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Riskoff

USDJPY Weakness Technical/Fundamental PlayMentioned in the previous post, there was an inherent weakness in the dollar-yen due to its price action around 113.22. While the pair rallied up to 113.35 prior to Asia opening, a huge wave of sell orders sent the pair tumbling. While we saw a potential short opportunity last evening (Singapore Time) on technical basis, the confirmation of North Korea's ICBM by US this morning has supported our technical views as traders remain weary of any military confrontation between the US and North Korea. For that, we remain bearish with a target of 112.40 in mind.
Short
by HouTianTan
USDJPY Epic Descending Triangle Breakdown ImminentOANDA:USDJPY has consolidated for a few days already and failed to retake the 112 level. With a series of lower highs, the supply resistance level is slowly going down to meet with the Weekly 200MA support. Its possible it might find support at the Daily 200MA level as it was able bounce off it from the previous downleg. In my opinion it might still test the 111 level one more time before the support finally breaks. Entry: 111.044 Profit: 108.215 Stop: 111.325 Any feedbacks are appreciated!
Short
by SimpleMillennialAverage
2
USDJPY Between 200MAs and a broken channel April 17-21OANDA:USDJPY just had a breakdown not only breaking the weekly 200MA but also the lower support channel but nothing goes in one direction in the markets so I expect a pullback before another move downwards. The price is currently between the daily and weekly 200MA so I expect sideways action with a slight bullish bias in the short term. It will be Daily Fibonacci: OANDA:USDJPY bounced right at the 50% mark at 108.11 so bulls should have a relief bounce for a few days. 4H Timeframe view: Unless news or events comes that will cause the risk off to end or strengthen the dollar I expect consolidation between the daily 200MA support and the broken lower channel that should act as resistance. Its also possible that there might be a spike upwards till the weekly 200MA but I dont expect it to break as there should be a lot of overhead resistance on that area. I still expect OANDA:USDJPY in the long term especially with its correlations have broken their respective supports reinforcing the trend. Nikkei Daily: US 10-Year Daily: Entry: 109.4-110 Stop: 110.6 Profit: 101-103 Any feedbacks are appreciated!
Short
by SimpleMillennialAverage
Short term risk off move starting?I think we'll see some kind of retracement in the massive trends we had in place accross the board. Overall, I'm looking to buy weakness in the dollar in the long term, and looking for good value stocks, shorting overvalued stocks if needed, but rarely, and navigating the main trends in commodities. Metals look poised to rally with bonds here, at least in the short term, so having some exposure there might be a good idea. Either that, or hedging your equity exposure for the time being. Good luck, Ivan Labrie.
FX:XAGUSDLong
by IvanLabrie
2
XAUUSD: Gold longs firmply planted above resistanceGold seems to be headed for the two targets on chart, to be reached before September 23rd. This seems to match my outlook for equities, which appear to be heading back down to the yearly lows, as depicted by Tim West's yearly forecast, of a sideways market. We can fade the sentiment extremes once reached, which is the ideal trading strategy for the rest of the year. Volatile markets are tricky to trade, but we are presented with a variety of opportunities, both long and short. I'd reccomend having gold in your portfolio for the next 2 months. You can enter a position here and factor in a stop loss under 1275 (let's say, under last week's low, which will work for any instrument, like miners, gld, futures, etc). You can add to the trade once spot gold breaches the 1340 mark too. Risk half on the additional entry, and use the same stop loss. Good luck! See you at the top. Check out my updated track record here: pastebin.com If interested in my trading signals, or in personal tuition, contact me privately. I'm offering a considerable discount on a packaged course which includes access to my private trading signals list for a year. Cheers! Ivan Labrie Link to Tim West's chatroom: www.tradingview.com We discuss setups like this often there. Feel free to stop by and subscribe to his indicator pack. If you have any questions ask. Risk disclaimer: My analysis is provided as general market commentary and does not constitute investment advice. I will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
FX:XAUUSDLong
by IvanLabrie
2
RANGE BOUND - USDJPY: TRADING STRATEGY - PART 2 Trading for this week: 1. My plan for next week focuses on point "3." from the previous post - I am waiting for risk-on or risk-off assets to confirm investor conviction by using USDJPY as a barometer for net risk sentiment. Despite the market uncertainty and high volatility UJ last week traded within a 200pip range for the between 101.3-103.3. Therefore, I consider a 60pip break of either level to confirm the conviction to a sentiment e.g. 60pips higher is risk-on (Yen selling), 60pips Lower is risk-off (Yen buying). So of the two possibilities for this week (based on the previous post) Most likely i think is: 1) Global risk continues its recovery as I ask myself what possible risks/ events are there that could tip risk-off sentiment? My answer is none. However, there are several arguments for a risk-on bias e.g. 1) Central bank easing continues to offer risk higher e.g. a dovish RBA (5th) and BOE meeting (14th) price JPY lower and UJ higher 2) Implied vol continues dropping below realised vol, aiding bullish sentiment. 3) Brexit uncertainty continues its de-risking/ pricing as its unlikelihood increases. Further, I think Equities have another week of rallying to price before earnings uncertainty selling will become a factor. Trading Strategy: If Yen carries on Ranging I advise buying UJ at lows of the range e.g. between 101.3-101.9 - or you could buy at any price in the range as I have a target of 106 in the near-term and 110+ in the next 4+wks. Alternatively, I advise placing BUY STOP orders at 103.9-104.2 (level that confirms a risk-on breakout) as there will be 80% of UJ short Stop-Losses at this level, so we will likely see a short squeeze take us 200pips up instantly once UJ trades to at or about 104. I like owning UJ structurally in the medium term as even if UJ falls lower in the near term which is unlikely (what risk is likely to drive it lower?) as UJ trading at or below 101 (and the further it falls) the more likely the BOJ will be to launch emergency FX intervention and/or near term lower UJ increases odds of an aggressive BOJ cut at its July 28th meeting - which will make UJ trade 500pips+ higher, dependent on the measures/ aggressiveness taken. For some background/ support for the UJ higher trade 1. based on BOJ easing, recently JPY retail sales disappointed at -1.9% vs -1.6%, as did inflation which was seen at -0.4% nationally for CPI and Core and -0.5% for the same in Tokyo + BOJ's own Core measure continued its strong MoM downtrend at 0.8% (from 0.9% last) - consistently unresponsive inflation is the single biggest driver for BOJ easing/ cutting policy, and the poor inflation has been problematic since the last cut in January 2016 so this gives further weight to another cut, especially since it was 6+ months ago. - Also BOJ Kuroda and JPY Govt Aso and Abe had several emergency meetings last week as a result of the Brexit vote/ JPY appreciation, in which they discussed FX levels, although taking no action, such rhetoric and actions imply and give likelihood that the BOJ will take substantial action in July. - Technically, UJ has been oversold for several weeks, even if UJ higher isnt structurally long, we should at least be able to realise a 600-800pip recovery rally before moving lower again. Volatility - USDJPY Realised Volatility is trading higher than implied (bullish signal) with 2wk and 1mth at 19.64% & 15.6% vs implied's trading at 11.25% & 13.43% + there are some large notional OTM call strikes at 104.2 and 105, indicating the market may have a bullish bias. Also, the UJ 1wk/1m 25 Delta Risk Reversals Trade at apprx -1.6%, and falling, indicating the market is becoming more bullish by 1) being positioned long in the spot market but buying less downside option coverage and/or 2) Speculative Demand for UJ downside puts is falling. *Read my previous post "RANGE BOUND - USDJPY: IS THIS GLOBAL RISK RECOVERY REAL? PART 1" for analysis of last week and mo
Long
by QuantumLogicTrading
1
RANGE BOUND - USDJPY: IS THIS GLOBAL RISK RECOVERY REAL? PART 1Expectations vs Reality: 1. Following the referendum decision on Friday, as expected GBP sold off 10%+, the FTSE plummeted in a similar fashion and global risk assets sold off across the board, but FTSE/ Risk recovered a significant amount of those losses into Fridays close and for the rest of the next week.. So what happened to BREXIT? - Such behaviour would lead you to believe that the Brexit decision was all just a bad dream, with much of the price action volatility confined to Friday alone - rather where I had expected the decision on Friday to start a cascade of risk-on asset selling, as the brexit backdrop provides the perfect impetus to trigger the risk-off fear for the wider global risks e.g. US Election, Global growth, China Debt - and, ofc, the Brexit Macro economic spill-over itself. Why did we witness this Risk Recovery Paradox? 1. I think the main reason that risk managed to avoid carrying its bid bias into this week from Friday was PM David Cameron's decision early on Friday/ Monday to 1) Resign in October and 2) Refuse to sign the Article 50 which formally/ actually starts the Brexit Negotiations - the net effect is that brexit risks have been shifted into 2017 (or never) rather than present, thus providing investor confidence to buy risk at its Friday discount (why not) and take bets on a Brexit no show (illustrated by a buoyed GBP which imo should have fallen more). - What this combination of events now means is that Brexit now trades as a function of Political possibility rather than as a certainty because 1) By resigning in Oct and refusing to start the negotiations now, it means that Brexit itself is put on hold until at least October. Further, the fact that the above is the case, the whole "Brexit" likelihood is brought into question in itself as 1) How likely is the new PM in Oct going to sign the article 50 as soon as they get into office? I think VERY unlikely, its career suicide to start such a volatile process immediately when in office so that means the Brexit Negotiations are pushed further out and likely into 2017 (66.66% chance it occurs in 2017 now from odds-checker). 2) Will Brexit go ahead at all? I think Brexit absolutely is unlikely, as the new PM wont want the economic and political uncertainty that will follow - especially as the vote didnt happen under their leadership - imo its more likely that the new PM will forgo the blame onto Previous PM Cameron and/ or call for a re-referendum or scrap the idea completely and instead offer a solution to solve the "leave" voters problems e.g. Bid to fix EU immigration. 2. Worldwide Central Banks supportive/ Dovish statements - All Major CB have offered their support if their economy calls for it as a result of Brexit - namely the front-end of the FOMC's rate hike curve was severely flattened (Dec or 2017 hike now likely) and the BOE Gov Carney put 250bn in QE and 25bps of Int rate cuts on the cards - the net effect of these actions has been to smooth investor fear, and allow risk to rally, as low rates and QE has no doubt been the biggest driver for stocks in the last 8 years - the FTSE's recovery was/ is 100% underpinned by the BOE stance imo. 3. And the most interesting possibility is that - Investors don't believe in this risk-rally, instead it is just a micro unfolding that will eventually unravel, forcing risk to sell-off in the near future. And by looking at the stability of Gold, Bonds and Yen, this argument does carry alot of weight and is something ive been watching all week. All risk-off assets have traded flat/ higher, despite risk rallying - when risk-on and risk-off assets FAIL to maintain their negative correlation (as they are failing to do now, and are actually slightly positively correlated as they both rise) it usually means the rally is being undermined by a longer-term macro view - since liquidity is a 0 sum game in the long run, all assets cant grow at the same time, either risk must sell-off or
Long
by QuantumLogicTrading
USDJPY: 4h viewUSDJPY has tested the Brexit key level, and is currently fighting the monthly uptrend mode, which if it is broken down, could lead to an extended decline in this pair, a very dramatic one at that. I'm short from yesterday's high give or take, you may enter here if you didn't short at resistance, and use stops at least above yesterday's high, if conservative, over the 104 handle. Refer to the related idea for more information on the big picture in this pair. With the BOJ already at the rope's end, when it comes to easing, JGB's at record low yields, into negative territory, and a risk off rally strengthening the Yen and Gold, I don't think we have much risk in long Yen positions for the time being. At the very least, it'd be a good addition to a balanced portfolio here. Check out my updated track record here: pastebin.com If interested in my trading signals, or in personal tuition, contact me privately. I'm offering a considerable discount on a packaged course which includes access to my private trading signals list for a year. Cheers! Ivan Labrie Link to Tim West's chatroom: www.tradingview.com We discuss setups like this often there. Feel free to stop by and subscribe to his indicator pack. If you have any questions ask. Risk disclaimer: My analysis is provided as general market commentary and does not constitute investment advice. I will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Short
by IvanLabrie
2
BREXIT & GEO-POLITICAL AFTERMATH: SHORT GBPUSD - HOW TO TRADEGBPUSD - At the end of last week GU traded to lows of 1.32 on the brexit vote, before retracing substantially to 1.39 by the end of the day. - GU retraced 600-700pips after the brexit event IMO solely as investors took profit from their shorts (which causes buying) - thus there was no structural reason for GU recovering e.g. it was that 1.32 had mispriced GU too low for the brexit vote. On the back of this I expect the following for GU this week: 1. I have a 8/10 short conviction on GU and ultimately believe it will trade <1.30 by weeks end for the following reasons: - - As on friday, the bearish movements we saw on GBP were 90% fast money trades and NOT real/ slow money positioning (due to different regulations and trading strategies) therefore, this week, slow/ real money will now be able to get behind the short sterling move thus providing momentum for GBP to move lower and sub 1.30. *Fast money is hedge funds and slow money is asset managers* - David Cameron UK PM also resigned following the result, thus putting further downside expectations on GBP in the near-medium term particularly as it as all come at once. - Also the BOE plans to increase its QE by 66% 350bn to 600bn to support markets but this printing increasing GBP money supply affect puts downward pressure on the GBPUSD. - Further, members of the European parliament have asked and put pressure on the UK to make their exit faster than previously expected, this puts further uncertainty around the brexit and increases the negative impact it may have on the economy and therefore the GBP speculation is made further bearish. - As pictured I had expected the 1.356-1.382 range that had held at the end of last week to hold for the next 24hrs and for GU to trade relatively flat (24hrs for people to make decisions on positioning) however it looks like corporations and other entities have derisked their GBP exposure over the weekend hence we opened 300pips lower at 1.342. - With this range broken we now trade in no mans land, thus with all the negative biases my target from now is for GU to drift towards the lows set from last week for now - If the market changes significantly within the next few hours (e.g. trades back into range) i will update this view. - My target for GBP is <1.30 with a terminal value of 1.25 within the quarter - though i consider that the supportive (no hike) policy of the FOMC will ease GBPUSD losses somewhat. This in mind shorts at these levels are fair 1.34. Alternatively, I also encourage my favourite tactic of shorting/ fading any GBP rallies to 1.38/39 however the chance of GU realising such upside imo is only 50%, with bid trading dominating Volatility update: Current GU ATM 50 delta vols trade at 25%, which is surprisingly 2x higher than it was last week (the risk and volatility may not be over). 1wk GU ATM 50 delta vols trade at 30%, significantly higher than last week also. However 1ms trade 20.49% and are significantly lower than they were last week (illustrating the event risk that has elapsed). Current GU Option demand is skewed significantly to the downside, with Puts 27.5% vs calls 22.5% thus puts are in demand by about 20% more than calls - this supports current short views (RR -5). 1wk GU demand is also skewed in favour of downside coverage, with puts at 33% vs calls 28%, (RR -5%) with puts being demanded apprx 3% more than calls - supporting the near terms view of short GU USDJPY as a measure of market risk. I still suggest using UJ as a measure of GBPUSD market risk - the volatility seemingly isnt over, and with near term uncertainty high, it is prudent to track UJ and use breaks of its 101.2-103.2 range as signals of net risk on or risk-off commitment .e.g. UJ higher risk on (jpy selling), UJ lower risk off (jp buying). The risk off move for GU imo is lower in this environment, and the risk-on move is higher. Thus, IMO UJ and GU are sync'd, and the two should be used as a tool.
Short
by QuantumLogicTrading
3
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
TP ON BREXIT VOLATILITY: SELL GBP RALLIES & BUY RISK-OFF DIPSThought id put a piece out as my guide for the week for how to trade the 23rd UK EU Referendum vote. IMO the first rule and most important is - DONT TRADE THE VOTE. Trying to guess the answer is like trying to win the lottery, so instead i advise taking a position on the volatility , as volatility doesnt discriminate, it trades both ways. Trading the volatility: - The asset most hit by the UK EU Referendum uncertainty is FX, with GBPUSD 1wk ATM implied volatility closing the week at a whopping 48% - as high as levels from the financial crisis. - GBPUSD spot and volatility price is trading somewhat at the mercy of the UK Polls (i suggest checking them every few hours or so for updates if you want to trade any GBP or JPY pair the next two weeks) - intuitively, when the polls have been BREXIT biased - as they were at the front of last week, we saw GU plummet to 1.40 flat and then towards the end of the week as the polls tipped towards bremain, we saw GU recover somewhat to 1.44 almost. - I expect the same at the start of this week - GBP will open higher today as polls over the weekend tipped into BREMAIN's favour - supported by the tragedic murder of one of its supporters which consequently lead to a prohibition on campaigning and the "stay" party gaining more publicity). -Therefore I suggest SHORTING GBP rallies as with volatility trading at the 48% level, probability supports that GBP wont be able to hold onto any strength and will at some point conceive considerable downside. Further, the BREXIT/ BREMAIN Polling balance is likely to toss and turn - (www.bbc.co.uk) - so Fading/ Selling rallies on the back of any new BREXIT/ Leave Polls out is advisable. - GBPUSD - SELL @ 1.45/6 - lows of 1.40 from last week or 1.385 is the next support level for TP - GBPJPY - SELL @ 151/2 - Lows of 140.5 is the next support past 148, however, 1.455 are lows from last week - GBPCHF - SELL @ 1.39/40 - Lows of 1.338 are in sight for TP, or 1.358 - Reward for all is upward of 500pips, Risk is no more than 250pips so IMO this provides a great trading opportunity My 3 conditions for shorting GBP on rallies is: 1. GBP must be trading "expensive" at the levels suggested above - making reversal more likely. 2. A recent poll is in favour of leaving 3. Volatility is high and Risk Reversals trade in favour - both putting a dampener on long term stability. See my previous articles on which cross is best to trade - I still believe CHF is the best cross, it has the best long run SHORT possibilities too. Finally, Safety assets e.g. Gold and US Bonds are tradable ON PULLBACKS also. Gold and Bonds have been on significant rallies (illustrating the market risk) recently, so I advise buying them on any 1-5% pull backs that we may/ may not get - However, the risk-off asset play was much more profitable several weeks ago (as i suggested). Much of the "easy liquidity" has been eaten up in the last 2wk rally - hence only buy pull backs. In my opinion, the front end of the week will have the best conditions to trade in, volatility will be at its highest and i predict a level of "calmness" emerging on Wednesday/ Thursday as the result is awaited and as volume drops, thus I do not recommend trading on Weds/ Thurs - execute on the rallies expected on Monday and TP before Wednesdays London session at 8am GMT. On a UK STAY VOTE we could see massive 5-8+% rallies in GBP (depending on how depressed it is) and mirrored strong sell-offs in JPY, Gold and Bonds - hence why i say DO NOT TRADE THE VOTE. I will be posting updates on Volatility as soon as the market opens.
Short
by QuantumLogicTrading
6
LONG USDJPY @105.8: NEUTRAL FOMC; DOVISH & EASE BOJ & RISK-ONWe had the best possible outcome for FOMC's Rate decision and Fed Yellens speech which was neutral IMO as expected, with the Economic Projections being dovish, downgrading the projected rate hike cycle. We now look to BOJ. Trading strategy: LONG USDJPY (possibly short also GBPJPY for longer term investors or investors that want to hedge against a hawkish BOJ) TP @>107 = 100pips at least - SL @104.9-105.2 Reasoning - FOMC overall was neutral, we had lower projections but Yellen remained mildly upbeat, telling the market to shrug off the short NFP report (quite rightly). - So this means $ demand/ supply remains flat. - The main driver of the LONG UJ play is on the JPY side. Given that FOMC was flat, this means JPY "risk-off" and uncertainty buying which would have arisen if the fed was aggressively hawkish/ hiked was neutralised - meaning JPY "rate hike induced" safe haven demand was neutralised as instead the FOMC helped risk trade higher = LONG USDJPY as JPY demand falls - So now we have a situation of neutral USD and neutral JPY as there was no rate hike to unsteady markets and cause JPY to be brought - So the driver of the LONG USDJPY is the fact that IMO the BOJ will be aggressively dovish and likely to cut rates - their core and CPI prints are consistantly below 0% at -0.5% for Tokyo CPI and Core, with National at -0.3% for both. These CPI prints are the average print for the last 6 months meaning BOJ policy has been inefective in reaching their goal as inflation is stale and not rising. Thus IMO they have to CUT and EASE and be DOVISH = Long USDJPY - Further, Kuroda BOJ head said he is aware of JPY trading strongly due to its safe haven properties and he has stated he is prepared to fight this risk-off led Yen appreciation - this means HEAVY easing to negate the JPY risk-off strength and weaken the currency = long USDJPY - Finally, a dovish BOJ helps ease the risk-off sentiment in the market at the moment (stocks falling and gold rallying) as BOJ easing puts more liquidity into the markets - calming the risk-off sentiment means LESS JPY buying and MORE JPY selling = LONG USDJPY Evaluation - So with USD as a stable denominator, I expect the BOJ to heavily ease in order to 1) improve their inflation performance closer to their target 2) to devalue JPY from the risk-off buying that brexit uncertainty has caused. - Further, UJ is the best expression of the short JPY play as EUR and GBP are both comprimised by BREXIT uncertainty - which is constantly trying to trade eur and gbp lower - hence a long ej or gj is not advised - UJ is the least affected of the majors by brexit - *see my dynamic straddle post attached for more details* - on that note one may argue AUD or NZD could be used for the long, since they too are even less affected by brexit downside, which is true, however i dont have enough experience in those markets - if think there is a better denominator than USD for the long then by all means use it - however IMO USD is the best of the bunch for future dollar demand as they are the only Central bank to be hiking NZD and AUD are still cutting. - Also UJ imp volatility is finally falling with 1wk implieds dropping to 12.55 (-3.45), which improves the environment for buying. Plus as you can see below Historical Vol is also falling, once again illustrating that price may be ready to start rising again - low vol = more buying. Plus the ATR trades lower than average which is a bullish sign - bull markets range less. - And we are still oversold massively at -2/3 SD of the mean of the weekly. Plus we trade close to the handle at 105.35 which is the strongest support level in USDJPY history thus helping upside from here (unless we break ofc). Comments welcome
Long
by QuantumLogicTrading
8
DYNAMIC STRADDLE: USDJPY & GBPJPY - TP FROM BOJ & FOMC EVENT VOLThe best Idea to play BOJ and FOMC from a risk-averse perspective is to own both in a Long Straddle Strategy Dynamic Straddle: Long USDJPY & Short GBPJPY - TP from volatility & Event likely hoods TP levels = cannot be greedy else you may miss one trades exit point so <25 pips when it goes in your direction for each - total TP = 50pips as 2*25pips Reasoning - Traditional Straddle involves would be long and short the SAME cross.. - However i suggest we long USDJPY as UJ has proportionately MORE upside possibility: 1. FOMC is likely to be neutral-Hawkish, this will help UJ trade flat/ higher = Supports long - - *FOMC PARADOX* important to note that in this sensitive risk-off market if the FED is too hawkish/ hikes it can cause a UJ sell off, as higher rates means greater economic/ market uncertainty as liquidity and financing becomes tighter (despite rate hiking usually making USD trade higher through increased $ deposit demand for higher rates) 2. BOJ is likely to be dovish, this will help UJ to trade higher (especially in this risk averse market - easing helps calm mrkts) = supports long 3. USDJPY ISNT directly impacted by BREXIT fears as GBPJPY as USD and JPY can be considered safety assets, this helps USDJPY trade higher = supports long So we have 3/3 for long USDJPY. - Now to hedge this trade AND benefit from possible downside, we SHORT GBPJPY as GJ has proportionately MORE downside possibility. 1. FOMC neutral-hawkish, drives risk-off momentum (higher rates reduces market liquidity and undermines economic growth thus increasing uncertainty) which drives demand for Yen/JPY, increased demand for JPY supports short GBPJPY 2. BOJ being dovish/ easing potentially helps JPY sell off - however, GBPJPY will be the least sensitive of JPY seller of the JPY crosses, as GBPJPY is the perfect play for Brexit and risk-off, hence in the long run JPY selling wont last long in GBPJPY as once JPY is cheap, buyers will enter to continue hedging/ speculating on brexit with the favourite pair, poor potential/ long run JPY sell side = supports gbpjpy short 3. GBPJPY is directly impacted by Brexit uncertainty in two ways. 1) as investors wish to sell GBP as the uncertainty is only negative for GBP (especially when polls are at 55%). 2) as Investors wish to buy JPY for their "safe haven" asset play. UJ only has the JPY buying to push it lower, which is limited/ offset further as USD buying can also be considered a "safe haven asset) = Supports short GBPJPY We have 3/3 for short GBPJPY Evaluation. - We have 3 points supporting both LONG UJ and SHORT GJ - AND by playing this trade we are able to gain from ALL eventualities, we dont have to guess the BOJ or FOMC outcomes since we have a LONG and a SHORT we have covered ALL eventualities. - Also from a vol perspective, GBPJPY risk reversals continue to become negative by a significant amount 1wks lost 0.6 to -2.1 (from -1.5), so investors continue to demand GBPJPY downside puts for speculation/ hedging - supporting the short. - USDJPY ATM volatility, sold off significantly with 1wks losing 3.55 to 12.45 - lower vol in UJ supports buying. *Any questions on why i think FOMC will be neutral-Hawkish or why BOJ will be dovish-easing please ask in the comments*
by QuantumLogicTrading
GBPUSD: THE RUN DOWN & HOW TO TRADE - FOMC & UK EU REFERENDUM 1This article is a tradable summary of all of the indepth GBP$ analysis i have done recently - I aim to give you a conclusive opinion and trading plan. SEE PART 2 ALSO I suggest you check out ALL of the relevant articles that i attach to this post so that this post makes sense In a nutshell i am heavily short GU, about 8-9/10 @1.44/5 (@1.41 only 2/10) - so i advise shorting ANY pullbacks we get to >1.44 in the coming weeks. - Also SHORT EU is a good trade as IMO it is heavily over brought, and hasnt priced any of the fundamental supply/demand stimulus ( e.g. EU is trading at levels higher since the dec 15th hike, March ECB cut and UK EU Ref uncertainty pricing) which all should have depressed the market lower. Thus short EU might be the better play if we dont get any GU pullbacks, since EU still has alot of downside to factor in imo. Volatility - The best indicator for dis-ciphering what the market has in store for GU and EU imo is implied volatility, since it uses options (actual demand/ supply of the market) to predict what the volatility will be in the future. - Currently EU and GU on Friday both traded in their 2 year 99th and 100th percentile implied vol reading at 14.78% and 16.15 respectively. - Furthermore, GU's IV has been trading higher everyday this week and has set new 52wk highs everyday. The volatility (time horizon) curve is severely fattened/ steepened around the next 2 weeks due to the up coming e.g. 23.55% 16.5% 16.15% 13.75% 10.25% 1m fwd 1wk fwd current 1wk ago 1m ago - Hence, and as you can see, now (or last week or the week before that) is the time to get on the curve for GU downside since volatility has been rising and is projected, to rise into the FOMC and UK EU Ref - before tailing off quite considerably (3m fwd at 16%, 6m fwd at 13.25%). - In addition to this we are seeing Historical Vol trade relatively flat - indicating that GU price action hasn't yet fully priced in the potential future event volatility, meaning we can expect large legs downwards in the future, since HV isnt at extremely high levels (as pictured), there is certainly room for price action vol to move higher, thus there is room for GU to trade heavily bid and shed a several more 100pips. - Further we have seen a negative shift in Risk Reversals for GU and EU - GU the most extreme now with 1wks at -1 and 1m at -7.6 (EU -0.1 and -0.45). Risk Revs (RR) look at the Supply/Demand of OTM Call/Put options and RR is the difference between the vol of calls minus puts.. GU RR is currently growingly negative at -1 and -7.6, implying that puts are trading much more expensive than calls as their demand is higher. GU puts are more expensive as investors over the next 1wk-1m period are increasingly demanding downside GU exposure or want to hedge their underlying length MORE than they want upside call exposure. From this skewed options market demand for puts (rather than calls) we can observe that GU downside is net what the market is positioning for, and therefore, GU downside/ short is ALSO what we should consider playing in the spot market. Increasing volatility and decreasing RR supports SHORT positions as; 1. investors dont want to hold assets that have increased vols (it is seen as increased uncertainty and risk) and 2. investors are increasingly purchasing put options which at some level DOES represent investor sentiment in the spot market also - these are why i advise getting short if you haven't already, asap for GU to play the volatility.
Short
by QuantumLogicTrading
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