This page has been archived and commenting is disabled.

On FX

Bruce Krasting's picture




 

I’ve been running a short EURUSD for the past six weeks. I got in at 1.2650 (Link) on June 30, and doubled up on July 8 at 1.2260 (Link). I was delighted to see the Euro get cheap in Friday’s trading, but the market action forced a decision. I wrote some things down on a pad, thought about it a bit, and said, “Screw it”,  and cut the whole position. Some of my thinking:

+

I hate trading FX at the end of July . The markets shut down with the approaching European August vacations. The last week of the month is about cleaning up positions, not putting new ones on. August is never a time to be involved, unless you have to.

+

There was something odd about the EURUSD trading Monday through Thursday. Tyler Durden, at Zero Hedge, made note of this (Link).

.

.

The red arrows that Tyler drew bother me. This stinks of “official guidance”. It’s tough to make a buck at the FX casino, it’s tougher still when the tables are rigged.

 
+

In May and June the Swiss National Bank (SNB) bought CHF 110Bn worth of Euro’s. That’s a staggering amount. I’m convinced that the intervention was heavy in July as well. Reserves are headed up another CHF50Bn. I think these numbers still understate what is happening, as the SNB has been writing calls on the Franc.

In the course of just three months ¼ Trillion Euros have crossed into the Alps. This is unsustainable. At some point it will have to result in a messy blow up. But not necessarily in the month of August.

I don’t think the SNB is going to fold its cards just because they are under attack. If the SNB were to quit intervening, the EURCHF would be nearing par in a matter of days. The cost to the SNB would be CHF40Bn (15% of GDP).

Before taking a loss of this magnitude, the SNB, (with the blessings of the government), would implement a variety of exchange controls. I think this is a something that could come sooner than the market believes.

It is my understanding that there is significant macro hedge fund positioning in the EURCHF. I don’t believe that the SNB is going to simply write a monster check to some fat cats up in Greenwich. There will be (at least) one more chapter in this story.

Should there be something that makes people blink on the CHF, it could end up causing short positions in the EURUSD to get jumpy. I'd rather not be part of a jumpy crowd.

+

I’m worried about what Bernanke may do on August 1st. We could see something that brings the US negative short-term interest rates. (My thoughts on this: Link). It’s very difficult for me to be a dollar bull. I’m much more comfortable playing the dollar from the short side.

 
+

The Euro weakness on Friday was related to a big selloff in Spanish bonds. The Spanish ten-year ended up at 7.27%. This means that a Spanish bailout is not far off and Italy is next in the crosshairs.

Really? I don’t think so. It's not going to be that easy.

The Euro technocrats are not going to fold in August. They may be going down, but I fear more battles are in the offing first.  SMP purchases of sovereign debt is likely next week.

+

Realized gains have been elusive for me this year.

+

Now that I don’t have a position to worry about, I’m worried about not having a position. I will be looking for an opportunity to re-load a short Euro exposure. Hopefully it will be at higher levels than Friday. Either way, I will act before September rolls in. The Euro is still toast.

.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 08/04/2012 - 07:14 | 2677686 Silvertrader
Silvertrader's picture

I like trading but i like a steady income as a forexaffiliate better! That way i don't have to worry about the ups and downs of the market.

Mon, 07/23/2012 - 06:21 | 2641783 silverdragon
silverdragon's picture

Don't listen to them Silver, fight hard!

Mon, 07/23/2012 - 04:42 | 2641744 silverdragon
silverdragon's picture

Come on Silver fight back.

Mon, 07/23/2012 - 06:07 | 2641778 Terminus C
Terminus C's picture

No, no... It should roll over and sink ten or so dollars, i'd like to pick another pile or two ;)

Mon, 07/23/2012 - 04:38 | 2641740 doc_in_the_house
doc_in_the_house's picture

sorry mr. krasting

you shorted @ 1.26...NOT 1.45? i shorted @ 1.45 and covered @ sub 1.3...MY LAST EUR short (which is still current) was @ 1.31...since late april, 2012..still riding..now @ 1.21....will cover @ sub 1.10...@ 4X leverage...

not sure if you are familiar with the STUPID SHOE SHINE boys over at cbs-idiotic-MW....they call themselves "REPORTERS" = stupid performance chasers...anyways...one of my fav shoe shine boys = mark hulbert he called the TOP of the EUR's last pump @ 1.31 on 4-20-12..he was cheeEEERING and chasing = me SHORT !!! he also was cheering on 10-2007, djia @ 14.2k said: "going to 16k" = short...he's got other "wonderful calls"

http://www.marketwatch.com/story/against-all-odds-the-euro-rises-2012-04-20

 

Mon, 07/23/2012 - 01:00 | 2641649 Itch
Itch's picture

Nice entry (after the 5th july you were safe as houses), and you can rest easily in the knowledge that no one get's their exits right. IMO if you were willing to sit with that trade for so long when the going was choppy,then you should have at least let the 1.2260 run and closed the big one, since now that the selling has picked up again. Its that old dilemma; do you close a good trade or suffer watching all that nurturing go up in smoke in a swift and brutal reversal, which is five times as painful as a plain loss.

As soon as the brain starts contemplating that kind of pain(not just the loss of money, but also time), its curtains... the urge to close is just too great. The brain and subconscious begin to focus on all that time spent, all that emotional energy invested, all the rigour of convincing yourself you were right, the semi-disturbed sleep, the tension, the fidgeting, the angst...and to see it all wasted? Ouch.

Sun, 07/22/2012 - 23:23 | 2641588 silverdragon
silverdragon's picture

TrainWreck1

Gotta agree on all points, if all these super smart traders put their intellect and energy into companies that produced something real the world may be less f*cked up.

Also not judging as everyone needs to make a buck.

Sun, 07/22/2012 - 22:02 | 2641493 new game
new game's picture

thanks for this whole thread-it reinforces exactly why I quite trading about a year ago(after 30 years).

time sleeping soundly can not be valued.

Sun, 07/22/2012 - 20:48 | 2641387 malikai
malikai's picture

Bruce, look at my fx_eurusd model. Select the "hours" chart (top right). Last week made me lol.

This price action is beautiful, even though it is as crooked as it gets.

Sun, 07/22/2012 - 20:39 | 2641374 XtraBullish
XtraBullish's picture

The precious metals are our only salvation now that they have been orchestrated down to longterm support...more bears than bulls now and the hedgies are out which is a blessing - when is the world going to re-price the USD to reflect this fact: The U.S. is the world's LARGEST DEBTOR NATION -i.e. more BROKE than Europe and Asia put together.

Gloating Geithner and Blushing Barnancke are too sickening for comment.

Short CASH - U.S. cash first then everything else - just like Zimbabwe in 2001 or Weimer in 1920.

Makes me fucking sick...

Sun, 07/22/2012 - 19:39 | 2641195 The Swedish Chef
The Swedish Chef's picture

"The Euro technocrats are not going to fold in August"

 

I was going to write that this piece, entertaining and informative as always from you, must have been written mid week or earlier but no, apparently it was written during the weekend. 

 

Don´t fall asleep at the wheel, Bruce. Two of the seventeen autonmous regions in Spain have officially requested bailouts, the pharamacies run a real risk of running out of medicine due to non-payment from the regional government, the Rajoy government has run out of ideas and money and that fantasy plan of abbreviations all starting with "E" that would save the day are all smoke and mirrors. 

 

It´s quite clear from the news flow that Greece will get dumped in the next weeks in order for the troika to focus on Spain and hopefully prevent it from becoming Greece. They will fail. 

 


Sun, 07/22/2012 - 19:19 | 2641165 seanheberling
seanheberling's picture

Bruce, can you clarify your definition of "the Euro is toast?"  Is it a zero, or would you not receive some amalgamation of other currencies instead?  Ostensibly, this currency basket would have some value, no?  Assuming the market is not completely mistaken, then perhaps the Southern currencies would be worth far less than 1.20 per USD and the Northern currencies would be worth more, such that the trade-weighted value of the basket was not altogether different that the current Euro quote.

Sun, 07/22/2012 - 17:13 | 2640936 Freegolder
Freegolder's picture

I forget the exact figure, but the Eurosytem has something like 346.8 million troy ounces of gold in its reserves, marked to market every quarter.

 

And Bruce thinks the Euro is toast.

You're living in a paper-y past Bruce, come join the present and the future, where gold is a free-floating reserve asset.

By the time you wake up, it will be too late, all the gold will be in strong hands. Still, you'll have your dollar trading profits, which might buy you some tins of cat food.

Mon, 07/23/2012 - 06:02 | 2641775 Terminus C
Terminus C's picture

Where is all that gold? Just remember, "he who holds the gold, makes the rules."

Mon, 07/23/2012 - 10:01 | 2642310 4shzl
4shzl's picture

He who holds the gun makes the rules.  Try reading a little history for a change.

Sun, 07/22/2012 - 16:58 | 2640910 disabledvet
disabledvet's picture

Gotta factor in a blow up of epic proportions in Syria and the Middle East in general. The EZ disintegration has never been merely a financial matter. Now comes the geo-political risk "realized." could actually be a buying opportunityfor the euro since the treasury market and "northern tier debt" is already pricing an epic fail. On the other hand you really could get the epic fail.

Sun, 07/22/2012 - 16:53 | 2640894 otto skorzeny
otto skorzeny's picture

so ride the pattern- buy it on the way up

Sun, 07/22/2012 - 16:32 | 2640864 Careless Whisper
Careless Whisper's picture

rode that POS down from 1.2650 to 1.2150; that's what i call a damn nice trade! good discipline and well played.

Sun, 07/22/2012 - 16:24 | 2640846 q99x2
q99x2's picture

Freakin markets are cracking up all over. Won't be long before turbulence sets in. Central banks can only manipulate the results of their manipulation for so long before feedback destabilises the system.

Mon, 07/23/2012 - 01:10 | 2641659 Right-on Left-off
Right-on Left-off's picture

forget the gut fee ... forget the MSM ... here is what the market all by itself is saying.

Wow!  The Euro really took out the longs for the last two weeks or so.  There was a gap down, all the way down to a new interim low.  Better than a waterfall moment, equal to a cliff dive into Hades.

 

With a new upsurge and then a rounding top, this gap down to a new interim low really took a lot of longs down to Davey Jone's Locker.  I think it will be a while before the Euro mounts any type or kind of an upward trend.  There is going to have to be some really phenomenal good time news before the Euro even things about looking up.

 

The 2nd and the 3rd column on the FIBO meter both took two jumps to the bottom.  Of note is that the 3rd and final column is now signaling that it is right at the point of no return.  Very bad news for the Euro, 1.19000 is now just waiting.

 

http://tinypic.com/r/15wifir/6

 

http://tinypic.com/r/mhvkfb/6

 

 

Mon, 07/23/2012 - 02:50 | 2641697 Right-on Left-off
Right-on Left-off's picture

1.2090, the last support leg on the 3rd column of the FIBO meter just this moment got hit.  

Will we see a touch and go or just a big splat?  Amazing that we will actually see the answer by the end of Monday trading if not sooner.

http://tinypic.com/r/15wifir/6

Sun, 07/22/2012 - 17:57 | 2641036 Fecklesslackey
Fecklesslackey's picture

Great time to buy VXX. It has been pounded down since the volatility in July-August has historically been very low. I think the trade is oversold and covering could lift it quite substantially should the geopolitical card be played

Sun, 07/22/2012 - 16:15 | 2640830 Grand Supercycle
Grand Supercycle's picture

As mentioned before, market intervention has only postponed the inevitable.

Despite short and medium term market vacillation - the following remains a constant :

>> USDX monthly indicators [ie big picture] continue to warn of significant long term USD upside. (thus EURUSD & AUDUSD etc bearish)

>> SPX monthly indicators [ie big picture] continue to warn of significant long term downside for equities which will be worse than 2008.

http://www.zerohedge.com/news/2012-12-24/market-analysis

Sun, 07/22/2012 - 16:49 | 2640886 oddjob
oddjob's picture

As mentioned before...

You posted the exact opposite last weak. Without a doubt you are the biggest 2 faced spammer that ever posted on ZH.

Sun, 07/22/2012 - 19:12 | 2641154 Orly
Orly's picture

Really?  Where's yours?

Oh, that's right...  You're either too smart, so you don't "need" an opinion...or not bright enough to formulate one on your own.  Either way, it's apparent you're a bag of hot air.

So why don't you take your idiotic name-calling elsewhere?

Sun, 07/22/2012 - 19:24 | 2641172 oddjob
oddjob's picture

accountability is a fucking bitch, its high time we had more of it.

Sun, 07/22/2012 - 19:42 | 2641197 Orly
Orly's picture

Accountability is one thing: Grand SuperCycle has a bad habit of being about seven trading days ahead of the market.  I blame his over-reliance on the 50DSMA.

Nevertheless, he's never spammed me with anything, never asked me to buy his newsletter and doesn't even make lame excuses when he is wrong.  It is unfair to call him out as a "spammer" when he is no more than a man with an opinion, which I for one, am glad to see, as there isn't enough of that around here.

Sun, 07/22/2012 - 19:52 | 2641219 oddjob
oddjob's picture

Posting the same thing as a comment to every article on ZH in the last 2 days counts as spamming to me. Just like she did the weekend before.

Sun, 07/22/2012 - 16:04 | 2640809 knukles
knukles's picture

Nothin's gonna happen, it's August.
There's nobody around for anything to happen.

Sun, 07/22/2012 - 16:00 | 2640800 onlooker
onlooker's picture

 

Bruce

 

“””Now that I don’t have a position to worry about, I’m worried about not having a position”””

 

This is the first good laugh I have had in days. Thanks for the chuckle and, as always, the insight and opinions.

Sun, 07/22/2012 - 19:09 | 2641149 Fish Gone Bad
Fish Gone Bad's picture

I find myself worrying about worrying these days.  If I don't have something to be worried about, then it makes me more worried that I might have forgotten something that will bite me in the ass.

Mon, 07/23/2012 - 03:31 | 2641718 Seorse Gorog fr...
Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

Don't worry about it. We're all going to die anyway. The great leveller.

Mon, 07/23/2012 - 02:22 | 2641686 perchprism
perchprism's picture

 

Bruce would like you to worry about anthropogenic global warming.

Sun, 07/22/2012 - 15:59 | 2640796 agent default
agent default's picture

There is a similar pattern in silver occurs near COMEX opening.

Sun, 07/22/2012 - 15:57 | 2640792 alien-IQ
alien-IQ's picture

Holding a Forex position for six weeks? Wow...that's brass fuckin balls.

My idea of holding a forex position is hours...at most. Ideally, minutes.

Sun, 07/22/2012 - 16:05 | 2640810 ihedgemyhedges
ihedgemyhedges's picture

BK, I think you're dead on about still playing USD on short side.  Give this strength a few more weeks (God forbid quarters) and you will really start seeing pain from the S&P 500 export crowd and the screams from DC will be deafening.  You think revenue misses are common now, just wait until the buck rallies another 10 to 15%.....

Sun, 07/22/2012 - 15:56 | 2640789 luna_man
luna_man's picture

 

 

NO GUTS...NO GLORY!!

 

each man, for himself

Sun, 07/22/2012 - 15:46 | 2640768 Mr.Kowalski
Mr.Kowalski's picture

Today Ambrose gave us an idea how it might well end for the Euro:

 

"What the Latin Bloc can to do is use their majority votes on the ECB's Governing Council to force a change in monetary policy. Germany has two votes out of 23, with a hardcore of seven or eight at most. The Greco-Latin bloc can force a showdown. If Germany storms out of monetary union in protest, that would be an excellent solution"

Sun, 07/22/2012 - 17:46 | 2641010 Ghordius
Ghordius's picture

Ambrose writes an article per week about the euro breaking up. This scenario above is typical, he can't conceive a compromise, no, it's ALWAYS a member storming off.

He never mentions the DOWNSIDE of storming off.

It's a gigantic game of chicken, folks. The first to blink loses.

Sun, 07/22/2012 - 15:34 | 2640741 DeadFred
DeadFred's picture

"This stinks of “official guidance”. It’s tough to make a buck at the FX casino, it’s tougher still when the tables are rigged."

Bruce you got in at 1.2650 and doubled down at 1.2260 I think you made more than a buck. On the other hand no one has ever gone broke from banking their profits. Congrats

Sun, 07/22/2012 - 15:32 | 2640738 timbo_em
timbo_em's picture

The euro is doomed. The political risk is piling up. Look at Germany: This week German MPs came in from their holidays to give their ok to bailout Spanish banks (German share approx. 30B - it was only a guarantee but that's 10 percent of federal income). Imagine how they will react when they should approve a bailout of the sovereign in a few weeks. And we must not forget that the earliest the ESM can start operating is September 19. And that date only holds when the German court gives an all clear. Oh and what happens with Greece when the IMF pulls the plug? Is the troika becoming a duo or will they pull the plug, too?

Sun, 07/22/2012 - 15:40 | 2640758 1000pips
1000pips's picture

we are all doomed but, the obvious in FX never seems to pan out completely, which is why Bruce closed out now.  You are exactly right on every point, which is why the exact opposite can happen.  Bernanke MUST devalue the dollar against the Euro.  As crazy as that is, it is time to long.  IMHO...

Sun, 07/22/2012 - 15:30 | 2640726 1000pips
1000pips's picture

Smart to get out Bruce, the campaign to 'save' the EURO is about to start, this should be good for 500 pips to the upside from here.  It is a rigged casino, yet predictible to some extent-Germany cannot afford to let the EURO fail at this time, nore can the Swiss or France.  Much like the USD, it is an empty currency, but with huge positions keeping it above the real value, I believe it is time to go Long Euro/Usd big time; if not now. when?  Remember the Olympics, the Bernake Put, and the China syndrome all favor a weaker dollar, thus you have realized your profit now.  Reverse, and get them on the way to $1.29...best of luck!

Sun, 07/22/2012 - 21:21 | 2641448 StychoKiller
StychoKiller's picture

Playing around in FX:

"You're a braver man than I, Gunga-Din! (Bruce Krasting)" -- Rudyard Kipling

Sun, 07/22/2012 - 15:27 | 2640724 John_Coltrane
John_Coltrane's picture

"Now that I don’t have a position to worry about, I’m worried about not having a position."

Wow, that's exactly the way I feel after cashing out on some profitable positions, like my July BAC, GRPN, LVS and MS puts.   So, I rolled them out in duration and down in strike.  Playing with the house money now so I won't have to worry about putting on a new position if they continue to tank.   Market timing is impossible I've concluded as that chart showed.  Only position sizing and minimizing losses matters.  You're always kicking yourself for being too greedy or not greedy enough.

 

Sun, 07/22/2012 - 15:18 | 2640695 Father Lucifer
Father Lucifer's picture

Just saw this

EUR / USD 1.2123 1.2125 1.2154 -0.0031 -0.2600 1.2285 1.2123 15:12:18

http://www.worldmarketsinfo.com/index_files/Dowfutures.htm

Sun, 07/22/2012 - 15:43 | 2640763 engineertheeconomy
engineertheeconomy's picture

For one person to make money gambling, some other person has to lose money gambling

The Casino, however, always wins

Gambling is fine if you don't have any self respect anyways

Self respecting people contribute to society to the best of their ability

Not by gambling with Grandma's pension funds

Sun, 07/22/2012 - 22:02 | 2641494 TrainWreck1
TrainWreck1's picture

The greatest waste is that there are a lot of very, very smart people, who put their talents towards working the ups and downs of a rigged market.

One has to wonder what progress they might have made had they pursued other ventures.

(Disclaimer: we all gotta make a buck, but the people that might have invented the better mousetrap - no wonder we have been reduced to a service economy)

Not passing judgment. Just an observation.

 

Do NOT follow this link or you will be banned from the site!