2013 - trading the shifting landscape vfx.pptx
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1
2013 – Trading the shifting LandscapeHow to benefit from emerging Trends
www.globalfx.com.au
2Legals
• Trading OTC Forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange or futures you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange and futures trading, and seek advice from an independent financial advisor if you have any doubts.
• The information and opinions in today’s webinar are of a general nature only and do not take into consideration your personal circumstances, so before acting on anything in this presentation, you should consider whether it is appropriate having regard to your circumstances.
www.globalfx.com.au
3Today
• 2013 is shaping up very different to 2010, 2011 or even 2012 – in some ways less risky in others more
• But it is too easy for pundits, strategists and prognosticators to make predictions for the next year and then ignore them.
• One big global IB even closed out a trade of 2013 in the first week of January – some trade
• So today I am not going to tell you what is going to happen – rather we’ll talk about the market set up and some opportunities that are likely to arise this year
• We’ll focus on these risks and the opportunities that these differences can throw up in 2013 for your trading
www.globalfx.com.au
4Are predictors really that bad?
Source: CXO Advisory Group, LLC via www.forbes.com
www.globalfx.com.au
5
2012 a quick glance back
www.globalfx.com.au
6
Fear gave way to HOPE
• US Treasuries rallied and European bonds recovered substantial losses after Draghi promised shock and awe
• The USD tried to get off the canvas but didn’t quite succeed• Stocks keep on keeping on as Central Banks drop cash from
Helicopters• Yield hogs drove currencies and junk and emerging debt
performance• The world just didn’t end – all the doom and gloom led to a lot of
fear a mid year swoon and then a huge rally• But the economies of Europe, the USA and Japan remain weak
really weak• Central Bank cash dampened stock and currency volatility – VIX at
pre-GFC lows. Minsky is getting worried
www.globalfx.com.au
7
European CDS and Euro
Jan-
10
Mar-1
0
May-1
0
Jul-1
0
Sep-
10
Nov-1
0
Feb-
11
Apr-1
1
Jun-
11
Aug-1
1
Oct-1
1
Dec-1
1
Mar-1
2
May-1
2
Jul-1
2
Sep-
12
Nov-1
20.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
0
100
200
300
400
500
600
700
Spain 5 Yr CDS Germany 5 Yr CDS
Italy 5 Yr CDS
Source: FARM, Bloomberg www.GlobalFX.-com.au
Jan-
10
Mar-1
0
May-1
0
Jul-1
0
Sep-
10
Nov-1
0
Feb-
11
Apr-1
1
Jun-
11
Aug-1
1
Oct-1
1
Dec-1
1
Mar-1
2
May-1
2
Jul-1
2
Sep-
12
Nov-1
20.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00 1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5
Italy 5 Yr CDS EURUSD
Source: FARM, Bloomberg www.GlobalFX.-com.au
www.globalfx.com.au
8
2013 themes
www.globalfx.com.au
9Stocks are going sideways
Source: Vitaliy Katsenelson, Contrarian Edge
www.globalfx.com.au
10Or is it a new bull market?
Aug-
99
Dec-9
9
May
-00
Sep-
00
Jan-
01
May
-01
Sep-
01
Jan-
02
May
-02
Sep-
02
Jan-
03
May
-03
Sep-
03
Jan-
04
May
-04
Sep-
04
Jan-
05
May
-05
Sep-
05
Jan-
06
May
-06
Sep-
06
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Jan-
12
May
-12
Sep-
12
Jan-
13
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
S&P 500
Source: FARM, Bloomberg www.GlobalFX.com.au
www.globalfx.com.au
11Can’t fight the Fed
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
600.0
700.0
800.0
900.0
1000.0
1100.0
1200.0
1300.0
1400.0
1500.0
1600.0
Fed Credit Balances S&P 500
Source: FRED www.GlobalFX.com.au
2,750.00
2,770.00
2,790.00
2,810.00
2,830.00
2,850.00
2,870.00
2,890.00
2,910.00
2,930.00
1250.0
1300.0
1350.0
1400.0
1450.0
1500.0
Fed Credit Balances S&P 500
Source: FREDSource: FRED www.GlobalFX.com.au
www.globalfx.com.au
12
Is this just New Year Hype?
• Economic rhetoric and market performance continue to be disconnected
• Central Banks continue to drop money in the financial system dampening volatility
• Even though observed market volatility feels like it is starting to rise
• Risk on Risk off meme is starting to break down• Money is being deployed away from safe havens - EURCHF• Negative rhetoric is giving way to positive Hope• Abe is trying to end the Japanese safe haven currency play
once and for all
www.globalfx.com.au
13EURCHF - Rockets
www.globalfx.com.au
14
The Grand Disconnect
• A. Gary Shilling calls the difference between the economic reality and the market, particularly stock market, performance as the GRAND DISCONNECT
• Put simply - markets aren’t always reflective of what the economy is doing or will do.
• What they are reflective of however is perceptions of what the economy is doing and how it will do. The market moves are then influenced by whether the data is stronger or weaker than the market expected.
• Sentiment has shifted and only a shock will shake confidence
www.globalfx.com.au
15
Economic Surprise now more important than economic data
Jan-
03
Mar
-03
Jun-
03
Sep-
03
Dec-0
3
Feb-
04
May
-04
Aug-
04
Nov-0
4
Jan-
05
Apr-0
5
Jul-0
5
Oct-0
5
Dec-0
5
Mar
-06
Jun-
06
Sep-
06
Dec-0
6
Feb-
07
May
-07
Aug-
07
Nov-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Dec-0
8
Mar
-09
Jun-
09
Sep-
09
Nov-0
9
Feb-
10
May
-10
Aug-
10
Oct-1
0
Jan-
11
Apr-1
1
Jul-1
1
Sep-
11
Dec-1
1
Mar
-12
Jun-
12
Aug-
12
Nov-1
2
-120.00
-100.00
-80.00
-60.00
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
Citi G10
Source: FARM, Bloomberg www.GlobalFX.com.au
www.globalfx.com.au
16
The Setup for 2013 - Minsky
Low Volatilityleads to
High Volatility
www.globalfx.com.au
17
Vol is the new credit
• Because vol is the new credit spread ala pre-GFC when spreads narrowed so much people chased leverage to enhance yield
• This sets us up for range breaks even if they are only short term but in time this will add to some big longer term trend reversals
• Options desks around globe have recently lost money trying to buy vol that never rallies then time decay gets them before vol spikes. Just after that vol spikes and risk currencies get slammed.
Jun-
03
Sep-
03
Dec-0
3
Mar
-04
May
-04
Aug-
04
Nov-0
4
Feb-
05
Apr-0
5
Jul-0
5
Oct-0
5
Jan-
06
Mar
-06
Jun-
06
Sep-
06
Dec-0
6
Mar
-07
May
-07
Aug-
07
Nov-0
7
Feb-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Mar
-09
Jun-
09
Sep-
09
Dec-0
9
Feb-
10
May
-10
Aug-
10
Nov-1
0
Jan-
11
Apr-1
1
Jul-1
1
Oct-1
1
Dec-1
1
Mar
-12
Jun-
12
Sep-
12
Nov-1
2
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
S&P 500 VIX Vol index
Source: FARM, Bloomberg www.GlobalFX.com.au
www.globalfx.com.au
18
Vol is low across the board
Nov-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Dec-0
8
Mar
-09
Jun-
09
Sep-
09
Nov-0
9
Feb-
10
May
-10
Aug-
10
Oct-1
0
Jan-
11
Apr-1
1
Jul-1
1
Sep-
11
Dec-1
1
Mar
-12
Jun-
12
Aug-
12
Nov-1
2
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
CBOE EuroCurrency ETF Volatility Index
www.GlobalFX.-com.au
Source: FREDJu
n-08
Aug-
08
Nov-0
8
Jan-
09
Apr-0
9
Jun-
09
Sep-
09
Nov-0
9
Feb-
10
Apr-1
0
Jul-1
0
Sep-
10
Dec-1
0
Mar
-11
May
-11
Aug-
11
Oct-1
1
Jan-
12
Mar
-12
Jun-
12
Aug-
12
Nov-1
2
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
CBOE Gold ETF Volatility Index
www.GlobalFX.-com.au
Source: FRED
www.globalfx.com.au
19
Vol is low across the board - II
Mar
-11
Apr-1
1
May
-11
Jun-
11
Jul-1
1
Aug-
11
Aug-
11
Sep-
11
Oct-1
1
Nov-1
1
Dec-1
1
Jan-
12
Feb-
12
Mar
-12
Apr-1
2
May
-12
Jun-
12
Jul-1
2
Aug-
12
Aug-
12
Sep-
12
Oct-1
2
Nov-1
2
Dec-1
2
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
CBOE China ETF Volatility Index
www.GlobalFX.-com.au
Source: FREDMay
-07
Aug-
07
Nov-0
7
Feb-
08
May
-08
Aug-
08
Nov-0
8
Feb-
09
May
-09
Aug-
09
Nov-0
9
Feb-
10
May
-10
Aug-
10
Nov-1
0
Feb-
11
May
-11
Aug-
11
Nov-1
1
Feb-
12
May
-12
Aug-
12
Nov-1
2
0.00
20.00
40.00
60.00
80.00
100.00
120.00
CBOE Crude Oil ETF Volatility Index
www.GlobalFX.-com.au
Source: FRED
www.globalfx.com.au
20
The question for 2013
• We have said don’t fight the Fed – but there is a big caveat
• Do we really believe that the low volatility environment reflects the economic reality or Central Banks goosing stocks
• Is the chance for economic and market shocks really lower than at any time since the GFC started?
• Are we back where we were in the “Great Moderation”• We know every time the Fed has stopped buying markets
have swooned
www.globalfx.com.au
21My top 7ish Trades
1. USDJPY to 100
2. EURUSD to 1.3830+, EURJPY to 139.30
3. AUDUSD to be strangled between 0.96 and 1.08/10
4. Gold to at least 1521, Silver to 26.90
5. Nikkei to head to 14000 if it closes Jan 2013 above current levels.
6. S&P to make its high below 1520 and then turn
7. Options, Options, Options – vol is cheap use it
And for those who trade shares I really like Apple lower in 2013
www.globalfx.com.au
22
•As you can see most of my trades, except the AUDUSD, are break out trades•Break Outs = Big Potential Profits
•Why? Low Vol• S&P turn will also benefit from
low vol – puts are cheap
www.globalfx.com.au
23The Specifics
www.globalfx.com.au
24
USDJPY bear market is over BUT Abe has changed the rules
Jan-
03
Mar
-03
Jun-
03
Sep-
03
Dec-0
3
Feb-
04
May
-04
Aug-
04
Nov-0
4
Jan-
05
Apr-0
5
Jul-0
5
Oct-0
5
Dec-0
5
Mar
-06
Jun-
06
Sep-
06
Dec-0
6
Feb-
07
May
-07
Aug-
07
Nov-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Dec-0
8
Mar
-09
Jun-
09
Sep-
09
Nov-0
9
Feb-
10
May
-10
Aug-
10
Oct-1
0
Jan-
11
Apr-1
1
Jul-1
1
Sep-
11
Dec-1
1
Mar
-12
Jun-
12
Aug-
12
Nov-1
2
70.00
80.00
90.00
100.00
110.00
120.00
130.00
USD/JPY
Source: FARM, Bloomberg www.GlobalFX.com.au
www.globalfx.com.au
25
The Yen’s fall is a no brainer
108!
www.globalfx.com.au
26So is Euro Yen
1.4030
www.globalfx.com.au
27
Yen weakness will drag the Nikkei with it
Jun-
03
Oct-0
3
Feb-
04
Jun-
04
Oct-0
4
Feb-
05
Jun-
05
Oct-0
5
Feb-
06
Jun-
06
Oct-0
6
Jan-
07
May-0
7
Sep-
07
Jan-
08
May-0
8
Sep-
08
Jan-
09
May-0
9
Sep-
09
Jan-
10
May-1
0
Aug-1
0
Dec-1
0
Apr-1
1
Aug-1
1
Dec-1
1
Apr-1
2
Aug-1
2
Dec-1
26,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
18,000.00
20,000.00
75
85
95
105
115
125
135
Nikkei JPY Curncy
Source: FARM, Bloomberg www.GlobalFX.com.au
14000+
www.globalfx.com.au
28
As much as I hate it EUR should rally
138.30
www.globalfx.com.au
29
Euro Head and Shoulders
www.globalfx.com.au
30Dollar Index
www.globalfx.com.au
31
What do you think of this market?
Dec-8
3
Aug-
84
May
-85
Jan-
86
Sep-
86
May
-87
Jan-
88
Sep-
88
May
-89
Jan-
90
Sep-
90
May
-91
Jan-
92
Sep-
92
May
-93
Jan-
94
Sep-
94
May
-95
Jan-
96
Sep-
96
May
-97
Jan-
98
Sep-
98
May
-99
Jan-
00
Sep-
00
May
-01
Jan-
02
Sep-
02
May
-03
Jan-
04
Sep-
04
May
-05
Jan-
06
Sep-
06
May
-07
Jan-
08
Sep-
08
May
-09
Jan-
10
Sep-
10
May
-11
Jan-
12
Sep-
12
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
A chart
Source: FARM, Bloomberg www.GlobalFX.com.au
• Where is this market likely to go? • Continue to rally or have a retracement?
www.globalfx.com.au
32
A close up on GOLD
www.globalfx.com.au
33Silver’s round trip
Jan-
80
Oct-8
0
Jul-8
1
Apr-8
2
Jan-
83
Oct-8
3
Jul-8
4
Apr-8
5
Jan-
86
Oct-8
6
Jul-8
7
Apr-8
8
Jan-
89
Oct-8
9
Jul-9
0
Apr-9
1
Jan-
92
Oct-9
2
Jul-9
3
Apr-9
4
Jan-
95
Oct-9
5
Jul-9
6
Apr-9
7
Jan-
98
Oct-9
8
Jul-9
9
Apr-0
0
Jan-
01
Oct-0
1
Jul-0
2
Apr-0
3
Jan-
04
Oct-0
4
Jul-0
5
Apr-0
6
Jan-
07
Oct-0
7
Jul-0
8
Apr-0
9
Jan-
10
Oct-1
0
Jul-1
1
Apr-1
2
Jan-
13
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Silver
Source: FARM, Bloomberg www.GlobalFX.com.au
www.globalfx.com.au
34
Wedging toward resolution
www.globalfx.com.au
35
The US dollar is a big part of the moves – it should rally in time
Oct-9
9
Feb-
00
Jun-
00
Oct-0
0
Feb-
01
Jun-
01
Oct-0
1
Feb-
02
Jun-
02
Oct-0
2
Feb-
03
Jun-
03
Oct-0
3
Feb-
04
Jun-
04
Oct-0
4
Feb-
05
Jun-
05
Oct-0
5
Feb-
06
Jun-
06
Oct-0
6
Feb-
07
Jun-
07
Oct-0
7
Feb-
08
Jun-
08
Oct-0
8
Feb-
09
Jun-
09
Oct-0
9
Feb-
10
Jun-
10
Oct-1
0
Feb-
11
Jun-
11
Oct-1
1
Feb-
12
Jun-
12
Oct-1
2
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
2,000.00 70
80
90
100
110
120
130
Gold JPY Curncy
Source: FARM, Bloomberg www.GlobalFX.com.au
www.globalfx.com.au
36
AUDUSD Rangebound
www.globalfx.com.au
37
But AUD should do well
“When institutions look for alternatives to holding large deposits earning a near zero return, they look not just at
domestic assets, but at foreign assets as well.”
RBA Deputy Governor Phil Lowe – November 2012
• THAT’S WHAT IT IS ALL ABOUT
Interest rates and return of your money
www.globalfx.com.au
38
US stocks and employment
Jul-0
7
Sep-
07
Nov-0
7
Jan-
08
Apr-0
8
Jun-
08
Aug-0
8
Nov-0
8
Jan-
09
Mar-0
9
Jun-
09
Aug-0
9
Oct-0
9
Dec-0
9
Mar-1
0
May-1
0
Jul-1
0
Oct-1
0
Dec-1
0
Feb-
11
May-1
1
Jul-1
1
Sep-
11
Nov-1
1
Feb-
12
Apr-1
2
Jun-
12
Sep-
12
Nov-1
2300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
700,000 600
700
800
900
1000
1100
1200
1300
1400
1500
1600
4-Week Moving Average of Initial Claims S&P 500 (inverted-RHS)
Source: FRED www.GlobalFX.com.au
Improving employment is good for stocks but can it last?
www.globalfx.com.au
39The Risks to the outlook
www.globalfx.com.au
40Risks
• The number one risk is a re-emergence of the Sovereign Debt issues in Europe or concerns over the US fiscal position
• Second most obvious risk is an inability of companies to hit top line revenue and then profit numbers with a weak economy
• Third risk for traders is that we really are heading into a low vol environment and ranges will be reinforced
• And of course China’s glide path might dip over the course of the year.
www.globalfx.com.au
41
The enemy of low Vol
"It's a risky year," World Bank chief economist Kaushik Basu January 15 2013
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