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Attachments: AUD - next in line for a kick in the groin
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AUD - next in line for a kick in the groin

  • #1
  • First Post: Sep 19, 2007 1:51pm Sep 19, 2007 1:51pm
(Alternative Thread Title: Don't yell at me again for discussing fundamentals)

First it was the US dollar, then it was GBP - both of which were due to sub-prime or some other mortgage related nonsense.

A quick look below the equator shows that AUD may well be the next currency to take a fall.

According to some very interesting stats from BNP Paribas - The Northern Rock case broke sterling’s backbone. Northern Rocks claims were only covered by 28% by deposits while 72% was down to wholesale funding. Australian banks are not much better.

Guess what, the housing inflation/bubble is a global phenomena and all the excess global savings will decline the same moment Asia allows its currencies to appreciate. In addition, Australian banks account for 21% of bank total liabilities declining from 37% a decade ago while funding 79% by tapping international capital markets or selling bonds to global investors. The ratios are even worse than those of Northern Rock.

Comes the next credit event the AUD will fall victim to it - the timing of course will be particularly challenging and likely require a catalyst.
  • #2
  • Sep 20, 2007 5:15pm Sep 20, 2007 5:15pm
good point dave. this global credit squeeze seems to be in its infancy, and it has proven it can spread across large ponds. i dont see much reason it will be contained to the US and UK. let me know if you come up with any ideas on timing, i will do that same
Relax and be happy.
  • #3
  • Sep 21, 2007 8:47am Sep 21, 2007 8:47am
My friends and non-Forex business associates in Australia tell me their dollar is already under pressure, having started when the sub-prime mortgage problems in the USA came to the fore. Many in OZ have in recent years followed the example of Americans, over extending themselves financially. These people are nervous even though the economy of that country has been growing and very strong for a long time.

A good friend of mine in Western Australia (a very prosperous area primarily because of the mining industry), has recently reduced his recreational products imports from the US because of this uncertainty. He uses me as his American contact, and has made it plain recently that we will be doing less business in the near future than we have done in the recent past. The general consensus is that this situation will not only continue for some time but get worse before it gets any better.

Watch for a continued decline in the value of the AUD.
  • #4
  • Edited 9:26am Sep 22, 2007 9:14am | Edited 9:26am
Quoting TheLFB.com
The Aussie is set to lose value is the theme of the thread, but what is it going to lose value against?

We hear the fact that the current economic cycle of Australia may be moving from Expansion to containment, but look at the Business Cycle Charts and Interest Rate draws, there is nothing that comes close to the amount of appeal that Australia has, in our opinion. A slow-down? Probably, due to Global situations, but currency devaluation? Against what other currencies? If there is a move away from Paper debt to Metal debt because of Equity/Treasury fears one region benefits more than any other Major;
Australia and it's huge natural bank of precious metals.

I was waiting for someone to problemize this very paradoxon

I in essence had the same trouble when PFX wrote that Switzerland was gonna get into housing problems etc. So they said the CHF would weaken.
Well, that's nice and well, but...it's USDCHF.
The USD is in the process of being taken apart and has the highest "visibility" in press, media, general buzz. It is the most talked and written about. So, the question is - if the USD and CHF both weaken, which side is worse off?
I mean, sure there's a theoretical basis of "everyone is in it", but it appears to me it's more a question of who is the weakest link.

You can't depreciate against nothing and if you're pegged against the USD then you have to be worse off than the "original"(the USD) in order to get a move on.

The simpleton's logic - that'd be mine - is: even if both sides end up going to crap, would you rather be on the side holding a positive yield or paying while everything goes to pieces as well?
And the precious metal argument runs in the same vein.
Although Gold has risen 80% off of USD weakness (if USD devaluates you need to pay more USD to get the same "value" in gold, obviously), there has been a REAL increase in Gold value if you compare the last 4-8 weeks via Gold value in EUR, too. So Gold has gained "intrinsical" / real value, not just USD devaluation value I believe.

So like the LFB wrote - where's the fall going to come from from a USD perspective? The USD needs to return or stabilize and THEN the shocker news come from Australia, then yes indeed it's going down.

What I could also see is the carry portfolio meltdown scenario again, sure. No problem there. But does anyone know how much is left?

Almost 100% of the drop have been snatched up again in just a few weeks on this pair. Pretty spooky.
There appears to be genuine demand for this one and no matter what the reasons, it's shown quite some resiliance across the board so far..AUDNZD rose like mad, EURAUD fell(admittedly, both are oscillating pairs) and it appears one is better off looking for "weaker" compadres to kick around than the poor li'l AUDUSD...


But it's FX and "everything can change on a new years day"...

(I should probably also add as a disclaimer that I'm probably to be considered a "chartist" and preeeetty much clueless or at least uncertified in regards to "real fundamentals" and macroeconomics)
Trust price. Know yourself.
  • #5
  • Sep 22, 2007 11:32am Sep 22, 2007 11:32am
Well you can always make the case that if one currency (in this case US$) has a lot of negativism priced in already then the other part of the pair (in this case Aussie) may drop more. Not saying there isn't more downside risk for the US$, just that Aussie$ may drop more percentage wise. If there were subprime/credit crunch worries to hit down-under too.
  • #6
  • Sep 22, 2007 12:45pm Sep 22, 2007 12:45pm
im with you suntrader, this is how i have started to view the currency situation lately - USD seems to have the most problems priced in. but this is a tough situation to be buying dollars, we could be waiting for the reversal for quite a while. i can see the argument for the dollar longs, but until the chart agrees i wont be making any moves (any long term moves, anyway).
Relax and be happy.
  • #7
  • Sep 22, 2007 1:27pm Sep 22, 2007 1:27pm
Quoting merlin
until the chart agrees i wont be making any moves (any long term moves, anyway).

Speaking of which. I've looked a bit into the ADX since it's your favorite pet and saw that some DXI+- "spikes" coincide well with peaks/PBs sometimes..

Was wondering whether the trader room isn't sorely missing THE thread a lot of people probably would flock to...which is: Merlin's "Trading with the ADX" thread

Basically as many secrets as you care to reveal on how you trade with charts and the ADX, all FA and deliberations you do parallel to it aside. Just the chart agreement part. Surely just a tiny fraction of the decision making process, but one I for one would be VERY interested in.

Any chance to let us look behind the curtain, Mister Copperfield?

I will go humming "Do you believe in magic?" all the way as a jingle for the thread, too, I promise!
Trust price. Know yourself.
  • #8
  • Sep 23, 2007 10:28am Sep 23, 2007 10:28am
Quoting merlin
im with you suntrader, this is how i have started to view the currency situation lately - USD seems to have the most problems priced in. but this is a tough situation to be buying dollars, we could be waiting for the reversal for quite a while. i can see the argument for the dollar longs, but until the chart agrees i wont be making any moves (any long term moves, anyway).
I am considering one year straddles on AUD/USD and AUD/JPY - this is the ignorant way to play this in the event that my directional bias (down) is incorrect - although 1 year out I would find it hard to believe there will not have been volatility.
  • #9
  • Sep 26, 2007 12:54am Sep 26, 2007 12:54am
Quoting SeekingLight
Was wondering whether the trader room isn't sorely missing THE thread a lot of people probably would flock to...which is: Merlin's "Trading with the ADX" thread


well i would start a thread but there really isnt much to say about it other than what ive said around the forum. its not a philosophy or theory, just a useful equation. welles wilder is the expert on this subject, to really grasp the adx youd have to read his book. if you like hand drawn charts, you will love this one!
Relax and be happy.
  • #10
  • Sep 26, 2007 1:00am Sep 26, 2007 1:00am
Quoting Dave Floyd
I am considering one year straddles on AUD/USD and AUD/JPY - this is the ignorant way to play this in the event that my directional bias (down) is incorrect - although 1 year out I would find it hard to believe there will not have been volatility.
i try to buy straddles when the market is extended, and sell them when its mid-snap. so i could see this being a good time to buy one, depending on when you plan to exit.

though i trade options a lot, i hardly touch the currency options because i havent found good liquidity like i you can get with other instruments, especially stocks. are you seeing decent spreads? what exchange are you trading on?
Relax and be happy.
  • #11
  • Sep 26, 2007 6:28am Sep 26, 2007 6:28am
Quoting merlin
i try to buy straddles when the market is extended, and sell them when its mid-snap. so i could see this being a good time to buy one, depending on when you plan to exit.

though i trade options a lot, i hardly touch the currency options because i havent found good liquidity like i you can get with other instruments, especially stocks. are you seeing decent spreads? what exchange are you trading on?
Merlin,

I will not claim to be an expert on options, so commenting on the spreads and liquidity would be of little value. Nonetheless, I did not have a problem getting filled for a 6-month straddle with a strike at .8680. The trade was done directly with my prime brokerage.

I only use options in a situation where I have a longer-term view and am unwilling to take a position in spot due to the associated volatility - hence my belief that AUD/USD will trade lower at some point required a strategy that could be placed on the back burner and simply wait.
  • #12
  • Sep 28, 2007 11:04am Sep 28, 2007 11:04am
Quoting SeekingLight
You can't depreciate against nothing and if you're pegged against the USD then you have to be worse off than the "original"(the USD) in order to get a move on.

The simpleton's logic - that'd be mine - is: even if both sides end up going to crap, would you rather be on the side holding a positive yield or paying while everything goes to pieces as well?

So like the LFB wrote - where's the fall going to come from from a USD perspective? The USD needs to return or stabilize and THEN the shocker news come from Australia, then yes indeed it's going down.
So far there've been a lot of simpletons in a very big hurry on the AUDUSD trading floor. (Have you seen daily? Insane!)

Those are some seriously spooky monthly bars.

Reclaimed the high in effect now.

Reports of the AUDUSDs groin kickin' have been grossly exaggerated?

I'm still sitting here astonished at how everyone keeps kicking the USD while it's literally down.

Question on a lot of folk's minds is probably: when will this end? IS this going to end?

And on mine: where the heck am I going to get a good buy if all there is is a rise?
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Trust price. Know yourself.
  • #13
  • Sep 28, 2007 1:07pm Sep 28, 2007 1:07pm
Quoting Dave Floyd
I will not claim to be an expert on options, so commenting on the spreads and liquidity would be of little value.
if you are not an options expert, you are best not to trade them. and i mean that in the nicest possible way there is an incredible number of complexities associated with options. its not like an underlying market where you can just buy and sell without much knowledge of market mechanics.

for instance, you probably have no clue as to what implied volatility (IV) you bought that straddle at, and how it relates to historical volatility (HV), and how it relates to historical IV. when you buy a straddle you are really getting long volatility, so understanding where the volatility of the market is currently will be the most important consideration when buying a straddle. and i wont even get into the other greeks, just know that you are going long or short all of the greeks every time you take a position. without a clear understanding of all these mechanics you are basically trading blind!

another note on options...be VERY careful with the spreads. sometimes the spreads can be as much as 35% of the position, no bullshit! thats why most options traders are buying/selling "at the money", those are the most liquid. make sure you do the math on the spread before every single position, i still do this on every trade, and i have defined thresholds i am willing to accept.

not trying to scare ya here, i just get worried when i see friends playing with the sharks in the options pit, its very easy to get taken advantage of!
Relax and be happy.
  • #14
  • Sep 28, 2007 4:14pm Sep 28, 2007 4:14pm
Quoting SeekingLight
So far there've been a lot of simpletons in a very big hurry on the AUDUSD trading floor. (Have you seen daily? Insane!)

Those are some seriously spooky monthly bars.

Reclaimed the high in effect now.

Reports of the AUDUSDs groin kickin' have been grossly exaggerated?

I'm still sitting here astonished at how everyone keeps kicking the USD while it's literally down.

Question on a lot of folk's minds is probably: when will this end? IS this going to end?

And on mine: where the heck am I going to get a good buy if all there is is a rise?
Seeking Light - I agree, no way to know when/if the rise will end - as a result, I not foolish enough to short AUD presently, those that do, do at their own peril.

Nonetheless, there are some macro reasons to expect a pull-back (educated guess) as noted in my original posting. Timing that will be tough, and I am willing to play it via options for now until there is a technical break from which subsequent entries in spot could be had.
  • #15
  • Sep 28, 2007 6:23pm Sep 28, 2007 6:23pm
Quoting merlin
if you are not an options expert, you are best not to trade them. and i mean that in the nicest possible way there is an incredible number of complexities associated with options. its not like an underlying market where you can just buy and sell without much knowledge of market mechanics.

for instance, you probably have no clue as to what implied volatility (IV) you bought that straddle at, and how it relates to historical volatility (HV), and how it relates to historical IV. when you buy a straddle you are really getting long volatility, so understanding where the volatility of the market is currently will be the most important consideration when buying a straddle. and i wont even get into the other greeks, just know that you are going long or short all of the greeks every time you take a position. without a clear understanding of all these mechanics you are basically trading blind!

another note on options...be VERY careful with the spreads. sometimes the spreads can be as much as 35% of the position, no bullshit! thats why most options traders are buying/selling "at the money", those are the most liquid. make sure you do the math on the spread before every single position, i still do this on every trade, and i have defined thresholds i am willing to accept.

not trying to scare ya here, i just get worried when i see friends playing with the sharks in the options pit, its very easy to get taken advantage of!
I couldn't agree more. That's why most people lose their shirt in options.

Basic options strategies, IMO, really don't make sense in the Forex world, let alone finding a broker who will do forex options. I use IB, one of the most stable and widely used brokers out there, and they don't offer Forex options... I only know of a couple brokers that do...

If you're wanting to do a straddle, why not buy and sell two different contract dates on the same futures contract? Your expenses are much less because options spreads, unless their ITM, suck. AND... you don't need to worry about time decay and all of the other pieces of information that you should know about when trading options, i.e. Greeks. They're mainly used for hedging risk, or in the equities market -- but I wouldn't even trade options on individual stocks, because gaps can kill you...

Merlin, you should read In The House of Money, which is a book on fund managers... there are a few in that book that think IV is BS when buying options... Read it and see what they think about being long gamma...

Personally, I really like options and have had mild success with them. But I only use them on synthetic plays on indices or I'll even sell naked puts, but only on indices in order to reduce my risk...
Mr. Trend
  • #16
  • Sep 28, 2007 6:28pm Sep 28, 2007 6:28pm
Quoting Mr Trend
Read it and see what they think about being long gamma... ..
thanks for the reco!

btw, are they gamma scalpers or something? i have seen quite a few of these guys make big cash.
Relax and be happy.
  • #17
  • Sep 28, 2007 6:30pm Sep 28, 2007 6:30pm
Quoting merlin
thanks for the reco!

btw, are they gamma scalpers or something? i have seen quite a few of these guys make big cash.
Not that I could tell... I'm not done with the book yet though. Most make arguments on not being short gamma and then talk about IV and HV... some think that the whole volatility debate in options is a joke... of course, I think they are talking about 6month to LEAPS, which would make sense in terms of a global macro view...
Mr. Trend
  • #18
  • Sep 28, 2007 6:32pm Sep 28, 2007 6:32pm
Quoting Mr Trend
If you're wanting to do a straddle, why not buy and sell two different contract dates on the same futures contract?
hmm, that would be buying (or selling) a spread, not really the same characterisitics of an options straddle. with spreads you want the out month to do something in relation to the front month, whereas with the straddle you are looking for the market to make a big move (cause you are long gamma, and because IV usually goes up when big moves occur, which you happen to be long too).
Relax and be happy.
  • #19
  • Sep 28, 2007 6:34pm Sep 28, 2007 6:34pm
Quoting Mr Trend
some think that the whole volatility debate in options is a joke.....
hmm, id have to read that, i dont really see how a math equation that is the basis of the market can be a joke. but i would have to see it in context. btw, the greatest options book in the world is listed in my profile
Relax and be happy.
  • #20
  • Sep 28, 2007 6:35pm Sep 28, 2007 6:35pm
Quoting merlin
hmm, that would be buying (or selling) a spread, not really the same characterisitics of an options straddle. with spreads you want the out month to do something in relation to the front month, whereas with the straddle you are looking for the market to make a big move (cause you are long gamma, and because IV usually goes up when big moves occur, which you happen to be long too).
no... I think then they are talking about gamma scalping... the particular manager that comes to mind was talking about options and gammas...

Ahh heck, just read the book... LOL.

But ya know, you still can make a ton of money gamma scalping. Unless your with Saxo, you could do this on currency futures contracts... I haven't done anything like that... but it would be interesting to look into...
Mr. Trend
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