As a result, the currencies of those economies with the largest share of exports to China - Australia, Japan, Taiwan, Korea, Brazil and Indonesia -had initially benefited. I suspect that we may have even achieved a near term top in risk currencies and to look for some downside from here. Moreover, as the People's Bank of China now will have to buy fewer dollars, somewhat slower reserve accumulation will lead to slower accumulation of US Treasuries.
Chris Lori is a CTA registered with the NFA and CFTC and manages foreign exchange portfolios for private and institutional clients worldwide. Chris began specializing in FX trading cash/spot, forwards and options in 1998 after a highly successful career in bobsledding. As a side note, Chris competed in four Olympic Winter Games, Won the Overall World Cup, including nine crystal globes for top three in Overall World Cup final standings, and twenty two individual World Cup medals, a remarkable career.
Chris Lori will try to bring you regular updates on Chris' market reviews, strategies and positions they are running and managing, as time permits.
Foreign exchange trading and the use of leverage involve a high degree of risk. That's why we trade our portfolios generally unleveraged, which will be discussed in some of our posts.
At present, our primary focus is trading AUDJPY and AUDUSD. We work with a range of clients taking advantage of low interest rates in JPY and USD to employ strategies in AUD's, including real estate development and other projects. In FX, money seeks yield in the longer term, as fx flows have proven over time. We also trade the other majors, but we have excellent trading and risk models for the AUD crosses in the current environment that are working well.
Our current view (June 16) on "risk" (when equities and risk currencies rally) is that we anticipate another round of "risk aversion" (Equities, AUD spot ref .8650 and other risk currencies will fall) in the coming months. We have trimmed down our AUD long positions against both USD and JPY and hope to see lower levels to trade and accumulate positions. We may see AUDUSD as high as .8800. A breach of AUDUSD .8800 would slow our short term trading while re-evaluating the environment. In the event of a double dip contraction, which we view as highly possible, and RBA interest rate cut is not out of the question, but rates will remain in AUD favor over the long haul. We will keep you informed of our general medium and longer term views as the environment changes and discuss our position adjustments. Our methods are quite simply rooted on the back-drop of interest rates and interest rate spreads as we follow monetary policy changes closely.
Near term... risk news is likely to be fueled by Spanish Banks stress tests. There has been some argument over the transparency of the results, but we know what that means. The negative elements of the stress test will be non transparent, while the positive will be ingeniously scripted to elicit a positive view of the downtrodden region of the Eurozone, thus sparking a feel good rally in EUR and equities, on the heels of which, will cause further upside potential for AUD and other risk currencies, although we hope this is not the case.
We will be announcing a Live Trading Workshop soon.
Much attention has been paid in recent months to the diverging bond yields of Eurozone sovereign issuers. Germany has seen bund yields fall to historic lows on safe haven demand, while yields on short-dated Greek debt had, until recently, been amongst the highest in the world.
The activation of the EU/IMF financial rescue package for Greece led to some tightening of the yield spreads between peripheral and core economies. Furthermore, the creation of the Eurozone stabilization fund, combined with aggressive outright bond purchases by the ECB, also had a stabilizing effect. However, little attention during this time has been paid to the flow of deposits between the banking systems of different Eurozone economies, driven presumably by changing investor opinion about the relative stability of regional banking systems. Read More...
Last weekend I issued to Pro Traders Club members a warning of the potential onset of risk aversion through the summer months. For your continuing education, I strongly recommend viewing this Bloomberg video address by George Soros, the worlds most notable currency speculator.