Comments on: AUD has me a bit confused

By: voilaroo

voilaroo — Wed, 10 Feb 2010 06:25:50 +0000

Not this one JR! I’m too busy reading Sean’s wrap and the ‘Suggestions that Chinese military considering Treasury sales as Taiwan retalition”. I agree with your comment earlier about that topic, but…, could it be the end (of the US dollar), when it bends? I’ve got to throw few prawns with garlic made in China on the bbq, so i won’t nail the tail off the tale…

By: JR

JR — Wed, 10 Feb 2010 06:01:00 +0000

Hey Roo, The Market Wizards, eh? good stuff. Have you read “Inside the House of Money”? That’s also a good read.

By: voilaroo

voilaroo — Wed, 10 Feb 2010 05:51:06 +0000

“Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them”. Good old Ed edd n eddy Seykota! Thanks JR! I knew only the first part of ” the trend is your friend”, but ” until the end when it bends” made my day!

But, but, but…, let’s say, now, that you are a fundamentalist 100 pips (euh, only 50 updated) on side on your position, shouldn’t you try to rally some anticipators mates of yours to end the hated campaign against the euro and the love for “the green(over)shoot? Hey teacher leave those P.I.G.S. alone!!!
Answer: no. Thanks Sean, for the explanation, ” ACB is selling AUD/USD and EUR/USD”

“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money”.

Everybody is a winner… G’day to you all!!!

By: Zeke

Zeke — Wed, 10 Feb 2010 04:07:52 +0000

Thanks as always Sean. I’m off ’til NYC…

By: JR

JR — Wed, 10 Feb 2010 03:56:36 +0000

Roo, when the aud/jpy hits 76.2 or aud/usd hits 857 i’d say go with your contrarian instincts, but buying the aussie and the euro at these levels is fighting the tide. the s+p hit a top of 1150. a regular 10% correction is 1035, and we almost got there friday. a 20% bear market correction would take us to 920. i’m guessing that the market is enjoying an oversold bounce at the moment and that once it digests the full implications of germany either bailing or not bailing out greece, (will the bailout work or will it require subsequent bailouts? will other countries demand bailouts? will germans eventually balk at the idea of subsidizing club med? will club med eventually want to regain control of their monetary policy?) then it’ll sell-off again and see if the 1035 level holds. that’d be a great time to get all contrarian into long aussie positions. Til then, as Ed Seykota said, the trend is your friend until the end when it bends…

By: Sean Lee

Sean Lee — Wed, 10 Feb 2010 03:47:03 +0000

There’s a mad French guy in Tassie who sells great garlic on the markets but you’re right otherwise, almost impossible to find local produce

By: voilaroo

voilaroo — Wed, 10 Feb 2010 03:31:54 +0000

Crikey! Jr’s gone into the Coonawarra! And Cheg’s telling me that the Us dollar is like the yuan. Did you know fellows that it is now impossible to buy garlic in an Australian supermarket not made in China…, just like the rest?
Should I come to the conclusion that I have to force myself to flat my position and buy the yuan(or the dollar), because really, as long as the old and the new generation keep talking and hating the P.I.G.S, there is no hope for a contrarian to have his slice of bacon under the Aussie sun?
Bugger!

By: Zeke

Zeke — Wed, 10 Feb 2010 03:20:11 +0000

Exactly what I needed. The pints just keep adding up…

By: Sean Lee

Sean Lee — Wed, 10 Feb 2010 03:18:41 +0000

As the USD is the main international currency of trade, China earns vast amounts of USD from their exports. These USD are what they use in the markets to buy Gold, EUR, or whatever. So they are always a natural seller of USD as they earn so many of them constantly. That’s the simplified version.

By: zeke

zeke — Wed, 10 Feb 2010 03:16:09 +0000

Does China buy USD against their own currency, and then turn around and buy US debt with those dollars?

By: cheg

cheg — Wed, 10 Feb 2010 02:54:08 +0000

Hey, Skippy. You are right, but are wrong.The currency you are selling is not the $ but the Yuan until the morning after of course..As far the stock mkt is concerned, I’ll stick with my earlier comment, it has a strong sense of “déjà vu”, keep it small but short to add on strong rebounds.

By: JR

JR — Wed, 10 Feb 2010 02:34:51 +0000

Hey Voilaroo, I lived in Australia for a couple of years and miss the good stuff, Petaluma! Everything you need to know about the market you can find in a chart of Goldman Sachs. It formed a head-and-shoulders pattern in December when Sen. McCain advanced the Glass-Steagall legislation. Goldman is a great leading indicator for the equity markets. It has a PE ratio of 8 and is trading like a wounded duck. When you see mergers and acquisitions activity, you’ll know that the equity market is out of the woods. ‘Til then, the markets are propped up by the governments. Hey, looks like the euro is dropping, gotta run…

By: voilaroo

voilaroo — Wed, 10 Feb 2010 02:17:12 +0000

Regarding the equities, the question is, where are we going from the current levels ? Is it just a small correction or are we going down much lower?
I am fully aware of the facts that the trend is your friend (= buy US dollar) and about the carry-trade and reverse carry-trade effects. Any serious collapse of the stock market will trigger an other fly to safety of the green note.
I guess that, involuntary, I am a (short term)wallaroo-bull of the stock market, which suits my long Aussie-doll position. But my eyes are wide opened. Any suspect positions, like Goldman Sachs caught shorting the S&P while advising their clients to buy…, and I will follow the flow and reverse my positions.
If your hear anything, feel free to inform me, Jr! I do live in Australia and will happily share with you few bottles of wine against a bit of your oil!!!

By: JR

JR — Wed, 10 Feb 2010 01:31:17 +0000

Voilaroo, don’t forget to factor in the business cycle or the commodities/equities super cycle in your fundamental analysis…

By: Sean Lee

Sean Lee — Wed, 10 Feb 2010 01:20:51 +0000

Hi Pandu. Yes the BIS is the Bank for International Settlements, central bank to the central banks.

By: voilaroo

voilaroo — Wed, 10 Feb 2010 01:18:40 +0000

Technically correct, but how about the fundamentals? Everyone is looking for a move down to the 85.00 or even the 80.00 mark but not up to the 90’s. Interest rates are higher in Australia than anywhere else in the developed nations and for few good reasons:
- House prices are bubbling (+ 14% in 2009)
- Unemployment is low (5.5%)
- Inflation is somehow controlled but on the hot side, like the weather
- The gold price is elevated and is still consolidating, courtesy of the Chinese, the Indians and all the other speculators.

Now, every Aussie(dollar) trader remembers the collapse of the currency down under the 60.00 level, thanks to the panic attack of the RBA and its 100 basis points slash at a time of interest rates and the systemic risk of the stock market. But this time is different. If Australia can not hike rates when the rest of the world is commited to low interest rates for ever, the differencial of rates is surely still in favor of the Aussie.

The bottom line is that the US dollar is overbought against every single currency; Fanny Mae, Freddy Mac and the insolvency of California deserve more attention than the P.I.G.S.; and yes, I am long Euro and Aussie, against the US dollar, and I am still waiting for “the morning after” when all the charts mates of the world will wake up and bond with the fundamentalists!!! Voila!

By: Guy

Guy — Wed, 10 Feb 2010 00:54:36 +0000

Hope you’re right JR! Afraid I can’t watch it any longer – nearly 01.00am in UK, so off to get some shut eye! Good luck all.

By: JR

JR — Wed, 10 Feb 2010 00:42:43 +0000

My take is that aud/usd is the proxy for the commodities/emerging markets component of the global reflation trade and that eur/usd and eur/jpy is the proxy for the equities market/established markets component of the reflation trade. Part of the confusion in the market is that there’s a huge deflationary impact of the de-leveraging from the banking, housing, consumer credit crises at the same time that there’s the inflationary impact of the growth in emerging markets such as china, india, brazil, etc. To me, that means short the euro on rallies and buy the aussie on dips. That the aussie has an interest rate differential, of course, helps it on the upside as well. As for if the aussie is overvalued, look at the 20yr chart: it traded in a 50-80 range and, given the emerging markets, should probably be in a 60-90 range now. But there’s so much hedge fund money in currencies that it catches one heckuva bid… I personally think it’ll hit 98 before it hits 75. Why? You don’t fight the Fed- or the plunge protection team. The machines took over this past Friday at 1:30- every market went up in unison. No one in their right mind takes on that kind of risk, during a massive sell-off, going into a weekend. The G20 needs reflation or they’ll go bankrupt. So they’ll get it.

By: simpletrader

simpletrader — Wed, 10 Feb 2010 00:34:06 +0000

Hi Sean,
Discovered this site a few weeks ago and it has now become a regular read for me. Its a great site – news, informal chats, all in bite sized quips. I have seen BIS mentioned often here involved in FX markets trading. Is this the Bank for International Settlements, or is it some other BIS?
Thanks for the great insights.
pandu

By: Guy

Guy — Wed, 10 Feb 2010 00:32:27 +0000

Think as Sean says, could be a coin toss! Gold appears to be bouncing, the possibility of higher rates might help, and one might say USD is taking a breather. Lets see!