Painful day for Yen Shorts yesterday! We averaged down to 76.6

For those following our latest trade, they will notice that (much to our dismay) the Yen strengthened violently just as we bought our first clip of USDJPY on continued month-end support from exporters frantically buying Yen at (or around) the crucial 77 mark.

 

Indeed, the pair traded down to 76.19 by our reckoning and we have added to our position, averaging 76.6. It doesn't take a genius to figure out we are in the red (and our AUDJPY trade to a lesser extent). If we were to be shaken from the market now, it would translate to a 0.6% P&L hit and take our YTD to -0.32%.

 

Every problem has a solution

• Closed half of the USDJPY position at 76.3, respecting that we mis-timed our entry and fundamental weakness of JPY may be a while off.
• We look to add to our USDJPY position into 76 and below, basing the entire trade on the optionality of BoJ intervention.
• In this way, we form a "campaign trade" with a maximum tolerance of further 1% loss (equivalent to a ~74 USDJPY) noting that there would be considerable corporate unrest in Japan should this risk materialise.

STOP PRESS:  Japan's Finance Minister Mr Azumi warns that firm steps will be taken against excessive, speculative FX moves. USDJPY currently at 76.22.

Short Yen! Buy a Basket of USDs and AUDs

"The Yen is strengthening a lot and we are quite certain that this isnormal… but nonetheless disconcerting… end-of-month buying of the Yen by Japanese exporters. They are usually “in” at the month’s end for this purpose, and they were a bit more aggressive than usual given the Yen’s recent weakness. Fearing only a few weeks ago that they might be executing orders with a “handle” of 75, the exporters were and are ecstatic having gotten something instead with a “handle” of 77. Too, there appeared to be some added “stop loss” selling of the US dollar vs. the Yen that was touched off as the Yen/dollar rate fell to 77.25, sending it to 76.95 at one time before the dollar found support."

- Gartman Letter 27/01/12

 
Whilst we don't always agree with Dennis G, we have been trying to find excuses to enter a JPY short for the last few months and finally we have been presented with the ideal technical entry. With strong support in the mid 76s and a fundamental picture that continues to deteriorate (worsening trade balance, debt issuance problems) the comparison to a put-option is particularly apt.

This is a high conviction trade and we intend to enter it with considerable gusto, the first of such trades this year. Our entry is between 76.9 and 76.6 and our stop is 76.25 with around 1-2% risk on the table.

Hedge Funds Ramp up EURUSD Short... Momentum Changer?

The chart above, based on CFTC data from non-Commercial Speculators, indicates that there might be a time-lag between Hedgie shorts and EURUSD levels. Very interesting indeed, especially when you consider that it points to an ER of around 1.2 if the correlation were to hold up.

Important to note, though, that past correlation does not imply causation or even future correlation without argument. The sheer weight of ECB and Fed pressure in the opposite direction may well render this chart, as compelling as it may be, meaningless as there has never been a more important truism in the market right now:

"Never Fight the Fed" (or in this case the ECB)

A tidy sum from XAU, Buy On Dips!

So, XAUUSD (Gold in $$) has massively outperformed over the last few week's "inflation rally" to the tune of about a percentage point for the JF Macro Fund. We continue to sit on about 1/4 of our original position and intend to buy on dips, the one problem being that now XAUUSD has broken its downtrend resistance (see below) it may well be set to run riot.

XAUUSD (Orange), XAGUSD (White) and XAUEUR (Blue)

New Year, New Thinking….

As even this week we’ve been striving for the allusive α, we have been looking at more interesting ways of investing in CFDs and in particular single stock investing. Moving away from our regular stomping ground of FX, indices and hard commodities – gold in particular.

Read on for more from our Single Stock Strategy Team.