ILS fundamental outlook

The Israeli Sheqel is a currency I've largely dismissed and ignored since well.... forever.  I can't think of a time where I thought trading this currency was a good idea.   However the game has changed.  Bank of Israel intervention in May to devaluate at certain levels of strength is a very significant occurrence, essentially creating a risk-free floor around 3.5 USD/ILS that the currency cannot go under.  This is very EUR/CHF reminiscent.  The interventionist banker is the friend of those who understand its consequences. Logically, the opportunity lies in buying long USD/ILS as it approaches the floor rate.  Previous downward momentum and demand will likely continue to push it back into the floor, so for the time being i'll only be buying into large dips.  I'm a couple weeks late to the game, so i've missed some great opportunities here and I have to hope for another dip towards the floor rate of 3.5 in the near future.

On top of the "floor", it seems the Bank of Israel is likely to adopt a more western or mainstream approach to monetary policy.  There's a lot of turmoil in the area, and it is probably safe to say that the economy is worse off than it is here or in much of Europe.  The new monetary approach is what will ultimately drive the upside to this trade and possibly eliminate my buying opportunities in the near future.  In an optimal scenario, the fed will delay the taper (or taper by less than expected), driving the dollar lower and i'll be able to enter long USDILS around 3.54.  The scenario isn't too much of a long shot, we'll see if it plays out.

Update 8/28 and Monthly summary

AU continuing to flirt with lows... I added to the position long around 0.90, and continue to look for some kind of reversal as we approach the RBA rate decision next tuesday and the Fed meeting in mid september.  I expect both of these meetings to "shock" the market in the sense that I do not expect what is mostly priced in will take place (taper of dollar, rate cut of AUD). I will hold my position, it is rather large now and i will not add to it anymore.  Rather I will wait for the rate decisions and act accordingly.

 I've closed my short NZDUSD position well into the money and opened short EURUSD which seems to be topping out.

I don't plan on closing too many more trades before next week so I will post monthly results now.  As is evident, I've had a rather rough month in AUD... while looking for a move lower i was frequently stopped out, eventually missed the break lower, and then when looking for a bullish rebound it continued to push lower giving me further losses.  This aside it would have been a great month.   The month is net loss of $596, and I have some additional unrealized losses in AUDUSD sitting open in my account... but those will likely have to wait until next months statement.

Symbol	Volume	Date	Sold	Bought	Net P/L	Condition
USD/CAD	100,000	7/31/2013 16:25		1.02764		Mkt
		8/9/2013 12:45	1.02789		-7.58	SE
AUD/USD	60,000	7/31/2013 20:00	0.89530			LE
		8/2/2013 8:30		0.89473	29.16	SE
GBP/USD	40,000	8/1/2013 9:34		1.52003		Mkt
		8/1/2013 10:00	1.51497		-202.40	SE
GBP/USD	50,000	8/1/2013 10:16	1.51429			SE
		8/2/2013 8:30		1.52220	-396.40	SE
EUR/USD	50,000	8/5/2013 7:56	1.32624			SE
		8/8/2013 10:11		1.33891	-633.25	SE
AUD/USD	60,000	8/5/2013 10:34	0.89101			LE
		8/6/2013 0:53		0.89752	-395.28	SE
GBP/USD	40,000	8/5/2013 19:49	1.53490			LE
		8/6/2013 4:30		1.53921	-172.40	SE
EUR/USD	30,000	8/6/2013 7:18	1.32746			Mkt
		8/14/2013 2:00		1.32824	-23.16	SE
USD/JPY	60,000	8/6/2013 7:20		98.114		Mkt
		8/6/2013 8:30	98.154		24.45	Mkt
AUD/USD	40,000	8/6/2013 8:27		0.89692		Mkt
		8/7/2013 13:31	0.89933		97.88	Mkt
USD/JPY	50,000	8/6/2013 8:32	98.151			Mkt
		8/6/2013 15:45		97.722	219.50	Mkt
GBP/USD	30,000	8/6/2013 8:44		1.53503		Mkt
		8/6/2013 21:04	1.53200		-90.63	SE
AUD/JPY	70,000	8/7/2013 13:34	86.856			SE
		8/8/2013 15:33		88.171	-968.56	SE
USD/JPY	60,000	8/8/2013 7:42	96.312			Mkt
		8/8/2013 15:13		96.569	-159.68	Mkt
USD/JPY	90,000	8/8/2013 15:13		96.570		Mkt
		8/8/2013 17:11	96.683		105.28	Mkt
AUD/JPY	20,000	8/9/2013 10:34		88.520		Mkt
		8/11/2013 19:50	88.192		-67.57	SE
GBP/USD	10,000	8/9/2013 11:17	1.55090			Mkt
		8/12/2013 1:18		1.54899	18.92	LE
EUR/JPY	10,000	8/9/2013 11:18	128.562			Mkt
		8/9/2013 11:26		128.358	21.21	LE
EUR/CHF	10,000	8/9/2013 12:10	1.23004			Mkt
		8/9/2013 12:32		1.23074	-7.59	SE
USD/CAD	100,000	8/12/2013 1:22		1.02915		Mkt
		8/12/2013 11:40	1.02989		71.85	Mkt
USD/JPY	40,000	8/12/2013 7:24		96.764		Mkt
		8/12/2013 17:18	96.888		51.23	Mkt
EUR/USD	30,000	8/12/2013 7:26	1.32921			Mkt
		8/14/2013 2:00		1.32824	29.16	SE
AUD/USD	40,000	8/12/2013 7:30	0.91659			Mkt
		8/12/2013 11:38		0.91740	-32.40	Mkt
GBP/USD	50,000	8/12/2013 11:37		1.54780		LE
		8/13/2013 4:29	1.54428		-175.55	SE
AUD/USD	60,000	8/12/2013 11:39		0.91727		Mkt
		8/12/2013 18:23	0.91248		-285.42	SE
USD/JPY	80,000	8/12/2013 17:18	96.888			Mkt
		8/12/2013 17:46		97.046	-130.25	SE
USD/JPY	60,000	8/12/2013 19:41		97.285		Mkt
		8/13/2013 7:38	98.029		455.38	Mkt
EUR/JPY	50,000	8/13/2013 7:42	130.271			SE
		8/13/2013 13:26		130.266	2.54	SE
EUR/JPY	40,000	8/13/2013 15:27	130.190			LE
		8/13/2013 18:27		130.385	-79.47	SE
NZD/USD	70,000	8/13/2013 21:16	0.79594			Mkt
		8/14/2013 6:26		0.80103	-356.30	SE
EUR/JPY	50,000	8/14/2013 0:21	129.872			Mkt
		8/14/2013 1:35		130.512	-325.22	SE
AUD/USD	50,000	8/14/2013 7:58		0.91198		Mkt
		8/15/2013 9:56	0.90818		-184.15	SE
GBP/USD	40,000	8/14/2013 7:59		1.54964		Mkt
		8/14/2013 9:00	1.55050		34.40	Mkt
EUR/USD	50,000	8/14/2013 10:55		1.32700		Mkt
		8/15/2013 8:30	1.32707		2.75	SE
AUD/NZD	40,000	8/14/2013 18:32		1.13499		LE
		8/15/2013 10:34	1.13100		-128.11	SE
GBP/USD	50,000	8/15/2013 4:30	1.55621			LE
		8/15/2013 4:30		1.55826	-102.50	SE
GBP/USD	30,000	8/15/2013 8:53	1.55356			SE
		8/16/2013 8:35		1.56552	-359.34	SE
GBP/USD	10,000	8/15/2013 8:53	1.55356			SE
		8/27/2013 21:07		1.55382	-4.58	Mkt
AUD/USD	30,000	8/15/2013 11:24		0.90895		Mkt
		8/16/2013 7:50	0.91698		242.07	Mkt
AUD/USD	20,000	8/15/2013 11:24		0.90895		Mkt
		8/27/2013 21:07	0.89475		-275.42	Mkt
USD/CAD	30,000	8/15/2013 21:02		1.03000		LE
		8/23/2013 14:05	1.05136		603.41	Mkt
USD/CAD	30,000	8/15/2013 21:02		1.03000		LE
		8/27/2013 21:03	1.04858		522.88	Mkt
GBP/USD	10,000	8/15/2013 23:05	1.56306			Mkt
		8/27/2013 21:07		1.55382	90.60	Mkt
NZD/USD	40,000	8/16/2013 11:40	0.81271			LE
		8/23/2013 14:05		0.78158	1,225.40	Mkt
NZD/USD	40,000	8/16/2013 11:40	0.81271			LE
		8/27/2013 20:59		0.77797	1,362.24	Mkt
EUR/USD	70,000	8/20/2013 6:30	1.34004			LE
		8/20/2013 9:39		1.34503	-349.30	SE
USD/JPY	40,000	8/27/2013 13:48		97.133		SE
		8/28/2013 7:27	97.390		105.59	Mkt
					-596.61

Fed Minutes, GBP

Fed comes out with minutes today, I expect them to be quite boring.  Aka, I expect no hint that they will not taper....  which still (and quite possibly inaccurately) seems to the slight belief bias driving dollar based action right now.  Technically and fundamentally I expect USD to continue on a strength kick until we approach the next Fed rate decision in which we will either unwind taper expectations or exacerbate them.  As far as the GBP goes, it keeps inching higher slowly carving out new tops in the 1.56 and 1.57 (while the euro is acting similar around 1.34).  I do hold a small GBP position short still.... its quite a bit out of the money right now...but the current price action is setting up for a great short opportunity.  Euro already seems to be coming into some significant resistance.  1.345-1.36 represent strong resistance and i'm looking to sell into 1.35 if we can make it there.  GBP is moving up towards June highs at 1.575, an area where I will be looking to add to my short.  The run up in GBP strength has been great fun and all.... but at some point we need to start pricing in the next step up in QE, its due (see my previous post for a bit more explanation on that).

Meanwhile the AUD/USD is screaming lower.  My entry long in this pair could have been a lot better, and i'm paying the price for it.  I was astute enough catch NZDUSD at obvious technical highs (a fundamentally overbought currency with large potential downside).... and its negative run has been offsetting my AUD losses.  However, I do expect the AUD to move towards strength here at some point despite USD action.   Both my AUD and NZD positions are "full sized", though i'm definitely not afraid to add if I feel the opportunity presents itself.  We are at good or close to good technical setups favoring the fundamental direction in a variety of currencies, so late august is looking to be full of opportunity.

FWIW.... My "fundamental" direction on some major currency pairs.  We'll see where this is in a few months.

EURUSD...Bear
GBPUSD...Bear
AUDUSD...Bull
NZDUSD...Bear
USDJPY....Bull
USDCAD....Bull

As you may be able to tell, most of this is USD driven with the exception of AUDUSD right now.  This makes the trade a good "hedge" against my other positions during dollar event risk which is all too frequent, and the root of all evil.


Also, current open trades:
long AU, short NU, long UC, short GU

GBP

I refuse to believe that the pound is has a bullish outlook relative to the dollar.  They have introduced forward guidance, maintained an asset purchase program, maintained an inflation target of 2%, and maintained low interest rates... all very similar to the fed.  They have set very specific level of 7% unemployment as a threshold for a positive change in the interest rates, and while they won't break this threshold anytime soon, it puts additional focus on the jobs number.  The linchpin to the GBP strength and British economy is the assumption that the policies enacted will lower the unemployment rate.  This unfortunately is not a valid assumption.  Here's the unemployment chart straight from the BoE:

Interest rates were last lowered in 2009 while the employment rate was still blasting higher.  Since that time BoE has been in a rather consistent asset purchasing program that has gone up throughout the years from approximately 125 billion in 2009 to 375 billion today in 2013.  GDP is not growing at a particularly effective rate, and without QE it would be quite negative.  Inflation is already running a bit over target at up to 2.5%... which brings me to the question of the day:  How would the BoE respond to both high inflation and high unemployment?  They are currently running both over the inflation target and over the unemployment target.....Do they have a "tool" in their toolbox for that?  The realistic answer is obviously no, and the worst of two evils will be dealt with.  From the government perspective, from the voter majority perspective, and from the government-appointed BoE chair, the worst evil is certainly going to be the unemployment rate.  The economic rules, theories, and strategies to combat such a program fall in line with raising the scale of what they are currently doing.  The decision process to QE is even self correcting.... if the BoE ever decides to "taper" it will have an absolutely direct effect on government borrowing and thus have a direct effect on government supplied jobs.  This has a very instantaneous effect on the job numbers.... which will drive BoE to opt for further QE despite inflation because of the severity of unemployment.  BoE is going to hit this cliff before the Fed.  The dollar as a safe haven stands to benefit from the economic disparity in England, the GBP stands to devalue as it embarques on more QE or as general economic conditions of the world grow worse and people flee to the dollar.

FX or Casino?

Recent event risk has gotten the better of a lot of my positions, hitting stops and bouncing back.  I entered long AUDUSD and short GBPUSD.  Smallish positions, wide stops...  As was the plan in previous posts, i'm looking to short EUR/USD and add to GBP/USD on runs higher.

EURUSD

Bad 8 hours for all of my positions, half my euro position actually got stopped out.... I'll let it blow some steam and hopefully i'll get the opportunity to add to the position around 1.34-1.35

Current Fed Predictions

Taper vs no Taper, Yellen vs Summers vs whoever.... everyone seems to be hung up on this.  I do not believe that the market can withstand the so-called taper nor do I think it will happen in September.  It is clear that tapering isn't something that is on Bernanke's agenda, and I frankly just don't think hes prepared to do it just yet with the CPI where it is.  I also predict that Summers will take the Fed position over Yellen or anyone else.  I think this because I do not believe Obama has the economic insight to know the extent in which the Fed drives the market.

Now Where Was I...

USDCAD long and EURUSD short still active.  The former well into the money (not quite at my targets) and the latter pushing me in the red towards that 1.34 level.  I will not be closing out the EU trade lightly, I am willing to take losses and even add to my position as long as we don't continue and break above the 1.342 swing high from June.  Fundamentally EURUSD should be pushing lower, and we are at/near technical resistance levels.  I'm looking at these trades with a 3-5 week kind of time frame.  I don't fancy holding these through September and getting shell-shocked if the Fed decides not to taper.  While the general consensus is that the Fed will taper...  I believe the actual decision is very much still up in the air.  That being said, i'm currently positioned to favor pro-taper sentiment and rumors, so bring the fire.  I've also opened a short AUDJPY position.... something I really should have been in a bit more since early 2013... its the ultimate "we are going to hell" bet, and if we get a taper driven panic i'll be ecstatic.  Some people just want to watch the world burn... because well.... it seems logical that it would happen.

Those are the only positions I have opened right now, I don't recall what happened with some of the previous trades that I never mentioned closing, but it will all be detailed in my monthly results.

Price Stability

Inflation, as calculated by government from the 51 year period before leaving the gold standard completely (we devalued a number of times against it during this period as the buying power may reflect), and below it, the 42 years we've spent off the gold standard.  Charts are calculating buying power X number of years later.  Which one better represents "price stability", and who are the benefactors and losers in each case?

Random Commentary

Summing up my open positions right now:  AU short from .891, currently +6 pips, EU short from 1.3262 currently +4 pips, and USDCAD long from 1.0276, currently +93 pips.  I look to hold all of these through the aussie rate decision.  I'll tighten up my stop losses such that unexpected hawkish news from the RBA won't destroy the positions.

*Note: My longer term outlook on AU is certaintly bullish.  I certainly do not intend to hold this position for a long period of time.  I'm merely looking to ride this trend down into what I believe is a certain outcome from the RBA.  On a risk/reward or EV basis, it seems to be easily +EV.

In other news, China recently made a comment about wanting to hold another "bretton woods" conference to discuss and push for redefining the reserve currency.  I don't blame them.  The events since the last bretton woods conference have been a farce.  The USD was backed by gold, and was originally made a reserve currency with that in mind.  Every other word currency was de-facto backed by gold because they were exchangeable for USD.  In 1971-1976, we removed ourselves from that gold standard, giving the world's currencies a big "f-you".  The joke is that we almost single handedly removed every currency of the world from the gold standard and replaced it with a "dollar standard"  based on money that we can print at will.  We got largely got away with this heist without serious consequences from other nations.

TGIMonday

Holding Long #USDCAD, pending short AUDUSD.  RBA cut looks all but certain and its mostly priced in, and I expect this pair to continue trending to the downside.