I wanted to make a post despite being on holiday as I have noticed that some members are nervous and I can not relax or have peace of mind knowing that they are nervous. As many of you who have been with me for a while know we trade fundamentally chasing profits with the idea of compounding gains for higher gains over longer periods. This means that we do not worry about individual months (even though we want to make big gains in every month – that will never happen), but rather the result at the end of a year. In short I will not panic if today we have less than yesterday, but I will be devastated if over a year we have nothing to show for our all efforts (because then what was the point of it all). With that said, I understand that when people see trades going the wrong way, it is easy to get nervous when things go wrong, easier than to enjoy when things go right.
I want to confirm the the community, that while I can not guarantee the success of our trades, I only maintain trades that I am confident in. That does not mean that all trades will be winners and sometimes massive trades can wipe out, however trades I make are based on analysis and not on chance and I will always tell you the truth, in good and bad. I will never say stupid things like “these losses are part of a bigger plan” or the “big boys are playing with us”.
December is generally not a good month for FX due to tight liquidity, erratic movements due to re-partition of funds and large institutions re-positioning for the year ahead. In short, fundamentals can often be ignored for a while as proven this last month and perhaps in future it is better for traders to avoid taking large value positions during this month, we can put that one down to experience. The market can be random at all times, but during this December, it appears to have been one big mess.
However, I believe that nobody should be forced into long term trades that they are not comfortable with, so let me take a moment to explain to you the pairs that I have chosen to take longer term investments in while I am on holiday and then you can all decide to either stick with them or close on your own choice regardless of the outcome. Once again, I clarify, can we lose a lot? Yes. Do I think we will? No. However, I do not like seeing people panic (its not good for them) and always remember investing is risky and it is ALWAYS a possibility that one gets blown out, regardless of how small the chance. You should always remember to NEVER EVER trade with any money that you will miss.
Ok, lets look at my choices:
THE FED just raised. The RBNZ just cut. The Fed is looking to raise more over the next year (at least 3 times, 4 times according to the FED members curve), the RBNZ is likely to HAVE cut more over the next year, even if they do not want to. There could not be a more clear case of divergent monetary policy as shown by the spread in generic two gear government bonds and the NZDUSD is headed down. Fundamentally it has no other choice. Expect it to start its gradual descent towards 0.63 very soon.
The pound has been hit by the unexpected announcement that Cameron wants to hold a referendum over the UKs membership in the EU earlier than expected. This has made investors nervous about the pound, however such nervous activity is quickly forgotten (think back to GREXIT earlier this year). The BOE is holding its monetary policy and the GBPUSD is almost at its bottom. It will not fall much lower at this point.
The USDJPY However is a different story. The JPY has benefitted this last month due to investors seeing it as a safe haven (Russia/Turkey, Commodity Crash etc) and due to profit taking on the USD. However the fact remains that in the last week the USD has tightened monetary policy while the BOJ has increased easing measures. As markets return to following the fundamentals, this pair will re-approach its 125 highs of the year and go even higher.
This in turn will affect the GBPJPY cross which will also restart its climb to 190 shortly. Just look at the bond spreads below relative to the currency to see how cheap the GBPJPY currently is at this point. It has only gotten to this point because of panic in the market which caused TEMPORARY JPY firmness and TEMPORARY GBP softness (as described below). Once things return to normal, there is NO reason why this pair should not recommence its ascent:
Not much to say here expect the Australian economy is recovering far better than expected, while the New Zealand economy is not. The bond spreads below tell the whole story, look for this to pass 1.10 and start to approach 1.12.
1.55 is back where it should be in the medium term. This has a similar story to the GBPJPY, haven currency and Temporary sterling softness. SNB will be dovish over the next year, more so in the likelihood of the ECB having to ease further. As for the BOE, the UK economy is technically strong. Aside from inflation being flat (a large contribution of which is the price of hydrocarbons), employment is solid, retail and growth are solid. Markets are pricing in no raise in rates until Feb 2017, but I believe they are wrong and that we could start to see a move towards the latter half of 2015. This pair is solid.
There, I have done my duty and informed everyone of my plans and why I have taken those plans. Now it is down to all of you as adults to make an informed decision to either stick with these plans or cancel. Whatever you do, nobody will judge you, after all it is your money. With that said, I can get back to my holiday. I wish you all an advanced Merry Christmas, A happy new year and I hope to see many (if not all) of you on Jan 4th 2016 to begin our two year journey. At least next year we all take the first step together so we wont have such a great divide in between our gains (or losses for those who joined in December). Thanks for your time,