1. Review.
I said “FED announcement, dollar pumps and good far east data are basically set a risk on environment. This is also good for US stocks. But with late of week USD recovery and good data releases (ISM orders, NFP) I will go into next week with a USD cautiously optimistic view.” USD strengthened and risk was off due the Irish debt crisis and some CNY rite hike fears. “Recent QE2 may lead to further rise in commodities prices and then lead to higher inflation, especially in AUD. Further rate hikes are expected and the some AUD upside.” Gold surged but dropped sharply on the end of week. “Anyway there is a risk that G-20 meeting will give US a free pass to weaken further USD. I will monitor US official statements. EUR peripheral concerns are likely to come back in this year end. ECB confirmed exit strategy and FED dollar pumps in the market are strengthening the EURUSD, but I see difficult to maintain gains above 1.45. Anyway after QE2 even with good US data, I don’t expect that USD will be strong at the height of the PIIGS story (EURUSD 1.200).” EUR dropped to 1.36, a critical level before the EUR-goes-to-zero March story. “I think that BoJ will wait G-20 to apply a coordinate intervention.” It was. “The basic medium term view is a risk on through the end of the year, that can be stopped maybe for:
1. A unknown developing crisis (any of sort) – not yet
2. China will dip prices to reenter commodities at lower levels – rate hikes supposed, but anything of fear
3. The PIIGS story back if EURUSD will rise at uncomfortable levels of 1.5 – EUR dipped, probably all the story is priced in at 1.36 level”.
Trades
Closed the short EURUSD with profit. I was not able to pull the trigger for a USDJPY long at 80.7
2. Analysis.
"Fundamental analysis data"
A quite light week:
Thursday CYN CPI: 4.4%, more than expected; this is suggesting there is no stress in China growth and that can cause a new rate hike.
Friday German GDP: 0.7%, slightly below consensus, but reading suggest Germany economy is booming
Friday US UoM consumer sentiment: 69.6, positive outlook thanks to improved job numbers.
Good employment data from AUD; bad industrial production numbers from JPY.
"Fundamental analysis"
Weak EUR industrial production for Q3 is suggesting a slowdown in EUR growth and this is expected to be more in Q4. USD data was more upbeat.
Good CNY data and QE2 free money are still supportive for risk on.
US yields increased and this could be supportive for the USD.
Risk about EZ peripherals countries is rising again (spreads and CDS rising again) caused EUR to move down in the 1.36 area. Probably the Irish story is all over and already full priced in. BoJ is not intervening
"Technical analysis"
USD gained further of the pre-QE2 levels after QE2 release losses. EURUSD tumbled at 1.37. Support at 1.3950 did not hold. 1.36 area is a key support for EUR, because is the area where started dipping in the 1.2 levels. COT data are below, basically flat. USD traded up to 78.2, close to the 78.4 resistance; USDJPY traded stable comfortably in the 82 area after weeks. Again at this level BoJ would intervene if the 80 level will be broken. Gold all time highs at 1.3060; US futures stable again in to the 1180. GOLD/Oil ratio stable, little rising; VIX stable to low levels. 2.8 is a critical resistance for US yields, to be watched for the USDJPY correlation.
COT JPY up at 44.1k (+0k)
COT USD up to 8.4k (+0k)
COT EUR at 35.1k (+0k)
COT AUD down 49.7k (+0k)
TYN up to 2.78% (+0.2%)
JGB at 1.03% (+0.1%)
Bunds at 2.5%. (+0.1%)
German/Greece up to 8.87% (-0.31%)
VIX down to 18.64 (+0.2)
Gold/Oil up to 16.1 (-1.4)
"Market dynamics”
USD supposed to go down strengthen, suggesting a correction in extreme short positions. But this could end up in a significant shift in the market direction, as we see relative growth prospects in monetary policy as he ground for further USD strength. Growth slowdown is weighting on EUR and JPY. Further USD strengthen suggest commodities and gold weakness in the week ahead. WTI reached pivotal 84-85$ prices; weakness below would suggest a decline to 80 level on next week. I would expect both gold and crude to decline sustaining a strong USD. I think there is some guidance to exploit EZ sovereign debt during G20 (maximum exposure) to hide the QE2 effects, showing a strong US that is not. Then I will be long EUR is the 1.36 level holds and long USDJPY if dipping.
Median grid
EURUSD GRID 1.340 - 1.42, up bias
USDJPY GRID 80.00-84.00, up bias
AUDJPY GRID 73.00-81.00, long bias
Prices
US up at 1194, (-30, Q4)
GOLD to at 1368, (-30, Q4+), all time high at 1422
Crude 84.8 (-3$)
EURUSD 1.369 (-0. 34, Q1)
USDJPY 82.56 (+1.3, Q2)
AUDJPY 81.25 (+-1, Q4)
3. Plan
I will buy EURUSD +1 at these levels. 1.36/4 buffer. Still long USDJPY expecting BoJ intervention, but add stops. Buy a dip.
EURUSD
I will enter a long if support 1.355 holds and enter a long B&B on the yob level (1.3605) and another lot at 1.3755. I will hedge on a couple of level down (-100 pips). I will take profit at 50-100 pips.
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USDJPY
I will add a dip: I will enter a long if support 81.5 holds and enter a long B&B on the yob level (1.3605) and another lot at 1.3755. I will hedge on a couple of level down (-100 pips). I will take profit at 50-100 pips.
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AUDJPY
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EURNOK
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4. Trades
4.1 open trades, their type & their value:
1 Open 05-set-10 USDJPY L 84.2600 83.2600 Q1 0.2 B&B 82.5 -176.0000 -12.9000
2 Open 07-ott-10 USDJPY L 82.3600 83.2600 Q1 0.2 B&B 82.5 +16.0000 +1.1000
4.2 Leverage
Aggregate position size expressed as a gearing ratio (Ex = 3:1)
Total positions per currency:
USDJPY +2
EURUSD 0
AUDJPY 0
Position
USDJPY -12.0, +1
EURUSD 0
AUDJPY 0
4.3 Effect of planned trades
Account summary:
Saxo live account
Starting capital: 1000
Line in the sand level: 7500
1. Account balance (Settled trades) and growth as a percentage. (10022=0.2%)
2. Account equity (Including open positions) . (1011= +0.1%)
3. Account equity if planned trades go wrong: 1011
4. Pip distance to line in the sand level. 6270, with gear (0.2) 12000
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