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.

Thursday update: All about the BOJ

Had been building EURUSD shorts since the start of the week (post Easter break) banking on continuing bearish sentiment over Eurozone difficulties. At the time of writing, the EURUSD is now starting to sell off on dovish comments from Draghi regarding the EZ, particularly:

• extended weak economic activity;
• growth subject to downside risk;
• risk of inflation;
• lack of banking capital and lack of action on structural reforms.
• See here and here.

Wow what a fucking party pooper that man. Anyway, I was building shorts in anticipation of further bearish moves but the playbook went out the window when I got out due to (what I thought were strong bullish) headlines related to Cyprus getting the bailout cheque. The chart below shows what happened.

Around the same time I flipped long, I went long EURJPY. Now in retrospect that first entry was not really a smart one because I was simply trying a correlation move without much further justification. I was eventually punished as the market moved 100 pips against me. Fortunately it stablized  in Asia as the market await for BOJ news. Forexlive and FXWW kept me up to date, announcement was expected around 0330GMT (around mid afternoon Melbourne time).

The chart below shows what eventually happened.  But what is not clear is the sudden 40 pip selloff by trigger happy EURJPY bears around 0320GMT? I was shitting myself at that point because I was already 30-40 pips down from my averaged entry. I wont lie, I felt rising panic to close off the trade early, but I held because I was (a) desperate and (b) unconvinced by that move because of:

1. how broadly the EURJPY was supported evident in the basing price action over NY & Asia, and
2. how quickly the market immediately bought up the currency back to median levels...I estimate probably over the next 5-10 minutes.

Thurs BE

Not the most skillful of sessions, having suffered a bit of residual tilt from NOT RIDING UR WINNERS from Wed night, and again for Thursday's London open.  Correctly played the post fixing NY rally which saved the day.

Wed +52 (failure to ride winners again....)