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FX-Risk Decoupling Trade Is Back: Third In Three Days
If Ed Thorpe was dead, he would be spinning in his grave. Another day, another FX-risk decoupling. This is the third time in as many day in which the EURJPY has diverged from the ES by a material margin, only to eventually close the gap. Today, it is the EUR crosses that are resilient. The trade is to buy ES and sell EURJPY, sit the Cristal and wait for the spread to close, taking pennies from the dimwitted 286s out there.
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PPT is working extra time to prevent the S&P to make, for the first time since march 09, a new and refreshig lower low!! Which will be Uber bearish.
It does look that way. Someone seems to be putting out Reece's Pieces out to do.......what exactly?
There is deceit upon deception upon lies upon theft.
http://en.wikipedia.org/wiki/Reese's_Pieces
If it's the PPT they are working overtime since it's trading in lock step with the EURUSD motion. That's a neat trick to do on purpose.
Yeah, they are cranking the fuck out of it today. They have to, looks as if they are going to continue the crank & shank right into the close.
Someone help me out here: whats the danger to the central banks when the repeatedly gun the currency markets? Can they keep this up indefinitely?
Thanks boys.
If the central bank's woody lasts more than 4 hours, seek immediate medical attention.
My bullshit theory:
I thought to myself a while ago that if the rest of the world let their debt bubbles implode and currencies deflate it would be the same effect as massive inflation in the United States, but I should have known there was no way they would let that happen. Europe got its wish, they beat deflation by scaring everybody the fuck away from their markets. Now Benron, who's responsibility it is to keep the US dollar in 1st place of the race to the bottom has to contend with a sprinter who's surging from the back of the pack.
The danger is, I believe, that it's going to take more and more printing to affect markets each consecutive time. Nominal differences mean nothing in FX markets, it's all about ratios, percentages. Now what they've done is print money into the stock market via the carry trades and QE in order to support a rising price level which results in an increasing pool of money which, we can then deduce, requires a LARGER injection of cash relative to the previous one in order to achieve the same percentage change.
They're trying to inflate a market that desperately wants to deflate through debt destruction with more leverage AND trying to fight currency appreciation relative to another plunging currency. No, I don't think they can't keep this up indefinitely.
Money is breaking to the upside.
Note: Gold and silver is monie.
Explanation: Paper is not money. Throw both in a fire, see what happens. I dare you.
Disclaimer: I am in no way responsible for you burning your money.
Advice: If you are thinking about letting BS and Timmah burn your money by holding it in a 401k or what have you, then consider making a bonfire, getting drunk, and doing it yourself. It will be way more fun and entertaining this way!
Yet another reason gold is worthless.
You can't burn gold.
At least with paper money you can burn it for warmth (forget about the toxic stuff in it).
New bills are going to be plastic, might not want to burn those...
or sell euro yen, and sell ES
The over night crew should pull the spread after hours..
ES has below 1052 on its radar first.
I think this recoupling may be the other way TD, or will be tomorrow at this rate.
Tyler, someone who is not exactly a fan of your trade ideas:
http://www.theessentialsoftrading.com/Blog/index.php/2010/06/07/some-of-...
Quote: "There is absolutely no mathematical or other direct linkage between the S&P and EUR/JPY."
I assume the gentleman has never heard of the carry trade and its implications.
TD, how has volume been today with this uncoupling?
There has to be a [set of] machine[s] responding to this, there is no way in hell anyone is bidding that fast. Someone is watching the eur and matching to the index, with lots of motion power. it's ridiculous to say that it isn't related. it's been going on all day. I keep reading people saying that it's a coincidence... a second by second coincidence.
I'm Hungary for some Greecy PIGGS. I just wish I had bought outright puts instead of put spreads...
I´m only surprised the robots work so slow.
"Sit the Cristal" Is that supposed to be "sip the Cristal" ?
Or am I behind in my Zerohedge metaphors for taking it in the rear. :)
I was guessing sitting it in a big bucket of ice while you wait for the gap to close. No partying before it's the proper temperature kind of thing.
Tyler, someone who is not exactly a fan of your trade ideas:
http://www.theessentialsoftrading.com/Blog/index.php/2010/06/07/some-of-...
Quote: "There is absolutely no mathematical or other direct linkage between the S&P and EUR/JPY."
He's going on about zero prices as well and clearly has never looked at the ATRs of EJ and S&P.
Tyler, someone who is not exactly a fan of your trade ideas:
http://www.theessentialsoftrading.com/Blog/index.php/2010/06/07/some-of-...
Quote: "There is absolutely no mathematical or other direct linkage between the S&P and EUR/JPY."
Does he use charts for his trading, or some secret method of essentials we haven't yet heard of?
I'm not a trader or an FX expert, but I do know maths and you guys are missing the point.
What the "non-fan" is saying, is that a graph of two variables NOT on drawn on the same scale, is going to lead the observer to false conclusions about trading opportunities when they see a gap. It's perfectly possible (and in this case highly likely), that you'd loose money by trading ONLY based on the existence of a large gap.
By all means do all the carry trades you wish, but not based solely on this gap information. You need more information to guarantee an easy trade.
What the "non-fan" is saying, is that a graph of two variables NOT on drawn on the same scale, is going to lead the observer to false conclusions about trading opportunities when they see a gap
You can run it through the RSI or comparative RSI if you want and work out an algo to do it...or you could simply and roughly align as many data peaks/troughs throughout the "correlated" part of the day and then observe when there is a big enough gap to trade. A few pips here or 10pips there won't be enough to be worthwhile but 50 or so...
It's not about trading systems or RSI indicator. If you plot the two variables on the same scale, EURJPY will look like one flat, straight line, while ESM0 will have variations in amplitude similar to TD's chart.
You're going to end up trading ESM0 only, and NOT hedging anything with your opposite EURJPY trade.
Try plotting the dollar index against EURUSD on the same scale, oh wow, they're not correlated (inverse or otherwise) because one is a flat line...not that you would hedge those 2 but as an example.
Try telling it to the gold/silver ratio hedgers as well.
the mean reversion correlation algos have to use something, and it will no doubt be based on mathematics.
You must be a trader ;-) My guess is (only, I'm not a trader), professionals who do arbitrage on this kind of thing use leverage to scale up the lower of the two variables to a comparable magnitude, so that the apparent gap becomes really the gap magnitude that they envisage.
Small problem with that: in the case of EURUSD/USDX, you'd need to leverage by a factor of about 73 to get 1 point of EURUSD = 1 point of USDX. That means you'd also be leveraging your error on EURUSD by 73. Given the intra-day movements of EURUSD, you need a really tight seatbelt to play at x73.
Hence my view that, unlike TD, I would not describe this as "obvious easy trade/money" recommended to the average ZH reader. In fact I'd love to see long term, raw data from mean reversion correlation algos. I believe this is a typical situation where you can make small money every day for a long time, and be wiped out forever in 5 minutes, without any warning and no possible outs.