1. Review.
I wrote “EURUSD rally seems to be likely to stay at the 1.32 levels, as median (now 1.28 and 1.35 levels would be the range); EURUSD bias is to be set to neutral. Interest differential are playing a role now: the spread between EUR and USD 3 month labor is at 0.4 boosting the EUR. Rising EUR labor is not a worry if not accompanied by a falling USD labor. There reason that the spread will weaken in the next weeks signaling a medium top in EURUSD. For the moment USD is still a sell and I will enter on long on dips below the 1.3 level” EUR was sold off after the Fed meeting stopping the weakening at 1.28 level. “Next week FOMC meeting will be one of the most important of the year. If further QE will be announced bond yields will fall sending the USD lower (good for JPY long). If not, that is Fed will not buy back Treasuries) there is potential risk for a Treasuries sell off, sending yields and USD higher (good for JPY shorts).” No QE, but just bad outlook for the economy from the Fed and there was a fight to safety with JPY strength, low US T-Note yields and EUR sell off. Anyway lower yields did not strengthen JY that much, maybe is a JPY bottom here at 85 level. JPY regained 86 handle at the end of the week. “ German data are good and the ECB bonds buy back is about to close; other parts of EZ do not show any sign of growth, giving not much space for tightening. There is then some space to the upside but the medium term is still mined from fiscal concerns”. Good German GDP data did not make EUR rise.
Trades
Holding the same drawdown at -560€ at the end of the week , still waiting for the risk-on increase to decrease the drawdown. Entered a EURNOK short the 12/08 at 7.955 and a EURUSD the 13/08 long at 1.2805
2. Analysis.
"Fundamental analysis"
Last week was characterized by the Fed meeting that led to a flight to safety and a risk-off sentiment. After that, employment data was a bad data as usual. Good data from inventory and retail sales. Good data come again from GDP German data, but it was offset by bad bond auction in Italy and bad data from the periphery. Gold jumped as fight to safety surged. Yield from EZ periphery surged as German yields felt. CDS for Irish are at the 17 months high. Friday data did not had a big impact on EURUSD, but boosted the USD some pips.
"Technical analysis"
EURUSD felled at the 1.28 levels. Even if long positions could be taken on this dip, there is potential USD strength. Long term upside move looks like limited, due to the austerity measures and the growth anyway slow. EUR COT short decreased again (-7k), USD long are stable (+12.3k), no more divergence and USD index is now in the 80 support area; JPY is increasing long positions long (+48k). USDJPY traded in the 86 area. Probably is staying down here in these dips. US futures retested the 1100 highs, but there is a failure to close above 100 and 200 day MA. AUD are increasing (49k), showing a bias versus risk-on positions. GOLD/Oil ratio is raised at 16, from the 15 level since begin of July, with both oil down and gold surging; but VIX jumped at the 26: did we saw a double bottom? Gold hit 1213, pointing to the previous high 1260 area.
"Market dynamics”
Even if a consider that one should more focused on interest differentials these days are more oriented for a short term approach based on risk-on/off. USD weakness looks like already priced, but further slowdown could be led to EUR strength (WA says after price is bottomed 1.24). EUR felled very quickly; 1.28 is a first support area, next will be 1.24. Irish bond auction should be monitored on Tuesday to see risk sentiment against EUR and CDS for Irish bonds. Short term financial data look like not supportive for EUR . I will watch closely the 1.28 support to confirm the EUR bullish sentiment. Tuesday there will be lot of numbers from US, PPI, house data and manufacturing. Regarding JPY and BoJ intervention I will monitor 1. JGB yields (I see it on CNBC ticker) its 1.00% now. 2. US 10 yr yields 2.72% now, low 2.67% since Fed. 3. German bund yields. 4. USDJPY price action during any risk off & risk on events. Those data will help to determine if JPY has bottomed. Long term questions are:
- how bad will be in US or when we will see the bottom (is this bad outlook just a swing in the recovery)?
- will be the global recovery possible without the US?
- what will be the position of EZ (as anti dollar) and China (they carry the flag “the globe can go alone”)
This is the main story but speculative position will be more short term oriented and risk-on/off based.
Median grid
EURUSD GRID 1.280 - 1.350, (grid change), neutral bias
USDJPY GRID 84.00-88.00, neutral bias
AUDJPY GRID 73.00-81.00, short bias
Basically still a risk-off bias by the end of week
Prices
US down at 1081, (Q2)
GOLD up at 1213 (Q3)
Crude 75.17
EURUSD 1.2767 (Q1)
USDJPY 86.23 (Q3)
3. Plan
I will try again to work out of the money positions for JPY longs, just sitting on them for now. I will try to book the B&B long EURUSD and reenter position on a dip; I will monitor
EURUSD
I will enter a long B&B on the yob level (1.2958) as retracement; I will hedge on a couple of level down (-100 pips). I will take profit at 50-100 pips
Comment:< >
USDJPY
Already too many positions (+6)
I will enter a long B&B on the yob level (85.16) as retracement, if the 85 level is hold; I will hedge on a couple of level down (-100 pips). I will take profit at 50-100 pips
Comment:< >
AUDJPY
Already too many positions (+3)
I will enter a short B&B on the yob level (78.31) as retracement; I will hedge on a couple of level down (-100 pips). I will take profit at 50-100 pips
Comment:< >
EURNOK
Hold short positions
Comment:< >
4. Trades
4.1 open trades, their type & their value:
7 Open 13-ago-10 EURUSD L 1.2805 Q1 1:1 B&B 1.2769 -36.0000
2 Open 13-apr-10 USDJPY L 93.2400 Q3 1:1 toe-in 86.23 -701.0000
6 Open 05-mag-10 USDJPY L 94.5900 Q2 1:1 toe-in 86.23 -836.0000
10 Open 06-mag-10 USDJPY L 93.8600 Q3 1:1 Panic 86.23 -763.0000
16 Open 14-mag-10 USDJPY L 92.3000 Q1 1:1 B&B 86.23 -607.0000
18 Open 02-giu-10 USDJPY L 92.2100 Q2 1:1 B&B 86.23 -597.0000
19 Open 30-lug-10 USDJPY L 86.3400 Q2 1:1 B&B 86.23 -11.0000
6 Open 04-mag-10 AUDJPY L 86.0500 Q4 1:1 toe-in 77.23 -882.0000
7 Open 06-mag-10 AUDJPY L 85.1300 Q4 1:1 toe-in 77.23 -790.0000
17 Open 03-giu-10 AUDJPY L 78.8500 Q1- 1:1 Hedge 77.23 -162.0000
4.2 Leverage
Aggregate position size expressed as a gearing ratio (Ex = 4:1)
Total positions per currency:
USDJPY +6
EURUSD 1
AUDJPY +3
Position
USDJPY -701, -836,-763, -607, -597, -11
EURUSD -36
AUDJPY -882, -790, -162
4.3 Effect of planned trades
Account summary:
ActivTrades live account
682Starting capital: 1366
Line in the sand level: 750
1. Account balance (Settled trades) and growth as a percentage. (1445=5%)
2. Account equity (Including open positions) . (9536= -3%)
3. Account equity if planned trades go wrong: 1000
4. Pip distance to line in the sand level. 2036, with gear (10) 203
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