Have another Q’s based on your reply;
1. Why 1.5900? Do you have any ‘super secret’ currency valuation based on recent fundamentals facts? 😀
2. I thought it was just me who do not understand what is happening to GBP/USD on 16 Oct. You have it as well! That’s a relief! : ))
Claimant Count Change came out better than expected while unemployment rate was unchanged, so I think that it will go up but it didn’t and I don’t know why.
3. When you bought S&P, I gotta say I’m quite slow as well. Recent update on US government shutdown and Fed tapering will surely be a good sign to buy equities but I focus on Dow rather than S&P so I missed better reward-to-risk ratio. Now looking at recent move on equities, it seems that Nikkei is not following up nice up move. Do you see any possibility to buy with assumption that it will eventually go up and catching with its peers?
4. How do you determine scenario that USD will rally by X pips if they taper in Oct / Dec?
5. Back to EUR/USD and GBP/USD action that you don’t understand. Based on hindsight, we know that sentiment is up for those 2. But you think that those 2 are overbought. So will you play small for counter trend strategy like “if tripped yesterday hi, I will go short small with take profit at yesterday hourly support (also hi of 16 Oct)”? How do you formulate game plan when what you think is not in sync with what is happening in market?
1. If I think the market is in the mode of: “Do not short bottom tick.” So to me that means if GBP gets near the lows of the day or breaks downside stops, then not to try to chase it lower, and perhaps look for buying opportunities depending on what scenario the market is going to move on. It’s not a “super secret” valuation based on some wacky formula. It’s just the way the market has been acting since Oct 10, where it struggled to go lower. On Oct 16, there were stops in GBP/USD below 1.5915 and 1.5900.
2. I can’t always know the exact thing to do with every currency pair or financial instrument at every hour of the day. It’s impossible. I can’t do it and neither can anyone else.
As Stanley Druckenmiller once said:
I don’t play when I am lost. I know in the future I won’t be lost.
That “future” can mean that in a few hours I won’t be lost or the next day or the next week.
And as Jesse Livermore once said:
No man can have adequate reasons for buying or selling stocks daily – or sufficient knowledge to make his play an intelligent play.
Some days I just don’t know, so for that currency pair or financial instrument, I will stay out until I figure out what to do.
3. As for the S&P trade I had. It really didn’t matter where someone focused their trade. If they went long equities the past week, they did well. Whether they structured the trade long S&P, or long NQ, or long YM, or long some other stock. Obviously some trades worked out far better than others did. Like the people who went long Google had a monster run up in just 24 hours, for an amazing reward to risk ratio.
As for the Nikkei question, you are correct that it is lagging behind. The reason it is lagging is because USD/JPY fell 100-150 pips or so and the upside for USD/JPY is restrained because the market doesn’t know when the Fed will taper. So that is restraining Nikkei upside potential. I do think that if the good corporate earnings this past week indicate that the US economy is still in good shape, then the Fed will eventually taper and USD/JPY will go higher, helping boost the Nikkei. The Fed is in the process of beginning to unwind QE, whil Japan is still only in its first year of a multi year experiment of a lot of QE, so I would expect further USD/JPY upside.
4. I don’t know for sure what the market is currently pricing in. I am not sure if they are pricing in a Fed delay until January or delay until March. I am really not sure right now, so I am reluctant to do anything with EUR/USD or GBP/USD at these elevated levels. I am not totally sure what the pricing in, but I also don’t know what the Fed will do. They may taper in December, or they may push it off until next year. I really don’t know, so I am waiting. I think the recent 100-200 pips of USD weakness were due to the market pushing out expectations for taper from December to sometimes in 2014. So if the Fed signals they will taper in December, I figure the USD may rally by 100-300 pips. If they taper in October, which would be a big shocker, then I would expect a bigger rally than 200 pips, so perhaps a 300-500 pip USD rally. These are just broad ranges, and are subject to change as I perceive the shifting sensitivity, etc. Also, if you take a look at how much the USD weakened on Sept 18, which the Fed delayed taper, that was around 150-200 pips of USD weakness. So perhaps for every month the Fed delays taper, the USD drops around 100-200 pips or so.
5. I don’t know what to do with EUR/USD and GBP/USD because I am not sure what the Fed will do. The only thing I knew was not to try to buy the EUR/USD or GBP/USD if it moves up 200 pips in a single day without any game changing moment or macro scenario. My macro model told me not to try to buy the highs after they run up so much, because I did not find a good enough scenario for them to continue running up. Now on today (Friday, October 18, 2013), the EUR/USD tripped barrier at 1.3700, then retraced a bit, and the GBP/USD tripped stops above 1.6200, then retraced a bit. So that was why I was not looking to try to buy the top tick. And I am not shorting them because I don’t know what the Fed will do. The market I am interested in shorting are the Bonds, since there is a decent macro scenario to the bearish side after they tripped stops above key daily highs, and the risk appetite may cause some shifting out of bonds and into equities, assuming the Fed doesn’t delay taper too much.