Sunday, May 19, 2013

omg, i was wrong on fx

there's a blog headline you won't see from other pundits. i was wrong on my call on the eur/jpy. shortly after i acquired that position the bank of japan decided to go whole-hog into their own extraordinary quantitative easing program, thus causing the jpy to fall and the dollar to strengthen. i was wrong, but for the right reasons. i think there was every reasonable expectation that the usual seasonality would obtain. however, things were demonstrably different on this go-round and i have the bruises to prove it. the $600 (of $3000) that i managed claw back from the market has been reduced to $200. no matter, this account had been as low as $50.

with some detached amusement, i am also wrong on the aud/usd. i say detached because i had liquidated my long aud/usd position to acquire the eur/jpy short position. the aud/usd is getting anhilated, now down in the .97 area after spending considerable time in the 1.05 area. this is largely due to dollar strength, which produces weakness in metal commodities such as gold, because all such commodities are transacted in usd.

short interest on aud/usd is likely to be short lived. this is because shorts are paying disproportionate amounts in roll-over rates to stay short. the daily rollover on aud/usd short costs about 1.30 per mini, whereas the daily rollover on long aud/usd pays .50 per mini. so when aud/usd stabilizes around some lower price, i don't think the aud/usd bears will stay around to watch their profits erode, but, as i already admit, i was wrong on the current call.


  1. The currency pairs are expressed with a base currency as the first part of the pair, followed by the quote currency. (For example, USD/JPY would be the US dollar as the base against the Japanese Yen as the quote.)

  2. Yes, that is so. Personally, I find that nomenclature totally confusing because a trader can reverse the relationship by shorting the pair AND some information providers actually quote the inversion (oy!) from the spot market. The easiest way to keep this all straight is to remember that you sell the denominator to buy the numerator. So buying the USD/JPY pair means I am selling JPY to buy USD.