The spike brought us to my 38.20 fib level around 1.2190. Where are we heading next? will I get to close the short below the 23.60 at 1.2075? time will show .. In the meantime I’m just glad its a small position to entertain myself with this Monday morning

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(click image for full size)

As a result we see an investment opportunity. The foreign exchange (FX) cross between Euro (EUR) and the Norwegian Krone, EURNOK, is hovering around 9.08 and 9.13. We consider this a good entry point for a short position of EURNOK and have sell orders in place at 9.12 and 9.13 for a longer term position.

4 hour chart

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1 day chart

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1 month chart

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]]> http://blog.sumptuouscapital.com/2009/07/eurnok-positioning-for-a-short/feed/ 1 http://blog.sumptuouscapital.com/2009/03/nok-the-new-safe-heaven/ http://blog.sumptuouscapital.com/2009/03/nok-the-new-safe-heaven/#comments Sun, 22 Mar 2009 18:39:55 +0000 K_F http://blog.sumptuouscapital.com/2009/03/22/nok-the-new-safe-heaven/ Investors are currently searching for a new safe haven currency as the USDs position is being questioned due to the strain on the US economy and the resulting stimulus packages. At the same time the Swiss Central Bank is getting worried about the export industry and has announced the probability of interventions to weaken CHF.

There have been some statements lately about the Norwegian Krone (NOK) being positioned as an alternative new safe haven. In particular David Bloom from HSBC has claimed that the NOK is the “ultimate haven currency”, and that “It’s probably the best currency in the world.” noting that Norway’s economy grew by 1.3% in Q4 and was not forecasted to experience as big a downturn as other economies this year. Norway’s monetary policy was also NOK supportive, like other commodity-producing countries and it is not expected to resort to quantitative easing policy to boost inflation expectations.

This view has some support, in e.g. that the cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.

At the same time there are several arguments against the NOK being a new safe heaven currency. Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support. But he says: “You are trying to win the least ugly currency contest at the moment. I can’t disagree that it might move higher, but I can’t get too enthusiastic.” His main concerns are the lack of liquidity in the market and the krone’s long-held correlation with oil prices.

If we look at a chart of the NOK vs the USD we see the large shifts of NOK as investors pulled money away from it during the credit crunch, as NOK traditionally has been considered a somewhat emerging market economy.

Ashraf Laidi at CMC Markets says the fact that the krone fell against both the dollar and the euro during the turbulence following the collapse of Lehman Brothers in September means it cannot really be called a haven currency.

Another argument is that Norway, similar to Switzerland is dependant on export, so that the Norwegian Central Bank will most likely intervene if NOK appreciates too much relative to others currencies.

Granted the safe-heaven status is more about low volatility than it being strong per se, and it could be argued that Norway has higher chances of intervening than most other countries, amongst others because of the Norwegian Government Pension Fund – International, and that the high volatility we’ve seen in the past doesn’t necessarily limit a lower volatility forwards if the situation is managed properly by the Norwegian CB. But this would require a shift in the school of thought.

But if NOK won’t be the new safe currency, what will be? Gold is an obvious traditional placement. At the same time the Chinese economy can be an interesting argument for Chinese, or other Asian, currencies.

The only thing that is certain is that we’re facing an interesting situation, and it will be interesting to see how the situation continues to play out.

to be updated…

Sentiment among German financial analysts and institutional investors unexpectedly brightened in March, but remained at historically low levels, a survey from the Center for European Economic Research, or ZEW, showed Tuesday.

The ZEW think tank’s economic expectations index rose to -32.0 points from -39.5 points in February, beating economists’ forecasts of a reading of -40.0 points. The indicator was well below its historical average of 30.3 points.

The outcome gave the euro a boost to trade at $1.5451 at 1020 GMT, compared with $1.5400 ahead of the data.

Source: Dow Jones Newswire

I’m only speculating on small varieties, with a bid/ask spread of 2PIPs relatively minor moves can give small profits, so I went in at spike at 1.5218 and out again some 10 pips lower with 8 pip profit.

All in all it is a nice and slow Tuesday with some Microeconometics lectures and some trading to make the the day slightly more interesting.

As too often, also in other aspects of my life, I fail the patience/risk-seeking to follow things through to get max profit though, and as such had some opportunity costs compared to if I just stuck in there a bit longer.

That said, the volatility and nervousness amongst traders makes it possible for the markets to go in unpredictable directions, and I figured closing out the position before having a mid-term exam and a dinner arranged by my bank afterwards probably was a good idea. The dinner by my bank is a concept called Bank & Bacalao. For those not familiar with Norwegian meals/dishes; Bacalao is made with the primary ingredient Clipfish (which again is made out of Cod (or as Puerto Rico and the Dominican Republic prefers, for price reasons, out of haddock ) ) , potatoes, tomatoes, paprika, soya oil, onions and spanish pepper or chilli. But I’m getting off track here..

EURUSD currently trades at 1.5186, which is still rather strong compared to USD (but it will, in time become even stronger) . We see USDNOK in 5.16/5.17, and if we don’t have USDNOK at 4-levels sometime in 2009 I’d be very surprised.

Now, if only I learned how to become more patient… but at least I have a dinner with 800 crazy bankers and clients to look forwards to.

• I’ve been too busy with everything else
• I really haven’t had that much on my mind that was worth writing about

But today I felt different, so here we go with my little rant, hopefully there will be some comments to it.

USD keeps depreciating against the Norwegian Krone (NOK). We have had a 2.26% depreciation the past two days and USDNOK is now trading at 5.1899. If we look at monthly data we see that NOK gradually has appreciated since 2002, when USDNOK was at levels above 9. It passed the 1992-high of 5.20 in august 2007 and is now trading around 5.19. This marks a 46% appreciation which, I believe, most will agree with is a massive movement.

I have no doubt that we will see USDNOK continuing to decline, and we’ll see the 4-number before or during 2009. I speculate that after this; presuming the US can get its act together, we’ll see normalization around 2013-2015 at a 6-7-range. But we’ll see if time proves me wrong or right on that one.

One thing is certain. with EURUSD at 1.5, with expectations to reach 2 by 2010-2011, USA loses international purchasing power. The upside obviously being gaining competitive strength again.

And being competitive internationally is something the US of A has neglected for quite some time. If we e.g. look at the the automaker industry and agriculture; the political reign has been dominated by protectionism and neglected modernization, supported by, to mention one factor, strong lobbying from worker’s unions.

If we look at the auto-industry, consider the gas-efficiency and some americans complaining about 2-3 USD / gallon gas prices. As a comparison, the after-tax-price on gasoline in Norway is about 13 NOK a liter, or 2.45 USD / liter, or about 9.26 USD / gallon. Then, if we look at the crude oil prices, which currently trades at or above 100 USD a barrel. Or, converted for american’s convenience (it is not like we can expect them to do arithmetic), 100 USD per 42 gallons of crude oil; 2.38 USD / gallon for the raw material.

I expect to see even higher oil prices in USD-terms over the next couple of years, as USD depreciates against the Euro. Taking into account an EURUSD of 2 (versus today’s 1.5) we have a 133 USD/bl oil price on just forex fluctuations. An oil price in the 150-200 USD range isn’t something I’d be surprised to see, and that would still be relatively stable in Euro-terms.

With an upcoming presidential elections we can only hope that Americans will take a stance for a sustainable long-term economy, rather than going for the easiest quick-fix and consequently the politician promising the most. Of course, such a hope is against my better judgement, but that is after all why it is called hope.

Until then; the BRIC countries (Brazil, Russia, India and China) are what can help the global economy by supplying increased consumption. If we look at today’s situation; where USA has a net negative savings rate (being indebted on average), China has a savings rate above 50%. Politicians are already trying to bring the savings rate down and support consumption rather than savings, in order to offset negative consumption growth from the US. And we are indeed seeing a slightly higher effort in savings, if only it had happened 15 years ago.

The thing is, taking profit can be rather important, looking at the USDJPY position I hold yesterday, if I had stayed in for as long as today I would’ve ended up loosing money, as USD appreciated quite a bit against JPY. At least I can use that as a slight comfort.

Well.. there are other chances. All in all I’m looking forwards to having some days off around christmas and finally get to read some non-school and non-work related information. There has been far too many news articles about work the past month (8,000-10,000 articles in total… gotta “love” it when Subprime troubles hits Norway) so will be nice to get the thoughts away for a while, although I don’t start my vacation untill the 22nd.

FED 1: The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent. Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks.
7:34 PM
FED 2: Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time. Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.
FED 3: In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.
7:35 PM
FED 4: The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth
FED 5: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.
7:36 PM
FED 6: In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

Now the sterling can hopefully do its job too, after the USD did.

I shorted EURUSD at 1.46065 and purchased it back at 1.46057 giving a mere 1 pip profit. Why? as we can see EUR had a ride with a couple highs testing resistance around 1.4614 so it was simply a relief to close the position at a small profit rather than loss.. but obviously, what I should’ve done was to stick through it and wait for the drop to 1.4584 which would’ve given a 22 PIP profit..

Well, we can’t win them all…at least the initial expected development was correct, now to work on timing..

Some rather heavy moves on EURNOK this morning, with EUR appreciating a full 939.7 pips, representing a 1.22% increase. To put it like this, going 100,000 EUR long at the 7.7279 level and selling again at the 7.82187 level would’ve resulted in a 100,000*0.0122 = 1220 EUR profit. Why did I ever go to school followed by work today, I should’ve been trading…

Well, a new week and new opportunities over the weekend. For now, have great time.

Pip generally refers to percentage in point, and is the lowest decimal/unit an exchange can take place at. This is typically 1/10.000 (fourth decimal point). e.g EURUSD is quoted using five decimals, but only four are significant.

A practical example: A pip spread of 2 between bid and ask for EURUSD, which happens to be the deal I have with my brokerage house, means that while purchasing/asking we quote a price of e.g. 1.46945, while at the same time the bid price is 1.46925. In this case, the 2 pips is the fee paid to the brokerage house for their services.