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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
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