Global macro

GLOBAL MACRO - One of the many things I love about trading FX is the exposure to global markets. When one trades currencies, he or she is forced to learn about what is going on all around, and this will more often than not translate into the learning of other correlated markets. Through my FX analysis and trading over the years, I have learned to look at the relationships between FX and other asset classes and this has helped to give me confidence to trade these other assets. I don't really view these assets as separate and independent, rather extensions of the same market. I guess that is why we currency traders are assigned the "global macro" designation. So with currency markets already adjusting and reacting to the movement away from unprecedented global monetary easing, and much of this having already started to be priced in for several months now, US equities have emerged as an interesting play. My view is that US equities will also undergo some form of an unwinding as market participants begin to price in the reality of less incentive from the Fed to be invested in stocks. US equities have been artificially supported for many years now on the back of unorthodox and extreme monetary policy measures, and as these measures are slowly removed, we should expect to see some form of capitulation trade that results in a healthy corrective pullback. Unlike currencies, US equities are still trading near cyclical highs, and this creates an attractive opportunity to look for short setups.

A PROFITABLE FADE - So this has been the strategy that has paid off the most in 2014. And though we haven't really seen any sustained declines, the market has provided multiple rewards to those selling into rallies. I have been selling any overdone intraday rallies, and will look to take profit on most of these positions into a decent reversal, while at the same time, moving my stop-loss to cost and eliminating additional risk. I do believe that a correction of some 15% off of the recent peak is quite reasonable, but at this point, I am quite comfortable with the shorter-term strategy of continuing to take shots at fading any intraday strength near record highs. On the currency front, I have some exposure short NZD/USD and will be looking to see if we can get a break below stubborn support at 0.8500. Elsewhere, I continue to look for a breakdown in USD/JPY and EUR/CHF below 100.75 and 1.2100 respectively. Both of these markets are correlated with risk appetite, and given my expectation for further risk reduction ahead, I will be looking for more downside pressure here. I am less focused on the Euro right now, with the market seemingly unsure of itself and trying to figure things out. Ideally, I would like to see some follow through from the previous bearish weekly close, but the jury is still out. Finally, I have my eye on NZD/CAD, a market that is tracking in overbought territory across all major time frames (daily, weekly, monthly). But the beauty is, there are always new opportunities around the corner and we just need to have the discipline to sit back and wait for them.