Tapering Helicopter Ben

Huge developments this morning 4am Melbourne time, Ben Bernanke's FOMC meeting where he announced a more hawkish view than the market was expecting.

The market was looking for the Bernank to be ambivalent in general, maybe focus on the policy settings differences between tapering and interest rate hike, set the scene for eventual tapering in Q4. While these expectations were largely met, Bernanke also gave an optimistic outlook for the US economy, and clarified that 7% unemployment was the trigger level for any tapering to begin. I listened to the end of the FOMC meeting and the Q&A session after, and it was really more-than-expected optimistic tone that made the difference.

The markets roared, the USD soared.

Unfortunately I was not ready and too late to act on the first impulse, but started building USD long positions after the close of the Daily. I've gone long USD vis-a-vis EUR, AUD, GBP and even a little CNY for shits and giggles.

Here's the damage on the DXY:

Looking at the chart, it would seem there is still a fair bit of upside to come, I'm guessing over the next 10 to 15 trading days. The market's attention is now firmly fixed on tapering in September, and it would take some pretty bad USD data to turn this ship around.

Gold got hammered by the FOMC meeting, it cracked $1300 briefly. China too is having some troubles, their overnight repo rate hit 25%...the likes of which haven't been seen since the GFC of 2008. So all in all, everything points to risk off for the next while. I want to test my resolve in holding this trade as a macro trade, scaling in on winning positions. Let's see how far the ship can sail on this one.

EURUSD and other market thoughts

EURUSD had an outstanding Thursday (propelled by comments from Draghi indicating ECB was not about to cut interest rates) and Friday last (due to underwhelming NFP results for America), that saw 3 big figures traded. Personally, I was still kinda shellshocked to do anything about it on Thursday by the BOJ announcement, during which EURUSD lay comatose for hours, and was unable to get a grip on it leading into the whipsaw created by Draghi's speech.

Right now, its Monday and the US session is about to come into full effect. EURUSD is trading around 3020-30. From a technical perspective the bulls have taken control at least in the short term. Having already done so for a number of week BNP Paribas continues to talk up their position, suggesting that

EUR/USD to track peripheral spreads, which themselves suggest the spot should be trading closer to the top end of a 1.30-1.32 range.

Fundamentally, nothing has changed. I think upside is limited given that there is still no real solution to a fragile Eurozone, for example:

• Italian elections;
• Portugal budget woes coming back to the front?
• some building concern over Slovenia
• the Cyprus precedent of railroading depositors...fuckin fatal
• Cyprus to get a 2nd bailout, by year end?

On the other hand, the market think the Fed will NOT scale back QE, and this is supporting the EURUSD. Wow, just as Im typing this, comments from the Fed's Painalto indicate otherwise.

From an intraday perspective, I reckon profit takers will be wanting to get out after Thursday & Friday's efforts...and the price action above the 3000 handle has not been particularly explosive throughout Monday. There is some talk of large 3000 option expiries which should dampen the market for a while. Still hearing plentiful offers above:

RT @orderflowforex: #EURUSD offers @ 3040, 3080 & 3100 - buy stops above 3050 #fx #forex 

@orderflowforex: #EURUSD - An Asian central bank noted seller above 1.30 #fx #forex  

I do have to consider that the positioning must be a bit stretched now. We have had 2 months of decline, and   long term shorts must be at least thinking about taking some profits off the table.

Sentiment studies have noted a climax in S&P, and thinks that the macro environment is changing for the worse, and that the smart money are thinking of getting out of the rally.

Overall, I remain  a seller of Euro at present, and will be looking to build shorts between 3000 and 3100 over the coming sessions, for a move down to 2750 if I'm lucky.

And so, to another day of trading...

Happy NY

Wow, it's been over 6 weeks since my last post?  Gosh I've been lazy-ass bastard...  But in defense it was the holiday season, and I've still yet to get my act together since the great collapse 4-5 months ago.  Ouch, the memory of that still stings... moral of the story don't fucking trade without fucking stops, you FUCKING IDIOT!! Haha...

Lots have happened since, the Euro's now down heaps ... trading around 1.28 from a high (?) around 1.40 only a few months ago.  Key themes are:

• Europe - ongoing debt concerns / structural deficiencies = bearish outlook throughout the next 6 months.  ECB's not overly fussed about the declining of the Euro, points to previous historical low of 0.90.  Fear of contagion is running high, with record amounts (550B?) pushed into ECB's overnight facilities over the late-Dec/NY period.  Greece needing another bailout by March.  In the face of all this rubbish I can't see Germany wanting to hold on for another full year.
• US - about to hit the debt ceiling (again), presidential elections in November, threatening Iran with war (oil's trading around $100 atm).  QE3 is a possibility (March?) which would sending gold and equities soaring = bearish but not at the expense of Euro at this point in time.

I recapitalised my trading account with $2k in November, and still trading small with 0.1 lots.  It stands at $2.9k.

Tonight is the first NFP for 2012.  I'm going to see Grandmaster Flash with the gf instead.

Looking ahead: July week 4

• EU -- Ongoing sovereign debt crisis
• Conflicting reports from weekend bank stress tests?  Monday could be chaotic, likely to SELL EURUSD (note Tokyo holiday)

• THURSDAY: EU emergency meeting re: 2nd Greek rescue package.  Traders do not expect players will find a compromise over their significant differences (Germany: private involvement vs ECB: no credit event).  SELL EURUSD favored, if no surprise compromise found...

•  USA -- debt ceiling
• Politicians dragging feet on 2 Aug deal.  Traders expect deal to be done (risk on?), but interim uncertainty = USD negative??

• USA -- credit rating downgrade?
• Possible notwithstanding result of debt ceiling extension.
• China says US will avoid default.

Sean at Forexlive.com says:

I’m thinking that a short EUR strategy for the first 3 days of the week but flipping into a long strategy as the emergency meeting looms, might work. Let’s see how it develops.