Sept 22, 2011- A Little Common Cents Corner #14- Implications of Currency Dislocations

I, as a trader, will often have to tell my friends that I cannot chat with them during trading hours because I am working.  You’re probably wondering what I mean, since I’m not exactly trading and had been terribly light for many weeks now (except short positions which I can carry on the forex markets or through contract derivatives (CFDs).  When a trader means that he’s working, it means he’s trying to understand the intermarket relationships of independent financial markets.  Charts are one thing.  News is also another thing.  I’m macro, then micro, then price.  This defensive stance helps me to have a lot of cash, when the markets are going on a fire sale.  Prudence in risk management, and being a proactive manager doesn’t mean that I’m doing nothing when I’m saying I’m in cash.  Cash is always king.

Here are the opportunities that I am very much looking to enter into (from a fundamental perspective, and will look into entering using partial entry strategies (employing technicals and risk management) as the days go by.

1.) USDBRL, USDSGD, and USDPHP 

The currency markets are beginning to read as “Forced position liquidations”.  I placed here the USDSGD,USDBRL, USDPHP 1 Yr  3Yr and 5 Yr charts for fuller picture.

Exhibit 1: USDSGD staged a massive short squeeze rally from 1.20 to current levels of 1.2889 (it reached an intraday high of 1.2965 yesterday)

Exhibit 2: USDPHP also had an impressive move from the lows of 42.50 to current levels of 43.78, touching the psychological 44

Exhibit 3: USDBRL (called the best emerging market currency) as Brazilian Real has been staging one of the best economies in the past decade, also experienced a massive short from 1.60 levels to current levels of 1.80.

Please click the charts, to see things clearly.

In my last chart (Exhibit 4)- I show how dangerous it is to be short TOO EARLY in the dollar.  Risk management and position size needs to be employed.  I learned this the hard way when I was too early in the USDPHP, EURUSD short trade that I made last 2010 (also during the height of the European crisis).  So here’s an opportunity where you want to play your cards right.  Short the USDPHP at levels from 44.00 and even at 43.50 to target a continuation of the primary trend which is the depreciation of the dollar for long-term (at least 1 year to 2 years) decimation of the dollar currency.  You can do this instrument primarily through NDF (Non delivery forwards normally have 3 months, 6 months and 1 year, I personally prefer the 1 Yr).  For those who have currency accounts, I do these trades primarily using SaxoTrader trading the USDSGD and AUDUSD vehicles.  I think other interactive forex platforms allow these trades to be done too. Just check online.  Most starting accounts don’t really need huge amounts of capital.  Around 2,500-10K USD is enough to get you started.   You can practice trading for free at many forex sites such as http://www.myfxbook.com, interactive brokers, fxcm to name a few.  Just browse around the net, or comment.

2.) Implications of the Currency Dislocations

I’m afraid to say this but, most blue chips will have further selloffs as most foreign funds who wanted to make gains with the emerging market currency appreciation can be the culprit of the current sell offs in the market.  It may be anecdotal, but the foreign funds still represent a predominantly big whale in the market.

I smell a lot of impending near signs of capitulation (more on the emerging market indices), and still not so much fear in the Philippines, thus I continue to stand aside.  I have no qualms buying the first 5% uptick, rather than catching the 5% downticks (unless there are educated support level guesses).

Respect Risk. Many companies in the Philippines borrowed in dollars, and the currency dislocations are not just nothing to shrug about.

Even safe havens such as Treasuries, Apple and Gold won’t entirely be immune.

– FacelessTrader

P.S. Check out comic strips from The Oatmeal 😀 Hat tip to E.F. for sharing me the site.  It’s really great laughs 😀

If Netflix is split into half (less than half right now), you now know why.  (Stock price plummetted from 300 USD to current 128 levels and counting)

Samples: http://theoatmeal.com/comics/netflix

And a real life – Jessica Rabbit (my featured image). Check out these real-life Disney Princesses. They’re all hot and awesome.

 

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