2008-09-28

When going gets tough .... the Dollar gets going

What happens when you have a crisis in the middle of presidential election quarter - too many cooks spoil the broth! This is what seems to be happening in US today. Everyone has some axe to grind and some points to score and when you have politicians meddling in free markets you can only expect a very spoiled broth finally.

It was really cheeky of McCain to parachute himself into the negotiations just when all the "hard work" is about to be completed. It was a nice ploy to distract attention and may be score some points about his "country first" credentials. And at the same time I never understand why current US administration has to rule its subjects in such a climate of fear and bullying. Every major holiday period results into "red or orange" alert on all airports, promptly broadcast via all available loudspeakers and flat screen panels. And these days it appears all Bush speeches look similar. "Congress needs to pass this in shortest possible time or else we are doomed" seems to be the theme. First it was weapons of mass destructions and congress needs to commit US to war, then it was "stimulus" package to boost US economy and now it is committing $ 700 bln of tax payers money to bailout some wall street bankers. The only thing common is the siren call of impending doom and a "silly" smirk on the face of Mr. President as if telling the world - "don't think, we don't have time to think, you need to do this or else we are doomed". I am not sure why Americans allow them to be ruled in a manner that any voice of dissent is "unpatriotic" and any one who does not agree with the "Solution" is part of the "Problem".

Anyway, as clear from the rant above that we are in a very uncertain time. The problem facing the world markets is grave. After all merrier the party, messier the hangover (and of course the clean up afterwards under the influence of hangover with every T D and H shouting in your ear - I told you so).

I feel the bailout package will be passed in one form or the other. Most likely with "phased money instead of 700 bln upfront", "with lots of political/bi partisan/congress oversight of the process" and with some other "political agenda thrown in". Whether it will solve the problem or not will be a different question. My view is that it won't. It will avoid the melt down but it will not provide the boost. It can slow down the rate of decline but it will not start the growth. That will take its own time until the poison bleeds out of the system.

There is abundant talk that the bailout will crush the dollar however I do not feel it that way. Of course if the bail out helps start the "growth" once again in the world economy then possibly dollar will be under tremendous pressure. However given the scale of the problem, I do not see suddenly US consumers into buying frenzy once again, flocking to the Las Vegas condos with giant flat screen TVs from Korea and all those "Made in China" stuff. The decoupling theory that developing world can grow without depending upon the developed world is flawed and has been proven wrong already.

That leaves with the question - if Dollar is going down, what will go up?

- Would I rather hold Turkish Lira in these times or US Dollar. So that leaves emerging markets out.
- Commodities are already in bubble and that is bursting soon. We are not likely to see money returning to these sectors soon.
- Oil is under pressure and would remain so as long as world growth is under threat. Only upon turn around in growth would oil start making new highs once again.

So as long as there is no alternative to US Dollar as reserve currency, we will end up with stronger dollar while this mess is being cleaned up.

However I could feel only two assets which "might" be able to beat dollar. One is JPY - the huge unwinding of carry trades and rising inflation in Japan and alignment of growth between Japan and US might favour JPY. Second is GOLD - but only if the fear reins to high. These could provide interesting trade ideas for future.

2008-09-24

TRADE UPDATE: COFFEE ROBUSTA 2008-09-23

My Development as a Commodities Trader: COFFEE ROBUSTA 2008-09-23

I am now filled up between 2122 - 2137 for a small short with stops around 2360. I will be more aggressive seller once the breakdown begins below 2050.

2008-09-23

COFFEE ROBUSTA 2008-09-23

DX8 LIFFE (ROBCOFFEE)
SELL 2100/2050/2000 STOP 2151 (adventurous) 2360 (safe). Target 1600 - 1400.

With commodities under pressure and dollar on the rise (yes it is, contrary to what every one might be calling - it would require a separate post on its own), coffee appears to be at an interesting point. It has been in a bull market late 2004 but the trend is looking tired. There is a big H&S on the weekly chart and it is also sitting on a long term trend line. Break below could take us all the way down to 1600-1400. I am planning to start with a small short position and add as the breakdown materializes below. At those points I can also bring down stops to reduce risk.

TRADE UPDATE: Trade Ideas 22nd September

My Development as a Commodities Trader: Trade Ideas 22nd September

I have taken small short in AUDUSD at 8450 with stop above 9300.

TRADE UPDATE: Trade Ideas 22nd September - II

My Development as a Commodities Trader: Trade Ideas 22nd September - II

I am filled in USDPLN long at 2.2350 with stop around 2.2000

I am reviewing other European Emerging Market CCY Pairs to take similar trade.

Short day trends on indices worked well so far and I am looking for a trend before committing larger capital.

2008-09-21

Trade Ideas 22nd September - II

USDPLN


BUY 2.2350 STOP 2.2000 TARGET 2.4600

In a deteriorating climate there is no way emerging market currencies can sustain their strength. USD has crossed 89 EMA to the upside and recent fall should give an opportunity to buy. Also up trend from these levels would signal start of wave 1-2 making the upside target way too high (to be calculated when markets show the up trend from 89 EMA bounce).

Other European Emerging Markets currencies have similar pattern it would be wise to keep an watch on them.

INDICES


Most indices are enjoying a bounce after the "Paulson Put". However how long that up trend continues depends upon if they can cross their 89 EMA. Otherwise they are setting up for a nice short again. One to watch!



Trade Ideas 22nd September


GBPJPY


SELL 198/200/202 STOP above 215 TARGET 160/150/140 by March 2009.

It would be a bold prediction to say that I am looking at GBPJPY to trade at 161-142 by March 2009 but that is what I am looking at. GBP will be the worst currency to hold in 2008-2009 as UK has bigger issues compared to US and soon the world will start realising that. UK might end up as first currency to go in recessaion amongst G8. So I am looking to sell any rallies at 198/200/202 levels with stops above 215. Now considering this is a very wide stop, the size of the trade will be accordingly small and this is a very long term trade (nearly 8 months). Once confirmation is received that current rally is over (break below 187) I will become more aggressive in being a seller and moving stops down.


AUDUSD

SELL 84/86/88/90/92 STOP above 93 TARGET 62 by March 2009

The commodity bubble is busting and will start deflating sharply and AUD will be affected in a great way. The interest rates are on decline and will continue to be so. I am looking to sell rallies all the way up to 92 if we get there with stops above 93. This also makes this a high risk trade and therefore appropriate small sized "probes" will be required. Once the down trend is confirmed by break of 79, I will be more aggressive in selling and also will have move stops down.

Weekend after the regulators paniced

Extraordinary times required extraordinary measures! Certainly the times are extraordinary but is it governments business to intervene directly in the functioning markets. By preventing short selling of stocks the regulators might have been able to create a much required bear squeeze and they might end up punishing some hedge funds and short sellers. But will that solve the problem? Will RTC style vehicle solve the problems plaguing the financial markets? Well the answers will not be known for some time. Though it can provide some sort of floor to the markets (sellers will be reluctant to bet against fed and I am not sure there are many buyers out there after the short squeeze if finished). The upside is limited until I can clearly see recovery sign in economy. Markets lead economic indicators so any "possibility" of economy recovering might signal the end of the current bear markets BUT I think so far the bear market has not played out fully and at any sign of current bet by Fed and Treasury failing, the bottom will fall, buyers will drop the bids and we can see the fearsome bear again!

S&P ESZ8
The 2 day up move can be a change of direction OR a time to sell once again. I am looking for sign of weakness to initiate short positions but will be a nimble scalper on the buy side if the squeeze continues. Don't fall in love with the upside is still the motto!

WTI CLX8
Oil has rebounded sharply after hitting lows. The upside seems temporary though. I am looking to sell 105 - 107 area with stops above 110 and looking for further downside in the 80 - 90 region.