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Friday, February 17, 2017


“And you spent how much getting that Investment Finance degree?”

These last few days, I haven’t spent much time writing about USDJPY, as I have been concentrating on gold, and yesterday with the SP500. The fact of the matter is, no trader anywhere [large or small], no traditional investor of any kind, and no money manager on this planet can ignore this market; it’s simply has too much influence in world finance to be left alone and thought of as just another FX pair.

Right now, USDJPY sits atop the financial world as a “proxy” for the entire Pacific Rim, South Korea to New Zealand. In the years and decades ahead, the battle for currency control of this part of the world will be USDJPY versus USDCNY, and the trading opportunities will be like nothing you have ever seen. For now, though, USDJPY is the uncontrolled, wild-wild-west, cowboy gunslinger, Russian mafia to Japanese Yakuza, shoot-‘em-up, no limit poker room, where the world’s hot money comes to play every single day to the tune of about $3 trillion notional Dollars; it’s the straight up Dollar play, and it’s also the funding currency of the world via the various crosses. Anything and everything has a group of banks making a market in it versus the Yen, and most importantly the FED, BOJ, or anybody else can't manipulate or control what happens here. So, while the bullion banks with the help of the FED and the BIS can manipulate gold lower, and the various “Plunge Protection Teams” around the world can keep equity prices higher, nobody … but nobody … can keep USDJPY from doing what it wants, when it wants, except for at most a few minutes.

Proof? … Ya say you want proof? … Ok, here’s my “proof”! For 3 decades running now, the BOJ has wanted a lower Yen; they’ve called for it, demanded it, instituted policy for it, intervened a few times to do it, and yet USDJPY is at the same approximate rate now as it was 20 years ago; “How come USDJPY isn’t at 150+ if the BOJ and the Japanese government are ‘hell bent’ on a lower Yen. They got all the money in the world to throw at it, how come they can’t do it”? SHORT ANSWER: “With volumes running 3+ trillion notional a day in JPY, it doesn’t matter how much you have, cuz it ain’t enough”!

In the 1970’s the “it” markets were soybeans, corn, & wheat, as Nixon opened up trade with China. In the 1980’s action switched to financials and FX & SP500 became the “it” markets to be in. From about 1982 to 2002, gold basically died and did zip; it was a dead market. The 1990’s “it” market was the Nasdaq Composite & the NDX100, which roared until the 1999 collapse. In 2008, with the collapse of the housing market and the sub prime crisis, gold & silver awakened and became the “it” markets for about 4 years.

And, ever since that time as interest rates around the world collapsed, trillions upon trillions of Dollars worth of Yen carry trades all of a sudden made USDJPY the “it” market to be in, and with the decisions of world central banks to consciously and deliberately intervene to A) slam gold lower [starting in 2012], and B) prop stock markets and make equity declines a “thing of the past” [wishful thinking], USDJPY morphed from being simply an FX pair into an asset class. As such, it is now, whether anybody likes it or not [BOJ and FED be damned], an uncontrolled free market that has attracted the world’s hottest money; and it’s done so specifically because of the elite goofs trying to control outcomes in other markets.

Does this mean USDJPY is some kind of pure, free from manipulation, non stop hunt, “fair” and balanced market? “Hell no times two”! It’s got the same banker LP scum as other markets that make the money changers in the Temple with Jesus look like Boy Scouts. In trading USDJPY, we have 2 “bigly & yuge” advantages over other traders: 1) our “cost to trade” structure is the best in the world and simply can’t be beat, and 2) the size and scope of our PAMM/MAM is immaterial to the marketplace.

Right now, during the busiest times of the trading day which is Europe, then Europe and the U.S., and then simply the U.S., USDJPY usually has a .000 - .005 spread between the bid/offer; quite often though the spread spends significant time in the .003 area, and so I can assume this will probably be the average spread if/when I trade it. If you do the math, 100,000 USDJPY = approximately $89,000; therefore, the round turn [RT] commission is approximately $1.78 per 1 lot, which makes our “net” trading cost on average less than ½ PIP. There isn’t any better place in the world that will beat this.

The second advantage of USDJPY is the sheer scope and size of the world’s largest spot cash market [USDJPY & crosses combined]; nothing else even comes close. USDJPY trading is about 30 times bigger than gold, and about 20 times bigger than stocks, and the average size trade in the inter bank market is roughly 30 – 35 million notional USD$ value [that’s a 300 lot for those of you keeping score, and there wasn’t / isn’t now / won’t be in the future but a handful of individual traders worldwide that can handle this for their own account].

Now, in the past I have bumped heads with this problem before; “when does your trading start influencing and changing bid/offer quotes in a market”? In order of importance; in spot gold it very much is a problem when you start passing 2,000 OZ.+ for any kind of order; in the SP500 it only becomes a problem when AUM [assets under management] starts to get over about $20 million; in USDJPY it’s never a problem for anything [meaning an order] under 100 million, and that’s being conservative, as the threshold is more like 500 million.

My point is this: as the PAMM/MAM grows and gets bigger, I am pretty much forced by size to remain within our 3 markets [USDJPY, XAUUSD, & SP500], and can’t do stupid poo poo like trading CAD/MEX or some other exotic pair against a market making LP who has more money than God behind them, and I find myself sitting at a poker table wondering who the “chump” in the room is. [“Yea, you know the answer”!]

Which leads me to 3 [three] very important questions; 1) which market is best for ease of entry and liquidation of any size and which is the worst, 2) which market is best for NOT getting screwed on buy/sell stops and which is the worst, and 3) which market has the best intraday volatility? And the answers are: #1) USDJPY by a wide margin, and gold is the worse, #2) SP500 by far the best, gold the worst, and #3) right now USDJPY is the best, and by far the SP500 is the worst.

For my money, #1 and #3 are the most important, and clearly USDJPY is the winner most of the time. The exception is those days when gold is trending up and spiking higher, taking out buy stops with abandon and steadily moving prices up to a decent range. On the downside, gold is very tough to hang onto when short, and I’d rather be long and trading USDJPY as a proxy.

Most of the time USDJPY and XAUUSD correlate inversely very well; broadly speaking it’s a “weak Dollar, strong gold or strong Dollar, weak gold” scenario that plays out with each market having their own dynamics. It’s not so much they go tick-for-tick with each other as it is they inversely go in opposite directions for the day; what that means of course is that USDJPY positions can be viewed as proxy gold positions as well. So, if you are short USDJPY, you want gold to rally cuz in essence you’re long gold.

Right now, as much as I would love to trade the SP500, and the cost to trade it are super low with a fractional spread, the brutal truth is that the intraday volatility is terrible; this simply has to improve to levels that are comparable to USDJPY for me to trade it. It’s one of our 3 markets, but right now it’s a distant third on the list.

It is clear to me the catalyst for everything that trades in our “risk on / risk off” financial world starts each new trading day with USDJPY; starting in Asia while the U.S. sleeps, this freight train usually picks up steam from Asia and goes from there; gold by proxy follows the drum major down the trading highway.

Starting Tuesday, I’ll be starting my trading day just a hair off the European open, and the algorithm trades I’ll be taking this early in the day are ones that I very much want to make “free trades” out of and ride an expansion of both the HVALUE and daily range. For the most part, with what I have written about today, I’ll start the day with USDJPY, and as the U.S. day takes over I’ll possibly migrate over to gold if I see the need. I simply can’t ignore the benefits and advantages of USDJPY over gold that puts money in our pocket, when in essence they correlate anyway. In any event, my goal for the day remains the same; bring the PAMM/MAM 1+%.

Monday’s blog I’ll get into the website changes to reflect PAMM/MAM trading that starts on Tuesday, and what to expect going forward. I’ll also go over some of the dynamics of the correlations and how I handle it in my trading approach.

Turning to today’s markets, since Monday is a Holiday and everything is closed in the U.S., about an hour in every trader in the world will be packing it in for a 4 day “restfest” and there isn’t anything but dealer “chop” to look forward to. I’ll be posting on Monday cuz I live in Paradise anyway … “I don’t have to travel anywhere to get here”! Another Chamber of Commerce day down here and the beach beckons … “where’s Fido”?

“I taught him everything he knows!”

OK, I’m sooooo outta here … until Monday mi amigos!

Have a great weekend everybody!


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