alone cant handle the pressure from the US. For the US tomorrow comes the NFP & later the interest rate decision.Looks Like the pair is trading in a consolidation where a boast is needed to confirm a trend.
Long
by GrowingForex
LONG DXY/ USD VS GBP: HAWKISH FOMC LOCKHART SPEECH HIGHLIGHTSFOMC Lockhart was the 4th Fed this week to imo be relatively Hawkish with his words, most notably reinforcing with the others brexits near-term stability saying "Doesn't Expect 'Brexit' to Have Near Term Impact on Economy" and " So Far 'Brexit' Reaction Largely Orderly". Most interestingly though was Lockharts view on the FOMC's positioning for future rate increases, saying "Won't Rule Out Two Rate Rises This Year" - which is extremely hawkish given most expect 1 at the most.. Back up this sentiment by insisting that the Fed is "Fed Not Behind Curve, Has Time to Decide on Next Rate Move". Nonethless Lockhart did somewhat contradict his "rate expectations" by saying "Time for 'Cautious and Patient Approach' to Rate Policy" which surely shouldn't be the case if 2 hikes are coming - that would be on the aggressive side. All in all, Lockharts comments go hand in hand with my Bullish medium term USD/ DXY view (see previous articles) - I like the USD vs EUR, JPY, GBP, AUD, NZD in the medium term so long DXY/ USD is favoured, even more so if 2 rate hikes were to be realised this year. At current levels short GBPUSD is my favourite expression FOMC RATE HIKE IMPLIED PROBABILITIES - On the likelihood of rate increases, in the past 24 hours, from the Federal Funds Rate implied probability curve we have seen rates/ probabilities firm after yesterdays "risk-break" recovery, with a 25bps September/ Nov hike steepening to 17.2% from 11.7%(Wed), and Dec setting new highs at 35.9% from 29.5% (Wed) - Dec also went on to double the probability of a 50bps hike to 5.1% vs 2.8%(Wed), giving Lockharts comments some weight. FOMC Lockhart Speech Highlights: -Fed's Lockhart: Fed Not Behind Curve, Has Time to Decide on Next Rate Move -Lockhart: Time for 'Cautious and Patient Approach' to Rate Policy -Lockhart: So Far 'Brexit' Reaction Largely Orderly -Lockhart: 'Brexit' Will Increase Long Term Uncertainty -Lockhart: Doesn't Expect 'Brexit' to Have Near Term Impact on Economy -Lockhart: Bond Market Yields Largely Reflect Flight-To-Quality Buying -Lockhart: Too Soon to Say 'All Clear' for Financial Markets -Lockhart: 'Brexit' Not a 'Leman Moment' -Lockhart: Still Expects U.S. to Grow by 2%, Expects More Job Gains -Lockhart: Economy is 'Performing Adequately' -Lockhart Says Fed Has Time to Decide on Next Rate Move -Fed's Lockhart: Presidential Election May Be Boosting Economic Uncertainty -Fed's Lockhart: Won't Rule Out Two Rate Rises This Year
TVC:DXYLong
by QuantumLogicTrading
RANGE BOUND - USDJPY: TRADING STRATEGY - PART 2 Trading for this week: 1. My plan for next week focuses on point "3." from the previous post - I am waiting for risk-on or risk-off assets to confirm investor conviction by using USDJPY as a barometer for net risk sentiment. Despite the market uncertainty and high volatility UJ last week traded within a 200pip range for the between 101.3-103.3. Therefore, I consider a 60pip break of either level to confirm the conviction to a sentiment e.g. 60pips higher is risk-on (Yen selling), 60pips Lower is risk-off (Yen buying). So of the two possibilities for this week (based on the previous post) Most likely i think is: 1) Global risk continues its recovery as I ask myself what possible risks/ events are there that could tip risk-off sentiment? My answer is none. However, there are several arguments for a risk-on bias e.g. 1) Central bank easing continues to offer risk higher e.g. a dovish RBA (5th) and BOE meeting (14th) price JPY lower and UJ higher 2) Implied vol continues dropping below realised vol, aiding bullish sentiment. 3) Brexit uncertainty continues its de-risking/ pricing as its unlikelihood increases. Further, I think Equities have another week of rallying to price before earnings uncertainty selling will become a factor. Trading Strategy: If Yen carries on Ranging I advise buying UJ at lows of the range e.g. between 101.3-101.9 - or you could buy at any price in the range as I have a target of 106 in the near-term and 110+ in the next 4+wks. Alternatively, I advise placing BUY STOP orders at 103.9-104.2 (level that confirms a risk-on breakout) as there will be 80% of UJ short Stop-Losses at this level, so we will likely see a short squeeze take us 200pips up instantly once UJ trades to at or about 104. I like owning UJ structurally in the medium term as even if UJ falls lower in the near term which is unlikely (what risk is likely to drive it lower?) as UJ trading at or below 101 (and the further it falls) the more likely the BOJ will be to launch emergency FX intervention and/or near term lower UJ increases odds of an aggressive BOJ cut at its July 28th meeting - which will make UJ trade 500pips+ higher, dependent on the measures/ aggressiveness taken. For some background/ support for the UJ higher trade 1. based on BOJ easing, recently JPY retail sales disappointed at -1.9% vs -1.6%, as did inflation which was seen at -0.4% nationally for CPI and Core and -0.5% for the same in Tokyo + BOJ's own Core measure continued its strong MoM downtrend at 0.8% (from 0.9% last) - consistently unresponsive inflation is the single biggest driver for BOJ easing/ cutting policy, and the poor inflation has been problematic since the last cut in January 2016 so this gives further weight to another cut, especially since it was 6+ months ago. - Also BOJ Kuroda and JPY Govt Aso and Abe had several emergency meetings last week as a result of the Brexit vote/ JPY appreciation, in which they discussed FX levels, although taking no action, such rhetoric and actions imply and give likelihood that the BOJ will take substantial action in July. - Technically, UJ has been oversold for several weeks, even if UJ higher isnt structurally long, we should at least be able to realise a 600-800pip recovery rally before moving lower again. Volatility - USDJPY Realised Volatility is trading higher than implied (bullish signal) with 2wk and 1mth at 19.64% & 15.6% vs implied's trading at 11.25% & 13.43% + there are some large notional OTM call strikes at 104.2 and 105, indicating the market may have a bullish bias. Also, the UJ 1wk/1m 25 Delta Risk Reversals Trade at apprx -1.6%, and falling, indicating the market is becoming more bullish by 1) being positioned long in the spot market but buying less downside option coverage and/or 2) Speculative Demand for UJ downside puts is falling. *Read my previous post "RANGE BOUND - USDJPY: IS THIS GLOBAL RISK RECOVERY REAL? PART 1" for analysis of last week and mo
Long
by QuantumLogicTrading
1
RANGE BOUND - USDJPY: IS THIS GLOBAL RISK RECOVERY REAL? PART 1Expectations vs Reality: 1. Following the referendum decision on Friday, as expected GBP sold off 10%+, the FTSE plummeted in a similar fashion and global risk assets sold off across the board, but FTSE/ Risk recovered a significant amount of those losses into Fridays close and for the rest of the next week.. So what happened to BREXIT? - Such behaviour would lead you to believe that the Brexit decision was all just a bad dream, with much of the price action volatility confined to Friday alone - rather where I had expected the decision on Friday to start a cascade of risk-on asset selling, as the brexit backdrop provides the perfect impetus to trigger the risk-off fear for the wider global risks e.g. US Election, Global growth, China Debt - and, ofc, the Brexit Macro economic spill-over itself. Why did we witness this Risk Recovery Paradox? 1. I think the main reason that risk managed to avoid carrying its bid bias into this week from Friday was PM David Cameron's decision early on Friday/ Monday to 1) Resign in October and 2) Refuse to sign the Article 50 which formally/ actually starts the Brexit Negotiations - the net effect is that brexit risks have been shifted into 2017 (or never) rather than present, thus providing investor confidence to buy risk at its Friday discount (why not) and take bets on a Brexit no show (illustrated by a buoyed GBP which imo should have fallen more). - What this combination of events now means is that Brexit now trades as a function of Political possibility rather than as a certainty because 1) By resigning in Oct and refusing to start the negotiations now, it means that Brexit itself is put on hold until at least October. Further, the fact that the above is the case, the whole "Brexit" likelihood is brought into question in itself as 1) How likely is the new PM in Oct going to sign the article 50 as soon as they get into office? I think VERY unlikely, its career suicide to start such a volatile process immediately when in office so that means the Brexit Negotiations are pushed further out and likely into 2017 (66.66% chance it occurs in 2017 now from odds-checker). 2) Will Brexit go ahead at all? I think Brexit absolutely is unlikely, as the new PM wont want the economic and political uncertainty that will follow - especially as the vote didnt happen under their leadership - imo its more likely that the new PM will forgo the blame onto Previous PM Cameron and/ or call for a re-referendum or scrap the idea completely and instead offer a solution to solve the "leave" voters problems e.g. Bid to fix EU immigration. 2. Worldwide Central Banks supportive/ Dovish statements - All Major CB have offered their support if their economy calls for it as a result of Brexit - namely the front-end of the FOMC's rate hike curve was severely flattened (Dec or 2017 hike now likely) and the BOE Gov Carney put 250bn in QE and 25bps of Int rate cuts on the cards - the net effect of these actions has been to smooth investor fear, and allow risk to rally, as low rates and QE has no doubt been the biggest driver for stocks in the last 8 years - the FTSE's recovery was/ is 100% underpinned by the BOE stance imo. 3. And the most interesting possibility is that - Investors don't believe in this risk-rally, instead it is just a micro unfolding that will eventually unravel, forcing risk to sell-off in the near future. And by looking at the stability of Gold, Bonds and Yen, this argument does carry alot of weight and is something ive been watching all week. All risk-off assets have traded flat/ higher, despite risk rallying - when risk-on and risk-off assets FAIL to maintain their negative correlation (as they are failing to do now, and are actually slightly positively correlated as they both rise) it usually means the rally is being undermined by a longer-term macro view - since liquidity is a 0 sum game in the long run, all assets cant grow at the same time, either risk must sell-off or
Long
by QuantumLogicTrading
RISK-OFF YEAR: BREXIT & US PRESIDENTIAL ELECTION: BUY GOLD @12592016, the year of the Risk-Off Asset Historically Gold has performed +10-20% in the 6 months into US Presidential Election years AND also by longing Gold on this pull-back it opens up the opportunity to benefit from the potential tail risk that the UK votes to "Brexit" in which Gold will likely trade through $1400. Gold is one of my favourite plays for 2016 for these reasons so I suggest a strategy of: Buy GOLD - 1@1259 2@1237 3@1210 Long term TP $1395 SL $1195 Short term TP $1310 SL $1195 - Near-term on a UK Vote to stay we will likely see Gold risk-on sell off towards the $1200 handle - this is a great opp to get a good average price by buying Gold on its way down as I expect Gold to trade close to $1400 by years end and into the Election. - A UK Vote Leave will put Gold close to the $1400 level within a week. - The time-risk are asymmetrically skewed to the upside for Gold IMO as 1) in the near term, Brexit and Global economic unbalance uncertainty buoys the precious metal; Further, the recent failure of risk markets (SP/DJ) to set new highs despite posting recovery, likely signifies the end of the equity bull run, and thus the start of the Gold bull Run. - and 2) The US FOMC Rate Hike Cycle, US Presidential election and wider Global Economic concerns of Deflation and low-growth which is a systemic issue and is also likely to be the case for the foreseeable future (with the 2nd and 3rd largest Central Banks - ECB and BOJ under pressure - among much of the developed world) all contribute to drive the increase in risk-off/ safe haven demand for Gold over the Long-Medium term. - Gold is selling-off due to the increased risk appetite in the market currently as the near-term Brexit risk is soothed by "Stay" biased polls - HOWEVER, with Gold Volatility trading 50% lower than it was a week ago (reflecting the settled risk this week) with current ATM at 15%, and with 1M Risk-Reversals trading with a positive call skew of 3% we can expect an upward bias over the coming weeks/ months. - As lower Implied Vols are projected across the 12m options curve and the 12m Futures curve is also trading contango which both imply the Gold market sentiment is for the price to rise. - Finally, as the FOMC Rate hike cycle intensifies over the medium-term, bond prices will come under pressure, thus driving further demand for Gold as the higher quality and higher return asset is sought.
FX:XAUUSDLong
by QuantumLogicTrading
6
22ND, 23RD, 24TH TRADING STRATEGY: GBPUSD - BREXIT/ REFERENDUMIn the previous post we have used the Price Action data from the Scottish UK Referendum for GBPUSD for the 3-days on and around the vote so the 17th, 18th (vote day) and 19th (result day) of September 2014 as a gauge to forecast whats in store for Price action on Wednesday, Thursday and Friday this week (the parallel days for both of the referendums). Reliability of the estimates made in the previous post: 1. Given the excessive absolute implied volatility (larger than 2007 levels) which is likely to be anywhere between 40-60% on the day(s) as we currently trade near 30%; and the excessive relative implied vol levels compared to the SUR, which only realised 9% at the time, which is 5-8x less than the market expects for the Brexit vote, the daily range estimate of 340-480pips for each of the 3 days on average is warranted - especially as we have already realised an ATR of 371 last week on the 17th, thus making a 480 pip range not particularly unlikely. - Historical Vol for UER has also traded 80%+ higher already in the last 3 days compared to SUR. - these implied and realised volatility differentials in mind, I also think the range of 1.35-1.57 is also prudent, though i think the risks are skewed to the downside of the model rather than the upside. Trading Summary: - For 22nd, 23rd, 24th we predict an ATR of 340pips, currently trading at 1.47 which is a 4x resistance level on the Daily, i think this range will be skewed to the downside, so I advise shorting GBPUSD >1.47 with SL at 1.484, TP anywhere from 1.46 to 1.40 for 2 reasons: 1) range trading in mind, a scalping 50-100pip strategy may also be useful given the high expected volatility and range, shorting all pullbacks to 1.47 may enable several 50-100pip TP trades. 2) Given the high expected range (340-480pips) and 500pip Standard deviation, the long-term play e.g. 1.40tp is also one I am trading as GU is likely to reach these levels in this environment of unparalleled volatility. -Currently I am splitting my margin between scalp trades and long-term GU positions (good for portfolio diversification) at this point in time, e.g. I have a few GBP shorts with close TP and a few with longer TP targets, this reduces my macro portfolio risk:reward as you reduce the risk of the shorter trades, but increase the reward of the longer trades. - ATM I am 8.5/10 short GBP vs USD and CHF (JPY is too volatile - 25% more so than GU and GCHF) Risks to the Trading strategy: - If GU breaks and holds above 1.485, my short play conviction falls massively to 2/10 (from 8.5/10) as for me it signals a potential trend reversal for GU to price higher since 1.47 has held for 6 months - I will cut all shorts past 1.485 and I am not interested in shorting GU if it holds past 1.48. - Further, there are risks that due to massive expected volatility/ uncertainty, game theory fears everyone out of the market e.g. everyone is too scared to trade, thus the spot market trades paradoxically against the volatility and realises flat price action since there is no volume. - This forecast and strategy is based purely on range bound trading (as guessing the direction IMO is too difficult giving the volatility/ uncertainty in the market and also as I believe the market should realise large ranges - thus validating the strat), however if the range/ price action assumptions do not hold true to some degree e.g. we trade flat or just rocket north, then the Short only strategy is obviously flawed. *See the 22nd, 23rd, 24th Forecast PA post attached to this one which shows the forecast used*
Short
by QuantumLogicTrading
14
22ND, 23RD, 24TH FORECAST: GBPUSD - BREXIT PRICE ACTION ANALYSISUK EU Referendum (Brexit) vs Scottish UK Referendum Price Action Forecast: - We will use the difference in ATR and volatility between the 3-day run up into UK EU Referendum (UER) and the Scottish UK Referendum (SUR) in order to forecast what we expect price action to show on the 22nd, 23rd and 24th. 2014 SUR 3-DAY EVENT (17,18.19) 1. 1-Period ATR for the 17th 18th and 19th was 110pips, 163pips and 241pips - average of 171pips 2. 3-Day range was: 280pips - 1.6240 to 1.6520 3. On the day 12noon Implied ATM vol 17th-19th was: 8.8% 79th, 8.01% 52nd, 6.97% 22nd 4. On the day 10-period Historical Vol was: 10.4%, 10.4%, 11.1% 2014 SUR 3-DAY LEAD UP (14,15,16) 1. 1-Period ATR for the 12th 15th and 16th was 73pips, 53pips and 149pips - average of 91pips 2. 3-Day range was: 150pips - 1.6150 to 1.6300 3. On the day 12noon Implied ATM vol 12, 15, 16th was: 8.82% 76th, 9.34% 87th and 8.45% 65th 4. On the day (12,15,16) 10-period Historical Vol was: 10.9%, 10.8%, 10.4% vs 2016 UER 3-DAY LEAD UP (17, 20, 21) 1. 1-Period ATR for the 17th, 20th and 21st was 195pips, 371pips 155pips - Average of 255pips 2. 3-day Range was: 580pips - 1.4195 to 1.4775 3. On the day 12noon Implied ATM vol was: 23.2% 100th, 24.3% 100th and 20.16% 99th 4. On the day 10-period Historical Vol was: 14.1%, 19.4%, 19.2%; *2016 UER 3-DAY EVENT (22, 23, 24) FORECAST* 1. 1-Period ATR for the 22nd, 23rd and 24th FORECAST: `293pips, 1141pips, 250pips; (171pips/91pips)*255pips = average 480pips (average adj 340pips), SD of 500pips 2. 3-day Range FORECAST: +/-1100pips - 1.4600 to 1.3500-1.5700 3. On the day Implied/ Realised ATM vol FORECAST: Event Volatility has been implying anywhere from 30%-60% over the brexit 3 day period, with ATM currently trading at 26% already. Evaluation: 1. The price action forecast around the event suggests that we could see a 1100pip range over the next 3 days (22, 23, 24) - given that we dont know the direction of the range, we can assume a distribution of 1100pip +/- at the current trading price thus forecasting GBPUSD to trade anywhere between 1.35-1.46-1.57. - Further, the model expects an average daily range of 480pips, with the vote day skewing the average significantly (1141pips), therefore i think a 340pip (average adjusted) daily range is more likely. 2. Combining the estimated distribution range of 1.35-1.46-1.57 with the standard deviation of the foretasted daily ranges = 500pips, the model ends up showing significant statistical relevance by backward validating itself e.g. +/- 2SD of the mean at 1.4600 is 1.5600 and 1.3600 (+/- 2*500pip). Before knowing this the model had already forecasted a 1.35-1.57 range thus this is somewhat reassuring as the model held true when back tested using +/- 2SD. 2SD is significant as it accounts for 95% of outcomes. - The model also estimates that the tail risk of a BREXIT would cause GBPUSD to fall -3SD which is down to <1.31 (1.46 minus 1500pips) - this is also somewhat close to what I would have expected the day after the vote. *See the 22nd, 23rd, 24th Trading strategy post where I link this information to execution*
Short
by QuantumLogicTrading
BREXIT GBP: USE USDJPY AS A RISK-BAROMETER & WAIT FOR LONDON 8AMIndicators to check BEFORE GBP Shorting for confirmation I also suggest using two other key pieces of information BEFORE shorting GBP. 1. Use USDJPY as a measure of market risk appetite and stability - As you can see below UJ has traded with a tight 38pip range vs GBP$ at 180pips. Therefore we can use UJ as a measure of stability and risk appetite: 1) because of its stability - UJ isn't acting as susceptible to the volatility "noise" - with 4.5x less range; and 2) because as we know UJ is the "safe haven" FX pair which is sold massively when markets are trading risk-off. or risk averse. - How to use UJ for GBP direction: Assuming UJ is the stable measure of risk (which has been true for the past week) it is fair to ALSO assume: 1) A rise in UJ means increased JPY selling which means there is a stronger risk-on attitude in the market as investors shed "safe yen" - buying GBP in the uncertain BREXIT environment IMO is considered the "risk-on" move - SO we can confirm GBP rallies with a rise in UJ 2) Conversely a fall in UJ means JPY buying, which means investors are seeking risk-off/ safer currency plays - selling GBP in the BREXIT uncertainty environment IMO is considered the "risk-off/ low risk" move - SO we can confirm new GBP shorts with a fall in UJ *If you believe that the risk-on/ risk-off moves are the other way round e.g. GBP upside is the low risk play - then you can STILL use UJ as the indicator, just the other way around than above. IMO and logically, GBP lower in this uncertain UK environment is the LOW RISK trade - especially given we traded at 1.46 8wks ago (not much downside is priced at these levels thus GBP moves lower are lower risk) 2. Wait for London open between 8am-10am GMT (4-6 hours from now) - In these past weeks, the London open has been a key catalyst for GBP direction ESPECIALLY on the Sunday-Monday Asia which over as all of the weekend information is priced in for the biggest FX clients in LDN. - Therefore it is prudent NOT to take a position until the big money volatility/ fluctuations/ noise is out of the way otherwise SL's may be susceptible to being hit AND MORE IMPORTANTLY, we may misjudge the market direction/ sentiment (given LDN is the largest FX Flow session). - Several times the market direction and momentum has changed or been confirmed aggressively during the London open 8am-10am GMT so I think this indicator is a vital determinant
Short
by QuantumLogicTrading
3
TP ON BREXIT VOLATILITY: SELL GBP RALLIES & BUY RISK-OFF DIPSThought id put a piece out as my guide for the week for how to trade the 23rd UK EU Referendum vote. IMO the first rule and most important is - DONT TRADE THE VOTE. Trying to guess the answer is like trying to win the lottery, so instead i advise taking a position on the volatility , as volatility doesnt discriminate, it trades both ways. Trading the volatility: - The asset most hit by the UK EU Referendum uncertainty is FX, with GBPUSD 1wk ATM implied volatility closing the week at a whopping 48% - as high as levels from the financial crisis. - GBPUSD spot and volatility price is trading somewhat at the mercy of the UK Polls (i suggest checking them every few hours or so for updates if you want to trade any GBP or JPY pair the next two weeks) - intuitively, when the polls have been BREXIT biased - as they were at the front of last week, we saw GU plummet to 1.40 flat and then towards the end of the week as the polls tipped towards bremain, we saw GU recover somewhat to 1.44 almost. - I expect the same at the start of this week - GBP will open higher today as polls over the weekend tipped into BREMAIN's favour - supported by the tragedic murder of one of its supporters which consequently lead to a prohibition on campaigning and the "stay" party gaining more publicity). -Therefore I suggest SHORTING GBP rallies as with volatility trading at the 48% level, probability supports that GBP wont be able to hold onto any strength and will at some point conceive considerable downside. Further, the BREXIT/ BREMAIN Polling balance is likely to toss and turn - (www.bbc.co.uk) - so Fading/ Selling rallies on the back of any new BREXIT/ Leave Polls out is advisable. - GBPUSD - SELL @ 1.45/6 - lows of 1.40 from last week or 1.385 is the next support level for TP - GBPJPY - SELL @ 151/2 - Lows of 140.5 is the next support past 148, however, 1.455 are lows from last week - GBPCHF - SELL @ 1.39/40 - Lows of 1.338 are in sight for TP, or 1.358 - Reward for all is upward of 500pips, Risk is no more than 250pips so IMO this provides a great trading opportunity My 3 conditions for shorting GBP on rallies is: 1. GBP must be trading "expensive" at the levels suggested above - making reversal more likely. 2. A recent poll is in favour of leaving 3. Volatility is high and Risk Reversals trade in favour - both putting a dampener on long term stability. See my previous articles on which cross is best to trade - I still believe CHF is the best cross, it has the best long run SHORT possibilities too. Finally, Safety assets e.g. Gold and US Bonds are tradable ON PULLBACKS also. Gold and Bonds have been on significant rallies (illustrating the market risk) recently, so I advise buying them on any 1-5% pull backs that we may/ may not get - However, the risk-off asset play was much more profitable several weeks ago (as i suggested). Much of the "easy liquidity" has been eaten up in the last 2wk rally - hence only buy pull backs. In my opinion, the front end of the week will have the best conditions to trade in, volatility will be at its highest and i predict a level of "calmness" emerging on Wednesday/ Thursday as the result is awaited and as volume drops, thus I do not recommend trading on Weds/ Thurs - execute on the rallies expected on Monday and TP before Wednesdays London session at 8am GMT. On a UK STAY VOTE we could see massive 5-8+% rallies in GBP (depending on how depressed it is) and mirrored strong sell-offs in JPY, Gold and Bonds - hence why i say DO NOT TRADE THE VOTE. I will be posting updates on Volatility as soon as the market opens.
Short
by QuantumLogicTrading
6
LONG USDJPY @105.8: NEUTRAL FOMC; DOVISH & EASE BOJ & RISK-ONWe had the best possible outcome for FOMC's Rate decision and Fed Yellens speech which was neutral IMO as expected, with the Economic Projections being dovish, downgrading the projected rate hike cycle. We now look to BOJ. Trading strategy: LONG USDJPY (possibly short also GBPJPY for longer term investors or investors that want to hedge against a hawkish BOJ) TP @>107 = 100pips at least - SL @104.9-105.2 Reasoning - FOMC overall was neutral, we had lower projections but Yellen remained mildly upbeat, telling the market to shrug off the short NFP report (quite rightly). - So this means $ demand/ supply remains flat. - The main driver of the LONG UJ play is on the JPY side. Given that FOMC was flat, this means JPY "risk-off" and uncertainty buying which would have arisen if the fed was aggressively hawkish/ hiked was neutralised - meaning JPY "rate hike induced" safe haven demand was neutralised as instead the FOMC helped risk trade higher = LONG USDJPY as JPY demand falls - So now we have a situation of neutral USD and neutral JPY as there was no rate hike to unsteady markets and cause JPY to be brought - So the driver of the LONG USDJPY is the fact that IMO the BOJ will be aggressively dovish and likely to cut rates - their core and CPI prints are consistantly below 0% at -0.5% for Tokyo CPI and Core, with National at -0.3% for both. These CPI prints are the average print for the last 6 months meaning BOJ policy has been inefective in reaching their goal as inflation is stale and not rising. Thus IMO they have to CUT and EASE and be DOVISH = Long USDJPY - Further, Kuroda BOJ head said he is aware of JPY trading strongly due to its safe haven properties and he has stated he is prepared to fight this risk-off led Yen appreciation - this means HEAVY easing to negate the JPY risk-off strength and weaken the currency = long USDJPY - Finally, a dovish BOJ helps ease the risk-off sentiment in the market at the moment (stocks falling and gold rallying) as BOJ easing puts more liquidity into the markets - calming the risk-off sentiment means LESS JPY buying and MORE JPY selling = LONG USDJPY Evaluation - So with USD as a stable denominator, I expect the BOJ to heavily ease in order to 1) improve their inflation performance closer to their target 2) to devalue JPY from the risk-off buying that brexit uncertainty has caused. - Further, UJ is the best expression of the short JPY play as EUR and GBP are both comprimised by BREXIT uncertainty - which is constantly trying to trade eur and gbp lower - hence a long ej or gj is not advised - UJ is the least affected of the majors by brexit - *see my dynamic straddle post attached for more details* - on that note one may argue AUD or NZD could be used for the long, since they too are even less affected by brexit downside, which is true, however i dont have enough experience in those markets - if think there is a better denominator than USD for the long then by all means use it - however IMO USD is the best of the bunch for future dollar demand as they are the only Central bank to be hiking NZD and AUD are still cutting. - Also UJ imp volatility is finally falling with 1wk implieds dropping to 12.55 (-3.45), which improves the environment for buying. Plus as you can see below Historical Vol is also falling, once again illustrating that price may be ready to start rising again - low vol = more buying. Plus the ATR trades lower than average which is a bullish sign - bull markets range less. - And we are still oversold massively at -2/3 SD of the mean of the weekly. Plus we trade close to the handle at 105.35 which is the strongest support level in USDJPY history thus helping upside from here (unless we break ofc). Comments welcome
Long
by QuantumLogicTrading
8
DYNAMIC STRADDLE: USDJPY & GBPJPY - TP FROM BOJ & FOMC EVENT VOLThe best Idea to play BOJ and FOMC from a risk-averse perspective is to own both in a Long Straddle Strategy Dynamic Straddle: Long USDJPY & Short GBPJPY - TP from volatility & Event likely hoods TP levels = cannot be greedy else you may miss one trades exit point so <25 pips when it goes in your direction for each - total TP = 50pips as 2*25pips Reasoning - Traditional Straddle involves would be long and short the SAME cross.. - However i suggest we long USDJPY as UJ has proportionately MORE upside possibility: 1. FOMC is likely to be neutral-Hawkish, this will help UJ trade flat/ higher = Supports long - - *FOMC PARADOX* important to note that in this sensitive risk-off market if the FED is too hawkish/ hikes it can cause a UJ sell off, as higher rates means greater economic/ market uncertainty as liquidity and financing becomes tighter (despite rate hiking usually making USD trade higher through increased $ deposit demand for higher rates) 2. BOJ is likely to be dovish, this will help UJ to trade higher (especially in this risk averse market - easing helps calm mrkts) = supports long 3. USDJPY ISNT directly impacted by BREXIT fears as GBPJPY as USD and JPY can be considered safety assets, this helps USDJPY trade higher = supports long So we have 3/3 for long USDJPY. - Now to hedge this trade AND benefit from possible downside, we SHORT GBPJPY as GJ has proportionately MORE downside possibility. 1. FOMC neutral-hawkish, drives risk-off momentum (higher rates reduces market liquidity and undermines economic growth thus increasing uncertainty) which drives demand for Yen/JPY, increased demand for JPY supports short GBPJPY 2. BOJ being dovish/ easing potentially helps JPY sell off - however, GBPJPY will be the least sensitive of JPY seller of the JPY crosses, as GBPJPY is the perfect play for Brexit and risk-off, hence in the long run JPY selling wont last long in GBPJPY as once JPY is cheap, buyers will enter to continue hedging/ speculating on brexit with the favourite pair, poor potential/ long run JPY sell side = supports gbpjpy short 3. GBPJPY is directly impacted by Brexit uncertainty in two ways. 1) as investors wish to sell GBP as the uncertainty is only negative for GBP (especially when polls are at 55%). 2) as Investors wish to buy JPY for their "safe haven" asset play. UJ only has the JPY buying to push it lower, which is limited/ offset further as USD buying can also be considered a "safe haven asset) = Supports short GBPJPY We have 3/3 for short GBPJPY Evaluation. - We have 3 points supporting both LONG UJ and SHORT GJ - AND by playing this trade we are able to gain from ALL eventualities, we dont have to guess the BOJ or FOMC outcomes since we have a LONG and a SHORT we have covered ALL eventualities. - Also from a vol perspective, GBPJPY risk reversals continue to become negative by a significant amount 1wks lost 0.6 to -2.1 (from -1.5), so investors continue to demand GBPJPY downside puts for speculation/ hedging - supporting the short. - USDJPY ATM volatility, sold off significantly with 1wks losing 3.55 to 12.45 - lower vol in UJ supports buying. *Any questions on why i think FOMC will be neutral-Hawkish or why BOJ will be dovish-easing please ask in the comments*
by QuantumLogicTrading
FADE THE GBP RALLY - GBPJPY & GBPCHF SHORT - 200 TO 300 PIPS TPWanted to post a quick message telling people to sell the rally for 100-200 pips dependant on how quickly you get on the short.. Volatility is trading lower (as we expect in a rally) however it WILL pick up again/ reverse once it bottoms out - which i think is now! The trend for all GBP pairs is LOWER hence dont fight the trend with longs INSTEAD when you see GBP pairs in the green +0.7%-+1% look for good resistance levels to short. GBP is only going to extend lower in the long run with Lower inflation (yesterdays CPI print missed at 1.2% core and 0.2% CPI) and also as Brexit sell-offs continue - this is merely a recovery from the 5 days of losses so short at these levels is a high probability low risk trade - short it whilst the volatility/ price trades expensive IMO. Prices above 151.5 are the high probability/ lowest risk shorts possible, if we see 1.522 that is the high of the week so I suggest going 8/10 short at these levels for more than 300 pips to 1.492 low. The reason I like short GBPJPY and GBPCHF is descibred in detail in "relative value" posts attached to this one!
Short
by QuantumLogicTrading
RELATIVE VALUE: BEST EXPRESSION OF BREXIT - GBP VS USD, JPY, CHFAn analysis of which LONG has the best value against the short GBP to play the Brexit. [ - GBPUSD has a target handle of 1.385. - GBPJPY target handle at 1.483. - GBPCHF target handle at 1.335 . - IMO currently i rule out GBPUSD short, as USD doesnt have the same "risk-off" demand as CHF and JPY. Also USD and GBP economies are perhaps the most highly correlated, both economically and politically out of the pairs hence Brexit downside may/ will spill over into USD uncertainty also and may cause a lack of USD demand relatively to the unlinked regions of JPY and CHF. Not to mention GU has moved 400-500pips lower (the most) in a week and short liquidity is getting tighter - i think momentum is slowing in this pair - it isnt making any lows. Also at 1.41 there is little interest to get short/ for new shorts to be added as we near the all time low handle at 1.38 - hence JPY/CHF denominations which arent at all time low levels are better expressions of downside GBP. - I think a dynamic and better way to play the BREXIT vote is using a long CHF or JPY denominator as you get a "two-way" short. e.g. investors will be actively buying JPY and CHF to hold a risk-off asset, that hedges against volatility/uncertainty/risk that the Brexit possibility holds (even more so if polls continue to become more skewed to a Leave vote - Guardian recently posted 55% in favour of the leave) - thus by denominating CHF or JPY you benefit from the demand momentum AND the Supply momentum of everyone wanting to sell/get rid of GBP as uncertainty and perceived risks/vols increases. - Therefore, Given the further 300pips of downside available in GBPCHF downside (300pips) relatively to JPY (100 pips) it has some way to to fall yet - especially once investors begin to realise JPY is an over expensive risk-off asset, they will demand CHF more as the next best/ cheapest way to hold safety AND GBP downside. - Also, since Sunday night short GBPJPY has performed twice as well as GBPCHF (2x as many pips lower - however this means that now GBPJPY is becoming oversold so we should choose short GBPCHF now). The GBPJPY 2x move lower vs GBPCHF is unsurprising as historically investors seek JPY first, until long liquidity tightens (overpriced) then they seek CHF as the next best alternative. However it is important to note, that in most high risk occasions, at the point of the event CHF and JPY eventually end up at the same levels e.g. it is a time horizon difference, JPY isnt necessairly better than CHF in the long run, JPY just receives liquidity BEFORE CHF, but not more than CHF in the end. - Illustrating this - GBPCHF has lost the LEAST to date in pips compared to GBPJPY and GBPUSD over the last while - hence why currently GBPCHF is the best short/ has the most pips available to short. Thus assuming you have missed the short GBPJPY I advise now adding GBPCHF short as we have 300 pips until the nearby handle at 1.338 (rather JPY only has 100 pips to the handle at 1.483). -Also one other element to note, is that EUR pairs e.g. EURJPY and EURCHF are also relatively cheaper than GBPJPY and GBPCHF - short EUR numerated shorts are also the next best/ next most valuable shorts after GBP numerations. Hence - imo once GBPCHF reaches the handle at 1.335 I will be looking to short EUR numerations as they are still relatively cheaper (The demand is for GBP as GBP is the most sensitive), however short EUR is the next most sensitive numerator as the EUROZONE is the next most affected ccy, since the UK EU Referendum directly impacts Euro area economy. Volatility demand: - Also not to mention GBPJPY and GBPCHF 1wk and 1m risk reversals in the long run are becoming negative at a higher rate/ momentum compare to USD e.g. investors are buying GBPJPY and GBPCHF Puts at an increasingly faster rate than GBPUSD puts (the change of the RR values are increasingly negative more than the GU - The GU RRs are almost already fully priced). Hence we are no
Short
by QuantumLogicTrading
PRICE ACTION ANALYSIS - GBPUSD: SCOTTISH UK VS UK EU REFERENDUMThis article compares the price and technical analysis of GBPUSD in the 10-weeks leading into the two events in order to gain an execution-able advantage going into the UK EU Referendum taking place on the 23rd June 2016. Price Action and Trends Scottish UK REF - 10 weeks = 14.July.14 to 18.Sep.14 - The first 8 of the 10 weeks GU traded extremely bid, selling off 1000pips from 1.7000 to 1.6000 . GU failed to make any significant recoveries during this period - signifying an extremely strong down-trend. - at the end of the down trend and coming into the REF, GU recovered 40% from 1.6000 on the 9th Sep, to 1.64000 on the 18th Sep (event vol highs at 1.6580). The sell off the proceeded to continue after the event, selling off back to 1.5900 by week 12/13. - Price action remained significantly below the 50 & 20 VWMA throughout the 10-week period and after the event - confirming the strong down-trend. UK EU REF - 10 weeks = 18.April.16 to 23.June.15 - Since the bottom formed on 29th Feb at 1.3850, GU has been trading in an up trend, forming marginally higher highs and higher lows. However, the uptrend has turned into sideways action in the last 3-4 weeks as GU has failed to make new highs of any significance and is failing to make higher lows - and the high-low range is tightening. in the last 10 weeks GU has risen 330 pips from 1.4270 to 1.4500 close-close and has had a range of 600 pips - 1.4170 to 1.4770. In the last 5 Weeks however GU traded flat closed to close at 1.4500, with a range of 400pips 1.4340 to 1.4730 illustrating the tightening range, sideways movement and end to the trend - the market is sleeping and is waiting for a stimulus to break in a direction. - At the start of the 10 week period, Price bullishly crossed the 50 & 20 VWMA and has stayed above since, confirming an up trend. The 20 period, however, has been trading choppy, illustrating the low trend/ direction and the significant pull-backs. Comparisons 1. The Scot REF priced GU over 1000 pips lower in the 10 week period, in a decisive downward move - however, this UK EU event has failed to do anything similar and has actually done the opposite by rising in the last 10 weeks, currently trading up 300 pips. - Why? imo there is only 2 reasons why there has been such a big difference in the price action. 1. The reason GU isnt pricing downward is because GU already priced/ factored in Brexit uncertainty into the downside we saw between december 18th.15 to March 2nd.16, which took us from 1.5300 to 1.3800 which is a whopping 1500+pips lower - this was likely FOMC hike driven but given the extent of the move, it is highly likely that brexit was included in the price lower - hence why we are not seeing a move now - the UK REF is already in the price. 2. The less likely reason is that GU isnt pricing the move because 1). the market has been scared stiff by the uncertainty, and people simple arent willing to take risk either way thus explaining why price is trading flat/sideways. or 2) GU is planning on making a significant run to the downside in the next two weeks where it could shed 1000 pips if it falls back to 1.3800; or even 700 pips if it moves to 1.4000 which isnt that far off of the 1000pip Scot Ref move. The technical indicators are just mirror a function of price thus I will not read into the technicals much - obviously the Scot Ref indicators spent much of the time depressed since the price was falling rapidly, whilst the UK EU Ref has been mixed - since the price is trading sideways. *Look out for my upcoming article where i will discus what the above differences mean and what they imply price action will do in the next two weeks going into the UK EU Ref and FOMC.
by QuantumLogicTrading
PRICE ACTION ANALYSIS - GBPUSD: SCOTTISH UK V UK EU REFERENDUM 2This article compares the price and technical analysis of GBPUSD in the 10-weeks leading into the two events in order to gain an execution-able advantage going into the UK EU Referendum taking place on the 23rd June 2016. Ranges Scottish UK REF - 10 weeks = 14.July.14 to 18.Sep.14 - GU started the period at 1.7000 and closed the period at 1.64000, with highs at 1.7150 and lows at 1.6000 with a range of 1150pips. - In the last 5 weeks (Aug.18th-Sep 18th) GU opened at 1.6730, closed at 1.6400 with highs at 1.6730 and lows at 1.6000 and a range of 730 pips - Close to open of 330pips - In the last 5 weeks (Aug.1st-Sep5th 5wk comparison) GU opened at 1.6877, closed at 1.6300 with highs at 1.6877 and lows at 1.6277 and a range of 600pips. - from week 10-13 GU shed the the Recovery/ No vote volatility gains, and traded from 1.6400 to 1.5900 with a range of 500 pips. UK EU REF - 10 weeks = 18.April.16 to 23.June.15 - GU started the period at 1.4270 and closed at 1.4500 - range of 600 pips - 1.4170 to 1.4770. -In the last 5 Weeks (5wk comparison) however GU traded flat open to close at 1.4500-10, but with a range of 400pips 1.4340 to 1.4730. Comparisons In general, the Scot Ref traded/closed much closer to its ranges than the UK EU Ref has to date e.g. in the "comparative" last 5wks, Scot Ref opened at 1.6877 (which was its high also) and closed at 1.6300 (only 30 pips from its range low at 1.6270) so GU ate 570/600pips of its range - illustrating that the Scot Ref had much more directional bias since it traded and held its extreme levels. Where as the UK EU Ref comparative 5wk period, opened at 1.4500 and closed at 1.4510, but with a range of 1.4340 to 1.4730, so GU only managed to eat/commit to 10/400pips that it ranged - illustrating that the UK EU Ref has lot direction commitment and 0 trend, it is a sideways ranging market. Technicals Scottish UK REF - 10 weeks = 14.July.14 to 18.Sep.14 - RSI, STOCH and RVI sold off in the first weeks of the 10wk period, then remained severly under pressure for the remainder of the 8wk sell off - all of which failing to break 40 and posting lows of 13 with several <20s. The event driven recovery between the 9th sep to 18th sep however helped the technicals recover to 50 levels. - Historical vol, traded in an uptrend during the first 8wk selloff from 2 to 11, before falling slightly during the recovery and spiking again to 10-12 around the REF date due to event volatility. UK EU REF - 10 weeks = 18.April.16 to 23.June.15 - RSI and RVI have been bullish, trading in the upper 60% all of the time, with several "overbrought" conditions arising at 70. - Historical vol has traded relatively flat, ranging between 6-12 with it ticking up in recent times to trade above 10 on most days now. - Stoch oscillated throughout the period, with a bias to the downside, showing two oversold conditions of <20, illustrating the bullish trend as it was the little pullbacks that caused these conditions. * See the first article in this series (linked to this article) *Look out for my upcoming article where i will discus what the above differences mean and what they imply price action will do in the next two weeks going into the UK EU Ref and FOMC .
by QuantumLogicTrading
5