Our Short JPY Basket Paying Off. Long USD's.
Trading currencies, or any asset class for that matter, requires an absolute commitment of time and effort. If anyone tells you otherwise, go no further with that source. Like success in any venture, the dream has to be bigger than the pain. That's a quote from me. "The Dream Has To Be Bigger than the Pain." In my sport career, It was a constant struggle to be the best, as life is riddled with disappointments, frustration and pain, most often directly correlated to the chasm between where you are and where you feel you should be in your career and level of success. I know that every individual has a successful trader living within them. It is your responsibility to properly proceed in this business in such a way that you discover exactly how you can personally interface with the market. This is why we teach the way we do. Teaching people to trade is a science in and of itself. A cookie cutter approach will not yield results. Teaching has to be done in such a way that it taps into the potential of every person listening with intent. This is why we have produced many full time traders.
This week, I received an email containing a question from an person interested in attending the Singapore workshop. It is a common question, because the industry has deceived people into thinking that they can trade successfully, and be able to sustain it, by following a simple "system". The question to me was... "If your system works, how long before I can be trading full time. Honestly, if it were that easy that anyone can take a course and move on to trade successfully, a lot more would do it.
To develop into a long term successful trader requires you to invest the proper amount of time to build your skills, knowledge and psychological profile from the ground up. If you are to try to insert a "system" into your existing knowledge base, there will be an enormous void between the knowledge (from someone other than yourself) used to create the methodology and your current market reality. This approach will leave you in complete darkness as you have no understanding of the parameters within which you are operating and you will get waxed! "If you don't understand it, don't do it" - another quote from me. You'll thank me later if you decide to heed any of this insight.
So how do I learn to trade? Please review my video on the 7 Laws for FX Success in the free members area. If you want to pay a little money (which the more serious traders do), you can review our video on Psychology and Risk ($99, i think).
To succeed over the long term requires you to fully understand the market you are trading. This is the only way that you can eventually refine a specific trading model customized to your character. The reason I teach price action at the deepest level, is because it is the closest connection between the psychology of the market and price volatility. Once you understand price action and the smallest of details of its drivers, then you can begin to build a methodology. Yes, you can take the many specific patterns we trade and customize them to yourself. Once you understand this, you are well on your way to developing into a full time trader. Every one of our full time traders will tell you the same... and the credit goes to them. We simply showed them what to look for and put them into a process to enable them to do so.
We have been short JPY against a basket for a few months. We have walked through the scenarios in Pro Traders Club every week. I'm liking USDJPY even more, at this stage and broad based JPY weakness in general, as interest rate are spreading against the currency. We are also taking long USD's. It is recorded and repeated in Pro Traders Club that we are long USDCHF, long CADJPY, long USDJPY, long EURCHF and trade long only AUDJPY regularly. I also advised to sell EURUSD at 1.3745 after filling the gap. All these positions are currently up nicely. Details in Pro Traders Club.
Yesterday's jitters in Eurozone sovereign bond markets and continued geopolitical tension in the Middle East, we would expect the dollar to continue enjoying underlying support, especially amid ongoing data surprises to the upside in the US. Elsewhere in Europe, UK PPI numbers were significantly stronger in January, providing further evidence that price pressures continue to escalate. Sterling reacted negatively to the release however, suggesting that the market may be conforming to our view that above-target inflation numbers in a context of fiscal austerity should weigh on sterling. Forex Education.
Private-sector fund managers determine FX market direction by the sheer size of their holdings, which in 2010 we estimate to have been some $100 trn, as against $12 trn held by central banks and sovereign wealth funds. US and Japanese funds, faced with low interest rates at home, have diversified the most over the past decade - so renewed risk aversion would boost the dollar and yen. And the Swiss 'home bias' went up during the credit crunch, putting the CHF at risk in a reflationary world. These scenario's play into our view to sell JPY and buy USD, which we have been doing in Pro Traders Club forex trading.
In reference to the periphery spread widening seen yesterday, Portuguese officials said that current yields do not correspond to the fundamentals and that the country will be able to finance itself in the debt markets. Regardless, the latest move in yields show that recent talk on Eurozone sovereign solutions are still not viewed as a comprehensive solution, which puts more focus on the upcoming March 11 EU summit. Spanish Prime Minister Zapatero even went so far as to say the summit would be "transcendental."
That said, we still remain negative on the euro as potential solutions could disappoint expectations and as borrowing costs represent a significant obstacle. We advised Pro Traders Club members to be selling EURUSD at the top of the range above 1.3700, and for those who missed it, to sell the fill of the gap at 1.3745 exactly. It is all on video recording, as proof.
When you read about high bond yields and "sovereign risk" it refers to the risk premium on "at risk" sovereign eurozone regions. The high yields are a risk premium placed on the bonds. This high yield is not to be confused with bonds of macro regions where monetary policy has a direct effect. We make frequent reference to the fx moves related to changes in monetary policy to drive trading decisions on macro themes and interest rate movements. Our entire AUDJPY model is based on the interest rate spreads between the two regions.
PPI figures were firmer in the UK., with input prices rising by 13.40% (cons. 12.7%) and output prices +4.80% (cons. 4.40%) y/y. These numbers provide further evidence of second-round price effects for the BOE and interestingly, sterling sold off after the numbers. The market may be starting to conform to our view that above-target inflation numbers are negative for the UK in a context of fiscal austerity and uncertain growth and we continue to favour sterling downside, particularly against the dollar.
Economists have revised their forecasts for the overnight cash rate in New Zealand from 100bp (one 25bp hike per quarter) to two 25bp hikes, one in Q3 and Q4 respectively. The new outlook reflects the recent run of soft data, and our economists note that the higher unemployment rate suggests more slack in the economy and less need to move policy early. We would like to see risk aversion in equities pull NZDUSD much lower to become buyers.
RBA Governor Stevens was on the wires overnight and was more cautious in rhetoric. He noted that although China is currently stronger than expected, inflation is now a little lower than thought and price effects are not serious threat to inflation. Crucially, he noted that market pricing of no hikes until later in the year are "reasonable", noting the RBA is "ahead of the game" with policy and comfortable on the level of interest rates. AUD responded negatively and traded from 1.0045 at the open to below parity.
As well, we would like to see a major bout of risk aversion push AUD crosses lower. We remain strong in our view of long AUDJPY and continue to day trade the pair for handsome results, while collecting generous interest on long term positions. We have scaled back on long term positions looking for a retreat to below 82.00. When will this happen?
Canadian officials are concerned that currency strength could hamper growth but a recent publication by Export Development Canada, an export credit agency, essentially says Canadian exporters have adapted their methods to a stronger Canadian dollar. 3.0B+ Trade balance has provided further support to CAD on Friday. I don't like trading CAD, it's a pain. We may take a long USDCAD at some point.
Our Pro Traders Club chat room has been launched recently and activity is picking up. Both infamous Maria and I were in there calling (profitable) trades this week, but this is not part of the package and should not be assumed. I get in there when i can. I work 17hrs a day and always have my eye on the market.
I receive many emails about our contributions to the marketplace, but i never bother to post them, but here are a few comments from this week. We also have a number of traders, still members of Pro Traders Club, who have developed into full time trading. You can chat with some of them in the Pro Traders Club chat room.
This email will make your day! First of all let me compliment that you are an effective educator.
Wish I have heard of you three years ago when I started to learn trading. Out of a desperate desire to want to trade,
I paid A$12,000 in full on the spot with credit card for a course in the trading college in Queensland. IT TURNED OUT
THAT I LEARNED VERY LITTLE - IT WAS A LOT OF MONEY FOR NOTHING MUCH! Afterward I had to continue
to search for more from other sources and did a lot of self-study (books, seminars, webinars, etc.) and self-taught a
lot of things by picking techniques and info from here and there. I have come a long way and know a lot, but not the
right stuff which will give me the edge. Long story short, I found you.
I can tell already that by the time I finished your course, I would have learned much, much more and the right stuff
from you than I did from my initial course, even if I have to repeat your workshop a couple of times. Now that I have
mentioned your course is reasonable, please don't make it expensive.
One can tell from my chart that I am a female trader - very pretty!! Like Marie Delgado's. Now all the fancy stuff are
gone and back to bare basics - I can see so clearly now. Now I can pick up patterns much more easily. Amazing!
Boobalan said: "Chris' course made a paradigm shift in our trading methodologies and we have been successful."
Now I understand what he meant by a "paradigm shift".
I noticed thru Black Swan's emails that you will be holding another webinar to promote the workshop in Ft. Lauderdale.
I will sign up for it, but not sure I can actually attend as the time clashes with a committment I have in Brisbane. If I
can be of any help, let me know. Otherwise I am happy for you to precise this email as a testimonial to your course,
even before attending the workshop.
Thank you and good luck.
I must take this opportunity to say one big thank you for opening my eyes to what is really a
profound approach to PA trading. I have been looking at charts for a long time now, even performing well in forex competitions 2009, 2010 and my trading record is OK but I have never seen the charts in a way
that puts me in the drivers seat, that is until I fell across your teachings. The perspective that you put across is very satisfying because the evidence is right there on each chart that I view.
Its like coming out of the darkness to trade with good reason for the fist time in my life, and I do not exaggerate.
Its amazing that we can look, see, notice, perceive, etc, but not attend to the relevant aspects on the charts that everyone else is looking at also.
Please keep up the excellent work,
Source: Chris Lori CTA, UBS, Bloomberg.