So far USD/JPY has shot to 79.48 from a low of 75.57 and the pair looks like it will push higher after the Ministry of Finance chomps through another set of sell orders around 79.20. Officials may take aim at 80.00 but based on the comments out of Japan, a Swiss-like peg doesn’t sound likely.
What also has the market spooked is a few headlines from the Wall Street Journal suggesting that clearinghouses and regulators are preparing for an MF Global bankruptcy filing.
EUR/USD is down 120 pips, cable down 150 pips, AUD/USD down 165 pips, USD/CAD up 70 pips and gold down $35.
Intervention and bankruptcy are two of the trickiest trades out there. On the one hand, this channels Lehman and the crisis but MF Global isn’t a huge employer. On the other, what happens as all those bonds hit the market in liquidation. It certainly won’t help Italian spreads.
I want to trade this but I don’t need to trade this, so I’ll sort it out in the morning. If anything, I’m thinking of adding to my EUR/CHF long as traders are reminded about the power, and potential profits, of intervention.
USD longs versus CHF (at 80.12) and JPY (at 77.92) on July 27. Stopped out of both trades on July 29 July 29. Result: -60 pips
Entered with stops at 79.82 (30 pips) and 77.62 (30 pips). Greatest open loss: 30 pips. Greatest open gain: CHF +34 pips; JPY negligible
I entered this pair of trades at the same time. This was late on Wednesday, with a weekend debt ceiling deadline looming. The idea was simple: any good news about the US debt ceiling debate would lead to a pop in USD/JPY. At the same time, USD/JPY had leveled out around 0.8000 so it looked well supported.
What I should have known better: Never bet on the sanity of US politicians. They continued to bumble along until the weekend and eventually made a deal with hours to spare before the Aug. 2 deadline. Part of the reason I erred was because I believed it was necessary to have a deal before the weekend. Media reports mislead me. The lesson, I guess, it to only trade politics if you know the system inside out.
What I’m happy about: The stop was certainly in the right spot. I for 30 pips I bought myself 36 hours of negotiations. When the deal was finalized, it led to a 120 pip (JPY) and 140 pip (CHF) bounce. The rallies were about what I expected. So I took a gamble with 4×1 odds in my favour and lost on bad timing.
Entered USD/JPY short at 79.21 on July 4. Added July 21 at 78.49. Exited July 25 at 1.0627 (+120 pips) and July 27 (+42 pips). Result: +168 pips.
Entered with stop at 79.56 (35 pips). Greatest open loss: zero pips Greatest open gain: ~200 pips
I entered this trade on my expectations of problems with debt ceiling talks. On July 18, we were two weeks away from Aug. 2 deadline and expectations were for a deal to get done. The trade was based on my belief that nothing gets done easily or smoothly in Washington – a trade I’ll make every day of the week.
I shared my analysis in a post entitled: Debt Ceiling Hiccups to Come Sell USD/JPY. I wrote “Every story I’ve read late on Tuesday sounds like an agreement is just a matter of hammering out some details and drafting a bill. That is NEVER the case in US politics.”
What I should have known better: If I would have held the trade until July 28, I would have made 385 pips. The time from the 24 Jul to 28 Jul was frustrating because the news kept getting worse but USD/JPY wasn’t breaking down. There was lots of talk about barriers at 78.00 and 77.75. The news was progressing exactly as I expected but the market wasn’t acting how I expected so I cleared out. I suppose that was a wise move with the first half of the trade but with the second half, I should have just moved the stop lower instead of rushing out of the trade. A bit too cautious.
What I’m happy about: Many things. First, I was never holding a loss on a trade that earned 168 pips. Second, I didn’t jump into the trade on July 18. Instead I waited for a bounce. Even though the bounce was only 15 pips but it was a good start to a very disciplined trade. Third, I added to a winning trade. Fourth, I moved my stops down all the way.
Bonus thought: Look how oversold the RSI is, I almost want to buy USD/JPY expecting a bounce in the next 2-3 days on a debt ceiling deal.