Get Ready for Monthly and Quarterly Reviews

I am currently compiling the results for this month and quarter and will post a review for each over the next couple of days. Keep your eyes out. As you know, our system ended up both the quarter and month up but not as much as we would have liked. Our large drawdown in mid February through early March had a definite impact on where we ended up. In-depth analysis to come.

Daily Wrapup - March 31th, 2008

As you probably already knew, we were not trading today. There were quite a few reasons for that. First it was the last day of the quarter, of the month, and a Monday. All three of those are traditionally bad trade days and putting all three together made it even higher risk. Two, we had a great end to the month and wanted to take a day off to celebrate. And three, Europe had just moved their clocks back one hour and it is good to take a breather and let the market adjust to the changes.

At the end of the day our decision to stay out of the market was mixed. The GBP/USD signaled a no-trade anyway as so we would not have traded it. And our Intraday about broke even for the day. I would have to spend some more time to figure exactly where it would have ended up but at quick glance it looked to be a broken-even day. So all in all, it didn't save or lose us money by taking the day off... but it was a nice chance to rest and get ready for the second quarter of this year.

Poll Question Response

In response to the Poll question from this week. I thought I'd post an interesting chart. This is our GBP/USD from May 2006 through the 17th of this month. As you can see, it has been in an indecisive state. In fact, our three losses on the GBP/USD in the last 45 days all came within that low point where the market really couldn't determine a direction. It seems a Bullish direction has begin since the Bank of England decided keeping inflation in check was more important then spurring the economy and chose not to lower rates in February. That sentiment is strengthened by news out within the last few days that the U.S. economy may already be in a recession. Of course, the analyst from the website where I pulled this chart (posted about 10 days ago) was using it to show why he thought that the trend would continue down. Welcome to Forex :).

Daily Wrapup - March 28th, 2008

Well, it was a very choppy day leading to two quick GBP/JPY full risk losses of 1% each. Dollar strength however signaled a long entry USD/JPY that when it was all said and done profited 2%. All trades were closed before any news had an effect.

I believe the choppyness in the market was due to the fact that conflicting positive and negative reports have recently come out of Japan keeping the Yen flat. This meant that our two pairs were mostly influenced by the strength of either the Pound or the Dollar. Since the start of London, the GBP/USD has been in a sideways trend waiting for the GDP report to come out. All these factors combined caused what we saw today.

For the day the system ended right at breakeven. After Dukascopy commissions the account may be down 1/10% or so.

Daily Outlook - March 28th, 2008.

We have UK Nationwide house prices coming out at 3:00pm EST and the UK GDP numbers coming out 5:30pm EST. Both have the potential to throw off our GBP/USD signals and so we will be taking any GBP/USD entries at half risk. We also will be very cautious prior to the GDP numbers exiting our position unless we are safely in profit.

After seeing some signs the U.S. Dollar was strengthening late last week, more bad news continues to come out(here, here). The Dollar has nearly halved its value against the Euro in the last 8 years. There are definitely positive sides to a weak Dollar but it sure hits to hold them right now.

Because of the 1/2 risk GBP/USD requirement, we will also be taking 1/2 risk on our Intra-day strategy as well so as to balance the overall cash management plan.

UPDATE (1:40AM) - Prior to the open of Frankfurt, the GBP/USD strategy signaled a no trade for the day. We now will bump our Intraday risk back to normal. We will not, however take any new Intra-day entries 30 minutes before or after UK GDP. We will also exit any open positions on both pairs 5 minutes prior to the report unless both positions are in significant profit.

Daily Wrapup - March 27th, 2008

Another clock work day for the system. The GBP/USD strategy signaled a long entry about 30 minutes into Frankfurt and London carried the entry to profit (about 1.70%) climbing above significant resistance at 2.0110 and taking profit at 2.0126 before retracing back below the 2.0110 level. With the R word being used a lot today there is little hope for dollar strength today and probably tomorrow.

Our GPY/JPY-USD/JPY strategy signaled an immediate entry as Frankfurt opened and some positive European economic news bolstered our Carry trade pairs quickly both to 1/2 profit (1.8%) within the hour. Both trades then flattened off. The Yen then went flat and dollar weakness caused our second half position to close out a couple hours later up .4%. The second half of our GBP/JPY, due to Pound strength against the dollar, held on until the open of New York when the strategy signaled a close worth 1.2%. Our Intra-day strategy finished the day up 3.4%.

The system ended the day up about 5.1%

Daily Outlook - March 27th, 2008

Similar to yesterday, no big news to watch for during our European session. There will be major news coming out at 8:30am EST this morning. The U.S. GDP report could signal that the world's largest economy has slipped into a recession. We will be watching to see what market speculation will do to the price of our GBP/USD trade in advance of the report. However, anticipation of the report will in no way effect our trading plan.

On our Intra-day Carry Trade pairs strategy it should be business as usual. There are more signs that the carry trade will continue to unwind.

Here is an interesting article on the Fed and how the credit crisis is changing the way it functions.

Daily Wrapup - March 26th, 2008

The day was as expected. Plenty of volatility in our currency pairs, no unexpected announcements, led to a good profit day. The GBP/USD strategy took a long entry almost immediately upon the open of the Frankfurt session. It took profit (approximately 1.8% gain) before the open of the European equity markets before the trend reversed. Analysts expect the dollar to increase in value from this point. We had been waiting for a GBP/USD top after three strong pound days and it looks as if we have found it.

Our intra-day carry trade pair strategy worked as planned. Into the open of London we received two short entry signals for both pairs. The GBP/JPY was quickly stopped out as the GBP/USD strength put a drag on Yen strength. However, the USD/JPY dropped quickly taking profit about an hour after our entry for a overall 1% net gain (1% GBP/JPY loss, 2.2% USD/JPY gain).

The system ended the day up about 3%.

Daily Outlook - March 26th, 2008

No major news coming out during our London session, no Holidays to worry about, and traders in Europe already have one day to get back into the groove after a long holiday weekend. I expect the day to be full of volatility. No variations to our system rules so here goes.

We will keep our eye on two major U.S. news reports coming out at 8:30am and 10:00am EST today. The Core Durable Goods and New Home Sales reports should give the dollar some definitive direction for the next while.

Daily Wrapup - March 25th, 2008

What started out as a rocky day turned positive into the beginning of the New York session. The market through the European session was indecisive, providing no real movement for our systems. The GPY/JPY started out with two losses totaling 1.25% before it's counter pair, USD/JPY got a short signal good for a 1% gain. Our GBP/USD strategy signaled a long entry but bounced between breakeven and 1/2% down most of the morning before more bad news coming out of the U.S. weakened the dollar leading to an eventual 1.75% gain. All in all the system ended up the day about 1.5%.

News to watch:

1) Consumer confidence hits lowest level since Nixon was President.

2) More Credit Losses in the news.

3) Largest U.S. Home Price Index fall in history.

4) More U.S. rate cuts on the way.

5) British economic slow down increasingly more likely.

6) On a lighter note... "Life For Sale"

Daily Outlook - March 24th, 2008

Today is Easter Monday, another major Holiday in many parts of the world. We will not be trading the European session today but may look to take a low risk entry on our GBP/JPY and USD/JPY pairs during New York if the right setup presents itself.

Some interesting news today:

1) More grief in the housing markets.

2) Fed may start buying Mortgage backed securities.

3) G-7 intervention to prop up the dollar may be coming soon.

Food for Thought

In response to the Poll question this week, I thought I'd post a VERY interesting article about the U.S. Dollar/Economy by the International Intelligence ThinkTank Stratfor. Remember that since this article; Oil has climbed well above the $100/barrel mark to nearly $112/barrel. The U.S. Equity markets remain reasonably stable (DOW climbed back above 12000 this week and some analysts are even Bullish for 2008). So it seems that Stratfor is on the mark... take a look.

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Stratfor Newsletter
China and the Arabian Peninsula as Market Stabilizers
December 11, 2007 20:13 GMT By George Friedman

The single most interesting thing about today's global economy is what has not occurred. In 1979, oil prices soared to slightly more than $100 a barrel in current dollars, and they are approaching that historic high again. Meanwhile, the subprime meltdown continues to play out. Many financial institutions have been hurt, many individual lives have been shattered and many Wall Street operators once considered brilliant have been declared dunderheads. Despite all the predictions that the current situation is just the tip of the iceberg, however, the crisis is progressing in a fairly orderly fashion. Distinguish here between financial institutions, financial markets and the economy. People in the financial world tend to confuse the three. Some financial institutions are being hurt badly. Those experiencing the pain mistakenly think their suffering reflects the condition of the financial markets and economy. But the financial markets are managing, as is the economy.

What we are seeing is the convergence of two massive forces. Oil prices, along with primary commodity prices in general, have soared. Also, one of the periodic financial bubbles -- the subprime mortgage market -- has burst. Either of these alone should have created global havoc. Neither has. The stock market has not plummeted. The Standard & Poor's 500 fell from a high of about 1,565 in mid-October to a low of 1,400 on Oct. 19. Since then, it has rebounded as high as 1,550. Given the media rhetoric and the heads rolling in the financial sector, we would expect to see devastating numbers. And yet, we are not.

Nor are the numbers devastating in the bond markets. By definition, a liquidity crisis occurs when the money supply is too tight and demand is too great. In other words, a liquidity crisis would be reflected in high interest rates. That hasn't happened. In fact, both short-term and, particularly, long-term interest rates have trended downward over the past weeks. It might be said that interest rates are low, but that lenders won't lend. If so, that is sectoral and short-term at most. Low interest rates and no liquidity is an oxymoron.

This is not the result of actions at the Federal Reserve. The Fed can influence short-term rates, but the longer the yield curve, the longer the payoff date on a loan or bond and the less impact the Fed has. Long-term rates reflect the current availability of money and expectations on interest rates in the future.

In the U.S. stock market -- and world markets, for that matter -- we have seen nothing like the devastation prophesied. As we have said in the past, the subprime crisis compared with the savings and loan crisis, for example, is by itself small potatoes. Sure, those financial houses that stocked up on the securitized mortgage debt are going to be hurt, but that does not translate into a geopolitical event, or even into a recession. Many people are arguing that we are only seeing the tip of the iceberg, and that defaults in other categories of the mortgage market coupled with declining housing markets will set off a devastating chain reaction.

That may well be the case, though something weird is going on here. Given the broad belief that the subprime crisis is only the beginning of a general financial crisis, and that the economy will go into recession, we would have expected major market declines by now. Markets discount in anticipation of events, not after events have happened. Historically, market declines occur about six months before recessions begin. So far, however, the perceived liquidity crisis has not been reflected in higher long-term interest rates, and the perceived recession has not been reflected in a significant decline in the global equity markets.

When we add in surging oil and commodity prices, we would have expected all hell to break loose in these markets. Certainly, the consequences of high commodity prices during the 1970s helped drive up interest rates as money was transferred to Third World countries that were selling commodities. As a result, the cost of money for modernizing aging industrial plants in the United States surged into double digits, while equity markets were unable to serve capital needs and remained flat.

So what is going on?

Part of the answer might well be this: For the past five years or so, China has been throwing around huge amounts of cash. The Chinese made big, big money selling overseas -- more than even the growing Chinese economy could metabolize. That led to massive dollar reserves in China and the need for the Chinese to invest outside their own financial markets. Given that the United States is China's primary consumer and the only economy large and stable enough to absorb its reserves, the Chinese -- state and nonstate entities alike -- regard the U.S. markets as safe-havens for their investments. That is one of the things that have kept interest rates relatively low and the equity markets moving. This process of Asian money flowing into U.S. markets goes back to the early 1980s.

Another part of the answer might lie in the self-stabilizing feature of oil prices, the rise of which should be devastating to U.S. markets at first glance. The size of the price surge and the stability of demand have created dollar reserves in oil-exporting countries far in excess of anything that can be absorbed locally. The United Arab Emirates, for example, has made so much money, particularly in 2007, that it has to invest in overseas markets.

In some sense, it doesn't matter where the money goes. Money, like oil, is fungible, which means that if all the petrodollars went into Europe then other money would flow into the United States as European interest rates fell and European stocks rose. But there are always short-term factors to consider. The Persian Gulf oil producers and the Chinese have one thing in common -- they are linked to the dollar. As the dollar declines, assets in other countries become more expensive, particularly if you regard the dollar's fall as ultimately reversible. Dollars invested in dollar-denominated vehicles make sense. Therefore, we are seeing two massive inflows of dollars to the United States -- one from China and one from the energy industry. China's dollar reserves are derived from sales to the United States, so it is stuck in the dollar zone. Plus, the Chinese have pegged the yuan to the dollar. The energy industry, also part of the dollar zone, needs to find a home for its money -- and the largest, most liquid dollar-denominated market in the world is the United States.

The United States has created an odd dollar zone drawing in China and the Persian Gulf. (Other energy producers such as Russia, Nigeria and Venezuela have no problem using their dollars internally.) Unhinging China from the dollar is impossible; it sells in dollars to the United States, a linkage that gives it a stable platform, even if it pays relatively more for oil. Additionally, the Arabian Peninsula sells oil in dollars, and trying to convert those contracts to euros would be mind-bogglingly difficult. Existing contracts and new contracts managed in multiple currencies -- both spot and forward managed -- would have to be renegotiated. Any business working in multiple currencies faces a challenge, and the bigger the business, the bigger the challenge. The Arabian Peninsula accordingly will not be able to hedge currencies and manage the contracts just by flipping a switch.

This provides an explanation for the resiliency of U.S. markets. Every time the news on the subprime situation sounds so horrendous that it seems the U.S. markets will crash, the opposite occurs. In fact, markets in the United States rose through the early days, then sold off and now have rallied again. Where is the money coming from?

We would argue that the money is coming from the dollar bloc and its huge free cash flow from China, and at the moment, the Arabian Peninsula in particular. This influx usually happens anonymously through ordinary market actions, though occasionally it becomes apparent through large, single transactions that are quite open. Last week, for example, Dubai invested $7 billion in Citigroup, helping to clean up the company's balance sheet and, not incidentally, letting it be known that dollars being accumulated in the Persian Gulf will be used to stabilize U.S. markets.

This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar's price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.

It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys.

Many people will see this as a tilt in global power. When others must invest in the United States, however, they are not the ones with the power; the United States is. To us, it looks far more like the Chinese and Arabs are trapped in a financial system that leaves them few options but to recycle their dollars into the United States. They wind up holding dollars -- or currencies linked to dollars -- and then can speculate by leaving, or they can play it safe by staying. In our view, these two sources of cash are the reason global markets are stable.

Energy prices might fall (indeed, all commodities are inherently cyclic, and oil is no exception), and the amount of free cash flow in the Arabian Peninsula might drop, but there still will be surplus dollars in China as long as it is an export-based economy. Put another way, the international system is producing aggregate return on capital distributed in peculiar ways. Given the size of the U.S. economy and the dynamics of the dollar, much of that money will flow back into the United States. The United States can have its financial crisis. Global forces appear to be stabilizing it.

The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don't. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.

Daily Wrapup - March 21, 2008

Our rules governing Holidays kept us out of a virtually dormant market that would have cost us today. Next week we have Easter Monday which is a Holiday in some of the countries that trade our schedule.

Daily Outlook - March 21, 2008

Happy Good Friday everyone. Good Friday is a major Holiday in Europe. On major Holidays the markets tend to go dormant(very few traders in the market). Our rules dictate that we not trade on Major Holidays. So, we will enjoy the European session off and possibly take a position on the open of the New York session if given an ideal entry signal.

Some interesting things to note:

1) Bernanke getting much of the credit for the largest Commodities price drop in a week since 1956.

2) Dollar finally set to post a weekly gain.

3) Yesterday's UK Retail sales numbers come out unexpectedly good, could mean no rate cut again.

Trade Day Wrapup - March 20th, 2008

We saw things beginning to calm down after the markets started the week off in a "jittery" state. Our GBP/USD strategy took a short position about 10 minutes prior to the open of London. Our two Carry Trade intraday pairs (GPY/JPY and USD/JPY) took long positions shortly after London opened. The GBP/USD took 1.75% profit about 5 minutes prior to the UK retail sales announcement. We exited the GBP/JPY trade 2 minutes prior to the announcement as a precautionary measure. The trade was up about 0.2% when it was closed out. The USD/JPY took profit about an hour later locking in 0.85% on the first half with the second half of the position closing out about an hour later with an additional 0.7%. All in all, the system closed out the day up about 3.5%

Daily Outlook - March 20th, 2008

The dollar made significant gains against the pound yesterday as falling commodity prices helped spur dollar acquisition. Analyst predict the bullish trend to continue. However, long-term things remain bleak for the Dollar as experts expect another indicator to come out this week prediciting a U.S. recession.

Major news out of London is expected to come out at 5:30am EST. The most important report we will be watching is the Month over Month Retails Sales data. Expectations have been that a further rate cut is in the works however concerns over inflation convinced the BoE to keep rates unchanged at 5.25 in March. The next rate decision will come on April 10th and weak retail sales could lead a rate reduction at that meeting. We will take special caution within 15 minutes of the news announcement.

Trade Day Wrapup - March 19th, 2008

It was a highly volatile day as the world markets remain skittish over the credit crisis and liquidity shortages. Our decision to stay out of the GBP/USD turned out to be a good one as the trade would have lost about 2% on the day. We did take both a GBP/JPY and USD/JPY at full risk size. Both trades took profit on a huge Yen rally early into London (1% Yen gain against both Dollar and Pound in less than 5 minutes). The trading fund ended the day gaining, between the two trades, about 4%.

Daily Outlook - March 19, 2007

The Fed cut the key rate yesterday by .75 basis points. Analysts had expected a full percentage point. The move capped two days of extreme movement after the Fed made unprecedented moves over the weekend to address the credit market crisis. The trading system had been put on hold waiting for the market to calm down some. We will be trading the GBP/JPY and USD/JPY pair today but will hold off on the riskier GBP/USD trade strategy for today.

More Doom and Gloom :)

I hate to add more doom to the gloom but it is interesting to note the following: (keep in mind that our systems are NOT reliant on any specific economy being good or bad and so the following is more food for thought than anything else.)

1) U.S. Home Starts at 17 year low

2) Fed now likely to reduce main rate by 1% tomorrow

3) Fed breaks four decades of policy by getting involved in Bear Stearns bailout.

4)``Given everything that has happened over the past few days, the market is extremely jittery, with rumors abounding about other banks out there being denied funding,'' said Sean Maloney, a fixed-income strategist in London at Nomura International Plc, a unit of Japan's largest securities company.

Daily Outlook - March 17th, 2008

JP Morgan agreed to purchase Wall Street's fifth largest securities firm over the weekend for an estimated $240 million (approximately $2 per share). That figure is nearly 90% of what the firm had been valued at last week (the companies 45 story headquarters is valued at $1.2 billion alone). The companies shares have gone from a high of $158.39 last April to trading at $3.63 in Frankfurt today.

The Fed performed it's first weekend emergency action in nearly three decades this weekend spurring increased global concern over struggling financial markets. Both the GBP/JPY and USD/JPY saw nearly 5% decreases in value in a matter of hours as the world markets reacted to the action. "'This is a serious crisis,'' said David Goldman, senior portfolio strategist at Asteri Capital in New York and former head of debt research at Banc of America Securities LLC. ``Something is systemically very wrong and we're at a very dangerous moment.' The Fed lowered the rate on direct loans to commercial banks by 25 basis points to 3.25 percent to help restore confidence in financial markets shaken by the collapse of Bear Stearns and more than $195 billion in asset writedowns and credit losses worldwide. The action coincided with JPMorgan buying Bear Stearns for about $240 million, less than a 10th of its value last week.

What does this mean for our trading systems today?

We will sit on the sidelines and wait for the markets to calm down today. Enormous movements and changes in the markets throw off the system's formulas and would essentially leave us trading in the dark. We will assess the market this evening to determine to what extent we will trade tomorrow.

Time Change - Effects on GBP/JPY strategy

On Monday, certain parts of the world moved their clocks forward one hour. This change has had an effect on our GBP/JPY, USD/JPY strategies.
While Forex is a 24 hour market, individual major markets across the world effect the Forex market differently. It is much more likely that a given trend will change as one market opens and another closes. It is important to recognize this fact since our Carry Trade Intraday strategy depends on strong trends in a given direction for it's success.
For much of the year, trading on this strategy begins an hour before Europe opens. Typically this is two hours before Tokyo closes. This allows for the strategy to pick up one hour of strong Tokyo movement as well as the overlapping hour during which both Tokyo and Europe are open. In many cases, if Europe changes the trend, the change tends to be more gradual and lessens the loss that a Tokyo started trade might incur. When Europe continues Tokyo's trend, the trend strengthens and increases the potential profit the trade might make. However, Tokyo does not observe daylight savings time and so for the next few months this overlap will not occur. While daylight savings time is in effect, all GBP/JPY and USD/JPY trades will take place after the open of the European markets.

Daily Outlook - March 14th, 2008

The dollar held its ground through most of the day yesterday but has lost ground already into the March 14th Asia session on the heals of another report showing that the U.S. economy may already be in a recession. Increased GBP/USD activity during the Asia session has triggered a "no entry" signal on the GBP/USD for today. GBP/USD european activity may be dampened in anticipation of two hugely important U.S. economic reports being released at 8:30am EST today. The question now is to what extent Bernanke and Co. will lower rates this next go around.
The Carry Trade Pairs(GBP/JPY and USD/JPY), after bouncing off strong support levels yesterday, have moved to test those levels again and is now more likely that those levels will be broken (possibly even before trading begins today). Rules will be followed as usual except that no entries will occur until the open of Frankfurt at 3:00am EST rather than 1:00am EST (see "Time Change" post).

Trade Day Wrap Up - March 13th 2008

As expected, the GBP/USD continued its climb towards 2.0460. Our entry at 2.03125 took profit quickly locking in a little over 3%. Both the USD/JPY and GBP/JPY are sitting on strong support levels and as of now have settled into a sideways trends. This type of movement does not bode well for our Carry Trade Intraday strategy and so the maximum 2% was lost on two GBP/JPY trades ending the day up slightly more than 1%.

Daily Outlook - March 13th, 2008

A combination of factors drove down the dollar's value after some positive news on Tuesday bolstered the currency for the short term. Economists expectations that U.S. retails sales are lagging has fueled a continued flight from the dollar. Positive news out of Japan strengthened the Yen against its pairs. Oil reaching nearly $110 a barrel was a drag on the world equity markets pulling down our Carry Trade pairs during the second half of London on through New York and seems to be continuing into today's Asia session (Asia's Nikkei currently down over 400 points).
From a technical standpoint, the GBP/USD broke significant resistance at 2.0120 and climbed to daily highs of nearly 2.0280. To the upside we have psycological resistance at the 2.0300 level and a daily Fibo level at 2.0460s. The GBP/JPY was unable to break the significant resistance at 208 level before Yen strength dropped the pair 400 pips in less than 20 hours. The pair is now sitting at its lowest level since early 2006 and a support level that was tested for the first time 4 days ago. A break of the 203.50s could mean a run to the 200 level (a significant psychological support level). The USD/JPY is sitting on lows that haven't been broken since the mid-90s. This 100 level was tested in 1999 (Bank of Japan intervened to keep the Yen above 100) and late 2004/early 2005 There is no sign the BoJ will intervene this time around but the level still acts as serious support and is unlikely to be broken this week.

What this all means for our upcoming trade day.
GBP/USD - No major British news is expected for the rest of the week so our GBP/USD trade entry will be managed as per the rules. US retail sales is set to be released at 8:30am EST and so in the event we are still holding a position at 8:00am, if we are in significant profit we will exit 1/2 of our position, if we are at breakeven or in the negative we will exit our entire position at market.
GBP/JPY - The GBP/JPY trades will be managed as per the rules unless an entry is signaled within a short distance of the major support at 203.57 at which point the entry would be set to occur upon the break of the support level.
USD/JPY - We will again trade the USD/JPY at 1/2 risk but take short entries up against significant support with more caution.

Trade Day Wrap Up - March 12, 2008

A combination of positive news in favor of the dollar, British pound, and Japanese Yen led to a roller coaster European session that saw our pairs climb and fall with no clear direction. The GBP/JPY as of 7:00am EST has been unable to break the 208 level. A yen rally stopped out our entries on both the GBP/JPY and USD/JPY. The GBP/USD, after beginning the day short, was buoyed by positive Trade Balance news and climbed to our take profit at 2.0197. All in all, the system broke even for the day in spite of losing all but one of the trades signaled.

Daily Outlook - March 12, 2007

In my daily outlook yesterday I had overlooked UK Trade Balance which comes out today at 9:30am London time. Experts predict and the market has priced in a slight narrowing of the UK trade deficit. Depending on where the number actually comes out, this report could move the GBP/USD and so we will be cautious within 30 minutes of the report.

The USD rallied after the Fed announced a plan yesterday to lend up to $200 billion in U.S. treasuries backed by private mortgage securities. The move was initially positive for both the dollar (GBP/USD bearish) and for the carry trade (GBP/JPY bullish). Since the report, the dollar has given back most of it's gains. However, market sentiment still remains positive for the dollar with the move appearing to signal that the Fed may be trying alternative means to prop up the U.S. economy other than lowering rates again. Fed fund futures are now only pricing in a 62 percent chance of a 75 bps rate cut, down from 98 percent chance Monday.

Into the asia session, positive news out of Japan (here and here) kept the GBP/JPY from rising higher than yesterdays high of 207.71. It will be interesting to see if there is any added follow through in the European sessions today in response to the central banks' plans to help the credit crisis. The outlook for our strategy today is positive as all we look for is volatility and direction, something that more than likely today's session should have.

In short:
- GBP/USD strategy we will be cautious nearing the Trade Balance news announcement.
- GBP/JPY strategy will take all entry signals according to system rules .
- We will take our first USD/JPY trade today as yesterday's announcement has provided an ideal situation to get in. However, we will only take 1/2 the typical risk.

Things to watch:
Stocks around the world(here, here) rose on the central banks' plans including the U.S. markets gaining the most ground in 5 years. Rising equity markets usually translates into rising Carry trade investments.

Surprise News - Knee Jerk reaction good for Carry Trade

Some surprise news (here and here) came out of numerous central banks (Fed, BoE, BoC, ECB, SNB) this morning about some additional steps they are taking to ease the ongoing credit crisis. Since the credit crisis hit the international scene we have seen a full on "unwind" of the carry trade (GBP/JPY falling from a high of 251.07 on July 20, 2007 to a low last week of 203.48). The dollar saw it's largest gain against the Yen since December because of the news. The initial "knee-jerk" reaction is bearish for the yen as investors possibly look to the carry trade once again.
We may now consider easing the USD/JPY into our second strategy as a means to hedge the productivity of our strategies in an effort to smooth large weekly losses/profits.

Trade Day Wrap Up - March 11, 2008

GBP/USD - System signaled a 2% trade to the short side as the cable temporarily broke support at the 2.0055 level. London reversed the bearish trend as economist came out predicting that a U.S. report today would show that the U.S. Trade deficit widened in January. The short entry taken at approximately 2.0052 was stopped out for a 2% loss at 2.0097. A high probability 4% long entry was taken at 2.0098 with an initial target of 2.0133. With weekly forecasters predicting a bearish GBP/USD, the entire position was closed at target for a net gain on the second GBP/USD trade of approximately 3.6%. The GBP/USD strategy finished up approximately 1.6% for the day.

GBP/JPY - System signaled a 1% long entry upon the break of resistance at the 204.70s. The pair remained reasonably stagnant until the open of the European equity markets drove the carry trade pair to it's first profit target at 205.80. A 1% gain has been locked in with half of the initial position closed. The second half remains open with no risk of loss and currently sitting up an additional 1.2%.

USD/JPY - No entry today. Waiting for either the break or bounce off daily 101.40s level before considering entry.

UPDATE: GBP/JPY second half position closed on system reversal signal. The second half closed with a little more than 1% profit bringing the GBP/JPY daily total to just over 2%.

Daily Outlook - March 11, 2007

1) No major scheduled news coming out of Great Britain for the rest of the week. Yesterday we had a whole group of economic announcements with mixed results leading to GBP/USD climbing short term to the 2.220 levels before world-wide risk aversion drove the pair down to it's daily low of 2.0049. We held a long position on the GBP/USD with take-profit up at 2.0249. We were stopped out in the 2.0160s when the dollar surged late in the day(London). Expectations are bearish on the pair through the week and bullish for the month.

2) Some things to keep our eyes on:
A) GBP/JPY(USD/JPY)
B) GBP/JPY(USD/JPY)
C) GENERAL
D) GBP/USD - Dollar Rebound?
E) England's most influencial builder "urged" BoE to lower rates yesterday after housing report.

When should my funds go "live"?

(WITH THE NEW SYSTEM METHODOLOGY THIS POST IS NO LONGER RELEVANT)


The day that your funds actually begin to be traded by us can greatly effect your overall performance. For instance, your funds could begin trading today and another investor's tomorrow. If the fund had a losing day today of 7% you would instantly be 7% worse off then the investor who places his/her money tomorrow.

Here is our recommendation. When you deposit your funds, specifically request in writing to the Dukascopy that your funds be placed on "hold" until word is given by Spencer Burton. When the fund has a large drawdown we will request to Dukascopy that all funds currently on hold be released to trade the following day. This will drastically reduce the likelyhood that you will start off significantly drawdown. Historically, our system has 1.5 "large drawdowns"per month. As of March 10 our large drawdown should not exceed 7% on the GBP/USD strategy and 4% on the Intraday strategy. In theory, if all those trades(6) lost in a day, the system could draw down 11%. (This cash management changed March 10th from a higher potential drawdown of up to 19% in one day to 11%).