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BREXIT GBP: USE USDJPY AS A RISK-BAROMETER & WAIT FOR LONDON 8AMIndicators to check BEFORE GBP Shorting for confirmation I also suggest using two other key pieces of information BEFORE shorting GBP. 1. Use USDJPY as a measure of market risk appetite and stability - As you can see below UJ has traded with a tight 38pip range vs GBP$ at 180pips. Therefore we can use UJ as a measure of stability and risk appetite: 1) because of its stability - UJ isn't acting as susceptible to the volatility "noise" - with 4.5x less range; and 2) because as we know UJ is the "safe haven" FX pair which is sold massively when markets are trading risk-off. or risk averse. - How to use UJ for GBP direction: Assuming UJ is the stable measure of risk (which has been true for the past week) it is fair to ALSO assume: 1) A rise in UJ means increased JPY selling which means there is a stronger risk-on attitude in the market as investors shed "safe yen" - buying GBP in the uncertain BREXIT environment IMO is considered the "risk-on" move - SO we can confirm GBP rallies with a rise in UJ 2) Conversely a fall in UJ means JPY buying, which means investors are seeking risk-off/ safer currency plays - selling GBP in the BREXIT uncertainty environment IMO is considered the "risk-off/ low risk" move - SO we can confirm new GBP shorts with a fall in UJ *If you believe that the risk-on/ risk-off moves are the other way round e.g. GBP upside is the low risk play - then you can STILL use UJ as the indicator, just the other way around than above. IMO and logically, GBP lower in this uncertain UK environment is the LOW RISK trade - especially given we traded at 1.46 8wks ago (not much downside is priced at these levels thus GBP moves lower are lower risk) 2. Wait for London open between 8am-10am GMT (4-6 hours from now) - In these past weeks, the London open has been a key catalyst for GBP direction ESPECIALLY on the Sunday-Monday Asia which over as all of the weekend information is priced in for the biggest FX clients in LDN. - Therefore it is prudent NOT to take a position until the big money volatility/ fluctuations/ noise is out of the way otherwise SL's may be susceptible to being hit AND MORE IMPORTANTLY, we may misjudge the market direction/ sentiment (given LDN is the largest FX Flow session). - Several times the market direction and momentum has changed or been confirmed aggressively during the London open 8am-10am GMT so I think this indicator is a vital determinant
Short
by QuantumLogicTrading
3
UK EU REFERENDUM/ BREXIT: BUY EQUITY RISK AND GOLD DISCOUNTEDThe UK EU Referendum has presented significant discounted buying opportunities, with many blue chip names anywhere from 5-15% down in the last 2wks. The uncertainty regarding the UK position in the European Union has pushed investors to see Gold, Treasuries and JPY, whilst fleeing risk equities. - IMO the next week or two will form a trend of oscillating risk-on/ risk-off asset price swings as the markets reflect the volatile investor sentiment - this opens up significant arbitrage opportunities within the equity markets and Gold - by owning both on pullbacks you then TP as the investor sentiment switches into the favour of each - as it is bound to do. - Essentially this strategy is a volatility play (ATM volatility for Gold almost double since last month), you naturally own both "sides" of the market (risk-on and risk off), thus taking profit when the sentiment swings in the way of each of the assets. 1. My personal Favourite GOOG and FB are currently trading at an average of apprx 10% down - I advise buying GOOG and FB at these levels, in a pyramid (increase lots if further downside occurs). - Long GOOG and FB can be used as an event scalp as I expect their values to climb 2-5% back within the week, or you can hold longer for the full 10%. GOOG and FB discounted 5-10% are high alpha and low beta trades since IMO fundamentally they operate monopoly's over the Online Marketing Market and have significant Top and bottom line figures. - Alternatively you could pick up Nasdaq 100 Index at a 5% discount, and own the market which in the long run will pay off - although I do not advise this trade so much (3/10) as I believe equities are due a correction - especially coming into earnings. 2. Long Gold on any 2-5% pullback, which i think we will see by Tuesday is a good trade: 1) as Gold will rally on Wednesday/ Thursday as global Macro risk is hedged for the vote day. 2) In the longer run, Risk assets (spx) are due a correction, thus Gold is due to outperform and have a bull run. 3) By holding Gold on pullbacks you can benefit from the tail risk of the UK actually REALISING BREXIT where IMO Gold would rally 10% as the Global Macro environment flees to safety. 3. By playing both the long Gold and Equity on pull backs you benefit from: 1) the natural hedge of owning long risk and Risk-off assets, thus your portfolio is diversified to perform in the short run for any outcome but also in the long run. 2) you own both assets at a discount so probability is on your portfolios side.
FX:NAS100Long
by QuantumLogicTrading
GBP DOWNSIDE BREXIT POSITIONING & VOLATILITY UPDATEMy FX portfolio currently consists of : - 2Long x USDJPY @ 106.8; 2Short x GBPJPY @ 151.2 (dynamic hedge for long UJ); 2Short x GBPUSD @ 1.4570. I will add to my short GBPUSD holdings if i can get a similar price & I may add to short GBPCHF or EURCHF downside if markets make a turn for the worst as IMO CHF denominations are under-priced relatively (as discussed in the attached article). ATM Implied Volatility and Historical Volatility: - GBPUSD ATM IV continues to rally today, despite being in the 2 year 100th percentile, to trade at 19.15% (0.6 up) currently, 1wks 20.5% (up 1.5), 1m 29% (up 0.5) from yesterday, whilst HV continues to trade relatively flat at 10%, with ATR increasing about 10 pips on the week. - This positive divergence in IV and HV means that GU potentiallly has almost 2x as much more volatility to show in its price action - so I expect the market to get much more rangy in the coming weeks, so anyone day trading i advise to leave GBP crosses alone and i advise a MINIMUM SL of 1 ATR which is 150 pips, as IV implies such moves will become less and less uncommon in the coming weeks. Therefore I also suggest only play longer term 2/3wk positions so that the 150pip SL can be justified with 300+pips of upside tp. - GU Risk Reversals on the 1wk increased to -2 (from -1.8) with the 1m trading flat at -8.7, so we can expect further downside in the pair as puts in the nearterm continue to be demanded more so than the calls - which makes sense in this highly volatile and fundamentally short environment. Vol demand - GBPJPY and GBPCHF1wk and 1m risk reversals in the long run are becoming negative at a higher rate/ momentum compare to USD e.g. investors are buying GBPJPY and GBPCHF Puts at an increasingly faster rate than GBPUSD puts (the change of the RR values are increasingly negative more than the GU - The GU RRs are almost already fully priced). Hence, from a future value point of view (since the demand for downside is not outpacing that of GU) we can expect, GCHF and GJPY to in the future fall at a faster rate than GU, which makes sense given the room let until the next support levels. - GJ 1wk and 1m are at -0.9 and -7.4, whilst GCHF are at -1.2 and -5.6 (compared to GU at the above -2 and -8.7), we can see that the put demand for GJ and GCHF still has room to increase until it reaches the levels that GU is trading at hence why I like expressing GJ and GCHF even more so. - Finally, GJ and GCHF HV trade at 19 and 15 respectively. However GJ vols are begging to trade lower, (perhaps indicating the pair is now becoming oversold) and GBPCHF HV is trending higher (indicating that sell side demand may be picking up now that the GJ expression is reaching its fully priced state, after selling off since sunday). This supports my view from my last piece about getting short GBPCHF now vs adding shorts to GU or GJ since they are much more overweight to the downside.
Short
by QuantumLogicTrading
Fed/Brexit - Risk on vs Risk-off assets, convergence?? :Ssomethings not right - All time low volume too, JPY booming, Bonds rallying - low liquidity is artificially driving the market up??? The market will tank soon... the financial conditions are gonna tighten like post 2009 this bull move isnt backed by non-risk assets in true bull markets we see 3 things 1. Low GOLD 2. LOW JPY 3. Low US Bonds today we only see 1. Low gold.. missing the other two. This market "confusion" is likely caused by the uncertainty regarding the Fed hike cycle and possible Brexit risks spilling over - Low volume shows people do not want to hold risk - be careful with longs here
FX:SPX500
by QuantumLogicTrading
3
Hang Seng If the recent developments in the markets hold and fear dissipates, I think a play on Hang Seng index would be terrific opportunity. To be sure, I am still expecting a slight pull back to around 18500. This index is peculiar in the sense it has some good correlation with China but is not as violent as CSI index. For someone with high risk appetite, this should work well. Some risk money could be allocated here. Note: This is not exactly a China play. It's more of decoupling from the ridiculously elevated level of coupling play.
INDEX:HSILong
by Kaustubh