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Husar

Last Updated: 11/18/2009

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Gender: Male
Status: Single
Age: 42
Sign: Scorpio

Country: US
Signup Date: 8/6/2006

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Saturday, December 05, 2009

The gold market.
Category: Jobs, Work, Careers

One of the markets which receives constant attention is gold. Along with oil it is a market normally reported as opposite to Dollar. By that I mean it is blamed for USD weakness, or a reason behind any gains the green buck might show. Especially over last few months, virtually nobody in the media looks at, or discusses, fundamentals of gold. It is always covered in relation to movements of Dollar, as if there was nothing else moving the market. On top of that, XAU-USD relationship has taken on the chicken and egg dilemma- impossible to tell which market is the leader and which the follower. Not any different from how oil-dollar are treated by the media.

I don’t trade commodities very often, and this blog covers even fewer of these trades. Couple of months ago I closed a longer term gold-silver trade with good results. Perhaps time is right to consider another trade in this commodity. Unlike the previous occasion, when bases for entering the market were in favorable gold-silver ratio, this time around it is longer term chart and nothing else. And no, I’m not taking any XAU-USD relationship into account, other than the simple fact that the metal is priced in Dollars.

In early October gold completed very large consolidation pattern, which started in February 2008. Weekly chart is used for analysis, hence the extended time scale. Finally, market closed the formation by breaking above 1030 level. From there market proceeded higher without much hesitation. Last week price reached almost 1230 level, and reversed sharply, closing the period at about 1160, sizable correction on smaller time frames. Combined with all time price high, this behavior has possibility of creating a blow out top.
Possible gold top.

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Friday, December 04, 2009

Better news?
Category: Jobs, Work, Careers

After a long time of rising unemployment, today’s NFP data provided better news. For the first time in about two years unemployment rate unexpectedly fell to 10% in November as employers cut the smallest number of jobs since the recession began. This is an improvement from 10.2% a month ago, although other numbers suggest improvement to be marginal, if at all. For example, the economy shed 11,000 jobs last month. So, if jobs are still getting lost, how come overall unemployment figure is getting better? Couple of possibilities. One is that benefits ran out for many, and they no longer show on this statistic. Another one is influx of seasonal jobs, related to the holidays. However, even if improvement is temporary, it still exceeded expectations. Let’s just hope things don’t turn around next month.

Currencies had been very subdued in hours leading to NFP release, only to explode on the news. US Dollar gained significantly, as if in response to the wishfull thinking of our financial authorities, and others around the world. What I find most interesting in USD behavior today, is the fact that it moved strongly against JPY. Perhaps time has arrived that these two currencies have decoupled finally. If this is the case, we might see currencies reacting differently to news from now on. Not a sure thing yet, this situation must repeat again, before we can be more certain that a fundamental shift took place, but something to pay attention to going forward.
NFP-real improvement?

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Thursday, December 03, 2009

Strong dollar, again.
Category: Jobs, Work, Careers

European Central Bank held its policy making meeting today. The governing council left official Eurozone interest rates unchanged at 1%, much as expected. Short term later ECB announced it will start withdrawing excess liquidity from the system over next 12 months, something they have been talking about for some time now. No surprise there, and neither were later remarks by ECB President, Jean- Claude Trichet, who said that a strong dollar is “very important” for the euro-area economy.

Seems like everybody wants that, stronger dollar, that is. China has been very vocal about, as well as the remaining BRIC countries. Oil exporting states have long been complaining about USD. Canada is unhappy with current level of USD-CAD. Doesn’t matter where you look, strong Dollar is desired. Let’s not forget our own financial authorities. FED chairman Ben Bernanke believes in the strong USD, and so does Treasury Secretary Timothy Geithner. Now with Trichet on board, this should be a done deal, right? I mean, these guys have great influence over the markets and could decide direction with few comments and similar policies. Or could they? Or are the markets simply too big and not even central banks can make meaningful trend changes? For now we know that everybody wants strong Dollar.
Trichet wants strong dollar, too.

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Thursday, December 03, 2009

Yen's next move.
Category: Jobs, Work, Careers

Few days ago I brought up a subject of Japanese financial officials changing their view about the Yen. Indeed, that’s what happened, and more. Bank of Japan held an unscheduled policy meeting recently, even if it didn’t accomplish all that much. But this demonstrates just how big of a change of heart there is about JPY now. Until last week foreign exchange movements had been seen as “orderly” and “not-worrisome”. This week, however, both BoJ and other authorities are using every opportunity to talk the Yen down. Even Japanese Prime Minister Yukio Hatoyama was cited by the Nikkei newspaper as saying the currency’s strength can’t be left as it is.

I had been following this thread for a few days now, so might as well continue and see what comes out of it. Besides, trading Japanese Yen is a big part of my activities and I have to keep up with these developments. After great run JPY had last week, some weakness was expected, regardless of BoJ stance on the issue. This is happening right now, with pace of Yen decline slowing down. Probably market participants are realising that for right now it is only talk, not real action coming from Japan and they are trying to avoid intervention for as long as possible. Interventions are expensive, create additional volatility in the markets and are not guaranteed to work. I doubt we will see direct market involvement by BoJ, unless Yen makes new highs, has another round of strength.
The Yen - which way now?

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Tuesday, December 01, 2009

Bank of Japan

After a period of time during which everybody was "comfortable" with Japanese Yen, the currency is becoming center of attention. Recently Bank of Japan became vocal about strength of JPY, and not in positive terms. Probably to prove their resolve, BoJ called an emergency, or unscheduled, monetary policy meeting earlier today. What came out of it was less than compelling. Preferable tool to use would be cutting interest rates, but those are already near zero and pushing them down farther would be largely symbolic. Rates were left unchanged and central bank provided some additional short term liquidity. Most see it as a mixed message and not likely to have any lasting effect. I'd expect intervention rhetoric to heat up soon.

No such inconclusiveness in Australia. The Reserve Bank of Australia raised interest rates again, for the third time in as many meetings. It currently stands at 3.75%, after a quarter point bump. Australian Dollar appreciated somewhat, but not in the way as before, after previous increases. For right now, AUD rally looks very orderly and more like a correction to the sell off from last week. Next 2-3 days will decide if this is up move is sustainable, or will reverse and resume down trend.
Hot topic.

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Monday, November 30, 2009

Japanese Yen
Category: Jobs, Work, Careers

After prolonged time of silence and “comfort”, Japanese officials went on a verbal offensive against strong Yen. Funny, just yesterday in the post After the sell off, I mentioned high probability of that happening. Prime Minister Yukio Hatoyama said on Monday that he was ready to respond swiftly to rises in the yen and that the government should make it clear that it will take appropriate measures to end it. Respond swiftly? They are few weeks or maybe months late for that. Another official, Minister Naoto Kan said the government has agreed to try to stop the yen’s appreciation, although he did not specify what specific steps it would take.

We know what steps can be taken, though. First, talk and threats of intervention should be expected, something we heard from Bank of Canada for some time now. Difference is, that while BoC limited itself to threats, Bank of Japan has been known to do it, intervene in the open markets in order to weaken the Yen. Just like Swiss National Bank has done this year. Many market participants have been surprised by BoJ inaction to date, something that could change now. It doesn’t mean today or tomorrow, although one never knows for sure. The “scare campaign” should last for some time (days, weeks?), before any action is taken. Most likely any new high in the Yen would be a reason to step in.
Yen too strong now.

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Sunday, November 29, 2009

More NZD-JPY
Category: Jobs, Work, Careers

Business and financial news are still heavily dominated by the Dubai credit problems. However, as the time was passing on Friday, currencies and other financial markets stabilized, as if the news was not really such a great shock as it originally had appeared. And it shouldn’t have been. After all, Dubai World, state owned company in charge of real estate development, had already been bailed out once before. That happened in late February, early March this year. Evidently that was not enough. It is possible that they will have to sell some of their assets, in order to meet debt obligations. This option has already been floated, and rejected, before. Perhaps now it will become a more viable alternative. One should expect the Dubai related news to be on hot seat for some time now, with currencies being responsive to them.

For the time being, though, slow down could be in order. Parties involved will be seeking a resolution there with many proposals about what to do flying back and forth. It will take days, even weeks before more clear picture emerges. But this whole situation demonstrates that the so called global “recovery” is not as complete, or solid, as many would like us to believe. For what we know, there are more borrowers like Dubai, which will not be able to meet their obligations. I’m sure that markets will remain responsive to these type of announcements even if financial officials are downplaying, or ignoring, their importance.

Commodity currencies proved to be particularly vulnerable to this development, something that is likely to continue. All their crosses had sharp adverse moves, which were correcting on Friday. Over last few weeks I used NZD-JPY as an example of these pairs, looking for a move down. Price fell hard through 63.00 support, but bounced strongly from 60.00 level.
After the sell off.

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Saturday, November 28, 2009

Compounding
Category: Jobs, Work, Careers

Trading is about making money, otherwise nobody would be doing it. Well, maybe few purists would still engage in the process for the “challenge”, but they are in a minority. Most of market participants seek profits. Generally it is accomplished through creating winning strategies. This process is being constantly improved and refined in a pursuit of ever better method, which, logically, should lead to increased returns. Productive systems are necessary in order to have positive outcome to trading, but once that is accomplished, other steps can be taken in order to maximize total return on our trading capital. One of them is compounding.

What is compounding? Investopedia defines it as “The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings”. Most people are familiar with in concept when it comes to mutual funds or 401K investments. Money earned in these instruments is typically left in them, to be reinvested by managers. Passive application of this principle, when an average investor leaves the compounding to others. However, active traders, including most Forex market participants, should do it in their trading account, and on regular bases.

In a simplest form, compounding would involve increasing trading size as soon as account value makes new high. Concept is easily implementable while trading stocks, because one could buy, or short sell, any odd number of shares that account size allows. Doing it in currencies is a little more complicated, however, due to lot size and difference in offerings form broker to broker. Vast majority of retail traders have to use leverage to some degree in order to trade standard size lots. This has to be taken into consideration when planning how compounding should be employed in one’s account.
Increasing Forex returns using compounding.

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Friday, November 27, 2009

Dubai trouble
Category: Jobs, Work, Careers

Hope everybody had great holiday, unless you happened to be invested in Dubai real estate market. What an unusual Thanksgiving that turned out to be! Normally it is a quiet, subdued trading period, except when surprising, big time fundamental news emerge. And did they ever! As soon as "Happy Thanksgiving" post was released, it seemed that bottom dropped under USD, which plunged to new lows against most currencies, including moving under parity with Swiss Franc and multi year low against Yen. Dollar reversed a little later. This set the tone for next day, as elevated volatility takes time to dissipate.

That alone would have been enough to make Thanksgiving trading different this year. But the real news came Yesterday from Dubai. Turns out that the Persian Gulf state might not be able to service all the loans it took to finance its real estate during last few years. Large chunk of the debt portfolio comes for refinancing and it seems that not many large financial institutions are willing to assume the risk. Dubai World, a government investment company with around $60 Billion worth of debt, has asked creditors if it can postpone forthcoming payments until May.

All kind of things happened after that. In moves reminiscent of last year's panic, many markets sold off and currencies were no different. Yen, and to a lesser degree the Dollar, were beneficiaries. Especially JPY staged serious moves. I looked at the computer few times during the day and was very impressed with what Yen was doing, but didn't have time to get really active. And, frankly, I didn't have to, since orders to buy Yen and/or sell commodity currencies had already been in place. Best example is a sell in NZD-JPY, something I have been waiting for and discussed on these pages few times before.
Party in Dubai gets spoiled.

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Wednesday, November 25, 2009

Happy holiday!
Category: Jobs, Work, Careers

Currencies had a surge of activity today. Both Asian and European sessions were relatively robust, with decent size moves during both and direction change after London open for most currency pairs. With one notable exception- US Dollar continued its plunge to ever lower levels until about couple of hours ago. It is recovering slightly, but any moves from now on are likely to get less and less dynamic, as is typical for day before Thanksgiving. USD reached parity with Swiss Franc, level not seen in a year and a half and only for the second time ever. I might devote entire post to USD-CHF in near future, given my history with this pair.

Minutes of most recent FED policy meeting were released today. They contradict with recent statements from officials. For example, recently chairman Bernanke expressed concern with falling Dollar. After all, he also “supports strong Dollar”. According to minutes, however, dollar decline is seen as “orderly” and nothing to worry about. Fed policymakers pledged to hold rates at such depressed levels for an “extended period”, maybe another year or longer. Minutes revealed that record-low interest rates “could lead to excessive risk-taking in financial markets”, otherwise creating new “bubbles”. Something FED has publicly denied. Can anybody make sense of it?
Happy Thanksgiving!

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Tuesday, November 24, 2009

GDP revised.
Category: Jobs, Work, Careers

About a month ago the Commerce Department announced that the economy had a 3.5% growth rate for the July-September period, or third quarter. A lot of people claimed that the number was strong enough to call it an official end of recession, or ”jobless recovery”, very peculiar name indeed. Today these numbers were revised, and not in an optimistic way. The GDP, which measures the value of all goods and services produced in the United States, grew 2.8% in the 3rd quarter. Also, much of that growth reflected federal support for spending on homes and cars, through multiple stimulus packages, something that is not sustainable for a long period of time. For the current quarter modest growth is expected, probably to be once again revised (down) after the fact. Interestingly enough, little or no growth is expected for early in next year. Not a pretty picture, guaranteed to make all financial markets jittery for the foreseeable future.

Currencies had strong Monday, mostly weaker Dollar and Yen only to reverse today. Some crosses are virtually at the same point where they had been before markets opened on Sunday. This includes most of AUD and NZD pairs, like NZD-JPY. At this time no update is really necessary, since I used daily chart when discussing that cross. However, Sunday opening and early trading created many good opportunities. Some of them were of the type previously described here, like this buy set up in GBP-JPY right before London open.
Revised recovery.

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Sunday, November 22, 2009

Thanksgiving week.
Category: Jobs, Work, Careers

Thanksgiving week is typically different than other times when it comes to trading. Even though Thanksgiving is an American Holiday, it effects financial markets world wide. It comes on Thursday, with many people taking it easy on both Wednesday and Friday as well. Most of the week can be slow when it comes to trading. Historically first couple of days are the only real opportunities for sizable moves to develop, with maybe a possibility for a directional move during European session on Friday. I’ll cover that later on.

Last year at this time financial markets were very volatile. Most of the currency crosses had been approaching what later became bottoms/tops and daily moves were still very impressive. Currently trading ranges are nowhere near as wide, but started to increase lately. Commodity currencies are showing signs of possible reversal on important, longer term charts. I first suggested it about three weeks ago and posted a chart on NZD-JPY, as a representative of all these pairs. Here it is as posted at the time.
Before Thanksgiving.

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Saturday, November 21, 2009

Trading objectives.
Category: Jobs, Work, Careers

When talking about trading financial markets, including currencies, “system” is almost always taking central stage. By “system” I mean set of rules that dictate when trader gets into the market, irrespective whether it is short or long position. A lot of energy is devoted to finding perfect strategy, in most cases focusing on entry rules. Unfortunately, no trading method consists only of getting into the market. There are other elements that must be carefully incorporated into a system, such as money management, stop/loss and target, objective, setting rules. It is really amazing how many people overlook one or more of these variables, creating incomplete trading plans.

Everybody knows why stop/losses are important, even though a lot of us ignore this “obvious” knowledge in real life trading. But why targets, why are they important, if not instrumental to trading success? Well, we can’t be profitable unless we actually bank profits on our trades. This means we have to close them at price better that we got in( short or long). Since markets are in constant movement, we should know how far we expect them to move our way and try to take profit at predetermined point. Not that it will always happen the way we want, but we must have a plan in place, rather than getting into position and hoping to close the trade sometime in the future.

How exactly do we go about setting targets for our trades? There is no one simple answer, since many methods of choosing objectives are in existence, but in almost all cases exit strategies are directly dependent on entry systems. Among them:
- fixed number of pips, always trying to get same number of pips, like 20, 50, 100 or so;
- time based exits, closing trades at predetermined time, like end of a session, end of day, week or some variation;
- using previous resistance/support as targets;
- staying in trades for as long as trailing stops keep positions active. One such technique was described in Price action Forex trading. Using technical tool like Parabolic Stop and Reverse also suits this purpose;
- employing technical indicators to determine oversold/overbought levels at which to close trades;
- when using crossover strategies for trading, such as Moving Averages, or MACD, waiting for next one to happen. In cases like these backtesting provides some evidence of what can be expected;
Setting targets for currency trades.

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Friday, November 20, 2009

European Central Bank.
Category: Jobs, Work, Careers

European Central Bank President Jean-Claude Trichet announced during a speech at the European Banking Congress in Frankfurt that it is time to withdraw some of the policy measures which supported financial system through the credit crunch. He said the ECB would soon be pulling some of its liquidity-providing “extraordinary measures” ( quantitative easing policies) to ensure they don’t cause an inflation threat. European Central Bank is expected to provide details on how the programs will be scaled back at its Dec. 3 meeting.

ECB was the most reserved of the major Central Bank when it came to injecting markets with liquidity earlier in the crisis, so it is no surprise they would be among first ones to bring it to a halt. European policy makers don’t want to repeat the mistakes of the past, when very cheap credit helped create dangerous imbalances and asset bubbles. However, we shouldn’t expect very drastic actions soon, since it was acknowledged that the danger is not over yet. Trichet called on banks to make more credit available, other than hording cheap money that was made available to them by governments. He made a point of reminding financial institutions to keep bonuses in check. Yes, everybody is really paying attention to that part.
End of stimulus?

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Thursday, November 19, 2009

Kiwi trades
Category: Jobs, Work, Careers

Last post, Samurai Bonds, covered a long trade in EUR-CAD. After following it most of the week, I really didn’t think there would be much to add today. Earlier in the week Euro-Loonie had another productive buy. None of these trades was great, but they both delivered over 50 pips, nothing to complain about, especially considering that they were fast, straight-to-the-target trades. When I closed trade yesterday, it seemed to me that price would remain within couple hundred pips range and it would take some time (days, week?) for it to break out. Was I wrong! Not only the up momentum continued to the upper border of congestion zone, but it went right through for additional 100+ pips move. My exit came at just about the worst possible time.

I’m not trying to kick myself in the butt over it. For that I’d have to hire somebody and it would be an overtime type of work. I’d spend most of my day jack-knifed, learning lessons. But I think it is good to review some of the mistakes, or perceived mistakes, and see why they happened. In this situation I still think that closing trade yesterday was the right decision, only that I should have open new one few hours later on a move above 1.57, targeting about 1.5780, previous high. Following breakout to 1.5900, well, I was watching it, but didn’t think Euro had legs to go the distance today. My trade from yesterday looks jokingly small when plotted on chart including today’s price action.
Premature exits.

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