Annual momentum (price vs 3 year MA) shows a triangle formation – shown at the bottom.
A weekly close above this triangle (possibly happening now) will mean gold -0.15% begins a multi-year secular move to the upside.
Speculative interest is not overextended.
Momentum structures in DXY -0.06% also suggest that USD has begun a downtrend.
1. Long USD vs JPY, CAD, AUD, NZD, EUR
A structural dollar shortage, fiscal stimulus and a hawkish Fed should support the USD.
As US yields rise, long-term carry trades in AUD and NZD will begin to get squeezed.
A stronger USD will put pressure on commodities, especially crude oil as concerns about the OPEC cut may begin to surface. This will be bearish for the CAD and may force the BoC to cut rates.
A strong positive interest rate differential between the US and Japan means that a long USDJPY position should play a core part of our portfolio.
A short EURUSD position plays on the divergence between continued monetary easing and political uncertainty in Europe, versus a hawkish Fed and structural dollar illiquidity.
2. Short AUD versus USD, CAD, NZD
A weakening Australian economy, and risks of a stronger dollar strangling Chinese dollar-denominated debt, should continue to weaken the Aussie forcing the RBA to cut rates.
3. Short European equities (but long US equities on a significant retracement)
The FTSE needs to be shorted, as any appreciation in Sterling will result in massive bearish pressure.
The DAX looks overstretched near 11,500, and needs to be shorted as a play on rising European political tensions, risks of European bank defaults, and as a hedge on our short EURUSD position.
4. Long GBP vs EUR, AUD, JPY, (USD)
A neural BoE, rising inflation expectations, and strong economic performance should support Sterling against the weaker EUR, AUD and JPY.
A long GBP position against USD is the perfect way to hedge any long USD exposure.
Based on FX fundamentals and long term fair value, Sterling is significantly undervalued against all currencies.
5. Long gold vs USD
This is a hedge against long USD exposure, but more importantly, protects against a crisis created by dollar illiquidity.
Near 1,100, this is an excellent time to start building long positions – after most investors have been caught off-guard, squeezed and stopped out.
Wildman outplayed by Gekko. Classic.
Honestly doe, I think I am in love
In currency trading, I used to hedge risk by trading multiple currency pairs – but I would only trade the majors.
The majors usually include USD.
And so I would usually end up with a massive net long or short USD position – and any small fluctuation in the dollar would present a big risk to my account.
Yesterday I had an awesome idea.
Why not hedge out the USD risk on these majors positions, by trading cross-pairs in the opposite direction to the other currency in the USD pair?
So, say I’m selling AUDUSD on the basis of monetary policy divergence between the RBA and the Fed.
To hedge it, I would buy AUDJPY.
This effectively eliminates AUD risk in this position.
Furthermore, it hedges out any dollar downside because if the dollar falls, it will be because Fed hike probability falls. Thus equities should rise, prompting a sell-off in JPY and a rally in AUDJPY.
And since we expect the RBA to remain on hold anyway, AUDJPY should appreciate. It gives us some nice carry too.
Another example: say I’m buying USDCAD because I think the Federal Funds Rate will rise in the near future.
To protect ourselves against this short CAD position, we can sell GBPCAD.
This is because Sterling faces the risk of Brexit and further rate cuts – CAD doesn’t face nearly as much risk, and it gives us a nice long CAD trade if oil decides to go up.
To put it mildly,
I’m frigging excited with joy about some stupid currencies.
Such is life
So for the last 3 months I’ve followed my trading plan well – taking small risks, and making consistent profit.
I think the key to trading, and perhaps life, is discipline.
Discipline to do stuff you know you should do.
Discipline to not get greedy.
Discipline to exercise, eat well, sleep early – you know, all the stuff we should do.
The best traders are extremely disciplined.
I’m determined to be one of them.
So I’ve created a new account.
And I’ve made the results of it public.
I’m going to trade it, with discipline, following my trading plan meticulously, for a year.
And then I’ll review the results.
I’m tracking the progress here.