I have tinkered with some very old positions this past week, such as long GBP/AUD entered back in late April at 2.0496. The carry adjusted price on Wednesday, July 8th was 2.0623 and I was so sick of holding on to it that decided to close prematurely at 2.0689 only to watch the spot run up all the way to 2.0980 in the next two days. Albeit to be perfectly honest, I viewed that position in conjunction with another bad trade I made back in late April which was short GBP/USD at 1.4610, which synthetically became a short AUD/USD at around .7100. By closing GBP/AUD I was left with an equal amount of short GBP/USD, so I sold a put expiring Monday, July 27th with a strike of 1.5900 netting me 138 pips. The option performed nicely so far, but I might take it off should the spot trade below 1.60
In addition, to the illogical madness described above, I tried to hedge a bit my AUD/USD put option with a long AUD/USD equal to the quarter of the size of the put at a bad entry point of .7885 just minutes before a strong 150 pip move lower on Wednesday. To remedy this major mistake I sold a corresponding AUD/USD call expiring Monday, July 27th with a strike of .7805 for 100 pip premium when the spot was trading full figure below my initial entry. To my disgust, the spot recovered all the way to .7860 next afternoon meaning, I was again early with a call protection. Carry-adjusted the position will either net me 25 pips, or I will be stuck with a long AUD/USD at .7780 if the spot trades below .7805 on July 27th.
The third failure of the week was the silver trade. The silver looked very oversold above its 200 sma and I jumped on the opposite trade at 12.97. Needless to say, I’m down 2.4% on the trade as of right now, but will hold on to it for two reasons:
a) the position is very small and the damage inflicted is not heavy
b) it’s somehwat of an hedge for the short GBP, and for AUD/USD put option.
On the bright side, I managed 6 small day-trades netting me 70 pips, AUD/USD cross closed 15o pips lower this week, which means my put option increased handsomely in value, and GBP/USD closed a figure lower compared to the previous weekly close.
Next week I believe we’re at crossroads. While AUD and CAD are clearly pointing to further losses other USD crosses are in limbo. It’s quite possible that we may see another wave of USD selling during which CHF, EUR, and GBP hit new mid-term highs, while AUD, CAD, and NZD do not breach their June 3rd levels, creating a bullish divergence for the greenback. It might coincide with a small up move in equities and especially commodities, which look oversold from the short-term perspective. Especially, that’s the case with oil and silver. The pattern on the silver chart suggests the possibility of a right shoulder implying a move towards 14. Silver is down six weeks in a row so some short-term reprieve could be in the cards.
I looked at the latest COT report and noticed a slight movement towards USD longs, but the commodity currency positioning is still overwhelmingly against the buck. This could be an indicator of continued weakness in AUD, NZD, and to a smaller extent of CAD.
The indicators on the US indices are mixed to bearish.
SPXA50R closed at 30, which is nowhere near the extreme levels suggesting continuation lower
BPSPX is at 47, and below its short-term moving averages suggesting continuation of the recent bear trend
VIX is at 29, but needs to close above 33 to instigate a sharper pullback in equities
There are other several indicators all pointing to a mildly bearish scenario. The DOW has closed lower for the fourth week in a row, but those losses have been relatively mild so far. The barrage of earnings reports is the big story next week. Companies need to reassure investors with upward revisions to their 3rd quarter targets, otherwise the market will be heavy in the short-run.
Tags: FX trading, Stock trading, Trading
