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CashBackForex - Often Imitated, Never Duplicated!
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Bank of Japan Casts Their Vote; and Will the Margin Man Ruin the Weekend?
Submitted by Ralph Shell
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12:35 PM Aug 04 2011
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2213 Views |
1 Comments
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 (7 Votes)
Some of the pundits, after the weekend settlement of the US debt ceiling debate, advised currency traders to pursue a "risk on" posture. Confronted with dire economic news this week, market bears have taken over, routing those with the riskier positions, in stocks or currencies. Now, some of the markets are in a free fall, with the bears getting assistance from the margin man.
Global equity markets were sharply lower, responding to the bad economic projections, as well as concerns about Europe bank liquidity. Most European exchanges were down over 3%, with the US S&P 500 Index now down 2.6%. There are unconfirmed rumors of hedge fund liquidations. Once again it looks like the old timer's advise, "sell in May and go away" is working. Wonder when we can expect the buyers back?
Bucking the trend last night, was the Japanese Nikkei average. It got a boost from the Bank of Japan's intervention, selling the yen. In our note on Cashbackforex Tuesday, we outlined our reasoning for taking a long position at 77 or better in the USDJPY. Intervention by the BOJ was an unexpected bonus which allowed us to take profits above the 79 handle.
The impact of Japanese intervention is usually short lived, but since the yen was loaded with haven buyers, there should be buyers of the USD versus the yen on a break back under the 78 handle. Remember, as we had warned, speculators in the Japanese yen were net long over 50K contracts in the last COT report, and we doubt they are all out of the market.
It is always interesting to watch for the speculators scurry around, looking for the perfect safe haven to protect their assets. Would buying a few puts, or a combo selling calls and buying puts, be a better approach?
There is a danger once a haven reaches critical mass, the influx of new money creates a bubble. If you are in one of those safe havens, enjoy the ride, but remember, most markets end up where they started, so best not overstay the party.
In the currency markets safe haven buyers have flocked to the SF, the yen, and the commodity currencies. All but the SF has taken a hit today, and the Swiss National Bank, aware of the harm being inflicted upon their economy, seems prepared to do something to weaken that currency.
A big loser this week was the Australian Dollar. After trading above the 110 handle to make a new high, there was no follow through, and, as we noted, the open interest in the futures market went down when the new high was printed, a sign the new highs were caused by short covering. This, combined with the big specs, many probably hedge funds, long, by almost a 9 to 1 ratio long, made the A$ ripe for the sell off.
The big winner this week is the US Treasury market, Last Thursday morning, the 2 year note yielded .42% and the 10 year, 2.94%. This afternoon, those same issues are yielding .27, and 2.48%. Perhaps this is more than a market discounting an economic slowdown. Concerns about the liquidity of the euro banks, and the ability for Italy and Spain to float new paper with their 10 year rates going above 6%, may be sending some euro money to the ultimate safe haven, US Treasuries. If this is the case, the very unpopular USD, may see more buying from previous short sellers.
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Shortcuts and Syndication
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Author Bios
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Ralph Shell: Ralph did his graduate studies in economics and history at Duke University. He has ten years experience trading cash commodities in domestic and export markets and is a former commodity analyst with Merrill Lynch in Chicago. He was a member of and floor trader at the Chicago Board of Trade for 18 years.
Forex Captain: The Forex Captain has been a strategy developer and forex trader since 1998. From 2002 till 2009 he ran a successful managed account based on his tradestation coded strategies at FXCM. In 2007 his managed fund was ranked in BarclayHedge Rankings as one of the Top 10 Currency Traders managing less than $10M & more than $1M. Since 2009 he has been developing Expert Advisors in MQL4 for private trading, and from June 2010 he has joined the Project Triumph team as a currency analyst and project manager.
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