EURCHF - Smallish Bounce

By chance I read this post over at fxmadness. The moment I read it I thought: "True, this pair will be due for some kind of bounce anytime soon". What I didn't know was that EURCHF was trading at 1.3189 - instead of the 1.329 or so I had seen earlier in the day. That's also down from 1.36 just days ago. As he rightly says: That's a huge move.

So I bought some last night before going to bed. Woke up this morning, checked price - and was happy to sell.

Economy Ok, Banks/Insurances Sovereign Losses Not

I think that title sums it up. Companies are making decent profits and providing a reason to be long equities. However the sovereign debt problem is like the subprime asset backed securities I suspect. That is it is unfolding very slowly, but it's clear there are multi billion losses still being hidden, and they're a ticking time bomb?! So if you can figure out which insurance companies or banks are hiding them and find some out of the money options valid thru 2012, I'd say you're going to make a bundle. Keep me posted eh?! :P

I mean look at the CDS market. Greece's CDS is trading close to 900bps - and Spain at under 300bps. If spain is really as bad as everyone is saying, it should be 500bps. Too bad there are no warrants or options available to me for speculating in that market!! :( Of course I'd buy CDS on the USA. They're at under 40bps. Now that sounds like fantastic risk reward. If the US gets downgraded one day in 2011/2012 that should move to something like the spanisch levels :D I bet you banks aren't allowing retail speculation on that for patriotic/political reasons or afraid that if they need a bailout again, they won't be served equally. Like Lehman didn't get equal treatment to AIG.

Very good read in that context:

The Big Short - M. Lewis

It's a great book - apart from the prologue and the last chapter, where he goes into too much detail about who he knew back in the day and how Salomon has to do with everything. But the huge chunk inbetween is really exciting.

Very good accounts of what happened to hedge fund managers/prop traders at investment banks who had done their homework during the 2006-2008 subrime drama.

Edit: Changed first and second paragraph slightly. Missing logic and spelling mistakes. I tend to just have thoughts and write them as they're developing. Doesn't make for good second reading... :S

SNB comments to the Swiss-American Chamber of Commerce

Some interesting comments by the chairman of the governing board of the SNB, Philipp Hildebrand...

This public debt crisis is multi-layered. It is clearly a crisis of market confidence and as such a liquidity crisis. The trigger was a classic fiscal crisis combined with severe competitiveness problems in the periphery of the EU. However, it is also an institutional crisis. The institutional mechanism to ensure fiscal discipline inside the Eurosystem was clearly insufficient.

Obviously, part of the fiscal imbalances and the resulting build-up in public debt were directly related to the financial crisis and its aftermath. One part of the fiscal expansion can be explained by the direct fiscal effects of the measures taken to stabilize the financial system. Another part is explained by the drop in revenues and increases in social benefit payments in response to the post-crisis recession. According to recent IMF calculations, this accounts for about fifty percent of the increase in debt levels globally since the outbreak of the crisis. The other roughly fifty percent are unrelated to the financial crisis and its effects on the broader economy. 

To put it differently, some countries had simply lived beyond their means well before the financial crisis erupted in 2007. 

The reaction of financial markets is a wakeup call to all countries that sooner or later government finances must be put on a sustainable path.

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the above are quotes from the speech...

read the whole text

No action in equities, feeding into FX.... and killing trading appetite..

Well the last week has seen volatility shrink. As most swing or day traders will probably agree, trading isn't fruitful in such times (except oil traders or scalpers generally?).

Big investment banks trading floors have seen volumes collapse in recent weeks after the high vola spring.

I'm not sure it has anything to do with the world cup, as the mornings should be business as usual. 

Maybe it has more to do with the CDS market having calmed down. I believe a lot of impulses were coming from there. Spreads exploding would feed into EUR fx rates and bank shares and from there into the index futures and ETFs....

That's just me brainstorming myself.  No trades. I am starting to get interested in EURCHF as I find the actions of SNB completely incomprehensible. They seem to have stated that the strong swiss economy isn't being impacted by CHF strength for the time being.

So why the hell take on 70 or more billion EUR... God help them if we see the world go into double dip in Q3. That will dwarf the UBS stability fund exposure they took on during the financial crisis.

What I'd Need To Do To Make Money

For the records; my trades of the last 30days.

No big gains, no big losses, some small winners, no losers.

Why aren't I makin more money?

1. I never want to close a trade that is in the red

2. I always want to increase size if the move against me is strong enough

3. I THINK I am good at picking important turning points

4. I take profit too quickly

5. I can't sit back and relax and watch a position go deeper and deeper into the black, even increasing.

Remedies....

1. Pills that change my brain chemistry (don't know which are recommended...) so that I'm less "nervous"

2. Stop trading

3. Just trade long term trends (ha! If I believed the tape, but I never trust the tape and believe it can turn at any point), adding to positions that are in the black.

4. Learn how to build positions instead of in/out/in/out...

Wrong Timing, Wrong Pair...

Well, got bored with the Pharma stocks options and cashed out 2/3 with a slight loss (500$)... Still long with 1/3. Used the cash to have margin available for FX.

Stupid thing is, I chose the wrong pair to play a bounce (and also the wrong point in time). EURUSD had been at 1.193 and EURCHF at 1.3750-65. Then EURCHF gaped up to 1.39 and came back to 1.3820, I thought it must be the SNB showing that they don't want the pair below  1.40 for long. I was wrong however and stuck in a shitty risk reward trade for 3 days while EURSD bounced to 1.21 *rolleyes*.

 Btw just noticing (looking at screen captures below) that my broker just resets all open times for trades to 23.00CET instead of showing actual entry date. Pain in the ass. They show it correctly if you go to the menu and choose "show all my trades from date x to y..."

Anyway, I'm annoyed I didn't wait for EURCHF 1.39 and enter at 1.3760 instead of entering at 1.38182 and exiting at 1.38523... 

So, net I'm down 200$ from my last FX trade. 

Switched My Exposure To Small Pharma Stock

I think I'd have been tempted to buy some EURUSD and especially EURCHF at 1.2040, 1.3940... But yesterday I bought some out of the money options on a smallish pharma co. It's not doing anything since I entered trade. Which is kind of a positive surprise. When I came back to my desk at 14:30CET (just missed the number) I saw the index futures and though OH FUCK IT.... However the stock didn't budge, not a bit. So I'm happy about that. Wondered about getting out B/E. Then again there's insider buying recently at exactely where I entered. The guy who owns this company has a level he likes buying, and if he likes it, I sure as hell like it! Why would he put to work cash now, in these uncertain times, if he wasn't pretty sure that his "baby" was going to do well mid-term. Granted, that won't help me with the time value of my options, still I feel okay holding on for the moment. Trust me to change my mind as soon as it goes south though!

Gaging Important Levels With Intuition? Maybe Not, But Something Like It

Well if you're a regular you'll recognize my trades and graphs by now. I feel pretty confident buying a 80-100 pip pullback, then after pausing for 20-60min, the trade goes sour without ever giving the chance to get out with decent profit. So I double up. Then I have to wait 4-5 hours for it to get back to the first entry point. At least for my ego I can state that at both levels I chose - just by gut - the market stabilised at least temporarily...  But when I was down 900$ at 11CET I did think: How bout if today is the "flash euro crash".... and the pair moves 3-4%. I'd be knocked off my feat pretty quickly! Russian roulette trading.