I like getting and giving bad news first! So, let me say that one day left to FED meeting my trading account was closed down because I had not put real capital into my real account on time. What an unlucky timing! I was going to kill in that day. Anyways, till close, I was 1.5 % from the last week. I made back all my lost capital and more. My account was standing at 1.005 Mln$ last time I checked. The reason for up was my long position in pound sterling and more 600K short in US bonds. I missed the mother of all returns of a year. Well, no regrets anymore as it was a paper trading. They opened the account back ( they reset it back to 1M) and will not be closed again so, I can keep going with my Macro hypothesis in this account and stock picking in real account.
Before the FED meeting, I had reduced my pound positions from 424K long to 100K.
FED finally decided to cut as a conviction for the cut was so huge. As I did not have previous experiences with FED decision making, I learned a new thing that FED is more open to giving a hint about its rate decisions before the official decision not to create havoc in the market and market to absorb the news. The logical strategy makes sense. Therefore, the probability of rate hike was that high. I had missed it for some reasons.
Yen, Pound did as I assumed. After fed rate hike, Yen blew up rising over 118 from mid 115. EURO, pound fell precipitously. Bonds are heading down.
I have no open positions yet, as I did not have time to formulate and go through my hypothesis as my real office work keeps me away. I have been busy the past week and gonna start over again and go through once again what I think about the markets.
The dollar surged higher on FED decision, everyone it seems was expecting to get an official decision to start trading. What is obvious has FED announced 3 more rate hikes in 2017. That will push rates higher and lower bonds. On the other hand, the strong dollar is supposed to bring yields down as investors flock in to buy US bonds on account of expectation of stronger dollar. This flock of investors can push dollar even higher and yields lower and the process is circling chain reaction. However, I don’t see yet much interest in bonds right now as the market is living the shock of FED hike. Until the end of the year, the market will not be that active as Christmas is approaching. However, after 1 month all eyes will be on Trump as it is now on him as well. Trump tax cut or budget spending will be an important issue. He is going to need some time to get approved in Congress as well. It is hard to predict how Congress and Trump administration love relationship will turn out. So far it is not looking good. However, it would not appropriate for me to speculate on a large uncertainty like that. On the other hand, it is worth to consider that market will react to whatever he says despite there is no real action. This is a run away from equilibrium. I think current US stock rise is an example of that as well. Despite all this uncertainty, there is one thing that is more certain than others and that is FED rate rise next year. ( i am not saying that is 100% sure thing but more probable which gives me a better reason to act on it). Till I see the sentiment of bondholders whether they rush for US bonds or just dump it, I will start building short positions in long-term US bonds futures once again. But I will be cautious about it.
EURO broke 1.05 support level after the FED decision and I think future is not looking good for Euro. The European Union is not in a good shape both economically and politically. I believe EU is living its worst days since its foundation. Renzi resignation was somehow unexpected as the Italian nation did not approve constitutional changes which would have given more power to the Prime Minister. Populism is increasing in Germany, Italy, France. Next year we will see elections in France and Germany and Brexit will be an important matter to keep an eye on. The populist regime is not a good news for the foundation of EU. It might trigger further Exits for the EU which is devastating news to both Euro as a currency and political climate of the union. In the long term, I am not happy with Euro and my guts would tell me to short the currency. Pound was on the rise till FED decision. A stronger dollar is pushing the currency lower. I don’t have a stronger conviction on the pound. However, I am inclined to take a small position now and think later what to do. I will be long on pound as I believe pound can be the first currency to resist stronger dollar. Euro, Yen, EM currencies will not stand a chance. Long in the pound, for now, makes sense to me.
The yen is the currency I am more comfortable to trade. However, current fall of the yen and long term fall so far is making me take my foot off the gas little bit. Long term view is simple, rate rise, stronger dollar on Trump policies, QE by BOJ and lower rates is giving an indication of shorting Yen. However, Trump policies on trade are burdensome. Japan is one of the largest trade partners of the US. I will build a small position on Yen as well. So, I am back again on building Pound/Yen cross position once again which was quite profitable previously.
US Stocks is something I have too much cloud in front of me that restrains me from seeing it. Stocks have gone up as I believe prices are rising too fast. That fast rise is undoubtedly will be followed by a sharp correction if the market does not get much positive news. However, they might still eat up Trump future actions. The last 2 day prices showing the market is not sure where it will be heading, so, prices have not changed much. The market might be at the turning point but I am not sure. Trump talks can push prices, even more, higher. I should stay on alert for when it comes to stocks. I will not speculate on stocks for now. I will wait for the market to take the first step. I might be late to jump on a train but it is better than to jumping on a wrong train. However, till my next diary, events can escalate quickly and who knows you might see me on a wagon till my next post.
The bottom line is short Yen, US long term Bonds, euro and long pound. When it comes to oil and gold, stocks I will take passenger seat for now. It is safer for me.