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NZD - A disaster waiting to happen

  • #21
  • Apr 21, 2007 6:15am Apr 21, 2007 6:15am
Not because USD is weak, but because NZD is completely strong against all others.

How can that be? Carry Trades.

Come OCR (rate hike), "RISK AVERSION" will come to play and short it. they will wait for several hours even days and then come back to the table for another carry.
  • #22
  • Apr 21, 2007 6:37am Apr 21, 2007 6:37am
Quoting johnedoe
Here is a monthly chart of the NZD/USD.......some food for thought?
WOW, so interesting... I want to start trading this pair but still didn't look at it deeper... But this charts tells everything.

Breach of 1997 high, 2nd push to 7480... I will watch for breach of 7500 for an explosion upwards. In the meant time USD-index tried 81.50 (2005 low) twice and failed. One next push is likely to crack it, bringing more USD bears to the fields

7500 breached + USD-index below 81.50 then a kiwi long is a trade & forget, imo
  • #23
  • Apr 21, 2007 10:11am Apr 21, 2007 10:11am
A friend of mine has 1.5 mio. USD non-speculative cash in the bank. For a higher interest return purpose, he transformed it months ago into NZD. Of course he luckily also harvested the NZDUSD rally.

Now that NZDUSD MAY have a chance to correct downward, can he come to the forex market and short 15 lots on NZDUSD to hedge his bank savings in NZD? The interest return will be deducted a bit, but overall he will be safe for any capital fluctuations, right?

Would like to hear any comments on this.
凹凸 only
  • #24
  • Apr 21, 2007 10:20am Apr 21, 2007 10:20am
Quoting Samuri
A friend of mine has 1.5 mio. USD non-speculative cash in the bank. For a higher interest return purpose, he transformed it months ago into NZD. Of course he luckily also harvested the NZDUSD rally.

Now that NZDUSD MAY have a chance to correct downward, can he come to the forex market and short 15 lots on NZDUSD to hedge his bank savings in NZD? The interest return will be deducted a bit, but overall he will be safe for any capital fluctuations, right?

Would like to hear any comments on this.
You can pretty much hedge any position with the forwards market...
  • #25
  • Apr 21, 2007 10:46am Apr 21, 2007 10:46am
We must also realize NZDJPY is the main reason for the appreciation of the NZD currency in general. My proof would be to look at USDCHF from March 6 to present. basically range traded. this means USD itself did not lose much vs other currencies. the move is mainly due to JPY weakness for the past 6 weeks. Carry trades came back in full force the second week of March. This could be due to Japanese repatriation of profits for their year end books, or it could be due to the aftermath of the Chinese stock market crash that everyone is very nervous about. Either way both these things coincided and crashed the carry trade market for two weeks then came back just as strong. We are only 400 pips higher on NZDJPY right now vs before the Chinese stock market crash 6 weeks ago that sent people running for the exits.

Similarly the GBP has appreciated greatly due to GBPJPY carry traders.
It really is that easy.
  • #26
  • Apr 21, 2007 10:52am Apr 21, 2007 10:52am
Samuri,
I'm not a CTA yet but he could hedge with puts or sell NZD futures. Futures "price in" interest rates in their prices. That is why we cannot go to futures and sell NZDJPY and go to forex and purchase NZDJPY. At the end of the day we would be net 0 and down some due to forex huge spreads. Futures have very tight spreads unless you are at a poor broker like Inf**ity or similar. I've never traded futures. I've only heard from CTA's and Vegas that their liquidity is way worse than forex. Not having a central clearing location for all trades is a blessing in disguise for us. We can sometimes trade unreal prices during highly volatile markets. The best way to trade forex in my speculation during highly volatile times would be to watch a futures chart (which costs money to see because the feed itself costs as it's one central feed) and then trade forex on a slow retail broker like Oanda or any MT4 broker. You will eventually be shut down but in the mean time you'll easily make a killing. Anyone want to do this?
Sorry for the rant. I'm bored.
PM me if anyone thinks this would be fun. I just opened a retail account vs my other two institutional accounts cause i want the fake market.
jeff
It really is that easy.
  • #27
  • Apr 21, 2007 2:24pm Apr 21, 2007 2:24pm
Quoting dunningduke
here is what Vegas had to say in one of his blogs about carry trading. The day it unwinds, it's going to be hell for some and lots of cash for others.
Vegas:
"

EUR/JPY
This pair has been in buy mode since May 17th, and there has been no thrust at or beyond the first fib
extreme.
We traded once on the drop to the first fib, almost got stopped out, and then sold on the rally back for a
very small loss.
However, storm warnings are brewing in this pair making it extremely dangerous to be long on breaks.
I told you before, major news trumps all technicals, and on this theme we definitely have some major
news. For the first time I can recall in a cross, politicians are getting into act. This past week, all hell
broke loose when some Finance minister in Europe spoke about the EUR/JPY and the need for this
cross to stop appreciating because it was hurting European exports. He hinted that it will be a topic for
discussion at the upcoming G-7 summit in Singapore on September 15 – 20th.
Now, the problem here is the fact the entire universe is long EUR/JPY, and for that matter short the
Yen in all the crosses. Yen has been the “funding vehicle” for all the carry trades over the last couple
years. Past history suggests when this carry trade falls out of favor with the hedge fund community it
will be NASTY. I mean REAL NASTY. Account ending nasty. Moves that make you think your
machine is broken and can't possibly be right. I'm talking of anywhere from 500 to 2,000 pips in a
couple days. Moves that kill speculators and make every politician happy at the thought. The past
suggests this will be the result.
There are TRILLIONS of dollars worth of these trades on, and if this political talk that started this past
week starts to gain traction with other politico's in Japan and elsewhere, look out below. I can
guarantee you, right now, there are many hedge fund managers who are very nervous about this pair
and their long positions. When [ not if ] these guys hit the exit button at the same time it will get REAL
interesting. Your sell stop, in a scenario like this, is meaningless. With a long position, you could very
easily get filled 700 pips away from your stop [ or worse ].
Let's be clear.
I don't know when it will happen – I just know it will happen. All the dominoes are being set up. The
politico's are starting to send the “between the lines” message to the investment community. Right now,
everybody wants to play nice. But, the cannonball has been “shot across the bow”. It's just a matter of
time.
So, even though we don't have a reversal top above the fib extreme, I'm switching to sell mode in this
pair."

Everybody knows it's going to happen; I heard soros speak of it not too long ago. this is going to be a memorable story that's going to be studied in universities accross the globe for a long time after carries unwind.
i totally agree with this analysis... in short term, trend can go against fundamental, but in medium and long term, no way...
  • #28
  • Apr 21, 2007 2:25pm Apr 21, 2007 2:25pm
Well thought out analysis, Kzazs. Thanks.
  • #29
  • Apr 21, 2007 6:14pm Apr 21, 2007 6:14pm
Thanks everybody for their intelligent input. It is nice that we have a discussion going, but if i don't incorporate my theory into trading then it defeats the purpose of having a discussion.

My plan for wednesday April 25, 2007 is as follows:

I will short NZD/USD at 4:45 p.m EST. My stop loss will be 100 pips & my first target is 0.71 & then my second target will be 0.69. That gives me Profit loss ratio of about 3.5:1, considering that the price would be around .7450. Higher the better.

There is 60%-70% probability of rate hike to 7.75% on April 25. In case they dont hike & have a bullish stance then NZD may rise initially followed by a fall, or it may fall at the outset, as people who have been long for a long time want to bail out.

In the event of a rate hike, there might be an upward surge, setting up a bull trap followed by a decent fall within 24 hrs towards my target, though it might take a day or two to get to my target. In the case of unexpected response i will be ready to take a 100 pip loss, waiting for another opportunity to short.

KAZAM
  • #30
  • Apr 22, 2007 12:31am Apr 22, 2007 12:31am
Quoting kzazs
I will short NZD/USD at 4:45 p.m EST. My stop loss will be 100 pips & my first target is 0.71 & then my second target will be 0.69. That gives me Profit loss ratio of about 3.5:1, considering that the price would be around .7450. Higher the better.
In the case of unexpected response i will be ready to take a 100 pip loss
KAZAM
Nice and reasonable plan. Just would like to suggest to you that for your stop loss order, you should consider to use 'stop if bid' to protect yourself from being miskicked. This is a lesson cost me thousands of dollars.

Let's see what will happen then.

Cheers.
凹凸 only
  • #31
  • Edited 10:06am Apr 22, 2007 10:00am | Edited 10:06am
I have my plans laid out for NZD for wednesday 25th April, 2007. Look at my previous post in this thread. In the meantime we have two very important news coming out of Australia. PPI & CPI.

Australian economy is bigger than NZ & commodities, gold, employment, natural events e.g. drought etc strongly influence the AUD. Australia is still recovering from the effects of drought it has suffered. Their wheat output & export is down, but the labor & housing market has been strong, along with gold & commodoties. The inflation is higher & the AUD has skyrocketed based on gold & commodities (China is the major consumer, USA is another) prices. As growth in US slows these prices are bound to come down.

RBA held onto the rates at the last meeting as they were waiting for CPI results being released on Monday April 23rd April, 2007. Above then forecast PPI & CPI figures on Sunday & Monday will definately make a rate hike by RBA ( 1st week of May a done deal). As AUD is already overbought & overpriced the move up of the AUD is going to be limited. Poor risk to reward ratio from this point onwards, therefore i am going to stay out. I am not going to buy AUD on higher PPI & CPI figures. In case of higher figures i will wait for the market to fully price in the rate hike & will short after the announcement of rate hike in May 2007. More on it in my later posts.

There is a very good risk to reward set-up in case PPI & CPI figures are below forecast. PPI is expected to be .5% higher & CPI .6% higher. A figure of .3% or less will lead to a sell rally in AUD, as RBA can stay on hold for another few weeks. My plan is as follows:

I will short AUD/USD at about 9.20 p.m EST on Sunday April 22, 2007, with a stop loss of 100 pips.I expect the price to be in .8350 to .8390 range. If PPI figures come out lower than expected then AUD will pull back. If on Monday April 23, 2007, if i am up 50 pips i will bring my stop to break even, just before CPI release. If up less than 50 pips i will stick to my original stop. If the CPI is below expected levels, then the chances of rate hike evaporate & AUD falls big time. My initial target is .8000. Profit to loss ratio of 3.5 to 1.

If i break even before CPI release & my stop loss is hit. Then i will reenter after the release of CPI figures if they are below .4 to .3%.

Next 3 days pretty interesting, isn't it.

KAZAM
  • #32
  • Apr 22, 2007 2:08pm Apr 22, 2007 2:08pm
Somebody asked me, if i enter short prior to the news & the PPI figure is higher then expected, than would i exit earlier. My answer is NO. I will stay in the trade till i get stopped out at 100 pips loss. If i am not stopped out i will ride this out till the CPI report on Monday night.

I will only enter with 1 full lot & will be risking 1% of my trading capital. Therefore 100 pips loss would mean a loss of $1000. That is totally acceptable risk for me. Since my starting days of trading i have been told to PLAN THE TRADE & THEN TRADE THE PLAN. Emotions have no place in trading.

KAZAM
  • #33
  • Apr 22, 2007 2:21pm Apr 22, 2007 2:21pm
hi, in my opinion nzd intrests rates will be pretty much watched this week, reason is the up trend of kiwi, in which is counted rates hike as well, coz higher inflations report. i can mention here Aud...last aud meeting where have been taken into consideration interests, which was hold on the same level has shown us about 50 pips weaken of aud after decison...and it looks like good trade: if the nzd rates will stay unchanged
  • #34
  • Apr 22, 2007 3:03pm Apr 22, 2007 3:03pm
Quoting NewstraderFX
Granted while the people of NZ might not be happy-the carry traders are.

As long as the demand for NZD remains high, the Kiwi will also. At this point, they have to hope a window will open that will allow them to adjust rates down. Or at least talk about adjusting rates down.
There's the quintessence you need to know about the funny-mental side.

And as for anything else - the chart says buy until it says sell, nobody should care what politicians go yell.

If it seems to "melt down" - buy dips. You can see what happened after EJ and GJ dropped - new record highs. Same story here.

Until the trend comes to an end it remains your friend.
Buy dips on long trends with setups, close in profit.
And ignore talking heads, always.


Just my personal conviction and experience from the last 12 months(I think some of my earlier Kiwi trades I made were around levels when 0.6300 still traded...)

From what I gather AUDUSD is also a hot contestant for advancement, both also tend to link closely to Gold.
Will be interesting to see where both end up.
Trust price. Know yourself.
  • #35
  • Apr 22, 2007 8:21pm Apr 22, 2007 8:21pm
I entered short Aud/Usd at .8366 at 9:15 EST, Stop at .8466 & Limit at .8000. I entered 1 full lot. Now i will wait for PPI figures due in 10 minutes. I will hold this position till i reach my target or am stopped out.

KAZAM
  • #36
  • Apr 22, 2007 9:01pm Apr 22, 2007 9:01pm
Congrats to those who entered before the news & made a swift 30 pips. For me this is half the battle. Poor PPI will keep the AUD in check. Tomorrow's poor CPI will be the defining moment. I will stay in the trade & wait for CPI result.

Goodluck

KAZAM
  • #37
  • Apr 22, 2007 10:41pm Apr 22, 2007 10:41pm
Last week, the estimate was a rate hike. This week, it turned into a no rate hike estimate. This changes my strategy.

The key to trading NZD would be "Risk Aversion" - ie, if you get feelers that carry traders are avoiding risk, then they will jump ship immediately before or after the rate hike announcement only to jump in once again if the price dipped down.

but if there is no risk aversion, then nothing might happen at all...

So I'll watch and listen for such feelers before placing a short.
  • #38
  • Apr 23, 2007 12:19pm Apr 23, 2007 12:19pm
I would like to know anyone, out here in forex factory, followed the same plan on AUD/USD last night as i did.

At present i am up by 44 pips. My stop stays at the same place, i.e. .8466. Tonight at 9:15 p.m EST, 15 minutes before AUD CPI is announced i will bring the stop to breakeven if i am up by 50 pips or more. If my profit at that time is less then 50 pips then i will leave the stop at .8466

It would be interesting to see if somebody else shares the same view point.

KAZAM
  • #39
  • Apr 23, 2007 12:27pm Apr 23, 2007 12:27pm
i didn't enter when you did, but i wish i had! good call.
if i were in, i would set stop loss for break even before announcement. if it hits, worst case scenario, re-enter sell as it tops.

jules
Bring It...
  • #40
  • Apr 23, 2007 8:13pm Apr 23, 2007 8:13pm
We are expecting CPI figures from Australia in 15-20 min. I am up by around 40 pips in my position, AUD/USD, from yesterday, therefore i am not going to move my stop. All the other parameters stay the same. Please refer to my previous posts in this thread for full details of this trade.

Goodluck

KAZAM
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