In his latest Sunday Start note, Morgan Stanley strategist Joachim Fels describes the mood and opinions of big investors at a recent event in Florence.
The gist: Most investors still aren’t betting on anyone quitting the Euro.
Fels writes:
However, the beautiful historic setting didn’t fail to make an impression on most participants: while many worried about the potentially catastrophic consequences of a Greek exit from the euro (rightly so in my view), very few actually believed that a divorce would actually materialise over the next several years. In a poll on the four scenarios for the future of Europe that Elga Bartsch and I described in the recent Global Macro Analyst , only 5% thought ‘European Divorce’ would be the likely outcome.
True, despite the setting, the rosy ‘European Renaissance’ scenario also only got few votes (10%). However, 40% thought a ‘Matrimonio all’Italiana’ scenario of fiscal union with continuing economic divergences as between Italy’s north and south would materialise. In fact, in the discussion, some participants warned against underestimating the ‘power of politics’, i.e. the possibility that there would be a big leap towards fiscal federalism at some stage. Many others, however, felt that it would probably require a much bigger crisis first to get there. Unsurprisingly, our ‘Staggering on’ scenario – basically, muddling through with a lot of help from the ECB – received 45% and thus the most votes.
We’re a little surprised that the “European Divorce” scenario is so low.
To some extent, it seems like a lot of the optism (if it oculd be called that) is just based on the idea that the alternate scenario (divorce) would be do disastrous. This sounds like a lot of the thinking regarding the fiscal cliff in the US, as well… a crisis will be averted because to not avert it would be such a disaster. We’ll see if that actually holds up.
This post originally appeared on Businessinsider.com
This is a great article by Boris Schlossberg, Heads of Global Research for Global Forex Trading. I came across it in my email this morning and I had to share, it’s worth a read.
“This week an article in the Wall Street Journal went viral in the FX world as it hit a raw nerve with traders everywhere. “The market isn’t wrong, it is just stupid!,” it announced, noting that,”More and more, those who are paid to play-seasoned veteran institutional foreign-exchange traders-are becoming disenchanted with a market that appears to them to be broken.
The new age of currency wars with many governments attempting to keep their domestic currencies weak in an attempt to export their way out of slow growth has clamped down foreign-exchange movements and severely limited traders’ opportunities to make money.”
While I somewhat sympathized with the plight of the bank traders, my first reaction was, “Stupid is as stupid does.” The signature line from Forrest Gump – a great movie that taught humility and showed that intelligent people could often do remarkably dumb things.
When you look at the FX market over decade long horizon or longer you see that currencies always go through periods of high and low volatility. Today’s low vol market is just a natural result of the high vol of the past. The markets aren’t stupid – vol is just mean reverting and furthermore, the range bound trade is far less a function of central bank interference and much the result of market uncertainty. The reason why there are no trends in FX is because G10 economies seem to be a crossroads between doomsday and recovery, with many participants fearing that the Great Recession, much like the Great Depression will have a second act.
In the meantime this may be cold comfort to traders who are being stopped out left and right, but it is also a message that markets are not supposed to provide constant uninterrupted profits. Sometimes the best that you can do is just break even. However, those traders that can contain their losses and keep their capital intact will no doubt be rewarded when the next big move comes along.”
We have definitely seen some difficult market conditions but as the article mentions, it’s just part of the trading game. The answer isn’t to “just stay out of the markets” it’s to manage risk and stay very disciplined and stick to the plan 100% and to stay as far away from “gamble trading” as possible. So we have another week of opportunity ahead of us and another opportunity to get some profits out of the daily action. Even though market conditions haven’t been as good as we’d all like, there still is plenty of opportunity to catch movements even within the channel, remember that!
So here’s to another fun, profitable and challenging week of trading!
Jared J.
Remember traders alike are waiting to see what kind of involvement the Fed will have moving forward, this is why the US Dollar (the counter currency for almost all pairs we trade) is nearly at a standstill, the coming news is too important for any major break outs or trending movement before we find out what Ben B. and the gang are up to.–
The Fed has a big two-day meeting this week that wraps up Wednesday, and the strongly held consensus is that the Fed won’t announce any policy changes at its meeting this week .
Instead, investors will be forced to look for little clues in the economic outlook and the Bernanke press conference to figure out the next move. Will the Fed give a hint that QE3 is coming at the June meeting? Maybe.
But there is one way the Fed could totally blow everyone’s mind at this meeting.
A trader just described to us how things could play out…
We just posted this chart, which is the current distribution of when FOMC members think the Fed will start tightening.
It’s a nice bellish curve, with the plurality of participants saying that 2014 will be when the next rate hike will come.
Because of this chart, you often hear that the Fed is on hold until 2014.
But that’s not technically true. The Fed can hike whenever it wants; it’s just that the plurality expect that the appropriate time for Fed hiking will come in the year 2014.
However, the general view is that the economy has improved a bit since January, when this forecast came out.
So what happens if some of the uber-doves get a little more hawkish?
What happens if the 2 members who say the next rate hike will come in 2016 switch to the 2015 camp, but then nobody from the 2015 camp changes their mind?
Suddenly 2015 becomes the large bar! Get that? Suddenly the plurality of FOMC voters will be indicating that 2015 is the likely year of the first hike.
Technically a hawkish shift in the distribution of the outlook could create a stunning headline: Zero Interest Rate Policy all the way to 2015!
The market’s mind would be blown by this.
Read more: here at BI
The markets have been nothing short of crazy these last several days while everyone (all the big money) waits to see what the FOMC will come up with next week… More QE3 or not. While the markets eagerly await this information we’re getting chopped around like like the tough guy that came up against Bruce Lee!
However it’s important to remember that while these markets can be difficult, they’re not impossible. Take for example the posts below on the EUR/USD and AUD/USD, although choppy and tough there were still pips made on those moves. They’re not pretty but they work and right now that’s about all we can ask for until the Fed clues us in on the next disaster plan.
So remember, subscribe to my YouTube channel so you can get the latest updates and daily videos, this will be SUPER important to weather these markets. Remember you can subscribe at the icons on the right (you tube, twitter, facebook). It is more important than ever to stay informed as to what’s going on or this market will EAT you alive.
Here’s the daily video from today, have a look at the set ups.
So we have the AUD/USD and the EUR/USD that are about ready to EXPLODE through one of these levels. We have some short term levels that should preface a much more important break out. Have a look at the chart below and be ready for the move. As I say from time to time, there’s going to be some broken eggs in this omelet so be ready to get in on the break out, get stopped out and re-enter. The break of this channel should be interesting and very profitable.
The eur/usd break out should be good for 50-100 pips once the move gets going.
The AUD/USD has a very nice little channel in the works (45 pip channel) and I can’t imagine it is far away from a nice break out of those levels. I don’t have much of a preference at this point on direction so an entry above/below those levels should produce a 30-50 pip movement.
As you guys know I’ve been talking about the “pre-summer” movement for a week or so, this is the big push the market typically makes before we settle into the summer channel. These runs can be big and this is usually the time that major levels of support/resistance are broken. Lots of money can be made during these several weeks of movement and we’re well underway with the run. Have a look at the video and make money on some of these break outs.
I came across this short 3 minute video on TED.com if you’re not familiar with the site I highly recommend you start visiting it, there’s great stuff there.
OK, by the name of the post and video you can tell this is going to be about goal setting and all that stuff that many of us try and fail at miserably. Watch this video, it’s just over 3 minutes long, take to heart the message that is presented. This video is great as a reminder of every thing we want to do but for one reason or another we decide not to do. Again, take the message to heart.
Now there is application to us as traders, most of us have yet to achieve the millions or billions we’ve set out to get from our trading venture. Some of us are more successful than others, some have routines others have secret skills or habits. Whatever the case may be I want each and every one of you to think of something you have been wanting to do but for whatever reason have not yet done it. In the trading game thing of a routine and stick to it for 30 days, for example you may try making a consistent 20 pips a day… heck 5 pips a day…. 100 pips a day! Whatever it is, whatever thing that is missing from the list of ingredients that might be hindering your success, just do it!
The great thing about a 30 day goal is, as he says in the video, we can do ANYTHING for 30 days! Watch, enjoy, change your life!
I truly hope you’re inspired to do or try something new and even crazy for the next 30 days to make a world of difference in your life!
For those that really take this to heart, and I really hope everyone does, I want you to email me details on what thing you’ve decided to do (trading or not trading related) and I will compile these things together and post them on the site. Also I will post this on
where you can just leave a comment on how/what you’re doing with this.
Good luck, I look forward to hearing the stories of success!!
I don’t know about you guys, but after seeing Limitless, I’ve been wishing I could do the amazing things Morra was able to do. In the time it takes to pop a pill, he went from not knowing simple concepts, like the difference between the “ask” and “bid” price, to becoming THE ultimate market wizard. All the other traders around him were in shock and awe to say the least, and as for me, I’d sell my grandpops for a lifetime supply of those pills! (Sorry Pops, but you understand, right?)
Well, that’s science fiction but in the real world there are no NZT pills to give us magic market powers. Luckily, we don’t need “magic market powers” to become consistently profitable currency traders.
Now, I guess you’re wondering what it takes for one to start racking up more winning trades than losing trades, right? But I think the bigger, and even more intriguing question for a lot of our readers out there is, “what does it take to be successful as a currency trader part-time?”
If you’ve been a fan of the best Forex page on Facebook for a while, you might remember that we ran a poll last year asking who was a part-time trader and who was a full-time trader. And guess what? The part-time traders represented! So we decided to run another forex poll asking if those part-time traders were still up and about. And they were!
Knowing that a lot of you part-timers are still out there, we full-time traders should give a helping hand when we can, right? We know what it’s like to be in your shoes, so here’s a few tips to get you through the challenges of part-time trading!
1. Stick to a trading method or style that suits your schedule
The biggest issue for part-timers is, well, time. If you only have an hour a day to commit to trading, and it’s during a low volatility trading session, strategies like day trading momentum or trending moves probably don’t make sense, right? In that situation, you may want to look into creating short-term ranging market strats or longer-term swing/position plays. So, before settling on a trading style, figure out your schedule and then tailor your methods to it.
2. Maximize your trading time
Again, time is of the essense for part-time traders, especially if you’re still in the early stages of developing your skills. So, you have to make the most of your trading time available. Think about it this way: If your goal is to enter the world’s strongest man contest and be able to lift 1000 lbs. off the ground, and you have only 10 minutes a day to work towards that, are you going to spend that 10 minutes a day lifting 5 lbs. dumbbells a couple of times? You could, but I guarantee you’re not doing the work necessary to tear down your muscles so they can rebuild stronger.
In trading, our “reps” to build our trading muscles and skills come not only from planning and executing trades, but also from other core trading tasks like doing market/chart reviews, backtesting systems, trade journaling, etc. On days when the market is slow, don’t just sit there waiting for a trade, take that down time as an opportunity for intense skill building by engaging in these core trading tasks and exercises.
The only way to develop real skills is with deliberate practice, so the more you can get in with your limited time, the faster you’ll be able to reach your trading goals.
3. Do your homework
This is a no-brainer, common sense tip, but it’s even more crucial for part-timers to follow. Since time in front of your trading station is limited, you most likely won’t be available during market shifting events or surprises. So, it’s even more important for part-timers that you know what’s driving the markets, which potentially market shifting events are coming up on the forex calendar, and to plan out different scenarios or market reactions because you won’t be flexible enough to move with the markets like full-time traders are.
Essentially, this is a case where the part-timer has to be even better prepared than his or her full-time counterpart.
4. Make your trading journal your best friend
The less time we spend doing something means that more time will be spent forgetting how to do it well. This holds true for any skill, whether it is playing a sport, public speaking, professional dance, etc.
Diligently keeping up a detailed trading journal and referring to it often can offset the extra time away from the markets by keeping a record of what does or does not work for you.
For example, instead of relying on your memory to recall market nuances (e.g., Cable tends to strongly break previous day highs or lows during quarterly UK GDP) or that your EA doesn’t work well during US initial claims days), you’ll have your trading journal to reference those events and help keep you from making a bad trading decision.
Also, entering and reviewing your journal entries acts as more “trading reps,” in that it turns that one trade into two or three experiences, bringing you that much closer to trading mastery.
5. Remember that there’s always an opportunity to grab some pips around the corner!
Part-time traders are almost guaranteed to miss good trading opportunities. For a lot of us, missing big opportunities can be as damaging to our psyche as taking a trading loss, potentially causing us to follow up with bad trading decisions. Don’t let it happen to you!
Unless the world goes to one currency or there is a major catashtrophe that causes financial markets to completely fail (in which case we’ll have bigger things to worry about), there will always be a chance to catch good trading opportunities. When you internalize that fact, you will have taken another step closer to becoming a mature trader.
Generally speaking, these tips really apply to every trader out there, both part-time and full-time, but as mentioned earlier, part-timers gotta keep their game extra tight. The lack of time and flexibility requires them to be even more prepared, disciplined, and mentally tough than full-timers.
Is it impossible for part-timers to be successful? No, but it will definitely be a challenge. And if trading and high performance is your passion, then we know it’s a challenge that you can eventually overcome.
This POST originally appeared on BabyPips.com
Is the tanking yen – which we just covered – a sign of some major problem coming to Japan?
No, not really.
In a recent note, John Taylor of currency hedge fund FX Concepts explains what drives the yen… it’s basically risk appetite.
When people want to take more risk, they dump yen. And for the first time in a while, people are feeling good. That being said, Taylor doesn’t expect this to last, and he expects the yen to hit new highs later this year.
Here’s his commentary.
Ever since the financial crisis began in 2007, the yen has been stronger than it should be. The yen has been negatively correlated with the business cycle, just like the dollar is, but even more so. When the financial system almost collapsed, hedge fund managers and other yen borrowers had to liquidate their assets and buy yen to repay their loans, resulting in a strong yen. After the Fed and others stimulated the global economy, the yen should have weakened, but the weakness was minimal – something was different. Two things had changed. Global growth was so forced and feeble that the Japanese did not invest enough offshore – they kept too much money at home – and hedge fund managers could borrow dollars for even less than it cost to borrow yen. The dollar was safe too as the Fed didn’t want it to strengthen. Most of the missing outflow was Japanese, especially recently, as there is a school of thought among some hedge funds that Japan is very close to a major financial collapse, so as the Eurozone crisis deepened, they are establishing yen shorts to wait for Japan’s turn.
They will have a long wait. Although Japan’s government debt is estimated around 220% of GDP, most of it is owned domestically, and netting currency reserves against its liabilities, their sovereign debt position looks more like the US or the UK. When private assets are included, it is clear why the yen is so strong during troubled times. We must conclude 2011 was bad enough that Japanese investors were more worried about return of capital than return on capital. Only at the start of February did global things look good enough that the yen began to weaken. The good US numbers mean US rates will climb and higher rates mean a higher dollar. The defensive position taken by most Japanese investors, with US assets hedged, means they are short dollars. Their lifting of hedges implies large yen sales, a trend that will run until exhaustion when hedges are removed and the dollar is much stronger. However, it is more likely US growth disappoints, resulting in high risk, more Japanese repatriation and hedging, and a stronger yen – maybe as strong as 2008. By early fall, the yen should be at all-time highs. A reversal of recent yen weakness will be the trigger that the US economic numbers are headed lower. However, if the recent trend away from consumer-led growth continues, reserve growth will extend its slow decline that began in August, and the lack of Asian money to buy US sovereign debt will drive US rates higher and the dollar up. Although this bout of weak yen should end soon, after a period of yen strength, it should reappear in a more virulent form by year-end.
Bottom line: At least for now: What drives the yen is the alternation between risk on and risk off, whether Japanese investors are investing abroad, and whether hedge funders are borrowing in yen to buy various assets. When people are investing more and taking risks, that’s yen negative.
And of course, nobody in Japan is complaining. Manufacturers appreciate the breathing room, and the Nikkei index is doing just fine in the midst of the selloff.
This POST originally appeared on Business Insider
