It being my day off, I now get to bother you all in morning today, so let me get to it.
The main thing we have seen this last week (in addition to oil and equity volatility) has been USD weakness. This episode reminds me of March and September 2015, where we went through the same cycle and yet this time around it makes less sense. Why you ask? Well quite simply because this time (looking at rate curves) we can see that the market is now expecting zero rate hikes from the FED in 2016 and to me this is insanity for a number of reasons:
1.) We are 5 weeks into the year, its a bit early to draw such conclusions.
2.) The Feds rate curve expects 4 hikes this year. They plotted this in January, when much of the same was going on.
3.) If we look at speeches for clues:
Fischer: “data dependent” – the data thus far has been good. Maybe it does not show colossal growth, but it still shows solid growth. Regardless of how much the markets want to panic, the US is still growing, that fundamental can not be changed by sentiment.
George: “market volatility no reason to delay” – Clearly hawkish.
Dudley (a known dove): “too early to say” – i.e. Not made up his mind yet about March.
To me none of this says “we will sit on the fence for 2016”. Perhaps the markets see it different. In fact from their reaction they definitely do, but the current price action matches none of the forecasts of the big trading houses, so even that makes no sense to me at this point.
Anyway today is very important for us, as we believe the FED will go in March. If there is a weak payroll figure today (less than 150K), that view will change. Either way, we will know this evening.
The account is taking a lot of risks at the moment, with the expectation of exceptional rewards. Some may call it gambling, I prefer to call it trusting judgement because if we don’t take advantage of low prices that we think will turn, then why trade at all? We have gone short EURUSD and long USDJPY. We believe US data will be good today and we believe in more action from the FED and more cuts from the ECB and BOJ. We are commited to these positions and have set the SL’s to 114 for USDJPY and 1.1450 for EURUSD. TP is 123 for USDJPY and 1.075 for EURUSD. These are refunding trades that are intended to be medium term. In short they cost nothing to hold, unless SL’s are hit in which case they cost a great deal.
GBPJPY and GBPCHF, we are looking to cut these as soon as possible as we are sick of drama surrounding the UK data and BOE. As soon as they are at more respectable levels, will cut them. Even if they are in the red at that point. People may call me paranoid, but I am sure now that these data leaks are not just all in our heads. Yesterday was just…..disgusting.
We closed 2 positions yesterday to free up margin . Currently, considering all things from the beginning, we have an unrealized loss of over 4%. However, out out of our 67,000 margin, we are using just over 1,000 of it. We are opting to play safe during this volatile time and wait for the markets to cool down a bit. Given the higher leverage of HF, this is the more sensible way to handle it. With that said, we also have current open positions to take advantage of any data that supports our outlook. With margins i just find it so much easier to trade and limit our exposure as funds can be used so differently. This really is a superior product.
Depending on data today, may cut some positions (if they change the outlook as I see it), so do not be surprised if you see positions closed in the red.
Watch out on cable. People may profit take and sell it into oblivion today, and it may turn bearish again. The BOE fiasco of going dovish to hawkish to dovish again has left markets not knowing what to expect. If you are long cable, try to set your SL in the green.
USDCHF has good value now. Take small longs on it if you believe the NFP will be positive.
Good luck and happy Friday,