Neither Tech nor Macro

I will post my intentions on this week#38 later today. Was very busy this week-end and haven't analyzed anything yet. Stay tuned.

 

Forgot to mention that very bearish candle formation on AUDUSD daily,
I don't believe in its magic but lot of techs do, mainly in Asian session, why not use them? I see some candle formations just as another hint on positioning like big S/R, 200 Dma and big fibs. BTW I have 61.8% on AudUSD around 1.044.5, maybe the trade will acquire its core status very soon.

 

the AUDUSD daily chart . If i had a target it would be Parity but it's too soon to tell.

 

WEEK #38
From flight to safety to flight to easy money:
I think we are going to assist at a global easing from several central banks starting by the BOJ.
My current core position on UsdJpy opened last week was based on that. What is important for me is not the global macro consequences of this; not for now. But rather how the big players are positioning themselves knowing that assets managers are going to leave “safety” for “easy money”.
First we are going to assist to an upmove in JPY pairs in anticipation of the BOJ upcoming presser and rate decision. The starting signal was given by the financial time this morning. Specs had already anticipated this, and positioned themselves at a low price leve with the help of order flow dynamics around the FOMC statement (I did the same). Real money is always slower. In intraday we can assist to some strong downmoves mainly due to some big orders seeking liquidity to be
filled. These are the kind of moments I use to add to my core positions, I always want to be filled at a lower price and never jump in the move (use limits not markets). Second, we will probably assist to “a sell the fact” after the release.

I will explain how I see that Yen move on a specific UsdJpy post later.

Buying the €uro:
I would like to buy #eurusd at a lower level and the german zew or the PMi’s could brig us around 1.30 or lower (catalysts). There’s no fundamental reason to this, only a medium term behavior mainly due to money leaving GBP, who build his strength on “an anti €uro” temporary status, and CHF because of the now attenuated tail risk (see my post on EurChf core position). We don’t know if the structural short covering has ended so far, I think real money is late on this, we will know more after the IMM release on thursday.

USD selloff.
As usual QE is weakening the USD, from there we can think that anything risky is an easy bid vs the dollar. This is surely true on USDCAD and NZDUSD and some EM currencies like MXN. However I am not going on this path vs the mother of the risky assets, namely AUD. I am short AUDUSD because of the special link between AUD and the Chinese economy (this was explained on my post about AUDUSD position) . No one seeing that Chinese economy re-bouncing in the short term and its macro data are ugly so far. This can change if China decided to ease massively again and RBA not cutting its rate, at that moment It will be time to sell USD vs AUD at a nice low level; after having ridden the south leg. Selling at that very moment or better when the rumor about it starts to grow. But you need to know that this rumor is going to grow, if you want to trade the swing.

Always the same 2 questions:
Forex is not able to move steadily on short terms, unless you use options and get rid of the local volatility.This is because this market is driven by diverging interests, for example commercials don’t care about the price, they just need to convert money. Techs don’t care about fundamentals and forex is full of techs. Banks are going to use their customer money (from commercials) for their proprietary trading (moving the price against everything). Central banks also and so on.
That’s why the most important 2 questions a successful trader has to ask himself are:
Every week : WHAT IS THE MARKET FOCUSING ON ; this will explain the local volatility.

Every day: WHAT IS THE PREVAILING SENTIMENT; this will help to enter at the best price or sit on your hands.

But one must KNOW THE BIG PICTURE to be able to quantify how serious are the current focus and the current sentiment, in other words how deep it’s going to impact the price.

 

#USDJPY
I am pending to add @ 78.35 and 78.48. We are in search for liquidity mode, some needing to fill big orders at a lower levels. This is amplified by thin liquidity periods like during London lunch break, asian session....The levels I am starting to see as reachable are 79.60 ; 80.00 and 80.6, this needs to be confirmed by how big is the boj easing if there's one. I don't see it forming a big north leg, since every BOJ tentative to weaken the YEN has failed so far, it's the real safe haven so surprising it can be; seeing how bad is their debt and macros data.

As I said in an other post I have stops for my added positions, they will be closed around 78.00. What's important is that my 1/3 ATR profit on the core position is bigger than the accumulated loss, because the core is tactically and flows driven hence its size is way bigger than the added one.
Remember that I have now that 1/3 atr as stops because the core idea behind the trade is going to be either validated or not very soon. And this validation is binary: easing or no easing. Other core positions stops are more linked to how the big picture is in sync with the fundamentals, techs and specs long term positioning, and are implemented if this sync is at stake.

Risks
to the core:
What if no BOJ easing? Plummet and trigger my stop.
To the add ons:
Liquidity search going too south due to very thin liquidity, mainly during Asian session, can trigger my stops. Add ons not filled cos no need of liquidity.

 

Buying the €uro:
I would like to buy #eurusd at a lower level and the german zew or the PMi’s could brig us around 1.30 or lower (catalysts). There’s no fundamental reason to this, only a medium term behavior mainly due to money leaving GBP, who build his strength on “an anti €uro” temporary status, and CHF because of the now attenuated tail risk (see my post on EurChf core position). We don’t know if the structural short covering has ended so far, I think real money is late on this, we will know more after the IMM release on thursday.

Tactical Trade:
The main Idea behind that position is the likely structural shorts covering massively their positions. How is the IMM data on this will be known on Thursday (COT report).
Why would they cover is purely linked to inflows coming from other assets to day too expensive seeing the big diminution in the tail risk (EZ collapse).
My take on this: On the attached chart you see my pending at 1.3022, and more importantly the several levels I think its going to reach on a probability I base at 80%, 60% and 50% for 1.33, 1.34, and 1.35 respectively. Above 1.33 stops and pending interests are stacked in 200p width providing a huge liquidity area. For that reason this seems to me the sought after place where big accounts can close their shorts without pushing the market too high against them while liquidating . Also all these levels are subject to attacks from different sides since they are likely barriers protecting big exotic options at rounded prices, yet this need to be confirmed . Above 1.35 is an uncharted territory, and I think that it's not easy to go higher unless the short covering is really massive.

 

#AUDUSD closed +180p
I have decided to close that trade, since I am not able to make up my mind on it. The factors leading me to be bearish AUD like a possible rate cut on a carry trade currency and bad Chinese macro data, seems now to me not enough to counterbalance that flight to easy money seeking the risky assets. This is a good example of how I manage my positions if they are potential cores. This one was aborted in the process of becoming a core, but too many uncertainties and the prevailing risk on bias in the market make it doubtful.
Usually when I have a strong conviction about a position but the risks are too elevated, I close it and take a put/call with a known limited risk, usually paid by what have been won on the spot. No real conviction this time but 180p is not bad.

 

The BOJ statement on which this trade is based is as expected very dovish and more easing in on the way.

As I said in the previous post about this trade, I am not seeing it going above 80.60, but who knows since QE3 and the Draghi put can be game changers. What’s interesting here, is to see how this trade is managed as we are now in post event pricing. I canceled my lower add-on and pulled the other higher around 78.75. The same way my stop is now at 78.32.

Why?: because as I said we are in the post event pricing, and a “buy the rumor sell the fact” scenario can unfold helped by specs meeting the techs. Tho this seems unlikely because specs are not going to play against BOJ (techs ignore BOJ); but some down move can be searched to add at a better price (like as I do with my add-on).

MEETING THE TECHS

We have the 200 DMA and the Ichimoku cloud top (not showed on the chart) converging around the same level, that is 79.30. Ichimoku is a very important tech indicator when it comes to trading the Yen, mainly #UsdJpy. Stops are there as important as those of the 200DMA. On the other hand the breakout of this massive liquidity area can be used by specs finally followed by techs seeing the breakout and big players attacking the 80.00-80.50 option barriers. That’s the scenario I am retaining now. And it’s a very good illustration of what I call a TACTICAL TRADE.

Is it going to become a Core position? : Too soon to say. The current flight to easy money needs time to unfold, this can rebate the cars and even question which currency is still a funding one. Until this is clear I am targeting the 80.50 area.

 

Knowing the prevailing sentiment.
The easy way, tho not very accurate but a very good starting place.
Align spx quotation Indu and nasdaq in front of bond quotation, ZN, ZL, ZT.
Do the same with DAX, eutostoxx50, Z and CAC facing german bonds 10y, 5y and 2y.
From this you can know if risk is on, off or neutral on intraday
Risk on : indices in green and bonds in red.
Risk off: the reverse.
You can also summarize this buy looking at bond yields, but keep in mind that bond price and its yield is inversely correlated.
Align/superimpose spx with es front month to have an idea of how strong is that sentiment by tracking the spread between the two (the front month mustn't be near its expiry since forwards are naturally joining spot price at this moment).


The hard way, way more accurate , needs to build a mindset by being inside real time news flow, hearing rumors, tracking price action, mastering orders execution dynamics etc.. You have that mindset when you're able to filter what's really behind that apparently prevailing sentiment.

 

A watchlist of the market mood.