Daily Briefing 101025

1.  Review.

I said “It should be a trading range for EURUSD between 1.40 and 1.38, waiting the FCOM announcement” It was that. “Probably investor are already placed for November 3 Fed meeting and now there will be a wait-and-see mode” It was basically a trading range week. Even if risk is on, I will expect potential further up move for EURUSD not exceeding the 1.41/1.42 levels, but probably a trading range around the 1.38 level as a consolidation”. Range was still centered on 1.39. “QE2 will be supportive for risk on because it will give money to big guys to invest in risky markets; so I am long of risk currency against USD (not JPY).” Riks assets were instead sold off. “I will look to spread Greek German bonds and US, JGB in general”. Greece spread recovered to 8.04 “Unilateral BoJ intervention is expected again, especially if prices drops below 80 handle. I will put ISDJPY stops t protect against USDJPY weakness.” USDJPY traded around 81 handle and no with no BoJ intervention.
Trades
No trades. I was not able from the expected trading range environment.

2.  Analysis.

"Fundamental analysis"
Some comments about interest rates: in the past interest rates levels were used to gauge economy recover or recession; now with zero interest level rates this pricing is gone and everyone is guessing on almost anything. This is causing a wild market volatility. G20 meeting was not causing surprises: everyone recognized the central banks should refrain from competitive devaluation; zero interest rates are causing problems to EM; US rhetoric says that US is supportive versus a strong dollar.
Risk about EZ peripherals countries is rising again (spreads and CDS rising again) is capping potential EUR move over the 1.42 area.
BoJ is not intervening but the 80-85 are is the line in the sand. BoJ knows how to manage yen at sub 90 level, but not in the sub 80 levels. Buying of Japan assets over the JPY 5 tritons could trigger JPY weakness.
QE2 looks like to be already factored in price so new expectation of 500 billion in six months is causing some USD unwinding. This QE2 size is expected to have the effect of a half-three quarter point interest rate reduction. Advance in GDP is still low in the third quarter at 2.0%

"Technical analysis"
EURUSD traded again at the 1.39 levels, with a short sell off at 1.37; lack of risk off data and wait for FED meeting probably will bring to a trading range again in the beginning of the next week; because is expected a trading range there will be some stop hunting at the extremes. Support at 1.38 and resistance at 1.42. COT data are below. USD still trading 77-78 range; USDJPY traded in a strict 81 area, making a fresh low at 80.35 and some stop hunting up and down. Again at this level BoJ would intervene if the 80 level will be broken. Gold again at 1.3060; US futures stable again in to the 1180. GOLD/Oil ratio stable, little rising; VIX stable to low levels.
COT JPY down at 41.7k (-2.2k)
COT USD up to 5.4k (+2.4k)
COT EUR up to 38.1k (-8k)
COT AUD down 55.5k (- 4k)
TYN up to 2.61% (+0.5%)
JGB up to 0.94% (+0.4%)
Bunds up to 2.51%. (+0.4%)

German/Greece up to 8.1% (+1.3%)
VIX up to 21.2 (+2.5)
Gold/Oil up to 16.63 (+0.4)

"Market dynamics”
QE2 (bond buy program to push interest rates low) effects: we will have more USD unwinding and USD strength if we will have a QE2 large or medium, stepped in. This because QE2 will move FED away from any interest rate hiking. US rates low and for longer will stay and put pressure on USD. If QE2 is that small than big initial numbers, after a short rally and closer to the grid low is the announcement, we will see EUR back to the top side of the grid to the 1.41-2 levels. PIMCO comments that this could be the end of the bond bull market; QE2 is like to pay your debt not getting the money from new creditors (i.e. banks) but writing a new check from your own (worst than a Ponzi’s scheme…). Then hedge funds and Wall Street are seeking alpha returns in EM and commodities, selling USD for that.
BoJ is still expected to intervene to use measures to get the market out from these levels. The market is positioned for the BoJ to do something but the BoJ would wait the FCOM decisions.

Median grid
EURUSD GRID 1.340 - 1.42, up bias
USDJPY GRID 84.00-88.00, neutral bias
AUDJPY GRID 73.00-81.00, long bias

Prices
US up at 1187 , (+13, Q3)
GOLD down at 1358 (+30$, Q4),
Crude 81.8 (0$)
EURUSD 1.3945 (-0. 010, Q3)
USDJPY 80.33(-1.0, Q2)

3.  Plan
I will try to profit from this expected trading range, entering long EURUSD on dips and selling highs till FCOM announcement, positioned with a long EUR at the low grid level. Still long USDJPY expecting BoJ intervention, but add stops.

EURUSD
I will enter a quick short B&B on the yob level (1.3982) I will hedge on a couple of level down (-100 pips). I will take profit at 50-100 pips. I will enter a long on the yob level (1.3757) I will hedge on a couple of level down (-100 pips), before FCOM if reached.
Comment:< >

USDJPY
No more positions to add
Comment:< Still underwater…>

AUDJPY
Comment:< >

EURNOK
Comment:< >

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 80.5 -370.0000 -27.9000
Open 07-ott-10 USDJPY L 82.3600 83.2600 Q1 0.2 B&B 80.5 -186.0000-13.9000
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 -27.0, -13
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.  (9979=-0.15%)
2.  Account equity (Including open positions) .  (9938= -0.6%)
3.  Account equity if planned trades go wrong: 9939
4.  Pip distance to line in the sand level.  6200, with gear (0.2) 12000