Posted by: Bevan | January 31, 2012

January 2012 Trading Performance

After a gloomy December, and a round of negative outlooks for 2012 the markets proceeded to confound the experts in January as they often do.  For me the turnaround happened after Friday the 13th, when the long awaited credit downgrade for France by S&P was announced, along with similar changes for a range of other European nations.  The following Monday was a narrow range day in the EUR/USD matching Friday’s low, however on Tuesday suddenly the Euro took off to the upside, absent of any obvious news.  It has proceeded to put in over two weeks of very stable upward action.  The stability of the uptrend is probably due to the fact that big numbers of participants have not really bought into it one way or another yet, reflecting similar low volume gravity defying moves in the equity indices.  The moves have the hallmarks of being buoyed by central bank money distribution, in the European context the LTRO policy finally lowering yields on Italian bonds.

We exited our long standing Euro short  on the 20th, as the evidence was that the clear downtrend was over.  The exit was determined by price action confirmation rather than second guessing due to ‘oversold’ and ‘overcrowded’ trades, beliefs that would have resulted in us exiting far earlier.  The one disappointment was that the Euro position was not ‘loaded up’ in terms of contracts all that much due to the amount of volatility when we entered in early November.

Other positions exited as the markets engaged in their first decisive trends for some time, with the absense of the risk on/risk off cycle we have come to know and dislike!  Many of the positions were fledgling and closed at losses, the worst being a 0.8R loss in Crude which after buoyancy due to threats from Iran flagged on the 20th.  Oil has remained rangebound through the month.

Market sentiment has improved with the feeling that the worst Euro crisis outcome for Greece was priced in, and that China appears to be engineering a soft landing.  It is a fact however that the Greek debt talks with private sector bondholders have still not concluded.  Tension remains with revelations of plans for the EU to oversee, approve and veto Greek spending decisions, and the Greek government must walk a fine line with many Greeks rejecting what they perceive as an internationally led campaign of imposed austerity.  Talk in Europe has turned noticeably towards discussing growth with even Merkel softening the ‘austerity only’ line.  Interestingly this is exactly in response to the criticisms in the S&P downgrade report (maligned by the European politicians) which commented that budget discipline alone would not resolve the crisis, and in fact might be self defeating.

Late in the month we were flat for around a week before continued tests of resistance in 10 Year T-Notes triggered a long trade, while a significant upthrust and reversal in the USD/JPY resulted in another short trade.

Both of these markets have failed to perform recently, and short Yen trades are difficult in particular because of continuing intervention threats.  Just today Japanese finance minister Jun Azumi warned of “firm action” if necessary.

Although the month ended with a small loss, all trades were taken according to the trade plan and risk management guidelines.  There is a feeling of a change in the wind as we enter another period of monetary expansion (Ben Bernanke discussed QE possibilities at the last FOMC meeting, Europe is engaging in LTRO) and we may see decent trends begin to form.

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