Neither Tech nor Macro

That old UsdJpy here held for weeks is considered now as a core position, that is, I will add to it on a different platform (non US based) so the entry price is not averaged. The first add-on has been filled at 78.45 this morning GMT. A core position has no target and is fully closed only if its drivers are clearly questioned. The add-ons may be exited at specified targets, but the idea is that they are covered by the initial position in terms of risk. An add-on can be played on intra-day basis, however this one is targeting the 80s, which was the initial target. Also I have already taken profit (half size) from the initial entry before I consider it as a core position, it depends on how the plan is unfolding.

The incentives now are different from the initial ones that were tactical and based on BoJ jawboning amplified by market dynamics if 79.00 is broken out. Though these incentives are still valid I add to them the conviction that the Yen will fall sharply because:

1: the looming recovery of the US economy, mainly seen in the housing data and the employment front.

2: The elimination of the EZ tail risk that drives all the safe havens to these stretched levels.

Risks to the trade:

1:The fiscal cliff that could trigger overreactions in the markets way before the deadline since its going to be priced in on the downside.

2:The US presidential election amplifying uncertainty feeding the flight to safety.

Pros:

1: I consider the risk above as an opportunity to add at a better price, this add-on probably would be closed already with profits.

2: The Initial entry is very well positioned and protected by the BoJ itself.

Why now ? : The next G20 meeting (fin min and central banks) the month ahead is a place for Japan to show its determination to defend the Yen exchange rate. This can act as a booster on the upside taking the price quickly away from my entry level (market discounting the probable move of Jojima).

 

Edit: was not clear with this, this week end IMF and World Bank meet in Japan under the presidency of Jojima (fin min of Jpan). First week of Next month there is the G20 fin Minsters and central bankers meeting where Jojima is expected to defend the Yen exchange rate. This will be get into during this week end meeting.

 

Here are some concepts about how I read liquidity clusters on a daily chart.

The blue dotted lines are my running positions, the lower being the core at 77.44 and the add on is at 78.45. There are 100 pips between them and its just a fortuity. I’d have added more to this core if I wasn’t already positioned on EurJpy. Anyway on the chart we can see a white rectangle, this is where likely massive liquidity is gathering because it’s above a rounded number which is in the 200Dma influence area and a daily big fib level. We also have in the same area stacked higher highs (red lines) where usually intraday and weekly players are pending or looking to exit. The interest of these confluences is that it attracts big players who want to enter the market without pushing the price against themselves and for that they need sufficient liquidity. A tech would use it as a place to fade or to buy according to his strategy, while a fundie will ignore it completely. Me, I am Jpy bearish (UsdJpy bullish), and I always seek to buy/sell/ at a better price on the best place; a place where price will quickly move away from my position. And I also think that no indicator or pattern can by its signal push back a structural move in a currency, but a liquidity cluster can generate turbulences (local volatility) . Therefore I will add prior of each important data release this week that can impact the risk perception. This will help to cross the turbulence at a fast pace from an average level hopefully low enough to avoid the subsequent volatility. I can add massively because I am strongly convinced that the big players will buy there hence pro-pulsing the price higher and that they are targeting the 80s as I am. But again it’s just my own opinion.

 

Added at 78.70, averaging the add-on positions at78.59.

 

The Chart after the release, with the 2 add-ons non averaged.

How Can I front run a data release?

Actually it's not the data in itself that I traded, even though stakes where high that this one was going to be good. It's rather the market pricing in a good number that I traded.

And what if it was a bad number?
It wouldn' have gone against me too far south, becos it's a UsdJpy trade, and the Yen being a safe haven even versus Usd it would have needed something really ugly, questioning the previous releases among them the NFP, to put my position at stake. Look at the chart above (previous post), the most important is that the average position stays far from the price.

 

Got a cold, hence a bit late on this weekly intentions, though I managed to post the way I am adding to the UsdJpy long position here. So week 42. Nothing new in terms of risk analysis and the view I exposed here about the €uro is gently unfolding vs Chf but without me vs Usd. The Yen too is going according to the expectations. I have to mention, how difficult it is for a swing trader who missed a starting leg to reenter and usually it’s when attempting to catch up with the move that a good discipline come in handy.

EurUsd pending long at 1.2905 -1.2925 and 1.2955: As I said I have a EurUsd target around 1.33 but I missed several times by few pips to enter at a secured and cheap level. Problem is that the plan is running out of time, Spain can ask for a bailout after the 21st October triggering a nice though limited rally (1.33-1.35). Until then on one hand the price is very sensible to headlines and rumors and can plummet significantly, that’s why it’s better to be well positioned. On the other hand, we are now in the middle of the range, and returning around 1.2800 is more and more unlikely because US fundamentals are boosting risk appetite all over the board. In this case when the price is leaving me behind I try to compound my entry level with several orders, to get an averaged price better than nothing. Risk to this approach is that you can easily find yourself adding to a loser, hence it’s important to stay in your risk limits or to hedge your position with an option put . Of course the compounded position size must equal the initial one. In case just the upper order is filled I just add the remaining size to an add-on size at the next opportunity. Also If it happens that the prevailing sentiment is prone to more downside than those levels I will adjust them consequently.
Why not just enter right away since i am so convinced about the bullish trend? It’s really very important to be filled at a low price because when you will add to your trade during its different moves, it’s that position that will limit your possible drawdown. The lower you’re initially positioned in the bull leg, the more you can add, take profit or hit your higher target with a massive size. I don’t consider myself as a swing trader since a swinger rarely add to its core.


JPY long on UsdJpy at at 77.44 and 2 add-ons averaged at 78.59, my intentions about this one are explained here.


AUD: definitely neutral vs Usd. It can go south because of the expected rate cut in November, it can go North because risk on is gaining ground in the broad sentiment. It can range while waiting for better news from China. Anyway any move is necessarily capped in either side, although I have a slight bullish bias now. But I won’t consider any position until the next RBA meeting.


GBP: I’am bearish on the pound, but not that mush vs Usd. Made some pips on EurGbp here. I am still considering to enter long on EurGbp again if I get a lower price like 80.55 with the help of some counter trend catalysts. Vs Usd, I am neutral because the pair is now becoming again more and more correlated to EurUsd on which I am bullish.


ES SPX SPY: QEs while fundamentals are improving are a rare mixture that mustn’t be missed. I am pending long on ES_Z at 1428.00. This mixture is probably going to rise inflationary fears pushing gold higher. A smart player should wait for the “risk on” to be fully priced in, driving gold lower and buy when talks and data pointing to inflation start whispering. Remember : a trader need to be right before the market but only enter when the market starts to understand it.

 

When a move is in sync with my longer views, and is not going to be slammed by some algos or techs. I like attacking option barriers to initiate a position from which I take a half size profit when the barrier has fallen. This is purely tactical; the remaining half size is just when its in sync with my sentiment about the pair. Otherwise I take the whole size at target.

Recognizing exotic barriers is rather straight. They are situated at rounded numbers not touched for 2 weeks or so. Right now one at 1.31 EurUsd is well documented and I am going to join the attack after the 1.3050 stops are tripped; entering when price is pulling back below this level. A more conservative way is to enter like 40-30 pips before the barrier level. Here in the chart below, one would take advantage from the stacked stops around the big fib, if sentiment is bullish stakes are high that the bears here are going to be overwhelmed during the attack. All the positioning between 1.3065 abd 1.31 is from weak hands, big offers are above 1.31. But we must keep in mind that those who sold the option are going to defend it.

Edit: Concerning the timing of a barrier attack, waiting for catalysts to join the attack is of a big help. Of course the news release must be adding to the prevailing sentiment.

 

That position was filled at 1.3040. After what looks too big and too fast to be a tech pull back. That big bearish engulf is because of a news hitting the wires saying that the troika leaved the meeting with no agreement with Greece. I see it rather like some bs intended to drop the price at a cheaper level or to protect the barrier since this news has not been confirmed so far.

 

As expected above ; the 1.31 level has been taken out in what I consider was an exotic option barrier attack. But don’t be fooled by how easy it was. The prevailing sentiment and positive headlines in a row helped a lot. More intersting is to notice when the final move occurred. That was just after the Asian open in the usual thin market when Asian traders transformed their latent bullish bias into open interests. Thin market is prone to build big gaps since orders are looking for the scarce counterpart liquidity. Anyway, without a clear bias in the price action those interested to join barriers attack should use a more conservative tactic, that is:

1: 30-40 pips max ahead of the barrier.


2:Waiting for a second test. The first usually cleans the paths from opposite orders.


3:Using catalysts to benefit from momentum (news release).


4: TP half size 5 pips before barrier level. And let the other locked half run above target in case it triggers a cascade (market dynamics).


Concerning the EurUsd plan, this barrier attack allowed me to initiate a position I am going to keep if price goes above 1.3160-70 before the upcoming EU meeting. That EU summit can, as usual, be disappointing and bring back the price inside the previous range below 1.31, unless we are too far to return that south.

 

I closed the EurUsd trade full size at 1.3130 with +90pips cos I don't like the PA losing momentum, and it seems unlikely that it would reach 1.3160 before the EU summit tomorrow. As I said I don't want to be positioned near the price during the summit and its carpet bombing.

Also looking at Aud pricing in a good gdp number from China this night. It seems like playing a buy the rumor sell the fact scenario. Anyway I am neutral AUD but if I were a tech I would fade it after the release.