FX short to mid-range frequency discretionary trading

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Hi, There is not much to disagree here. I myself took the other side of BoJ actively whenever they intervened, because I knew all these Japanese exporters were selling u/j as BoJ was buying it. BoJ was infact giving a pseudo-bailout to these exporters by giving them the opportunity to sell at a higher level. Also, I had seen SNB fail miserably at their intervention attempts in the markets. For sure, they will drive up the prices 5 big figures but give it 1-3 days and we will be back where we started from. Only time I remember it took a few more days was when BoJ intervened at 82 and drove the price beyond 86 - the first major real intervention sometime in 2010.

The US-JPY swap rate difference being a key factor driving u/j was not really obvious to me when I started out. It took me at least 3 months of observation before I figured out this is really a major driver on day to day trading. About the insignificance of the economic numbers coming out of Japan - thats another thing that caught me off-guard when I started trading Japan. It was interesting to see US numbers having a much bigger impact on Japanese indices/ccy than Japanese numbers. It meant that these numbers somehow didn't mean anything. One big factor that these numbers don't really drive Japanese markets is the supremely complex inter-woven structure of various industries-banks-government in Japan - in the sense that nothing really changes with some economic data point. Workers won't get fired, bad companies will continue to get their loans, banks will continue to come up with schemes to hide their NPAs etc. etc. Basically the world will continue to work as it did yesterday. This might appear a bit of hand-waving, but I am sure you understand what I mean since you have worked in Tokyo. Its called the Japanese way of doing things. Yes, I worked in Tokyo for sometime.

Quote from amazingIndustry:

I am not sure I can agree with your analysis. You say the currently lower vol environment in u/j, the level above 76, is all due to BoJ and finance ministry intervention, real or verbal. I beg to disagree. If you define intervention success as the ability to move a pair 500 pips then I must agree with you but I would say that this is not what monetary policy should be about. Their mandate is price stability (aka inflation) and the "stability of the financial system" (loosely translated). That means their mandate is not to bother about short term market levels, short term volatility maybe but not absolute levels. Thus, I would argue that they should have a strong interest in price stability in the long run. First of all their mandate is not to support exporters, but hey, which CB holds itself currently accountable to its mandate, nobody. So lets not argue about that part. Fact, however is, that each actual intervention they have undertaken has miserably failed after very short time. One reason was that they did it all on their own instead of performing intervention as a concerted effort.

So, I would hardly argue their interventions as being successful. Markets simply proved them wrong. Now, whether verbal intervention works and whether it can account for u/j currently trading above 76 is another issue, entirely and on this I guess I also have to disagree with you. The reason is that u/j is hugely driven by U.S. and Japanese yield differentials. Also a big driver for long term levels is the fact that a huge proportion of Japanese sovereign debt is held by domestic institutions and households rather than foreigners. This makes the yen the perfect safe heaven currency. Despite the descent of Japanese productivity, the loss of corporate powerhouses internationally Japan is still the relatively safest place to park funds, and there is nothing BoJ or MoF can do against. This in my opinion is what drives the exchange rate medium to longer term not verbal intervention. Who believes those clowns anyway? The last time they have done something that worked out was like when? I dont even remember they ever have set policies that really made sense and that had a lasting impact on market rates. And for that matter I have not seen Nikkei, Japanese stocks, nor any fx rates react to ANY economic releases that came out of Japan, NONE: Car sales, CPI (which cpi...;-), office vancancies, unemployment, and the many totally nonsense figures they report that have zero market impact because they actually mean nothing, not just to the market but to corporations (at least not at the time they are released, car manufacturers through their dealerships know way earlier about those numbers than when they are reported and plan accordingly). Whom are all those ridiculous numbers for that BoJ, Dept of Labor, MoF posts every other day? I have traded in Tokyo for a number of years and still am located in Tokyo so I think I can speak with a little experience backing up my opinions. But please correct me if you think you disagree.

But I agree with your point that such fundamentals are what they are, metrics to which rates have to converge long-term, not in intraday or multi day operations. Traders therefore do have to care about probabilities of interventions. So, in summary yes I do care about whether I believe intervention is imminent. On the other side I believe very deeply that whether u/j is at 100, 80, 60, has nothing whatsoever to do with what Azumi and Co have to say or do, absolutely nothing.

Btw, are you living in Japan? Or Asia for that matter? Your post hours suggest that ;-)
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Ha, very much agree with you regarding Japanese corporations. I think last time I checked Hitachi still had the daunting task to manage over 300 subsidiaries, that is about 8-9 times more than GE ever had. When going to Shibuya or Ginza or Roppongi on any weekday or weekend you may think the good times are still rolling.

To summarize Japanese culture for me is a minority of smart business owners and corporations telling the general populace (and workforce) in the name of conformity to be content with little salaries, an average Japanese life without much time off or vacation, without much luxury (electronic toilets are not considered a luxury item in Japan) and to not stick out from the norm. This is so ingrained in people (by genetics or brain wash or both) that hardly anyone dares to challenge the status quo. It takes some weird mayors in Osaka to outlaw city employees who dare to wear little hidden tattoos to be considered a total outlier or for that matter the CEO of Rakuten, an online shopping site, who demanded all internal business conversations to be conducted in English. SHOCKER, OUTCRY...;-) But that in a nutshell is Japan.

P.S. I dare say that as someone who lived in Japan for over 10 years on and off, with Japanese wife, Japanese language skills, and a non-spouse-unlimited residential visa. I love this country and many parts of its culture but something must change soon because I think people start to feel the "Chinese squeeze" either through struggling corporations in international competition or through a huge influx of Chinese into Tokyo's prime/upper class quarters and fetching up apartments, houses, condos. I have for the first time in 10 years seen a real estate agency near where I live exclusively catering to Chinese clients. Times are changing and whatever culture dictates, something has to give very soon.

Quote from gmst:

Hi, There is not much to disagree here. I myself took the other side of BoJ actively whenever they intervened, because I knew all these Japanese exporters were selling u/j as BoJ was buying it. BoJ was infact giving a pseudo-bailout to these exporters by giving them the opportunity to sell at a higher level. Also, I had seen SNB fail miserably at their intervention attempts in the markets. For sure, they will drive up the prices 5 big figures but give it 1-3 days and we will be back where we started from. Only time I remember it took a few more days was when BoJ intervened at 82 and drove the price beyond 86 - the first major real intervention sometime in 2010.

The US-JPY swap rate difference being a key factor driving u/j was not really obvious to me when I started out. It took me at least 3 months of observation before I figured out this is really a major driver on day to day trading. About the insignificance of the economic numbers coming out of Japan - thats another thing that caught me off-guard when I started trading Japan. It was interesting to see US numbers having a much bigger impact on Japanese indices/ccy than Japanese numbers. It meant that these numbers somehow didn't mean anything. One big factor that these numbers don't really drive Japanese markets is the supremely complex inter-woven structure of various industries-banks-government in Japan - in the sense that nothing really changes with some economic data point. Workers won't get fired, bad companies will continue to get their loans, banks will continue to come up with schemes to hide their NPAs etc. etc. Basically the world will continue to work as it did yesterday. This might appear a bit of hand-waving, but I am sure you understand what I mean since you have worked in Tokyo. Its called the Japanese way of doing things. Yes, I worked in Tokyo for sometime.
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Overall a mixed day, no new positions, am still short AUD from 1.0420 levels and believe we could see more downside. A break above 1.0340 would make me become careful because short squeezes do happen and they can be brutal.

Interestingly the retail crowd is still net long EUR and today was one of those times when horrible trading habits are re-enforced. Being rewarded for a bad position is something I do not wish upon my worst enemy because it can really result in the horrible habit to take counter trend positions and I still have to learn about a long-term successful trader who made his living in fading trends. Once yen and dollar crosses have settled down a bit post ECB Novotny's comments re banking license today, current levels may actually serve as an attractive entry point to add to short positions.
 
Really not much to talk about, same old, sharp sell-off, sniffing out bottoms, bottom fishers kicking in, a little reprise and back to 1.0320 in AUD. I added a little to my shorts around 1.0335 levels but my stop of those particular sizes lies right above at 1.0350. (I communicate this purely for my own reference not to brag or show off, and thus I am not gonna show proof or anything related to the fills for that matter; I stated earlier I am done with reporting entries in real-time). The big point here is that I still have a short bias and believe we could see more downside in the coming days. It will take another huge and potentially bigger squeeze to really convince the rest of the world (a.k.a. Germany) to get the ESM equipped with a banking license.

Well, I openly admit despite my more than dozen years career in financial markets I am slightly confused about this whole construct: Have we not just gone through a financial banking crisis and wasn't the lesson we all learned that banks should not be highly leveraged? So, now politicians try to convince us that it is a good thing to grant a BANKING LICENSE to the ESM so that it can employ SKY SHAKING LEVERAGE and buy the shit out of south European sovereign paper? Maybe we should ask who is on the hook when this experiment goes sour? When a broker theoretically offers you 10000:1 leverage, and you have 500 USD in your account and buy notional worth 5million. Now someone moves your little cute pair by 10 pips, you are out 5000 USD. Who is gonna cover the remaining 4500 USD? Its gonna be you, you have signed the legal documents upon signing up for an account and agreed to such terms. Who is on the hook when all those sovereign buys go down the river and the country issuing such debt declares bankruptcy? Can the ESM lay claims on hard assets of that country? Can we all sell Majorca to the Chinese or Russians to cover Spanish debt worth nil, niet, zero? All those know-nothings in Brussel, Berlin, Paris, and Madrid come up with such ideas but nothing is thought-through the end. That is the issue that really bothers me. How much longer will the dummy Germans put up with this crap? When will the constitutional court in Germany draw a line and proclaim "enough is enough"??? How much more garbage do we all need to listen to and how much more shit are we fed each single day? I must wonder...
 
Lesson of today: Never praise the day before the sun sets.

I just got royally stopped out of my short AUD position at 1.0420 after a brutal short squeeze session (or should I say 2 hours). I am glad for my stops around 1.0350 that took care of the additional size I added just this afternoon and all looked too good to be true until Mr. Draghi started to utter words like "the ECB has all the tools at its disposal to never let the euro fail". LTRO is suddenly again on the table, the ideo of an ESM banking license I mentioned earlier today may gain traction, and especially bond buys are also again part of the policy tool set. Ironically Draghi mentioned that "the bond buying program had to be stopped during the sovereign debt distress and we may now resume the program". Ha? Am I listening to the right Mr. Draghi? Wasn't the bond buying program exactly designed to alleviate the distress in sovereign bond markets?

Am I quite frustrated? Heck yes, I openly admit it, I let go of an unrealized profit of 240pips because I was under the impression that even a moderate short squeeze may not endanger my entry level. Boy, was I wrong about that. Well, this may all get a lot tougher, slower, chewier, more frustrating, and above all, more boring in the coming months. Why? Because ECB has officially joined the Fed in throwing all conventional wisdom out of the window and it decided that inflating the hell out of all European economies is the right thing to do and lending to debtors who are in any general business sense deemed credit-unworthy. Where does that leave us? With quite some frustration because I honestly have zero clue right now, I am as bearish as I was before, I believe things will turn a lot worse before we will see the light in the end of the tunnel. But we now have a new traffic rule in the tunnel: Speed no more than 5 km/hour and its gonna be enforced by cops positioned every couple meters and violators will be shot straight in the head. Have fun in your ride through hell at snail speed before we ever get out at the other side of the tube.

I guess I need couple days to re-position myself for now I do not know nor have any sense whether we see more upside or whether market participants will soon resume selling of bonds. My only hunch is they better do so soon because once the mighty god-like ESM vehicle is in place, equipped with the all-powerful banking license and infinite leverage then nukes, chemical weapons, and other evil devices will be nothing in comparison to what Europe has to offer in terms of firepower. Hail to the new king, Mr. Draghi.

P.S.: Did I forget to mention that cable gained 220pips in 4 short hours, the same cable whose last quarterly GDP just came in by -0.7%. And did I forget to mention that I think the market is currently completely out of its mind? ;-)

Quote from amazingIndustry:

Really not much to talk about, same old, sharp sell-off, sniffing out bottoms, bottom fishers kicking in, a little reprise and back to 1.0320 in AUD. I added a little to my shorts around 1.0335 levels but my stop of those particular sizes lies right above at 1.0350. (I communicate this purely for my own reference not to brag or show off, and thus I am not gonna show proof or anything related to the fills for that matter; I stated earlier I am done with reporting entries in real-time). The big point here is that I still have a short bias and believe we could see more downside in the coming days. It will take another huge and potentially bigger squeeze to really convince the rest of the world (a.k.a. Germany) to get the ESM equipped with a banking license.

Well, I openly admit despite my more than dozen years career in financial markets I am slightly confused about this whole construct: Have we not just gone through a financial banking crisis and wasn't the lesson we all learned that banks should not be highly leveraged? So, now politicians try to convince us that it is a good thing to grant a BANKING LICENSE to the ESM so that it can employ SKY SHAKING LEVERAGE and buy the shit out of south European sovereign paper? Maybe we should ask who is on the hook when this experiment goes sour? When a broker theoretically offers you 10000:1 leverage, and you have 500 USD in your account and buy notional worth 5million. Now someone moves your little cute pair by 10 pips, you are out 5000 USD. Who is gonna cover the remaining 4500 USD? Its gonna be you, you have signed the legal documents upon signing up for an account and agreed to such terms. Who is on the hook when all those sovereign buys go down the river and the country issuing such debt declares bankruptcy? Can the ESM lay claims on hard assets of that country? Can we all sell Majorca to the Chinese or Russians to cover Spanish debt worth nil, niet, zero? All those know-nothings in Brussel, Berlin, Paris, and Madrid come up with such ideas but nothing is thought-through the end. That is the issue that really bothers me. How much longer will the dummy Germans put up with this crap? When will the constitutional court in Germany draw a line and proclaim "enough is enough"??? How much more garbage do we all need to listen to and how much more shit are we fed each single day? I must wonder...
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I am looking to build a long eur position and think this is a first good entry, just bough some at 1.2235 (current level).

If even the ECB loses all credibility in what they announced to the markets late last week then I honestly do not not know what else to bank on. I keep this stop very wide (1.21) with a target in the 1.25 region. I look to add more to the position when opportunities present themselves. Whatever comes out of Germany, I think the ECB has an independent enough mandate to at least light up some serious fire work. I am getting irritated by a number German politicians though (talking MPs here, not some rural village heads). I am missing a clear cut stance what the German coalition really wants. I think time is soon running out to take a firm stance. Pro Europe -> debt sharing + political union = loss of national influence or No Europe -> Basically pulling out + writing off already extended credit + realizing further losses on the books. But not being able or willing to decide will not work for that much longer. Of course it was Merkel's game of choice to be indecisive in order to now push all responsibility into the laps of the ECB. But in the end whatever ECB does it comes to a large degree at the cost of Germany. So: Make up your mind soon because the market wants an answer. What is it gonna be?
 
The trade looks quite promising so far, I reset my stop to entry level. I need to see how we look like tomorrow in order to decide whether I want to run the full position into the ECB meeting on Thursday. Not daring to make any predictions in this environment.
 
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