Don't let Turkey spoil your Xmas ' Traders ' - The Lira Conundrum

I think it could not have been better to finish 2013 by year end note mentioning that TRY has been catching up with INR in the most 'Battered EMFX League 2013'

The midyear year report was the tip of the ice berg and highlighted  major weekly  formations indicating a bullish breakout. Later on in last quarter again the pennant formation was highlighted on Nov 13th accompanied by my tweet on Nov 26th.

The most striking feature was my stat arb was heavily bearish across the board TRY against EUR, USD and MXN.  Infact stat arb went long MXNTRY on 17th Dec " 0.1571 as tweeted and is up approximately 5% since then.

Just name is fundamentally, technically and statistically the TRY was doomed . Classic example how fundamentals reflect first in prices and charts and depicted/interpreted later. TRY is in real trouble . Economists have argued real interest rate is substantially lower relatively to other EM however what is/was underestimated is the political risks building up in Turkey.

Turkey's Muncipal elections and fate of Erdogan regime . Winter sets in to Turkey and should keep the CA under pressure due to Crude imports.. ( Just intuitive haven't gone that deep into statistics ) and Fed's taper game all point to a negative TRY. Lastly TCMB in order to raise rates has to ovecome the pressure from Turkish higher interest rate lobbies ahead of the elections which would put the banks credibility at threat.( if it fails to do so)

Personally think TRY will remain under substantial pressure relatively against the remaining EM until 1st Quarter 2014 and should   appeal to macro traders to add in the short basket against other EM/DM basket longs.

Also a little disappointing was Long EURHUF and EURINR which have not moved as I expected but the losses are little and gains are more and that is what matters. So will keep an eye on this pairs and update accordingly.

The smart central banker - RBI's Rajan

Reserve Bank of India (RBI) surprised majority of market participants by keeping rates unchanged to 7.75%. Whilst I wasn't surprised, I have to credit  Rajan for his smart move. It makes great sense when taken into account following factors:

>As a CB assess the FOMC statement today and its impact on EMFX especially USD/INR volatility.

> Assess the political risks arising due to elections and thereby the investors sentiment affecting equity and bonds flows.

> Analyse the inflation trend for couple of months into next year.

> In short keep master weapon 'rate hike' as the last option in its arsenal.

USD/INR now heading for crucial resistance of 62.20 after basing on weekly 60.70 support line. My stat arb still  likes higher USD/INR on weeklies.

Gods of Arena : Modi & Kejriwal

Narendra Modi and Arvind Ketriwal hereby I describe them as Gods of Indian political arena who will dictate the future of Indian politics and possible transformation into a more investment friendly emerging market.

Arvind Kejriwal (AAP) an ex- IRS officer and  a graduate of prestigious IIT,  demolished Congress in Delhi elections is a smart  and aggressive common man trying to tackle corruption and the thick layer of bureaucracy in India. He is hope to millions of young Indians especially in Delhi and has influenced heavily others in rest of India.

On the other hand we have Narendra Modi (BJP) who is what I call the CEO of Gujarat. The master mind in getting things right in a systematic way. His allies admire him and the opposition envy him for his superior project management, leadership skills and popularity. Media argues Modi has not done anything spectacular but I can argue equally a million times saying Gujarat state is relatively in a better shape politically, economically and security wise. I admire him for his vision and for his ability to meet his targets towards completing  staterun projects which is a rare occurrence today amongst  Indian leaders.

The above mentioned leaders have a very different personality but have similar mind set and that is to eradicate corruption and to revive growth. The common Indian man associates Modi with change and foreign investors see him as a route to liberalized reforms to invest in India.

Few weeks ago I issued a bullish note on USD/INR citing election risks and negative sentiment revolving around EMFX  due totapering risks. I still think there is political uncertainty which would weigh on INR.


 >  Big states like Bihar and UP which share a massive 120 parliamentary seats of the 543 will dictate how likely BJP will form a majority . Whilst I don't believe the poll system in India due to sample size and methodology issues , the poll indicates BJP is likely to secure 1/ 3 of 120 seats in the above mentioned states. If this is true then the other side of equation says BSP,JD and SP are to take a hit which reflects the change of sentiment shift from dominant players(BSP,SP,JD) to BJP.

> My market intelligence in this states has made me aware how Modi fever is picking up in Bihar and UP but this is all speculative and has a factor of uncertainty built in.

> In my optinion  market especially local funds  are awaiting how BJP performs in UP, Bihar and possibly AP and pump more investments into BSE. This is going to be a very big game changer and possibly even make me revisit my USD/INR forecasts.

> Fed's taper will weigh on INR along with the expiry of  currency swap facility nearing in Feb between Oil corps and RBI.

> The food inflation was a major contributor for the spike in inflation and immediate response  by RBI to hike rates. This is a structural issue combined with  imported inflation( Potash) due to weak INR. While structural issue does take time to be solved the imported inflation could be contained by capping and further appreciation in USD/INR. RBI has hiked rates  compromising  growth and I seriously think this is a issue if inflation gets out of control.

> I will end the note by mentioning that  tapering sends a positive signal to global investment community i.e  Fed's confidence of growth reviving in worlds largest economy. The dis inflationary environment supported by lower commodity prices should stabilize the inflation in emerging countries and support to more balance outlook for world economy in 2014. Hence it would make great sense that the climax of tapering story  ends with EMFX buyers stepping in i.e growth is bought.

With Love from Scandinavia- EURNOK - 16th Dec 2013

If scandi traders can correctly remember how in the name of safe haven currencies SEK and NOK topped the charts when EU crisis was at it peak ?

2013 saw EMFX getting hit really hard due to DM markets recovering and investors shifting their focus from EM to DM.  But then NOK and SEK too got hit hard and they don't even fall into the EM criteria. Yes yes the whole Commodity etc etc ..

Point here is if you believed Short EURNOK and EURSEK were the trades to proxy hedge the EU Sovereign Crisis then you might want to give it a bit of thoughts.  Well the damage has been done a bit late.  The purpose I have put this long term charts of EURNOK here is since the beginning of year I have been getting research reports from Scandinavian banks on how they feel that NOK has value and overall EURNOK is undervalued and has potential for downside.

Well I don't myself trade this pair but keep an eye on it because my tutor my old man 'BPP' a veteran FX Trader who started his career market making Deutsche Mark  against local African currencies( Rwanda, Uganda,Kenya) takes quite a bit of interest in Scandies. I will get back to BPP and his trades some other day.

As a starter few prime trendlines have been taken out on monthlies. This trendlines date back 96' and have been pivotal. Also noticable on larger picture is EURNOK has double tested 02' lows and has been heading higher since then.

I believe there is a strong correlation between G3 yield curve steepening since  May , Growth in EM especially S.Korea , Mexico etc . All this leading  indicators point towards investors expectations of better and stable DM/EM economies. ( Pls note not all EM have been in better shape there is the nice ones which I like i.e KRW, MXN and the ones I dislike  ZAR, TRY and INR)

Hence if one believed NOK and SEK has safe haven status then the time is ripe to bite the bullet and get over it.

EUR/NOK has potential to head higher towards 8.75/80 in the next 3-5 months. My directonal indicator is heading towards long term over bought range but still in comfortable zone. My long term stat arbs are still bullish and favour a long strategy.

8.06/16  is major pivotal support which should buying interest intact for medium term.

Long AUD/NZD Nov 10th 2013

Long AUD/NZD trade !  I consider this pair as very notorious and relatively less predictable than EUR crosses. . Dont like it but tempting when one looks the pair approaching a 20 year trendline from 1990 and Kiwi being adamant at highs. Yes yes economists argue Australia going through structural issues.. Miners struggling , Dis inflationary threats , China etc etc 

Well the trade got stopped  . I have feeling traders go for massive stop hunt towards 1.0500 or so and then the pair rallies.. Not going to touch now until next year and closely watching my long term stat arbs to give me clues. Most likely Aussie bottoms out end of first quarter 2014.

https://drive.google.com/file/d/0B6MwssNHtXgUeTRqa2pWQ1FMY0U/edit?usp=sharing

EUR/Cross Focus - Bullish EUR note 13th Nov 2013

My final issue on 13th Nov 2013, a bullish note on various EUR crosses with emphasis on  Short EM v/s Long DM.

The year end couldn't end  with more drama  with ECB delivering a surprise rate cut. A week later I issued  Long EUR against EM and pointed out massive break higher in EUR/Commodities as forecasted by my stat arb model.

I tweeted on Nov 12 "My daily euro cross model is bullish and has forecasted large upside moves in EUR crosses." Supporting my issue I then tweeted again on 20th Nov re-emphasizing "EUR/TRY heads higher towards 2.80." My original forecast was 2.85 however on 26th Nov bounced of aggressively and my pattern recognition model picked up the bounce. The  pair was trading at 2.7250 on 26th Nov  and following  2 weeks from my tweet the pair traded 2.82.

EUR/HUF is still half way and EUR/INR a little disappointing as it hasn't moved . Other EUR crosses have
rallied 5-8 figures .

please download here
https://drive.google.com/file/d/0B6MwssNHtXgUc3kwSFVNX1RlU2s/edit?usp=sharing

USD/INR to 65 30th July 2013

One of my clients asked me to give my view on the pair right when it was trading at multi week high. My models correctly forecasted higher moves towards 65 , the pair however traded even higher toward 69.

Model based forecast stat arb at its best . The cyclical indicator was indicative . What I have not mentioned here is few of my other other cycical indicators with varied cycle lengths heading higher

https://drive.google.com/file/d/0B6MwssNHtXgUYmRXMjlxd3U5bW8/edit?usp=sharing

EMFX Selloff to keep USD/JPY under pressure - 2nd June 2013

Mid year 2013 issued another report to Sell USD/JPY and Long EURX . Another reason why JPY strength would feed into other majors DM crosses and put a cap on USD .

Download here  https://drive.google.com/file/d/0B6MwssNHtXgUbjNGSzV6UmZmMm8/edit?usp=sharing

EURX Analysis - 13th April 2013

The time period between 2/2012 and 4/2013 we as well as most participants were focused on short JPY trades against a variety of G7 basket. There was nothing particular apart from one trade rese
arch published in last quarter 4/12/2012 on USD/INR where I highlighted some core structural issues in India and correctly forecasted a 52-56 range for next 3-4 months. I have not published it here but more than happy to send it over if any institutional client want to view it.  

While analyzing my charts over weekend which I usually do my eyes caught bullish weekly formations and again my gut was giving me ill feelings of something was fishy in the EUR markets. Almost every player I knew was bearish on EUR. I was sick off how many times I got messaged on  Reuters  EUR/USD was heading to 1.2000 and combined with that extremely bullish Dollar sentiment or biased crowd.  The issue is that I don't trade what I hear but I trade what I see and there is major difference between the two.  As usual my weekly stat arb EUR models were screaming higher. Further EUR/AUD, EUR/CAD, EUR/JPY, EUR/TRY, EUR/SGD were giving strong confirmations that market was statistically flawed and my confidence grew whereby a magnitude of analysis was adding up for a Long EUR trade.

On 13th April I issued a strategy to Buy EUR mentioning it to be cheap at current levels and market has severely underestimated the pair. The aim was to buy 1.2850-1.2950 range for moves towards 1.3600/3700. This was one of my boldest career defining move I will or would have ever made and would test my patience in next couple of months as I go against almost every trader I knew at that time.

What will happen next is history but if asked me now I could have technically fundamentally and statistically proved that it was a long trade. And this is not hindsight the evidence is here and its posted.

So how did it make sense fundamentally?

In my introductory post I mentioned how fundamentals reflect in chart but they are often misinterpreted. This is it can't get any better.

 The whole EU story was and still revolves around sovereign crisis and possible default speculations . This was evident when at peak of EU crisis sovereign bonds were dumped really hard.  Macro funds shorted Euros as proxy due to its high liquidity compared to peripheral bonds and so on.. but somehow crisis was contained and Greece did not default on its debt obligations and there was no contagion  effect.

On the other hand US had started spitting decent enough  economic numbers and market participants had started speculating Fed tapering on the cards. I personally thought that all the goodies in Dollar Index was priced in especially when it bottomed out in 5/2011 and been rallying since then trading at pre-QE levels.

To add in 2012 Dollar Index (DX) made 4 monthly attempts to crack higher through 84 and was not successful. Later on in 2013 it made another couple of useless attempts to break higher made everyone believe its heading for 90 and dumped.  Reserve Managers (RM) saw this wonderful opportunity to sell their dollars especially Chinese were on it left and right. Frankly if I was RM then would have done the same thing get rid of some of my excess Dollar reserves. 

Well coming back to my earlier point if the US started to grow i.e let me put a lot of emphasis on this .The world's largest economy has started picking up momentum so are we going to feel the positive spillover effect in rest of G7 space? Remember the opposite was also true when US went into recession right?

ECB did a great job eliminating the tail risks in EU and with the growth picture looking slightly better in US it made great sense to cover short Euros and ‘de-risk’ the EU default speculations. EU current account surplus improved dramatically especially peripherals which almost eliminated their deficits. I have argued on many occasions this year if the US recovers then the rest of developed nations which follow the suit. A similar case one can notice in UK economy where forward looking indicators point a balanced growth in services, construction and manufacturing.

Now what was needed was trigger point to sell or offload Dollars. Back in April-May I was aware that US fiscal debt negotiations in last quarter would poise a risk to US economy and put Fed in dilemma. Along with this was a last quarter election of new FED chairman. This is political risk and uncertainty in monetary policy at its best reflecting in Dollar Index.

At the back of my mind I knew if somehow Fed turned dovish on its July 10^th statement then the odds taper would happen in last quarter are very low and would support my Long EUR strategy.

On July 10^th there was blood on Wall Street ‘Spartacus’ style. I was in a comfortable position as my intra-day models were long EUR/USD and were loving the moves.

Couple of months later FX Concepts went bust and world class systematic fund based in London let go a number of its traders citing awful performance. This was just start as quantitative funds based in London and Cambridge took hits possibly due their systematic models not able to cope with volatility.

Not to mention this are the same quant funds which hire genius mathematicians and run sophisticated models to extract alpha.


Readers can download the report from the link below. If the link is dead send me message and I will post it again. The report is very basic  and as I always mention if any insto guys wish to see the original mail ( not that there is any difference apart from few typos which you would expect while working over weekend its the same stuff )
https://drive.google.com/file/d/0B6MwssNHtXgUdkc4RTY0cmRhVWs/edit?usp=sharing

Yen: Has the beast finally given up?

So here is my first mail which I sent out back in 2012 . At that time I was working as FX Trader with ETX Capital . It was funny because as soon as I sent out this mail to my close associates and traders I knew in fund industry they all were long UJ in the next 24 hours . This was the mail which probably landed me to my next job very quick I think . The key is the pattern in the chart which clearly cannot be ignored .

Later on that year UJ tested my patience as it closed below 20MA and stalled for few months. However this did not put me off because on the other hand my stat arb algos giving me obvious hints of breakout higher. Finally in Oct 2012 UJ again close above its 20 MA and never looked back. This was classic as fundamentals aligned perfectly with technicals and market sentiment. Added bonus the long term stat arb model which went long UJ and Nikkei. The move had to be explosive.

Introduction

Hello Traders,

I currently work as Strategist/Trader for a boutique FX money manager . I am passionate about FX and love forecasting and trading the most challenging asset class.  As a post grad of Cass Business School graduating during peak recession wasn't the best ever time to start a career in FX  . Made my way up starting from a small prop trading firm from being a prop trader towards being a dealer and then fortunate being offered a strategist role at Sharpe+Signa LLC then called  Vanguard Axis Currency Series(VA).

The trade which got me the job and made me leave my employer back in 2012 was arguable the trade of the decade . Not a difficult guess  Long USD/JPY in my email report sent on 22/2/2012 .

How I devised the trade will be posted in my next blog and you will be surprised that you did not require complex mathematical models or advance knowledge of how market dynamics work. Although I did have algorithms which has given me heads up on the move but I kept it very simple and intuitive.

Always believed the fact

Fundamentals first , Charts never lie ..  Most often fundamentals reflect in the charts however they are misinterpreted . A classic example you will see when I post my Sell Dollar Strategy recommended on April 13. Yes 'Sell Dollar' ! when US was growing and massive CTA programmes were run to 'Buy Dollars' during this period.  The outcomes were horrific where we saw downfall of FX Concepts, World class systematic funds based in Cambridge and London deploying sophisticated algorithms and genius mathematicians went down double digits in single month and Tier -1 banks had no clue whatsoever why Buy Dollar trade recommendations were not working.

It was emotional year for me issuing a Buy EUR/USD strategy along with Long EUR crosses (EUR/JPY, EUR/SGD,EURAUD,EUR/SGD,EUR/TRY). Sitting tight on my desk being confident and sticking to my views against probably rest and the best of the financial world .

Later on this blog I will post my report with actual time stamped evidence . The report was again very simple but intuitive and yes again my models did give me heads up. My job was to just simply put it up in 'ABCD' format. 

On 30/5/2013 again my gut was screaming something was wrong with USD/JPY (UJ) and my eyes had detected a very unusual pattern along with my brain analyzing cross market correlations. I immediately called my MD over weekend and mentioned him UJ is going to get hit hard and number one reason for that is EMFX/Commodity FX selloff . Market is chatting about how USD will be bid due to EMFX selloff and how again traders had misjudged market correlations and developed a mindset in believing USD will actually rally. What happen next you will wish you weren't part of and if you were then you will see how and why that happened. The result UJ dropped 6-7 figures in about 2 weeks and again macro funds got hit bigtime.

2013 was a great year in terms of predicting FX markets where I also predicted USD/INR to trade 65 and it went 69.30!  Wasn't good feeling when got a client call asking to forecast USD/INR for next 3 months when the pair was actually trading at top of range in 60's.. Somehow it went well client happy does the job for me..

Later on in the year I misjudged a Long AUD/NZD trade at 1.1200 but was quick to cut it with minimal losses after giving a glimpse at weekly chart where weird price action   was noticed at 1.1580.. phew don't regret that exit..

I ended the year with my last report on 13th Nov based on EMFX model where I  mentioned EUR crosses are again heading higher i.e EUR/HUF, EUR/TRY, EUR/INR, EUR/CAD, EUR/CAD,EUR/JPY, EUR/AUD, EUR/SGD. The most striking feature of this report was that I again had to hold my breadth and issue a Long EUR report 1 week post surprise ECB rate cut . Did I have any doubts whether it will work or not ?  No ..  tweeted on 26th Nov  EUR/TRY heading higher and since then the beast moved about 8 figures higher.. let alone the other crosses apart from EUR/INR . ( can't get everything right !)

This report striking feature was that multiple EUR cross models were forecasting a higher move supporting by a matching signal in underlying USD cross.  For example EUR/TRY and USD/TRY bullish forecasts matched.

So why did I post my trades here later?  

Very simple reason its Dec I have taken time off  and thought to do something constructive rather than wait for Santa and deliver top trade rec's for 2014. On a serious note they  are posted here now for educational purposes and if any institutional investor wants the original copy to verify my claims I am more than happy to sent the original time stamped mail which I sent to my traders. 

Follow me on twitter @Quantumsquawk
contact: amit_rwd (at) hotmail (dot) com
Networking : Open for discussions with like minded traders and  career opportunities

regards,

Amit