Private equity

I had a meeting today on a start-up idea that will be parked under my company. It is always a good idea to increase my non financial assets portfolio and by having a start up as a subsidiary, I am taking a step in the right direction.

It is still in the preliminary stage now and I will update the blog about this start up as we progress.

Breakfast and going long on USD/JPY

I met Mr Clarence over breakfast today, and we discussed some trading strategies. Whilst in the toilet I was tempted to trade so I entered USD/JPY.

Mr Clarence has mentioned while our fundamentals have been accurate, we have been missing out on opportunities to capitalise the weakening of the US dollar.

US final GDP figures and what it means

The final GDP figure was at -2.9% which saw the biggest decline in US since 2009. This has adverse effects on the US dollar, EUR/USD breaking the 1.36 resistance and USD/JPY falling badly.

The GDP data is presented in a particular format. First, it starts with an advance figure which tends to carry the most impact, followed by preliminary a month later and finally with the final GDP to sum things up. Things did not look too bad for US, the advance GDP on April 30th was given at -0.1% and saw a further decline to -1.0% for the preliminary numbers on May 29th. It was downhill from then on.

It is unlikely Janet Yellen can raise rates anytime soon given the slack in the economy. The dollar has been performing badly ever since. Pairs like GBP/USD have reached new highs of 1.70 and above.

Entering GBP/USD based on value investing

I went in long for this pair at 1.6975 last night as I felt it was already at the support level and a breach is not possible. The pound has been the best performing developed market currency to date and any value below 1.7000 is a good entry for a long.

The Bank of England (BoE) is expected to increase rates in the near future which shall further cause the appreciation of the pound.

I closed my position this morning as BoE Governor Carney is set to speak this evening and volatility is expected to increase prior and during the speech. Historically a speech with this importance would ensure that traders of both long and short positions to hit their stop loss before adhering to the direction based on the content of the speech.

Holding a portfolio of currency pairs

A trading friend and I have recently been using a new approach to trade where we collect multiple currency pairs when the entry signal permits instead of just focusing on one or two. Instead of closing the trades by the end of the day, we hold them till they reach our target price. By entering smaller units, we can trade without a stop loss and in the event our entry was wrong, we can use a staggered approach or hold the currency pair till it reaches profitability.

US existing home sales

The sales of existing houses in US rose the most since October with a growth of 4.9% from last month. This is one of the key indicators for economic health as the housing market has a ripple effect on the overall economy. The final figure of 4.89 million new houses beat the estimate by a healthy margin.

However the markets reacted in the opposite manner yesterday where the USD failed to gain against major currencies.

According to Mr Tan, an increase in house sales would decrease the demand in the US dollar, which explains why the dollar did not enter a bull run yesterday.

I did not trade based on this data yesterday as I already have open positions in AUD/USD, EUR/USD, GBP/USD, USD/CHF and USD/JPY from a few days ago.

Trading on mobile

I was down with food poisoning for the majority of the week and had to use my phone to trade. The mobile application was surprisingly good and fast.

No screenshots of graphs, but my entries were based on either price action or harmonics. Most have been profitable.

Exercise your right to vote!

It is AGM season for a number of listed companies in Malaysia. I would like to stress the importance of voting, every vote counts and will make a difference. It is a responsibility to vote regardless of how many shares you hold. This is the very least one should do if he or she cannot make it for the AGM.

AGMs are usually scheduled on weekdays so it does not appeal much to the working crowd. Hence mostly retirees are the ones who are present. Do ask questions if you`re in an AGM!

The main purpose to attend should not be solely for the food.

BoJ monetary policy trend broken for USD/JPY

Linking back to my earlier post on the backtesting done on the USD/JPY pair, the outcome on Friday did not follow the historic movements.

The graph generally slows an upwards movement from the time the statement was released. I shall attempt to see why this happened with fundamental analysis in a future post.

Backtesting the effect of the BoJ`s monetary policy statement on USD/JPY

A backtesting is a type of predictive mode using historic data to forecast future movements. This post shall cover how the USD/JPY pair behaves prior, during and after the Bank of Japan`s (BoJ) monetary policy statement.

For March, the pair was at 103.237 at the start of the new day, while strengthening to 103.195 an hour after the statement was made public. The downtrend continued till 15th March.

In April (8/4). the same trend could be seen where USD/JPY dropped after the statement came out at 10.50 am.

Again, the second monetary policy statement in April shared the same trend as the two before. The lowest level for the day was 57.1 pips lower than the open.

This is the chart during the monetary policy statement in May, the downtrend lasted for a shorter period.

USD/JPY chart from March


This test is based purely on trend and does not take into account the content of the statement which would affect the movements in a greater scale. In conclusion, a drop in USD/JPY is present in every monetary policy statement since February this year. However, the downtrend tends to last for a shorter period every time. This is due to the fact that quantitative easing is expected some time in future and when that happens, USD/JPY is expected to spike upwards instead. 

Reserve Bank of New Zealand`s monetary policy

A key point of the monetary policy statement from the RBNZ is the increase of the Official Cash Rate (OCR) by 25 basis points to take it to 3.25%. In addition to this, the GDP is estimated to have grown by 4% in the year.

The full monetary policy statement is available here.

We shall explore the effects of interest rate parity here, with the assumption that the starting point is at 0.86253 (5.00 am). As interest rate rises, demand for the currency would increase as investors would like to get a share of the higher interest. Theoretically with the increase of 25 basis points, the intrinsic value of NZD/USD should be 0.86469 (0.86253 x 1.0025)

NZD/USD at the time of this post was at 0.86816, where the 34.7 pip difference is due to investor sentiment and taking into account the optimism from the GDP estimates.

Australian unemployment numbers

Two key indicators of the Australian workforce were released this morning at 9.30.

The unemployment rate remained at 5.8% beating estimates of 5.9%. The unemployment rate is the percentage of the workforce unemployed that is seeking employment actively and wanting to work.

In contrast, the unemployment change painted a red figure at -4.8 thousand jobs. Economists surveyed expected a creation of 10.3 thousand new jobs.

While new jobs created did not meet the estimates, a drop in unemployment is a sign of a healthy economy and a healthy economy will increase the value of the home currency.

At 9.30 am just before the numbers were out, the Aussie Dollar was at 0.93814 and currently hovering at 0.94048 which represents a rise of 0.249%.

Scalping with harmonics and price action

Today has been a scalping day for me, with various entries of long and short trades of GBP/USD, EUR/USD, USD/JPY and NZD/USD.

It was a pretty quite day with no key economic data out. No graphs will be uploaded as there were too many entries which most look similar. The time frame I used was M1.

Harmonics and price action for the day

I shorted EUR/USD today based on the double top formation in the graph. This indicates that resistance cannot be broken and buyers are not willing to push the price up further. Managed to close a profit of around 25 pips. I wanted to reenter with another short after the false green bars were formed but I was occupied with GBP/USD at that moment and missed another good short entry.

I went in long for NZD/USD based on the bullish rhythm. It stayed pretty much sideways after a 10 pip gain so I closed the trade.

HIbiscus management discussion and analysis

Besides the financial results in an annual report, the management discussion and analysis section can tell a lot about a company.

Among the notable highlights is the oil wells in Oman which seem to be doing well. Historically on 3rd February and 6th March earlier this year when the announcement was released on Bursa`s website, the counter shot up by more than 30 cents during the first few hours and the bullish upbeat remained for a few days. The oil discovery in Oman was the first successful flow test from East of Oman in 30 years.

An area of concern however is the Norway venture. Investments there started as early as November 2013 (RM22.96 million) and a further RM 159.89 million was used to facilitate the drawdown of a government-backed loan of NOK 300 million from Skandinaviska Enskilda Banken AB (SEB). A caveat to this is that "all concessions are undergoing seismic acquisitions or processing work" and partners are expected to make a `drill or drop` decision by the third quarter of this year.

Going over to Australia, five contracts will be awarded in the third quarter of 2014. These are:
- Operations and Maintenance
- MOPU
- FSO
- Export System

- Drilling

The price of this counter is at an all time low for 2014, and the same happened back in 2013. Upside potential of say a RM0.30 cent jump in a day is possible if the results from Norway point to a drill decision. 

ECB press conference

Mario Draghi, the President of the European Central Bank (ECB) delivered his speech yesterday. Given his history of press conferences, Draghi has been known to shake the markets in the most haphazard way.

Firstly, the interest rates as expected were lowered by 10 basis points for main refinancing operations, 35 basis points for marginal lending facility and another 10 basis points for deposit rates. For the first time here, deposit rates are negative.The EUR/USD rate pre-speech was around 1.3660, taking into account the effect of interest rate parity, a drop of deposit rates of -0.1% would have resulted in the rate to consolidate to 1.3646 (1.3660 x 0.999 ), all else equal. The graph shows the the lowest point during the speech at 1.3658. The difference of 12 pips is due to investor sentiment and as proven here, interest rate parity is a concept that holds.

Moving on, there were other policies to strengthen the Eurozone economy namely the targeted longer-term refinancing operation (TLTRO). The TLTROs will mature in September 2018, in around 4 years. TLTROs are used to provide liquidity to the financial sector. The positive impact of this action is to increase the confidence in the Eurozone. An action like this would cause the EUR/USD rate to go up.

As quoted in the speech, "... to maintain a high degree of monetary accommodation, as well as to contain volatility in money markets, we decided to continue conducting MROs as fixed rate tender procedures with full allotment for as long as necessary....". Unlike TLTROs, MROs which stand for main refinancing operations mature in one week. This step by the ECB would impact the currency markets by reducing the volatility of the Euro. New traders could choose to trade Euro pairs as the risk is lower.

Real GDP in the Euro area rose by 0.2%, where the annual increase of the real GDP by 1% is foreseeable. Compared to the press conference in March, the extrapolated real GDP growth for 2014 has been revised downwards while the estimate for 2015 has been revised upwards. 

Without going into the details of monetary analysis of M1, M3 and M3 a decline of the demand for Euro can be seen.

Experts would say buy the rumour and sell the fact and time in time the trend repeats itself. After hitting an all day low of 1.3503, EUR/USD rose to 1.3670.

The full speech and the question and answer section can be found from the ECB website.

I made close to a 60 pip gain by shorting EUR/USD slightly before the speech and exited after a few minutes. I would have went in long after that but I did not have a decent internet connection last night to watch the news live had I known the full content of it.

Downtrend rhythm for USD/JPY M1

The M1 graph shows a downtrend rhythm for USD/JPY. I did not calculate the ratios, as I am certain at this level USD/JPY is set to decline.

Entry point for a short as at the red arrow.

Double top for EUR/USD

The M5 shows a double top formation, and paired with Fibonacci retracement, these lines provide a good indicator to short and new support levels.

I went in for a short as seen in the red arrow entry, with a stop loss set at my resistance line.

More price action: Double top for USD/JPY

My set up for scalping is purely price action, with a focus on the M5 charts. There is too much noise for M1 and M15 requires a slightly longer holding period. 

A double top formation can be seen for this pair. The two tops can be used as a reference for resistance where the price does not have enough buyers for it to breach. 

Double bottom for EUR/USD

The M5 graph showed an uptrend sign at around 5.30 pm. I am collecting my long positions for this pair.

If history should repeat itself, EUR/USD will spike upwards pre-Draghi speech and then tumble down during/after. The ECB President is expected to cut rates.

Double top for GBP/JPY

Earlier this morning, a double top formation was seen in the M1 GBP/JPY graph.

This presented a good shorting opportunity based on price action. In addition to price action, fundamentals favoured the Yen as the average cash earnings was more than forecast and prior period. Besides that, Japan`s 10 year bond auction yield increase slightly. A change in 10 year bond yields would affect a currency based on interest rate parity.

I shorted the pair at 171.486.

US ISM Manufacturing PMI misses target

As per title, the major economic data for US tonight was the ISM manufacturing PMI. This is the leading indicator for the economic health of the manufacturing sector released by the Institute for Supply Management.  The actual figure at 53.2 was lower than both what analysts expected and the prior month.

I`m quite the fan of data trading, hence I shorted USD/JPY and went in long for EUR/USD.

How China`s PMI data affects the Australian Dollar

Using the figures from yesterday`s PMI numbers, a long for AUD/USD would give a few quick pips.

This would have given around 6-7 pips if the entry was made during the start of the trading session. The key to data trading is that once a trade has turned positive, it is time to close it, even with just a few pips. The temporary momentum could reverse in a few minutes.

As seen in the M15 graph of AUD/USD above, after the temporary strengthening of the Australian Dollar, it fell by nearly 100 pips. This is an inherent danger of data trading when one doesn`t exit fast enough.

China`s manufacturing PMI for May

China`s manufacturing PMI (Purchasing Managers Index) for May outperformed expectations by expanding more than estimates and April. The actual figure, at 50.8 was more than 50.4 in April and 50.7 initially estimated.

Purchasing Managers Index is an indicator on how well the manufacturing sector is doing. A figure above 50 represents an expansion, while below 50 shows a contraction. A more precise explanation can be found here. 

Most forex brokers do not have the option to trade a Renmimbi pair so the next best option is to trade the Australian Dollar. For a scalper, a gain should be possible with a trade in favour of the AUD tomorrow when the markets open. For instance buying AUD/USD should give scalpers a few easy pips. Traders should not hold this pair too long as Australia has several key economic data out tomorrow, starting with the buildings approval at 9.30 am.

Trading with odds

Based on probability, there`s a 50% chance of getting the trade right with forex, since the only options are to either buy or sell a currency pair. Next, by controlling the risk factor, one can choose to use a ratio of 1:2 for stop loss to target price. This should ensure that the net results would be a positive, even if only 50% of the trades are winners.

In reality, this idea on probability seems rather idealistic as it is much easier to hit the stop loss than target price. Perhaps when trading with odds alone, one should enter the trade opposite to the one initially thought about.