Erm, NOK underperformance is due to a surprise 50bp cut by the Norges Bank today... I have bot some more NOK (long NOKJPY again), as I perceive this as an opportunity to add.
Global Macro Trading Journal
- Thread starter Daal
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I agree with today's under-performance - but that just made the level more ridiculous.
I have it as a long term hedge against EUR problems (as I have to keep quite a bit of assets in Europe) and it is not working exactly as expected - basically 7.80 all the time like HKD...even with the help of strong gas and brent...
I used to trade NOK pretty actively, like 2-3 times a day around 2 yrs back, when it was around 5.75-6 range. Given the fundamental strength of economy, petroleum reserves, fiscal house in order, I was expecting it to be less than 5.25 by now.
Instead it went the other way around. Market basically treated it as risk-on currency. Never computed it, but from its movements in 2009-10, it seemed that its beta was much higher compared to classic risk currencies like AUD and CAD.
I would have expected it to out-perform CAD, however it has under-performed not only against USD but also against CAD. I really have no good explanation for its weakness.
I have my deepest sympathies to the folks who went long NOK against EUR as a bet against EUR. Generally these spread trades can have much better risk-return profile than a naked long or short position. It definitely made good sense for a trade, but somehow the trade has just not worked out.
Its true it has been hard to trade Euro on longer time horizon, the way you trade it. Last year in Q4 I was trading Euro in 'large' size (not for my own account) and I got burned, because the damn thing rallied from 1.29 to 1.41, when finally I capitulated. It was a hell of a ride, I had some options on and I was constantly hedging and de-hedging them. I completely understand your frustration. On the contrast, if you look at history of Euro from 1999 onwards, it has been an easy currency to trade on longer frame, just by being on the right side of 200D MA. There were multiple years when it trended beautifully, and it was easy to keep the position on for months.
I was speaking last year to an MD in BNP, NY office and he was constantly complaining on how his traders went short Euro at 1.50 and covered around 1.44, when Euro continued to fall till 1.20. So, yes in last couple of years, it has been a difficult beast to tame.
However, I would say that I have been trading it now on an intra-day or max. 1-3 days time horizon, and it has proven to be easier to trade. Sell on rallies, cover on dips and sit out a lot of times when things have not been clear, has been my mantra. So far definitely better performance than trading it longer term. Maybe something for you to think about - but be careful if you do decide to shorten your time-frame, its very easy to get burned trading ccys intra-day.
Edit: About your largish short and a stop above the upside break, yes it sounds like a workable idea, my levels would be short around 1.32/34 with stop around 1.36/38. If it goes beyond it, well I won't be too tough on myself, its just that ccy is hard to trade now, with all random news driving it.
The hedge against EUR problems is long dollar. NOK is highly correlated to the EU - if Europe goes into depression, Norway is semi-fucked too.
Long one currency against another is an outright position, it's not a spread.
thanks for the sympathy.
indeed. it is truly amazing considering that by any trade measures NOK is the most undervalued currency in the world (maybe except SGD/BND), it exports mostly to EUR countries, is the richest country in the civilized world, has one of the highest quality of living, low inflation, relatively high interest rates and still manages to shelter its currency.
i guess the reason why european politicians are not so vocal about this is that norway's trade surplus is mostly exchange rate inelastic, i.e. surplus will stay about the same whatever the exchange rate is. this is due to a huge proportion of hydrocarbons in exports. therefore the exchange rate is really more bound with NOK money supply and management of domestic inflation - more so than in other countries. thinking about this now again - is anybody aware of some academic paper on this topic?
p.s. Martinghoul you really got some balls with NOKJPY trade - is there a more volatile pair?
A rule I have is that when all the reasons in the world support a directional argument, but the underlying is trading against that direction, don't try and fade the move because you usually don't know something. It's also my gut that tells me that this move in PMs is real and the break of the intermediate bull mkt in gold.
On a completely unrelated note, I think this is a good time to be picking up equities, moreso in NA than EU unless you are taking the best of the best. One of the rare times I agree with ralph that the Euro risk on correlation will break down. NA data coming out isn't horrendous and organic growth is picking up.