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Weaker CHF and lower volatility… SNB’s double whammy!

thanhlangtu — Fri, 09 Sep 2011 16:19:49 +0000

What a dramatic week for the Swiss franc. Much has been written over the last few days on the Swiss National Bank’s actions, pushing EURCHF spot from the 1.1200 all the way to where we are now (1.2150), firmly above the 1.2000 floor. In our previous article, we highlighted the implied volatility price action during the CHF strengthening, and the all important interests to purchase EURCHF upside options seen prior to the move up in spot.

So what happened to EURCHF implied volatilities recently? Well, movements have been as dramatic as they have been in the spot market. The below chart shows 1mth EURCHF implied volatility together with the spot price.

EUR/CHF - Spot and 1mth implied Volatility

(source Bloomberg)

Several points should be made:

EURCHF implied volatilities reached record high with spot dropping to the lows.
Volatilities collapsed after the SNB action. It should therefore be noted that, so far, the Central Bank’s actions have proven very successful. As per usual, central banks are not only complaining about currencies being under or overvalued, they also strongly argue against excessive volatility in financial markets. To that extent, SNB has hit home run!
As seen on the above chart, 1-month volatility fell from around 22% before the SNB intervention to about 8.5% at time of writing. Similar moves have been observed across the curve, with 1-year, for instance, dropping from 17% to 10.5%
We are seeing continued interest to sell EUR puts with strikes below 1.2000, from both end-users and interbank players. Indeed, with a supposed floor at this level, selling such options and collecting the premium is seen as a risk-free trade. A word of warning though… there is no such thing as a risk-free trade, and such strategies could prove very costly if the SNB is unable to defend this level, or, for instance, if it decides to adjust the floor level.
Over the last couple of days, we saw an interesting development in the option market: implied volatilities are gaining ground when spot drifts higher – rather than lower. So far those moves in implied volatilities have been muted, but this is a large shift in sentiment from the FX options market.
As a result, risk-reversals have changed dramatically as well: 1month risk-reversal is now favoring the upside (0.80% middle)… those were quoted around 3.5 vols favoring downside prior to the move in spot!
Liquidity in the EURCHF FX options market has been extremely poor over the week, and is only slowly returning to normal.

So has the impact been limited to EURCHF implied volatilities? Certainly not! Following this week’s development, there has been a lot of talk about CHF not being the safe haven it once was (here again will we point to our previous article: CHF and Gold: unsafe havens amidst volatile option market?). Following the CHF weakness, we noticed a lot of interest going into metals and Scandies. Whether this is justified or not is almost irrelevant… What matters is that this shift in sentiment has triggered some very strong interest to purchase options in EURSEK, EURNOK and Gold (XAUUSD). For instance, the EURNOK implied volatility curve is currently quoted 11.25 / 12.25 after trading as high as 12.5. in a way, some of the EURCHF volatility has been transferred to other perceived safe havens.

source from: tradingfloor

Big picture G10 currency charts

thanhlangtu — Fri, 09 Sep 2011 16:19:47 +0000

The charts below are for each of the G10 currencies versus an evenly weighted basket of the remainder of their G10 peers. The charts are small (as we work on updating the blog to allow links to larger graphics), but they nonetheless do cover quite a bit of ground – 2500 data points for each in fact, which hopefully gives an interesting perspective. Each of the time series starts at indexed 100 as of early February 2002. (The start point of the index changes with every refresh of the charts on a rolling basis.)

Note that the charts were cut before the last leg of the action in the early US session after the news that Stark will resign from the ECB (rumored because of disagreements on bond buying) and on news ECB will back off on penalty rates for banks accessing emergency facilities.

USD

The US dollar has been dropping forever – note that while the dollar index crossed the 200-day moving average, the USD/G10 basket has not yet crossed this important level, though it is trading at the highest level in months and may be confirming a transition to a bullish trend after the recent basing action and loss of downside momentum.

EUR

How ironic is it that, as the EU is experiencing its worst existential crisis to date, the Euro is back close to its lowest levels in years….which are also the lowest levels since the Euro was launched amid intense skepticism over the entire idea of a single currency back in 2002.

JPY

The JPY remains resilient and relatively strong – but will likely only be so as long as rates remain absurdly low and/or the BoJ and Japanese government steal a page from the SNB’s book on the intervention front

GBP

GBP is experiencing a bit of a revival on Euro misery and as its down trend has been losing steam for a long time. Could the market be getting too complacent on further GBP weakness?

CHF

The magnitude of the run-up and the subsequent reversal is breathtaking, but leaves us, amazingly, still poised above the 200-day moving average! There’s a lot more room for franc weakness if the SNB’s intervention project succeeds.

AUD

AUD is extremely overvalued if the Asian growth story in any way derails. The focus has been intense on Europe, but many risk appetite signals are flashing around the world, which are most often associated with Aussie downside. Aussie hasn’t been garnering sufficient notice.

CAD

CAD has been a relatively low beta currency over the years relative to some of its peers. It is generally out of favor now, but could put up a fight or at least avoid broad weakness if the US economy and USD prove stronger than the market is currently expecting.

NZD

The NZD bull market has enjoyed an Indian summer, but it may fade on the potential for an Asian hiccup and if the post NZ earthquake GDP bump fades in the months ahead.

SEK

The krona is gaining favor as a safe haven from Euro turmoil. It may rally passively for a while, but historically has a hard time if its export markets are threatened.

NOK

NOK is very credible as a safe haven from a fundamental standpoint and has room to rally further, but what point does the Norges Bank begin to rattle it saber when EURNOK is already at almost decadal lows?

source from: tradingfloor

Tom Strignano’s Forex Signals – 5 Steps For Quick Success

admin — Thu, 26 Nov 2009 16:38:28 +0000

Even though every member of Tom Strignano’s Forex Signals gets the same tools, training, signals, indicators and access to Tom and Carlos, some traders are successful faster than others. Here are 5 steps to being successful with this service as fast as possible. Ignore these tips at your own peril.

Enter With The Goal Of Learning First, And Profiting Second

Yes, we all want to start making money as fast as possible. But don’t let your enthusiasm get the best of you. There is a lot to learn BEFORE you start placing trades. And learning is what is going to enable you to profit… so put your time in.

Understand The Important Levels Before Placing A Trade

Tom has gone through a lot of trouble to calculate important price levels for us. There are the pivot points, daily range and the most important Trend Reactionary Numbers. These levels are like a map on your charts. They keep you from buying into resistance and selling into support. Learn how to use these levels and your trading success skyrockets.

Trade The Signals In The Direction Of The Trend

Tom always says you should trade from one Trend Reactionary Number to another. So, there is a direction you are looking to trade in. Therefore, play close attention to the signals given that go in the direction of the trend you are trading. Look at any counter-trend signals very closely before entering.

Be Flexible And Use Other Trading Methods In Conjunction With The Signals

The signals are not the only way Tom teaches to get into the market. There is the head fake, catapult 80 and trading off Trend Reactionary Numbers which he also teaches you. Learn how to use all of these and flow from one to the next… and you can capture some huge moves in the market.

Keep A Trading Journal

Success learning any new skill is a process. Therefore, you need to document this process by keeping a trading journal of all your trades. Then look back on your trading and identify where you can improve and what modifications you need to make to your trading plan.

Keep in mind, just because you are getting a professional Forex trader to teach you and share his methods and tools with you… it is YOU who place the trades. Therefore, it is your responsibility to take the training, methods and tools and put them into successful action. Use these 5 steps to help you on your way.

Source:forextips.com

Patience and Discipline Are Necessary to Make Good Profits Along With the Best Forex System Trading

admin — Thu, 26 Nov 2009 16:30:23 +0000

One can make good profits in forex trading. One needs to have the best forex system trading. It is good to have a system that makes you win 6 out of 10 times. But that is not the only requirement. One has to learn how to manage his money. It is quite certain that we will lose as well as make money when we trade. We assume that out of 10 times, we could lose 4 times. Hence, when you trade in forex, it is possible that you lose money for the first 4 times before you start making money. It is important that after losing for 4 times, you still have capital to invest further. Hence, you must trade with 1% of your capital each time rather than putting in more so that even if you lose money few times, you still have capital in hand to invest further.

One needs to be very patient and disciplined while trading in forex. Sometimes, when people lose money, they feel impatient and think of trying to double their money in the next trade by trading a big amount. That is very risky. We need to limit our trading amount each time so that we manage to win at least 6 out of 10 times. Patience and maintaining discipline in trading are essential qualities that a person must possess while trading in forex.

Hence, we must not only have the best forex system trading but also learn to make the most out of it by trading in an intelligent manner.

Source:actionforex.com