Short AUD/JPY (From 15-Jun to 21-Jun)
AmpGFX Real Time – closed AUD/JPY short and comment (Thu 6/21/2018 8:15 AM MT)
Traded to close the remaining short half unit AUD/JPY at an effective rate of 81.35
Comment
news from MNI reported on Bloomberg says China is negotiating with the US through back channels to minimise tariffs.
It is possible that we see some easing in the trade rhetoric that could support risk assets, including the AUD
Income tax cuts in Australia and speculation that China may use fiscal and monetary policy to support growth may also allow space for a rebound in Asia EM and AUD
Risks remain for weaker Asia EM; such as China credit tightening, failure of any efforts to mitigate trade tensions, ongoing Fed rate hikes.
However, we have cleared our position to re-evaluate.
AmpGFX Real-Time – AUD/JPY order update (Tue 6/19/2018 10:12 PM MT)
Profit was taken on half this trade on Tuesday at our take-profit order, s/l lowered on the remaining half unit
Position
Short half unit AUD/JPY at 82.367; s/l 81.88
AmpGFX Real-Time – AUD/JPY s/l order lowered, some thoughts (Mon 6/18/2018 1:31 PM MT)
Some thoughts
RBA policy minutes due in Australia later today. We see little to surprise the market in this.
Quarterly house price data is due for Q1, and is expected to fall 1%. While more frequent data is available, this series has some capacity to influence sentiment on the housing market that remains weak.
There is speculation that the Australian government could call an early election, bringing into play election uncertainty, a negative for the AUD.
There has been news recently that the three largest iron ore miners are planning expansions that may place upward pressure on wages. It appears that Australian may now be more clearly coming out of the mining investment downturn. This could become a positive story for the AUD.
So far there is little discernible weakness in steel prices in China, despite the weaker than expected activity data reported last week, steel production remains up 8.9%y/y in May.
Japan trade data (on larger imports) were significantly weaker than expected, pushing the trade balance into a deficit. The rise in imports was driven by a sharp rise in imports from the USA reflecting aircraft and energy. Probably not a big factor for JPY. More important will be the outlook for its exports. These were stronger than expected, but risks related to trade wars, and global growth confidence may dominate.
The risk remains high of more negative news on a US trade war with China. The US has said it will retaliate against the China retaliation.
There is still a risk of a sizable rebound in risk-off trades after the sharper falls last week. Especially if there are conciliatory noises on trade or less hawkish comments from central banks (Powell is on a panel with Draghi, and RBA’s Lowe) on Wednesday at the ECB Central Banking Forum 18-20 June.
As such, I am keeping a relatively tight stop loss on this trade.
Position
Short one unit AUD/JPY at 82.367; s/l 82.48; (t/p in half unit at 81.36)…. s/l lowered from 82.88
AmpGFX Real-Time – AUD/JPY orders (Mon 6/18/2018 12:27 AM MT)
On Friday I sold one unit AUD/USD at .7450
And I sold one unit at USD/JPY at 110. 56
My position is short one unit AUD/JPY at 82.367
Comment
The rationale for the trade is that trade tensions, Chinese economic and financial risks, weak Asian currencies, emerging market upheaval, European risks spill over to US asset markets and causes US yields at the long end to potentially fall, weakening USD/JPY, while AUD may tend to follow weaker Asia EM currencies.
However, the entry level for the trade is not particularly attractive. AUD may find support after its large fall last week. I am feeling nervous about this trade.
Position
Short one unit AUD/JPY at 82.367; s/l 82.88; (t/p in half unit at 81.36)
Our Capital at Risk: 58bp
By setting an initial stop loss of 82.88, our (AmpGFX) percentage loss would be 0.62%. Based on our trade size this represents 124bp or 1.24% of our trading capital.
In the past, I have provided some guidance on the relative size of our trades using “units”. I am working on providing a clearer understanding of the actual amount of capital we have at risk, as reflected in the results we report on our website.
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AmpGFX Real-Time – sold USD/JPY (Fri 6/15/2018 8:24 AM MT)
Sold one unit of USD/JPY
Comment
US 10 year yields are softer reflecting the increased risk of contagion from EM markets back to the US economy.
This trade effectively turns my overall position into a short AUD/JPY position.
I thought this a better place to be with risk of lower US yields.
I am still evaluating how to manage these trades and will revert later.
AmpGFX Real-Time – sold AUD/USD (Fri 6/15/2018 8:10 AM MT)
Sold one unit of AUD/USD at 0.7450
Comment
I will comment in full. But watching the sharp fall in several Asian currencies on Friday, and with a number of factors that had me looking to sell the AUD including weaker Chinese credit growth and activity data, accelerating housing market weakness in Australia, tariffs, effects of tightening dollar funding being felt in Australia, I wanted to put a trade on and evaluate more fully.
My thought process is that there is something suspicious about the weakness in Asian currencies; I am wondering what it means, but it can’t be good for AUD. Doesn’t it relate to tariffs, does it reflect growing concerns over Chinese fundamentals, does it reflect contagion from other Ems?
I am not happy about selling AUD at the lows again, so I need to think more clearly how I will manage this trade.