On Fx (Krasting)

Monday, July 23rd, 2012

I’ve been running a short EURUSD for the past six weeks. I got in at 1.2650 on June 30, and doubled up on July 8 at 1.2260. I was delighted to see the Euro get cheap in Friday’s trading, but the market action forced a decision. I wrote some things down on a pad, thought about it a bit, and said, “Screw it”, and cut the whole position. Some of my thinking:

I hate trading FX at the end of July . The markets shut down with the approaching European August vacations. The last week of the month is about cleaning up positions, not putting new ones on. August is never a time to be involved, unless you have to.

There was something odd about the EURUSD trading Monday through Thursday. Tyler Durden, at Zero Hedge, made note of this.

The red arrows that Tyler drew bother me. This stinks of “official guidance”. It’s tough to make a buck at the FX casino, it’s tougher still when the tables are rigged.

In May and June the Swiss National Bank (SNB) bought CHF 110Bn worth of Euro’s. That’s a staggering amount. I’m convinced that the intervention was heavy in July as well. Reserves are headed up another CHF50Bn. I think these numbers still understate what is happening, as the SNB has been writing calls on the Franc.

In the course of just three months ¼ Trillion Euros have crossed into the Alps. This is unsustainable. At some point it will have to result in a messy blow up. But not necessarily in the month of August.

I don’t think the SNB is going to fold its cards just because they are under attack. If the SNB were to quit intervening, the EURCHF would be nearing par in a matter of days. The cost to the SNB would be CHF40Bn (15% of GDP).

Before taking a loss of this magnitude, the SNB, (with the blessings of the government), would implement a variety of exchange controls. I think this is a something that could come sooner than the market believes.

It is my understanding that there is significant macro hedge fund positioning in the EURCHF. I don’t believe that the SNB is going to simply write a monster check to some fat cats up in Greenwich. There will be (at least) one more chapter in this story.

Should there be something that makes people blink on the CHF, it could end up causing short positions in the EURUSD to get jumpy. I’d rather not be part of a jumpy crowd.

I’m worried about what Bernanke may do on August 1st. We could see something that brings the US negative short-term interest rates. (My thoughts on this). It’s very difficult for me to be a dollar bull. I’m much more comfortable playing the dollar from the short side.

The Euro weakness on Friday was related to a big selloff in Spanish bonds. The Spanish ten-year ended up at 7.27%. This means that a Spanish bailout is not far off and Italy is next in the crosshairs.

Really? I don’t think so. It’s not going to be that easy.

The Euro technocrats are not going to fold in August. They may be going down, but I fear more battles are in the offing first. SMP purchases of sovereign debt is likely next week.

Realized gains have been elusive for me this year.

Now that I don’t have a position to worry about, I’m worried about not having a position. I will be looking for an opportunity to re-load a short Euro exposure. Hopefully it will be at higher levels than Friday. Either way, I will act before September rolls in. The Euro is still toast.

Tags: Alps, Bank Snb, Blessings, Eurchf, Eurusd, Franc, GDP, Guidance, Hedge Fund, Magnitude, Monday Through Thursday, Month Of August, Red Arrows, S Trading, Six Weeks, Swiss National Bank, Three Months, Trillion, Tyler Durden, Vacations
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From Negative 5Y/5Y To $2200 Gold?

Tuesday, June 5th, 2012

For the first time on record (based on Bloomberg’s data) 5-year / 5-year forward inflation expectations turned negative today. This kind of deflationary impulse has occurred twice in recent years and each time has been accompanied by dramatic Federal Reserve easing. The anticipation of the move by the Fed has caused Gold each time to surge higher on yet more expectations of the fiat-fiasco unwinding. Given the 5Y5Y inflation print currently, we would expect action from the Fed and one could argue that this would cause the price of Gold to rise to $2200 per ounce as the deleveraging continues.

The red arrows show the deflationary impulse (5Y5Y inflation is inverted) and the orange curve arrow shows the reaction function post Fed reaction to the blue arrow levels of the deflationary impulse.

Chart: Bloomberg

Tags: Anticipation, Blue Arrow, Federal Reserve, Fiasco, fiat, Gold, Impulse, Inflation Expectations, Nbsp, Orange Curve, Ounce, Price Of Gold, Red Arrows
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Gold bullion – Is a Cycle Low Imminent?

Monday, January 31st, 2011

In what is probably an overdue correction after a stellar performance (+29.6%) during 2010, gold bullion has declined by 6.0% since the turn of the year. However, with the turmoil in Egypt as catalyst, the yellow metal sharply reversed course on Friday from an intraday low of $1,308.10 to close the week at $1,335.40.

The question that invariably comes to mind is whether we have seen the worst of gold’s decline. A few comments from Richard Russell, author of the Dow Theory Letters, regarding cycles are of particular interest.

“Analysts are talking about gold correcting down to 1,200 or even 1,000. However, I believe that the more important picture is that the gold bull market has much further to go on the upside. I’ve been reading the McClellan Market report for years. McClellan does a good deal of research on cycles, and I must say some of its cycle studies work out quite well.

“McClellan has discovered that a cycle low appears for gold roughly every 12.5 months. The cycle lows have run as follows: Jan 6, ‘06, Jan 8, ‘07, Jan 7, ‘08, Jan 5, ‘09, Jan. 4, ‘10, Jan. 8, ‘11. McClellan puts the next cycle bottom for gold at February 8, 2011 which means it should arrive at any time between now and February 8, give or take a few weeks before or after that date.

“Interestingly, the McClellan cycle bottom for gold is due to arrive amid a good deal of professional bearishness regarding gold. Thus many traders have traded out of their gold positions, just as we near the date for the McClellan cycle bottom.”

The red arrows in the chart below mark the McClellan cycle lows.

Source: StockCharts.com

Separately, Adam Hewison (INO.com) also provided a brief video analysis on the technical outlook for gold, arguing that a buy signal has not been given but that gold see a pop to the upside. Click here to access the presentation.

Although it is difficult to pinpoint short-term bottoms, I am of the opinion that the gold bull market remains intact, especially with inflation blowing up all around the world. Meanwhile, China and a number of other Asian countries keep adding gold to their reserves. These purchases should provide a floor to price declines – an “Asian put” so to speak.

Tags: 5 Months, Bottoms, Catalyst, China, Decline, Dow Theory Letters, Egypt, Gold, Gold Bullion, Gold Market, Ino, Jan 7, Lows, Mcclellan, Pop, Red Arrows, Richard Russell, Separately, Stellar Performance, Technical Outlook, Turmoil, Video Analysis
Posted in Energy & Natural Resources, Gold, Markets, Oil and Gas, Outlook | Comments Off

Technical talk: S&P 500 remains in uptrend, but divergence starts showing up

Tuesday, April 27th, 2010

The comments below were provided by Kevin Lane of Fusion IQ.

As seen in the chart below, the S&P 500 still remains above its uptrend line (green line). As long as this is the case investors have to respect the long trade. Only a break below the uptrend near 1,200 followed by a close below last Thursday’s intra-day low (1,190) would change this posture and suggest a more defensive tone to investors’ portfolio.

Currently there is a minor divergence between price and momentum as measured by the RSI (red arrows). Typically, near topping processes (whether large or minor tops) price moves higher while RSI moves lower, so at a very minimum it is something to register in the back of one’s head.

Remember risk management is not a passive activity but an ongoing re-adjustment process. The higher we go the harsher the correction when it ultimately occurs. Take an active look at your current stop losses and value at risk today and see if they need any readjusting.

Source: Kevin Lane, Fusion IQ, April 27, 2010.

Tags: Break, Divergence, Fusion, Investors, Iq Chart, Last Thursday, Losses, Momentum, Passive Activity, Posture, Red Arrows, Register, Risk Management, Tops, Uptrend Line, Value At Risk
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Technical Talk: Expect Retest Sequence

Thursday, July 9th, 2009

The comments below were provided by Kevin Lane of Fusion IQ.

As seen on the weekly S&P 500 Index chart below (with closing prices as at 7/7/09), the Index recently slammed into a convergence of resistance and a downtrend line (red and green lines). After needing a near 44% rally from the lows just to trade up to the aforementioned resistance area, it was hard to imagine the S&P 500 would just blast up through that level.

Add to the mix the fact that we recently entered a period that is historically weak for stocks and it makes sense why prices have corrected of late. As we have said a few times recently, the Index has most likely reached its high point for a while and is likely at best to trade range bound or realistically lower for a period of time.

We also suggested and continue to suggest that stops on remaining long holdings be adjusted/tightened and long exposure be reduced for the time being. Since the dawn of the markets most, if not all, bottoming processes have had some kind of testing process after setting an initial low. In 2002, for instance (our most recent low prior to March 2008), the S&P 500 tested the lows on three separate occasions (red arrows) before the final lows were ultimately set. So, to expect things would be different this time doesn’t make much sense.

There will be short-term trading opportunities that present themselves during the remainder of the summer and into the fall; however, we don’t see any directional bull trend re-establishing itself before some kind of retest sequence. The only thing that would change this outlook is a high volume move on strong internals back above the recent highs.

Source: Kevin Lane, Fusion IQ, July 6, 2009.

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Tags: Cape Town, Convergence, Dawn, Different This Time, High Point, High Volume, Index Chart, Internals, Iq, Lows, Occasions, Period Of Time, Postcards, Rally, Red Arrows, Remainder, Resistance, Target, Time Doesn
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