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AUD Focus - Risk is On!

Discussion in 'Giant #2' started by Giant #2, Sep 9, 2010.

  1. Giant #2

    Giant #2 Former Special Consultant to the FPA

    Jun 19, 2010
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    Hello Traders! My apologies for the long delay between updates as, to be expected, the landscape has changed our perspectives from previous posts. My schedule has been full-on and I’ve had to travel overseas to work with clients in Asia for some weeks. I will work to simplify the reviews to make it easier to update and make them more actionable for you.

    Today, we will review some changes we see in our AUD view and discuss some parameters for trading AUDUSD and AUDJPY, our preferred pair.

    In our last review, we revised our AUD long positioning looking for further upside potential following a string of firm growth data from the region. As noted, we took more long positions AUDUSD at .8700 and began to ease out around .9000 and have since been taking on short term “long only” trades in the interim. We are managing the positions closely and have largely reduced our long term AUD positions waiting for pullback, but to higher levels than originally anticipated. AUDJPY is trading at the same price as last report. We advised to trade “long only” at big figures at the lower end of the range. The anticipated risk averse event has not (yet?) occurred and we have lightened our forecast on that view and see its potential as less likely and impactful, at present. See images. AUDJPY is currently in the upper 50% of the range. We do not take long term positions here, but are keen to swing and intra-day trade the pair.

    Trading AUD - Some General Parameters and Considerations

    • We trade “Long Only” per factors noted in previous posts – Interest Rate Spreads and institutional flows seeking yield into AUD. When we say we are selling, this means we are either closing or hedging long positions. If we sell it short, we don’t tell anyone.
    • Risk’s – The AUD will typically sell off very sharply and all positional risks must consider this. This is why we trade un-leveraged, unless we consider the currency good value and stable. We are always prepared for a risk averse move and assess it’s magnitude in isolation. During risk aversion, there are few bids and the gaps get filled.
    • We buy on pullbacks to key levels of support and Big Figures. Per image, for long term positions, the higher the trend moves the more we scale out and wait for pullbacks of at least average weekly range.
    • Check with your broker to determine the carry on long AUDUSD and AUDJPY, which should be positive. If it is not positive, you are being ripped off.

    Trading AUDJPY

    • Study the macro moves from big figure to big figure and internalize it
    • On small timeframes, study the movements and surges of 40 pips movements composed of smaller ranges of 20 pips.
    • When volatility picks up or a major event is in play, watch the big numbers. These are significant at the deal desks and prices will move swiftly through the 20’s.
    • Swing trade the bottom of the range and day trade the upper 50% of the range, buying at support and big figures.
    • Risk event moves and data releases need to be understood and considered from a volatility perspective. Understand the fundamentals on these pairs, it will help a lot.
    • Watch USDJPY for JPY sentiment. The AUDJPY is currently in a range via JPY upside pressure.

    Our Current View

    Australia data flow continues to out perform expectations. As future expectations readjust and economic numbers level out, we will see a reduction in bids on AUD leaving it subject to natural pullbacks. At present levels (.9250) our long term positions have been scaled back and will take on short term trades into .9300 area. As seen in recent LT swing highs, we may consolidate at a high before the next 300+ retracement.
    AUDUSD has held up well despite risk averse sessions. The RBA has left the cash rate unchanged at 4.5% and reiterated that policy was appropriate. The accompanying statement was upbeat, setting the market up for rate hike expectations before year end. The RBA noted that growth was supported by a high level of public spending, but also due to strengthening private demand. The RBA assessed that growth would remain around the trend level over the year ahead, but upgraded the business investment outlook to rise strongly. Meanwhile, PM Gillard seemed to have bought a few votes for the labor party and will take mining taxes to support green initiatives. While AUDUSD has held up relatively well despite some risk averse events, we view the upside as limited in the near term. We anticipate that if equity markets remain range-bound and stable, AUD will hold up well and we will trade on higher base pullbacks.
    Watch the reaction of AUD when other currencies are falling, to get a feel for the AUD pairs.
    Position Trades – Wait for pullback to below .9000
    Day Trades – Be careful at current levels. Look for big figure and support bounces on pullbacks of 80+ pips. Be mindful of the price driver. You may want to wait till a base is established.

    Why is CHF so Bullish

    • CHF will fall the least during a “Risk-on” environment, because it has interest rate support and is least attractive as a funding currency to be borrowed and converted into risk assets (equities, derivatives, higher yielding currencies)
    • In a “Risk-off” environment, it will be a strong beneficiary due to its attractive combination of yield advantage and safe haven status, supported by Switzerland’s current account surplus.
    • The Current account surplus and strong economic recovery make it unlikely that the SNB will intervene further in an attempt to weaken their currency. This attracts willing buyers.
    • The current financial market seems to be hesitating to take on too much risk, trading is thin and the market is not jumping into equities with faith. The market is neutral, at present.
    • We are bullish and are buying CHF on pullbacks. EURCHF is a oversold here 1.2860, so we are not selling this pair (buying CHF selling EUR).

    Good luck with your trading and be careful out there.


    Attached Files:

  2. dkami

    dkami Sergeant

    Apr 13, 2010
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    Thanks G2 your report is very helpfull:)
  3. bomi sanjana

    bomi sanjana Recruit

    Jun 26, 2010
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    sir, whats your opinion on aud/chf? Buy or sell n at what rate? Thanks,
  4. info.axon

    info.axon Recruit

    May 2, 2010
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    Thank you for sharing your market view. It´s extremly clear and helpfull.
  5. pinguino

    pinguino Recruit

    Mar 7, 2008
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    Thanks a lot, excellent advice!!!!

    Very useful, looking forward to reading the next one
  6. dacuna

    dacuna Recruit

    Sep 13, 2009
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    Great read. Very insightful. Thanks for your time G2
  7. jolly01

    jolly01 Recruit

    Jul 16, 2010
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    i appreciate your insightful message pls keep it coming in thanks G2
  8. Joh

    Joh Sergeant Major

    Oct 11, 2007
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    Superb report Sive-Thank you mate
  9. peterg

    peterg Recruit

    Dec 30, 2008
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    40 & 20 small figures

    I notice a lot how 20, 50 & 80, these small figures often test and stall swing movements...Why is this?

    What is special about a fractal "40" pip move is it just twice 20? Is this 40/20 concept specific to AUD/JPY or the other major pairs as well?

    Are there other fractal moves for other pairs that you see as significant and actionable.

    Thanks for your comments and insights
  10. stafford

    stafford Recruit

    May 20, 2008
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    This is very insightful...Thanks

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