Tag: currency

Currency (Forex & Cryptocurrencies) Portfolio: Annual Report

In 2017, I focused less on a personal forex portfolio, and more on other portfolios as capital deposits in the latter reached the same amount as the personal FX portfolio. In this post, I will be discussing three currency portfolios; active trading strategies, carry trade strategy, and cryptocurrencies.

Active Trading Forex Portfolio

Since inception (09/29/2015, I actually started trading in 2011), personal forex portfolio is up 33%. For 2017, it returned 8.39%. For 2016 and 2015, the portfolio returned 32.82% and 117.48%, respectively. So why the big differences in percentages since inception and yearly returns? More money was deposited into the account over time. As a result, I have risked much lesser capital per trade. The portfolio size is 10 times bigger than it was in 2015, or 100 times bigger than it was in 2011. Thus, the returns in % terms are much smaller, but in nominal amounts, much bigger.

In 2017, the maximum drawdown was almost 7%. When the drawdown increased 2% in a week in the middle of the year, I knew I had to change certain positions. 2% move in a week was a big deal considering I was focused less on the personal FX portfolio. Once I closed certain positions and opened new positions, the drawdown went back to its average of 3.5% within two weeks and stayed below that level since then. Risk management is very important!

I don’t have other metrics, such as monthly returns, standard deviation, and Sharpe ratio, as I did for 2016 because the ex-broker who provided me with the useful statistics was banned from the U.S., for defrauding customers and engaging in false/misleading solicitations.

Carry Trade Forex Portfolio

During early 2017, I wanted to create another forex account solely focused on one strategy. I didn’t want the carry trade positions mixed with active positions. So I opened an account with a different broker, Oanda. I initially deposited about 4% of my capital, amount I can afford to lose.

I made some mistakes in the beginning. The first trade was shorting EUR/TRY, whose interest differential is the highest, A.K.A higher yield. I started to lose a lot of money as the only carry trade in the account kept going in the opposite direction of my favor (EUR/TRY kept rising), talks of ECB tapering its balance sheet appreciated the euro and the situation in Turkey depreciated the lira.

Within several months, my unrealized losses were about 30% of the portfolio. I couldn’t do anything about it to manage the risk as my hands were tied due to work. I had to set up the carry trade portfolio in a way I barely have to worry about the fluctuations in unrealized P/L. When work ended for the summer, the portfolio drawdown was its highest, almost 50%.

I learned that the key to successful carry trade is to leave plenty of margin in the account for the pairs to fluctuate without wiping out your account. So I deposited 1% more capital into the account to prevent margin call. Immediately afterward, I changed my positions. I shorted some of the highest yielding currency pairs with negative correlation to EUR/TRY. Within a month, the drawdown went from 50% to 30%. Currently, it is just above 20%. Risk management is very important!

For its first year, the portfolio is up 14%. The 14% comes from the interest returns on the positions as it rolled over to the next day. However, when the unrealized losses are taken into account for 2017, the portfolio is down 23%. Carry trade is a long-term trend following strategy that requires patience and risk management.

This is an instance of humans thinking they can do something well, but things go sideways when they put their actual money, relationships, etc. at risk. I initially believed I could make some money easily with the carry trade. When the time came to have a real money at risk, I made mistakes and learned a lot! This is why I won’t be overconfident in things unless I actually have a good experience in it.  Not just for professional life, but also for personal life.

Cryptocurrencies Portfolio

Ahhh. Cryptocurrencies. The hot talk of the moment. Like everybody else, I’m up big time. I started buying cryptocurrencies in July. As of this writing, the portfolio is up 143%. I know I know, 143% is nothing compared to the actual returns of the cryptocurrencies. I currently hold Bitcoin (BTC/USD), bitcoin cash (BHC/USD), Ethereum (ETH/USD), and Litecoin (LTC/USD). If all the cryptocurrencies were to drop 99%, I will only lose 5% of my capital and continue to live as usual. To clarify, I’m not actively trading them.

Shortly after the tweet, I bought bitcoin, litecoin, and more ethereum. Until then, I continued buying all three.

I bought more ethereum before the launch of bitcoin futures, as I believed….

As the ethreum was skyrocketing, litecoin was also joining in the action. I added little more litecoins then.

As I have said in the “Long Cryptocurrencies” article, “I have no idea where Bitcoin price will be at tomorrow, next week, next month, next year, next decade.

For 2018, let’s see if I open another FX account. This one just might be algo-based.

Q1 2017 Performance: Forex

As you may know, I published my forex performance for 2016 and since inception. From now on, I will also share my quarterly performance. March 31st marked the end of first quarter, here are my performance results for FX trading.

Forex Trading Performance – Q1 2017

For currency trading, I was up 2.15%. I know, it’s low (in % terms at least). But, allow me to explain.

Before this year, my currency trades used to be in 1,000 units (or 0.01 lots), lowest I can trade. Since I usually had about 10 positions, each of 1,000 units, the nominal amount was large enough. After depositing more money and getting a clear picture of my Forex performance, I decided to increase my trades to 2,000/3,000 units (or 0.02/0.03 lots) for each position.

Getting a clear picture of my performance – average gain/loss, drawdown, trade duration, the percentage of profitable trades, etc – helped me improve my performance significantly.

This quarter [Q1], I further minimized my drawdowns. By minimizing drawdown, I minimized my returns. And that works for me. Stable uptrending P/L with a low risk.

It is true Forex is way riskier than other assets classes due to its leverage, mostly 1:50. But, that does not mean your portfolio has to include a lot of risks.

While 2.15% return this quarter from Forex trading is low, it’s still big in nominal terms for me and I’m getting a much better understanding of my weakness/strengths as I look through the metrics.

I don’t have the key metrics (besides the returns) and charts to share with you for this quarter for one reason: FXCM was Banned from the U.S. (I’m not even surprised after what happened on January 15, 2015).

FXCM is a retail FX broker and my former broker. They were banned by CFTC for defrauding retail foreign exchange customers and engaging in false and misleading solicitations.

As a result, FXCM customers were automatically changed to a different broker, Forex.com by Gain Capital Holdings, on February 24th. Unlike FXCM, this broker did not offer an analysis of trades. In addition to that, a third-party software did not offer an analysis of trades for Gain Capital’s customers since the broker did not allow the software to be connected with it.

Good news is that I’m currently in process of changing the platform to MetaTrader, which will make it easier for me to track performance metrics. The other platform, ForexTrader made it harder for tracking key metrics.

For the next quarter’s results, you can expect to see more performance metrics for FX trading.

Live On Twitter

As you may know, I tweet out trades/investments I’m making. That’s one of many reasons you should follow me on Twitter if you haven’t already. One of many ways I measure success is through twitter followers, believe it or not.

Here are some of the tweets:

My target for annual FX return is 15%, with minimal violability (less than 4% drawdown).

Interested in investing in me? Feel free to privately message me for more details. The minimum investment is $1,000.

 

Note: Equity/Commodity portfolio performance will be posted later.

Update: “Q1 2017 Performance: Equity Investments” article is posted.

Update: “Q1 2017 Performance: Equity/Commodity Trading” article is posted.

Forex Portfolio Performance: Inception & 2016

 

WHAT A YEAR! Market sell-off. Complete reverse afterwards. Full of surprises, from Brexit to Trump (not for me since I predicted them).

During the global markets crash in August of 2015, I completely lost all the money I made that year plus some more in forex. Witnessing markets free fall – faster than Luke skydiving 25,000 feet without parachute – for the first time ever crushed my account to death. (For the record, I wasn’t trading in 2008 and had absolutely no idea what was unfolding that time).

Thinking euro will go to the parity level by the end of 2015, most of my positions were crowded in shorting EUR (The Big Short). Just when I thought euro would follow the markets, it acted as a safe-haven.

Lessons learned the hard way:

  • Always keep enough cash for emergency and/or new opportunities (could not make new trades)
  • Do not keep most things in one place (EUR short)
  • Do not let the perceptions – media, traders, experts, you name it – fool you (“Euro is not a safe-haven asset”)

Taking all these lessons, I completely changed my strategy and will continue to tweak it to adapt to the current conditions. After taking a break from trading in September (2015), I opened a new forex account.

Started off strongly, with high standard deviations, but enough for me to sit through that. High-risk/High-reward. As I continued tweaking my strategy, I reduced the swings in the P/L.

Figure 1: Forex Portfolio % Returns Since Inception (09/29/2015)

Starting in August 18 of this year (2016), my returns have been very stable, trending upwards (see Figure 1). It went from 144.49% return to 184.42% as of the last trading day in 2016. Last August, I made a significant chance to my strategy which led to stable returns trending upwards. I continue to tweak my strategy little by little until significant change is needed. Repeat.

Since inception (09/29/2015), I have returned 184.42%. In the second half of this year, I deposited more money into the account. In turn, the % returns you see in the pictures above and below, has a huge difference in nominal amounts.

Figure 2: Forex Portfolio Performance Since Inception

In 2015, I returned 117.48%. This year, I have returned 32.82%. Since the inception, percentage of profitable trades are 50.70%, with the average gain per trade 3.82 larger than the amount of average loss per trade.

Sharpe ratio is 1.13 (not good yet), with average monthly return of 11.01% and 33.79% standard deviation of monthly return. Compounded monthly rate of return is 7.22%.

I predicted Brexit and profited bigly off it. 30.77% of the profit came from pair GBP/USD. Thanks Brexit. How did I predict Brexit?

Predicting Brexit – 6 tweets
Figure 3: Top 3 FX pair P/L as a % of the total P/L

Largest loss was 5.21%, from pair AUD/USD. I don’t know what to blame except myself.

As to predicting Trump’s win, the profit was a fraction of Brexit profit, via other pairs than Mexican peso currency. The day after the election, the peso suffered its largest one-day drop since the Tequila Crisis of the 1990s. Too bad I did not have access to peso pair at the time. How did I predict Trump win? Tweet 1, 2.

If you invested $1,000 in me at the inception, that money would have been worth $2,844.23 today.

You can still invest in me. Minimum investment is $1,000. Contact me for more details.

Thank you.

Update: “Equity/Commodity Portfolio Performance: Inception & 2016” article is posted.

Global Markets Crash + Asian Crisis Part 2

Global markets crash. Currency wars. What’s next? Good buying opportunity?

US markets: Markets plunged dramatically on Friday. The Dow Jones Industrial Average fell 530.94 points (3.12%), the worst one-day loss since November 2011 (on a % basis). The index is now down 10.2% (correction territory) below the May 19 closing and all-time high of 18,312, for the first time since 2011. For the week, the index is down 5.8%, the steepest decline since September 2011.

S&P 500 fell 64.84 points (3.19%), the worst one-day loss since November 2011 (on a % basis) and falling below 2,000 level for the first time since February. For the week, the index is also down 5.8%, the steepest decline since September 2011.

NASDAQ fell 171.45 (3.52%). For the week, the index is down 6.8%, the biggest weekly decline since August 2011.

European Markets: European stocks fell into correction territory on Friday. The Stoxx European 600 1.3% to 368.59. The index is down 11% from April 15 closing and all-time high of 414.06. For the week, the index is down 4.6%, the worst weekly performance since December. Other indexes fell into correction territory also. Germany’s DAX Index is down 18% from its highs. So far, 13 out of 18 western-European markets have lost 10% or more from their highs.

US oil prices fell just below $40 for the first time since February 2009, due to demand concerns and increasing supplies. US oil prices fell for their 8th consecutive week, the longest losing streak since 1986.

The CBOE Market Volatility Index (VIX) (also known as “Fear Index”) jumped 46.45% to $28.03 on Friday. For the week, the index rose 118.47% (from $12.83 to $28.03), largest % move ever in a week.

Three factors driving the free-fall of the global markets:

  • Growing concerns (or uncertainty) about China’s economy
  • US rate-hike uncertainty. Uncertainty is the market’s worst foe
  • Plunging oil prices

There are concerns about slowing growth in emerging economies, particularly China. Economic data from China showed manufacturing PMI in China fell to a 77-month low of 47.1 in August, down from July’s final reading of 47.8. A reading below 50 represent a contraction. About two weeks ago, China’s trade data showed that July exports declined by 8.3% year-over-year (Y/Y) due to a strong yuan and lower demand from its trading partners. Exports to the Japan, European Union, and United States fell 13%, 12.3%, and 1.3%, respectively. Exports are China’s strongest growth machine. The weakness in the fundamentals started (still is) putting pressures on policymakers. Then, a surprise move came.

On August 11 (days after the exports data), the People’s Bank of China (PBOC) made a surprising move to devalue its currency (so called “one-time” move), the renminbi (RMB) (or yuan), against the US dollar (greenback) by 1.9%, the biggest devaluation since 1994 and first devaluation since the yuan was de-pegged from the dollar in 2005. PBOC decided to lower daily reference rate – which sets the value of yuan against the greenback – to make yuan more market-oriented exchange rate.

Three reasons behind China’s move:

  • Weak fundamentals, including exports
  • Desire to be included in IMF SDR basket
  • Impending US rate-hike

China’s move increased concerns over the health of its economy (second largest economy in the world) and shocked the global markets which continues today. China’s devaluation signaled that the economy there must be worse than what everybody believes. Continuous slowdown as it shifts from an export-led economy to a consumer-led economy has led Chinese government (or PBOC) to help stimulate economic activity. Over the past year, they cut interest rates four times and cut RRR (Reserve Requirement Ratio) several times. The goal is to combat slowing growth by strengthening liquidity and boosting lending (so far, unsuccessful). The recent devaluation will make imports expensive and help boost exports (reminder: exports fell 8.3% Y/Y in July).

Another reason behind China’s recent move is its desire for the yuan to be included in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR), a basket of reserve currencies, in which the US Dollar, Euro, Japanese Yen, and British Pound are part of. Earlier this week, IMF decided to extend its scheduled revision of SDR basket (revision takes place every five years) by nine months (to September 30, 2016), giving China more time to make yuan (or Renminbi ) “freely usable”, a key requirement join the SDR basket.

Last reason behind China’s recent move is impending rate-hike in the US, which would support the greenback and would have consequences for China. The recent devaluation ended the era of Yuan appreciation which began in 2005 (reminder: yuan was de-pegged from the dollar in 2005). Ever since “Strong Yuan” policy began in 2005, Yuan (CNY) appreciated 28% against the US Dollar (USD), 30% against the Euro (EUR), and 65% against the Japanese Yen (JPY)

Rise of Yuan against most of its trading partners’ currencies has made its trading partners exports attractive. US rate-hike would have made China’s export rivals even more attractive. Now that China devalued its currency in the wake of falling exports (reminder: exports fell 8.3% Y/Y in July), its trading partners would want to protect their exports share. Therefore, China has fired the first shot to start currency wars.

Consequences of China’s actions:

Countries like Australia, Thailand, New Zealand, Malaysia and Canada are likely to suffer from China’s devaluation. These countries are largest exporter to China. Don’t also forget that these countries can affect other countries. Basically, it is “Domino Effect” economically.

Earlier this week, Kazakhstan – whose top trading partners are China and Russia – switch to a free float (which means that the central bank stopped managing the exchange rate), causing its currency, the tenge (KZT), to fall 25%. The move comes due to three reasons; crude prices (Kazakhstan is central Asia’s biggest crude exporter) fell 55% in the past year, Russian has allowed its currency (ruble) to depreciate significantly as commodity prices plummeted, and due to the yuan devaluation. The motivation for the move is to preserve its export competitiveness.

Vietnam has also allowed its currency, the dong, to weaken further due to the recent devaluation by its biggest trading partner, China. Who will be next to devalue their currency in this crisis; Asian Crisis Part 2.

Commodities denominated in US dollars will become more expensive to buyers in China, the world’s largest consumer of raw materials. When China’s economy slows, demand for raw materials, such as copper, Iron-ore, etc decreases and the lower demand puts downward pressure on commodity prices.

China, second-largest oil consumer, is causing oil prices to drop non-stop, which will hurt oil exporters, such as Canada (possibly leading to another rate-cut).

Falling commodity prices mean one other thing; deflationary pressures.

Slow growth and lower commodity prices most likely will lead other central banks, especially large commodity exporters to maintain their easy monetary policies for longer. Countries with large current account deficits and/or corporations with large amount of debt denominated in US dollars could see their economic/financial conditions worsen, causing them to further increase/expand their easy monetary policy (rate-cuts, for example). Not only commodity exporters and emerging countries will suffer, but also US companies.

US companies with significant exposure to China will suffer from China’s devaluation. Such companies are Wynn Resorts, Micron Technology, Yum Brands, and Apple, accounting for China sales exposure of 70%, 55%, 52% and 30%, respectively.

When I noticed China economic getting worse earlier this year, I knew Apple depended on China a lot, so I said that Apple was overvalued as more competitors were emerging and China’s economy was about to get worse. Even though Apple’s earnings came out better than expected, I went ahead on twitter and responded to Carl Icahn’s comments on the Apple and the market. He expected (maybe still expects) Apple’s stock price to double, which I did not (and I still don’t). More competitors are starting to emerge and China’s economic conditions are getting worse (debt bubble coming).

Mr. Icahn believed the market was extremely overheated and expected market bubble. I have to agree with him. I preferred (still prefer) to use the term “correction”. At this time, I believe current market sell-off is temporary and the dust will be settled in a month (good-buying opportunity). I expect “market bubble” after the Fed raises interest rates to the range of 0.70% and 0.80% (early 2017?). That’s when market sell-off will be much worse than the current situation.

I’m calling Mr. Icahn to respond to my questions; how do you think China’s action will affect global economies (or markets)? Do you still think Apple could double in price?

Now, let’s get back to how else China can affect global economies (deflationary pressures). I expect Europe’s economy and Japan’s economy to slow down.

Europe’s economy will slow down due to export demand decreasing and the uncertainty created by Greece (Yes, they did get a bailout deal, but it’s not over). That’s why I believe European Central Bank (ECB) will either lower interest rates even further or they will increase current Quantitative Easing (QE) program, pushing Euro currency lower. Current falling prices in the European markets are a golden opportunity. Lower interest rates and/or increased QE program will send European equity prices higher>>>all-time highs will be made.

Japan, China’s largest trading partner, will also suffer due to export demand decreasing. The devaluation of yuan (or, Renminbi) will make Japanese exports less competitive. Japan’s economy is still suffering despite Abenomics (similar to QE). Recent data showed GDP (Gross Domestic Product) falling at annual pace of 1.6% in 2nd quarter, due to slowing exports and lack of consumer spending. Abenomics has failed. Additional monetary easing coming? If the economy does not get any better in the next several months, I expect additional monetary easing by the Bank of Japan (BoJ).

I don’t believe the Federal Reserve will stop its plan to hike the rates, but it will slow the pace of it. On Wednesday (August 19), Fed minutes of July meeting (leaked earlier) showed that Federal Open Market Committee (FOMC) members “…judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.” They also said that “…the recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China raised some concerns.” US dollar has been falling ever since the release of fed minutes, as expectations for September rate-hike decreased.

Now more troubles emerged, I wonder what the Fed will say or do. There are many US economic reports that will come until the Fed’s September meeting. The reports will decide the fate of rate-hike for September. At this time, I expect the Fed to hike the rates in September by 10 basis points (or 0.10%).

If the current China situation (or Asian Crisis Part 2) gets out of control, there will be no rate-hike for the rest of year even if there’s strong US economic reports.

All comments welcomed. Thank you.

Disclaimer: The posts are not a recommendation to buy or sell any stocks, currencies, etc mentioned. They are solely my personal opinions. Every investor/trader must do his/her own due diligence before making any investment/trading decision.

Technical Analysis: EUR/USD and S&P 500

This post will focus solely on technical analysis of currencies and indices.

EUR/USD (Bearish)

EUR/USD - Daily
EUR/USD – Daily

As you can see on the “Daily” chart, Symmetrical Triangle or contracting wedge (both very similar) has been formed. The trading range is contracting, not far away from breakout. You see the small yellow circle (around 1.1020) that EUR/USD is approaching? That’s where I would short EUR/USD. That’s the place where there are trend resistances, and Simple Moving Average (SMA) of 50 and 100 are approaching. Not only that, but Stochastic indicator should get close to 80 (overbought), as EUR/USD goes to that yellow circle. Let’s take a look at 4H (4-Hour) chart.

EUR/USD - 4H (4 Hour) Chart
EUR/USD – 4H (4 Hour) Chart

The first yellow circle you see on the “4H” chart was a sell single because support-turned-resistance at a rising trend line. Same thing is happening right now to EUR/USD, as it approaches the second yellow circle (around 1.1020).

The reason I’m shorting it in the tightening consolidation before the breakout is because there are many technical reasons to short it. Even if it goes opposite direction, my loss will be very limited (Just above the trend – around 1.1030)

Let’s take a look at 1H (1-Hour) chart.

EUR/USD - 1H (1 Hourly) Chart
EUR/USD – 1H (1 Hour) Chart

On 1H chart, I added Fibonacci Retracements indicator. Fibonacci Retracements basically act as support and resistance lines. The red lines you see on “1H” chart, are resistance lines. 61.8% level (or 0.618%) at 1.1012 is known as “golden ratio”. In my past expensive, 61.8% level has worked well. Plus, 61.8% level connects with the two trend lines in the yellow circle.

I would short EUR/USD as it approaches the middle of  the second yellow circle (around 1.1015). Stop loss: 1.1030 (just above the trends lines and golden ratio (0.618%) level. Target: 1.0890 (just above the support trend as seen in the charts above). My target level (1.890) will change as time goes on, to stay in-line with the support trend.

S&P 500 (Bullish)

Let’s take at look “Weekly” chart, going back as far as 2008.

S&P 500 - Monthly
S&P 500 – Monthly

As you can in the “Weekly” chart, ever since hitting bottom in early 2009, S&P 500 have been in a uptrend. If you look at the white-line, there’s a long channel (you can call it a trend if you want). Current price is just above the 50 SMA (Simple Moving Average). Plus, it’s much closer to the support line of the channel.

Let’s take a look at two “Daily” charts.

S&P 500 - Daily
S&P 500 – Daily
S&P 500 - Daily
S&P 500 – Daily

If you look at any of the two “Daily” charts, you can see that the current price is sitting on 200 SMA and on recent-uptrend support (yellow dotted line). Even though it’s a strong signal to go long, I would not. The reason is that it is a 3rd time in over a month that the price is sitting on 200 SMA and uptrend support (yellow dotted line) , and the recent highs in the uptrend range were unable to reach the trend resistance as well break the previous high. It shows that the bulls are losing control and bears are slowly gaining momentum.

Where I would go long is at the circle shown with yellow arrow (around 2042). It’s just above the strong channel (or a trend) support line (Bold-white line) as shown in all three S&P 500 charts above. My stop loss would be just below the bold-white line. My target would be at the resistance level of 2134.

If you have any questions, feel free to leave your questions in the comments section, and/or contact me. Thank you.

Liar’s Poker Player, Greece, Loses: Falling Further Through The Wreckage In Greece

Greece had a close call to exit from the 19-member euro-zone (Grexit) following months of uncertainty. Alex Tsipras and Yanis Varoufakis were playing creditors for fools and bluffed too much. Now, they have lost “Liar’s Poker”.

Two weeks ago, more than 61% of Greeks rejected a deal in a referendum that included pensions overhauls and sales taxes. Then on Monday morning, Greece finance minister, Yanis Varoufakis, resigned after Eurogroup participants called for his resign because his absence from its meetings. Before the vote, he said he would resign if Greeks voted “Yes”. He is replaced by Euclid Tsakalotos, who has been involved in talks with European and International Monetary Fund (IMF) creditors.

Then, Euro leaders said that July 12 (Sunday) would be “deal or no deal”.  Several days before July 12, Greece Prime Minister Alex Tsipras provided the same type of deal that Greek people voted “No” for, but with little bit tougher austerity. He broke his promise to Greek people.

Over the weekend (July 11-July 12), Euro leaders clashed over the deal. On July 13 morning (Monday), deal was reached. Euro-zone leaders agreed to give Greece three-year bailout up to EUR 86 billion ($93 billion) of aid which Tsipras accepted. This time, he absolutely broke his promise to Greek people.

The deal is much tougher and harsh, for Greece and its people, than the deals in the past few weeks. The deal also includes 30-year, euro-50-billion state privatisation programme. Half of the fund will be used to recapitalise Greek banks, while the remainder will used for debt servicing and other economic needs.

On late July 15 (Wednesday), the Greek parliament approved the deal. In 300-seat chamber, 229 voted to approve the deal and 64 were against it. There was 6 abstentions and 1 absent.

On the morning of July 16 (Thursday), after leaving rates unchanged, European Central Bank (ECB) President, Mario Draghi stated in the press conference that Emergency Liquidity Assistance (ELA) would be increased by 900 million euros ($979 million) over a week. There were reports that Greece asked for $1.5 billion ELA assistance.

On the same day, the Eurogroup finance ministers agreed to the launch of bailout talks and approved 7.2 billion euros ($7.6 billion) in bridge loans for three months. It will allow the Greek government to pay off upcoming payments. On July 20 (Monday), Greece is due to pay 3.5 billion euros ($3.8 billion) to ECB. Greece also has to pay about 2 billion euros ($2.2 billion) of arrears to the IMF. This bridge loan will “buy” time until the bailout is finalized.

Greek banks are scheduled to open on July 20 (Monday) after a 3-week closure. However, capital controls, or restrictions on cash withdrawals will remain in place.  Daily cash withdrawal is limited at 60 euros.

Despite more aid being given to Greece, the country’s debt level is still a major problem. The country has about EUR 320 billion debt ($345 billion), close to 200% of Gross Domestic Product (GDP).

Source can be found here 

There are many calls for a debt haircut (not what you’re thinking). Debt haircut is reducing the amount of money owned. For example, if  someone owns about $10,000, but cannot pay it all. Creditor can try to accept to get paid a fraction of $10,000, say $4,000. After all something is better than nothing.

Some people including Christine Lagarde, managing director of IMF, disagreed on debt haircut. She said debt relief was needed. Extension of Greek debt maturities, extension of grade periods, and reduction of interest rates would be enough, she said.

Even though the deal gets finalized or not, Greece loses. With the deal, life gets harder. Without the deal and exit from euro-zone, life gets much harder.

I learned one important lesson over the past few months. Anything can change anytime. Greece’s current deal might fall through any moment. So much uncertainty has caused EUR (Euro) currency to move around in different directions.

Ever since the deal was announced, EUR/USD has been falling.

EUR/USD - Hourly
EUR/USD – Hourly

I have been short on Euro for some time now and I will continue to be short. Even with deal close, tough challenges remain ahead. ECB might increase or even extend its Quantitative Easing (QE) program, giving support to the European stocks and causing Euro to weaken further. I believe EUR/USD will reach parity level in the next 6 months.

Once the Greece drama settles, more focus will be on the fundamentals in the euro-zone outside of Greece, which accounts for more than 98% of the region’s GDP.

No clear road ahead, still. What’s next?

Ugly Jobs Report Is Just Temporary

Last Friday (April 3, 2015), March non-farm payrolls came out very negative. Non-farm payrolls slowed in March to a seasonally adjusted 126,000, slowest since December 2013. Unemployment rate held unchanged at 5.5%. The downturn in the jobs report could delay the Federal Reserve’s plan on raising the interest rates. Federal Open Market Committee (FOMC) have said in the past that continued improvement in labor would be a key factor on the timing of the rate-hike. I, now, believe there is a little chance of rate-hike in June.

What caused the downturn in the labor market? I believe it was because of the bad weather, plunging oil prices, and the strong dollar. The bad weather have caused businesses, especially in construction, to lose profits and to halt hiring. However, weather is a transitory factor. Plunging oil prices have left the oil industry in the dust. Oil companies are not being able to make revenue/profit. As a result, they had to layoff some of their employees. Strong Dollar is putting pressure on export-driven manufacturers, resulting in lower sales leading to layoffs. It’s also making it harder for U.S. businesses to sell goods aboard. I believe majority of U.S businesses’ revenue or earning per share (EPS) will less than expected, for the quarter.

Not only did we get to see March jobs report, but there were revisions to February and January jobs reports. January job creation was revised lower to 201,000 from 239,000 (-38,000). February job creation was revised lower to 264,000 from 295,000 (-31,000). I believe March jobs report will also be revised.

The labor-force participation rate was at 67.8%, lowest since February 1978. It shows that there’s less confidence in jobs market. Therefore, people have stopped looking for jobs. Average hourly earnings rose 7 cents or 0.3% to $24.86. The earnings can be a indicator for inflation. If it increases, inflation is more likely to increase too. Walmart and McDonald are increasing wages for majority of its employees, if not all of them.

Reactions to the report:

U.S Dollar (foreign exchange, or Forex) reacted negatively. U.S Equity markets were closed for Good Friday. We will get to see the reaction of equity market in the morning (Monday, April 7, 2015). I believe it will rise since negative jobs report could delay the rate-hike, since low interest-rate environment can very attractive to investors, including me.

 

If you have any questions, feel free to contact me anytime and/or leave comments. Thank you.

Central Bank Meeting Minutes: BoE, FOMC and ECB (Update on Greece)

During the week of February 16, 2015, BoE (Bank of England), FOMC (Federal Open Market Committee) and ECB (European Central Bank) released its meeting minutes for the latest monetary decisions. Let’s go in depth of these meeting minutes and how we can apply them to our trading decisions.

 

Bank of England (BoE) – (February 18, 2015)

The Bank of England meeting minutes showed that the Monetary Policy Committee (MPC) voted unanimously (9 members) to keep the benchmark interest rate unchanged at a record-low of 0.5%. There were hints it could be lowered in the next few months (yes, decrease, not increase). Two committee members, Martin Weale and Ian McCafferty who voted in favor of rate hike previously, were in favor in holding rates this time. Regarding its inflation in which Consumer Prices Index (CPI) fell to 0.3% (lowest since decades ago) last month changed the views of MPC. Some worry that it might slip below zero in the next few months. It has caused some to suggest rate cut over the next few months. The rate cut hinted in the minutes is totally different than what the Bank of England governor, Mark Carney said last week.

Mark Carney spoke to the press at Inflation Report press conference. He signaled that BoE remains on course to raise interest rates in the U.K. next year, despite decline in inflation. He also mentioned that BoE might cut the interest rate if inflation transforms into deflation (below 0). I believe if the inflation falls below 0, the BoE will cut the interest rate by 0.25, but only for short period of time. However, he pointed out that BoE still expects its next move will be raising rates, not cut them.

There are confusions going on with BoE on interest rate. I look at this way; inflation goes below 0, rate cut will come, inflation starts to increase, rate increase will come, and watch out for future statements by BoE for more clues. I would not trade Pound (GBP) based on these interest rate talks, for now. There is no clear road for interest rate for now. But, I would trade based on other news/events and charts’ technical.

 

Federal Reserve – (February 18, 2015)

The Federal Reserve meeting minutes showed that the Federal Open Market Committee (FOMC) expressed concerns over raising interest rates too soon, which could could halt or slow the U.S economic “recovery”. They are also worried over the impact of dropping “patient” from central bank’s rate guidance. They thought that removing “patient” from the FOMC statements in the future would put too much weight on its meaning. As a result, it would cause financial markets to overreact (Unlike Swiss National Bank, Federal Reserve cares about financial markets movements). If “patient” is dropped, I would think that interest rate hike is coming in the next two meetings. They also worried about falling inflation expectations in the U.S. If the inflation drops, I believe it’s going to halt (not cut) FOMC from raising the interest rate, but not decrease the rates.

In the minutes, it’s mentioned that there are worries about international events such as Greece (Greece got 4 month bailout) and Ukraine (There’s no “truce”). But, it’s not going to keep them from raising the interest rate, backed by strong jobs reports. However, the federal reserve signaled its willingness to keep interest rates low for longer because of strong U.S dollar and “flat” housing market. Raising interest rates will only send U.S higher, making it much stronger than ever.

On February 24 and 25, Fed Chair Janet Yellen will be speaking in congressional testimony and we should look for further clues to the timing of the interest rate hike.

Any clues of earlier rate hike will send U.S. dollar to rise in which I would go short USD/JPY, USD/CAD, and/or long GBP/USD. Remember, don’t hold your trade positions for more time if you trigger market order just based on what Yellen said, unless there are other news and technical to support your trade.

 

European Central Bank (ECB) – (February 19, 2015)

The European Central Bank first ever meeting minutes showed fears of continued deflation the euro zone, which led to launch of Quantitative Easing (QE) program which starts in March. The main goal of QE is to drag the euro zone out of deflation and near to 2% inflation target. This first minutes doesn’t reveal much of anything. Since there weren’t any new details or “surprising” details, the markets, especially Euro did not move much.

Europe has agreed to extend its financial lifeline to Greece only for 4 months. The deal was stuck last Friday (February 20, 2015). This is another bailout for Greece. How long does Euro has to keep bailing out Greece from the mess Greece made? The deal is not final if Greece does not come up with its plan by Monday (February 23, 2015). Then, it will be voted by institutions involved in the bailout by April. If the institutions do not back the plan, the “deal” becomes “no deal”.

I would still keep an eye on Greece. If you trade Euro, be careful with news coming out of Greece. It will be violent and may cause you to have losing positions or touch stop loss (or make money). When picking Euro to trade, I would pick pairs other than EUR/USD.

If you have any questions, feel free to leave comments or contact. Thank you.

Reserve Bank Australia (RBA) cuts cash rate

Last Monday (February 2, 2015), Reserve Bank Australia (RBA) cut rates to 2.25% from 2.50%, record low. On my post “Now, Bank of Canada (Boc) Shocks by rate cut. Who’s next?”, I predicted RBA was going to be the next central bank who will cut the rates. If you have not read it, feel free to go to the post. Immediately after the announcement, Aussie fell about 100 pips. In the statement by the Governor of RBA, Glenn Stevens, “The Australian dollar has declined noticeably against a rising US dollar over recent months…remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.” They are basically saying that Aussie is little stronger and needs weaker currency to help their economy grow.

In the same hour RBA announces rate cut, AUD/USD dropped all the way to 0.7651, lowest since May 2009. After dropping almost 200 pips, the next day was total opposite. In the next day, Aussie absorbed all of the loses, due to short squeeze in non-dollar currencies and rise in oil prices. The rebound in Aussie is a perfect sell opportunity. I believe, in the six months, AUD/USD will drop over 300 pips, under 0.7500.

/CL (Crude Oil) - Hourly Chart
/CL – Hourly Chart
AUD/USD - Hourly
AUD/USD – Hourly

Last Thursday (February 5,2 2015), RBA released its quarterly Monetary Policy Statement, signaling another rate cut coming in the way. RBA lowered its 2015 growth and inflation forecasts. In November, they expected expansion between 2% and 3%. Now, they are expecting 1.75% and 2.75% (lowering by 0.25%). They also predicted that unemployment will rise. I believe another rate cut is coming this year. But, the question is “When?”. Again, rebound in AUD/USD is selling opportunity not to be missed.