AUDUSD for informed traders

The Carry Trade is so safe and easy it ought to be illegal. So I would like to examine the rules and math involved: Let us say the carry trader opened a mini account with IBFX for $10,000 (or $1,000 or $100,000). One micro lot with IBFX moves 1 cent for each pip. (With some brokers a micro moves 10 cents per pip). Our carry trader is greedy but careful. He plans to go long (he never shorts the market) with AUD/USD when it drops back to parity. If he bought 200 micros at parity, in the worst case such as 2008, in 3 months time AUD/USD would drop down to about .6000. At this point the carry trader would have a draw down of about $8000 plus another $400 in margin for -$8,400. The carry trader still has not blown his account; and he has been collecting $2 per day in swap. At this point the carry trader sees the price reversing and buys another 200 micros near .6000. In the next 4 months the price returns to parity plus another few hundred pips. The carry trader closes his trades making a small profit plus 7 months of swap off of his original 200 micros. He also gains about $8,000 on his second 200 micros plus 4 months of swap.
A better strategy might be to wait for a pull back from today's high and count the number of pips. The carry trader buys one micro for every 10 pips the price fell. The carry trader never buys more than one micro for every 10 pips the price falls; so that if the price falls all the way down to .6000 the carry trader would finally own 400 micros at an average draw down of $20 (1/2 of $40). The carry trader never sets a stop loss; since he reserves enough money to cover whatever draw down may occur. Therefore, he never suffers a loss. The only way the carry trader can loose is if he cannot cover a margin call (because he got too greedy). He has already made arrangements with his broker to use his credit card if necessary. When the price moves up and starts to roll over, the carry trader closes any trades in profit, and holds any in draw down. Most years the price of AUD/USD will never approach .6000; so our carry trader should be picking up small profits every week or two, and pocketing the swap every day. He should be as happy as a dog rolling in road kill! http://www.forexfactory.com/images/icons/icon7.gif

Many traders keep looking for the pullback on AUDUSD, reminds me of all the folks waiting to short EURUSD. The problem is not that the currency has gone too high, it is that the dollar is not favored in any situation. 4.75% vs 0.25%, any pullbacks will be bought especially when the Feds are still deciding whether to cease QE2 or create another easing.

Right now it seems the Feds are trying to prep the market for a rate hike but the rumor is that we won't see that for another month or two. Currently you have Crude oil climbing with speculation that it could get to $125 before it gets to $85, gold continues to trade in a range (1412 - 1441). Currently there's an 80% correlation with oil and AUDUSD, and an 80% correlation with gold.

Notice that Crude finished on the highs on Friday, which puts more pressure on the dollar, and this also continues to favor the AUDUSD to the upside.

Gold
http://i55.tinypic.com/vgoq5f.png

Crude
http://i51.tinypic.com/25f2jjd.png


And if you look at the intraday chart, you'll notice we were able to rally back strong after that dip with regards to the NFP. We also closed above the highs of the prior day which continues to show strong momo to the upside.

http://i55.tinypic.com/fkwshi.png

And finally if you look at the weekly, you'll see we are finally out of the congestion zone making this our highest weekly close. So It seems the risk reward continues to favor the upside for now. If it ain't broke, don't fix it

http://i53.tinypic.com/orjt3p.png

I lied, I have one more to add. The only weakness seems to be copper prices. There has been a decline in demand lately (I have dug deeper to see why yet). There's a descending resistance on the daily. We are now at critical level, will it break support or bounce and break resistance?

http://i51.tinypic.com/ajxij5.png

Apparently it limits me to 5 images but allows me only 4? Oh well.

...it ought to be illegal:
And then there is the lazy carry trader who uses basically the same rules; but sets his robot busy grid trading the AUD/USD, while the carry trader goes on vacation.
But there is also the greedy aggressive carry trader who uses stop losses:
This carry trader also only goes long on AUD/USD (except maybe AUD/JPY). He waits patiently for a good pull back on AUD/USD, say 500 pips or more. As the price turns back up, he buys the pair using 10% of his capital and sets his stop loss. After the price goes up another 10 pips, he makes another buy with 10%. After averaging the two trades, he raises his stop losses to the same point as though it were one trade. He continues buying with 10% every 10 pips and raising his stop losses until when the price has gone up 100 pips the carry trader is all the way in. He has averaged his trades and set all stop losses the same, such that he is now at break even. The carry trader is now collecting swap on his entire account every day while he hopes to exit at the top of the rally. However, at this point even if the price reverses and stops him out, he walks away with a pocket full of swap for every day it lasted. This carry trader is as happy as a dog chasing a frizby. http://www.forexfactory.com/images/icons/icon7.gif

Our hypothetical carry trader hasn't taken into account the emotion of watching his $10k go down the toilet, while offering up his credit card as insurance for greater losses.

Things which in theory, seem feasible, in practice are often not. But some do trade without stop losses and carry it for years, different kind of "carry" trader. Not entirely sure how that scenario fits with trading a highly leveraged instrument such as fx, more productive ways to put the money to work if risk isn't your thing.

There are a number of brokers who pay interest on the cash balance in your account regardless of whether you are in a trade or not, you collect both the swap and the interest on your balance. Two of my 5 brokers do this, one in Australia (Axitrader.com.au) and another in the US (Oanda.com).

Housing down under seems to have reached its high: http://globaleconomicanalysis.blogsp...nd+Analysis%29

im thinking of a short on aud/usd till wednesday, then long

Gold is looking like it may have topped around here on the 138.2 fib extension @ 1434.44. This "flattening" pattern when price fails to push higher but just spreads out over a wide area with a clear line of resistance that is being consistently respected is something of a warning.

The correlation between gold and AU may have some bearing this week - given that gold is not considered an asset class currency (because it has no yield), if we see market begin to exodus from gold, this may have a flow-on effect to AU. If money is pulled out of gold and put into the USD and Euro on speculation that rate hikes for both are not too far away now, this will likely affect bull traffic on AU (either slowing it considerably while other pairs move at pace, or AU finding a lack of buyers, increasing the speed of bear traffic). Worth watching the volume on AU this week once the rate decision is out of the way.

Good trading week to all.

Even though gold has stalled in the recent weeks, AUD continues up. Right now everyone is chasing yields. The price of oil is keeping copper and gold from rallying too high however AUD continues up as you are yielding plenty vs the likes of JPY and USD which are giving you also 0% interest.

AUD is highly correlated to copper and gold but as we've seen recently, the metals have stalled but AUDUSD had the highest closing week and of course on the daily chart as well. There's definitely room for a pullback but I think you keep milking until there's nothing left.

I doubt the FEDs are planning on rate hikes any time soon even though I believe they are prepping the market for a hike but it might not be for another couple of months or probably even after QE2 ends. So I'll rather get 4.75% interest vs 0.25%

Also the troubles in MENA is going to keep crude high and that will weigh on the dollar which would allow EURUSD up, AUDUSD.

3Month Correlation between dollar and Crude.

http://i53.tinypic.com/apigco.png


Look how fast they were to dump the dollar, the only thing that kept it from falling apart was the fact that CHF (Swiss Franc) was so weak, giving the dollar something to feel good about itself.

http://i53.tinypic.com/4g4689.png


So for now, we wait for the catalyst and then everyone that is looking to short will get their opportunity

good evening,

correction from current level seems too obvious to me and friday's PA doesn't look like major rejection of current levels.

I'd like to see a shake-out of bears first within the range 1.045-1.050
If we get there fast I would try a short immediate, otherwise resistance has to be proven imo, happy trading all

D1:

Please review price action on GBP/JPY from a few years ago. It was the HOT carry pair then. When it popped it left carnage and broken accounts in its wake. Yes, I had my stops in. But I learned a hard lesson. When price gaps through your stops... by over 100 pips.... you really don't know where you will get filled. When all mine finally got filled, Ihad lost over 50 % of my account. Not saying that will happen now, just making you aware that it has happened and that carry traders can have their hind parts burned just like anyone else.

Regards,

We got near the top of my sell zone @ 0425. While my daily chart is still not over bought, I went ahead and took a small short @ 0410. Price has sinced dropped a little, so I have moved my stop to BE +1. Very high probablitity that I will not make anything on this trade, but I have put a tp @ 0275... just above the old high. Again, I will probably be stopped out, but at this point it is risk free, so my 2 lots are running. Good trades to all...

Regards,

I wouldn't be so pessimistic about that Petra. Eur/aud cross is sitting on the 50% of the last big move, aud/usd is testing daily TL resistance, audnzd weekly bar engulfed bearish last week and the RBA announces rates tomorrow.

When I see multiple charts hinting at the same thing, I pay attention.

Aussie shoot to the sky high @ 1.0419
Now trade @ 1.0384.

I will be quoting some useful info form my bro's website whenever I online.
AUD/USD Trending analysis:
Hourly time frame show Strongly Bullish. OB/OS index is Neutral.
EMA 5 - neutral (Ignore)
EMA 10 - buying interest @ 1.0384
EMA 20 - buying interest @ 1.0373
EMA 50 - buying interest @ 1.0352

Good luck to all traders.

Side track from my bro's review:
NZD is another strong pick if you think Aussie is too high for you.
It is picking up + recovery from the earth quake - a rate hike is the most possible event to happen next.

good timing, would have expected little stop hunting damage at that level though......

Rumours about usd crashing soon(or am i late for the game?) anyone still buying? or shorting? If so until which level? I am so lost in this game now. Appreciate if answered thanks alot

LOL@ rumours about USD crashing soon. THe country is just printing money. It's been that way for MONTHS/Year/Decades......you could be hearing a reference to the Fed/US government running out of daily funding money though.... I belive that is supposed to happen APril 8th.

Other than that.....I don't know about soon, soon......

Being a contrarian means i'll have to try a long around here somewhere

closed my 2 lots from 4010 @ 0365. Chicken, yes. But 55 pips short profit on this pair has been a miricale latlely... So I am taking it! If we do get a drop below 0300, I'll be looking to reload long.

***Question**** retail postioning in G/Y shows 92% of traders are short. Why would this be when g-7 has said they are going to weaken the yen to aid Japan in their recovery? I am missing something, any help would be appreciatied. Thanks

Regards,

channel

What I could think of:
a. what does "help" mean, they succeeded in stopping Yen's uptrend, pulled UJ up from 76.3 to 84.7, pulled EJ up from 106.4 to 121
b. not many successfully long term interventions known in history

Japan recovery from disater has not really even begun. They are going to need a lot of help. It dosen't seem unreasonable for a u/J rate of above 90.00. Maybe long term interventions are not very succesful, but as a retail trader I am sure not going to fight them---- Central Banks can send a currency hunderds of pips in just a few minutes. Maybe I will not be short yen.... but I damn sure am not going to get caught long!!!

Regards,