You Can’t Plan These Trades The Night Before, But They Seem To Work Well
Crunch Time For The Dollar
It is no mystery that the
DXC has been on a bender to the upside lately,
keeping many FX traders rather busy. While one can never know for sure if a
particular level will be “the line in the sand”, one does not have much else to
rely on. Presently, the DXC is trading
around the 89 level. This is a significant level off of a weekly chart. A
sustained move above this level should continue to put pressure on the
EUR and GBP.
You will remember that yesterday’s column dealt
with the choppy nature of FX over the last week or so. A note from a colleague
of mine who is a “big trader at a big bank” summed it up like this:
interest rate differentials between US and
Europe (influenced by relative growth, inflation, monetary
policy), on the magnitude of the US external imbalances,
and on market
of the three that has been dominant and
usually the market is trend-following because position
adjustment tends to be trend-following and thus somewhat
self-fulfilling.
choppy….most trend following
players have been playing the crosses more than USD pairs…but
there is no doubt it has been difficult and thus
option volatility is quite
^next^
Ironically, the volatility of late has actually offered myself a few quick
scalps (30 minute duration on average), something not normally associated with
FX, so if you have some good short-term trading skills, there may be a pocket of
opportunity in here for you.
Longer term, consider the following trade, based
not only on technicals, but also that dreaded term, macro/fundamentals. Short
the AUD/JPY:
– Stock market performance in Japan vs Australia
is more robust, as a result capital flows to Japan will far outpace those to
Australia
– The Dollars correction will continue to
put pressure on gold prices, a negative for
AUD
– Japan’s current account surplus
continues to expand, while Australia is running a widening deficit.
Historically this divergence has resulted in a a lower
AUD/JPY
HVT:
The story remains the same, opening 90-minutes,
story stocks only. Yesterday’s key set-ups were
Proctor Gamble (PG) and Schlumberger
(SLB). I wish I could offer you some insights, but like all
HVT trades, they cannot be planned the night
before or even 10-15 minutes before execution, it is the ability to know what
constitutes a good HVT set-up when it
presents itself.
The PG trade
was simply a case of buying pull-backs in a stock that is in an up-trend (as
defined by an upward sloping 1-minute chart).
The SLB trade
was a quasi Fade the Gap trade where the
price action becomes so stretched (to the downside in this case) that a
counter-trend bounce is likely.
As always, feel free to send me your comments and
questions.