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