FX Weekly – 2019 Week 11

Summary:

  • EURUSD ► now that the Nov 2018 lows of 1.1210 have been breached, be on the lookout for a good buy entry - it is incredibly difficult to call a bottom especially with no obvious support levels - my preference is to wait
  • GBPUSD ► after last week's profit from the shorts, we can now flip to an aggressive buy at current levels of 1.30 for a small bounce this coming week, or wait to trendline support for a more conservative entry
  • USDJPY ▲ channel resistance pushed prices off and now is a good time to add a small long position or simply a shorter term aggressive buy for the week, with stops at 110.30
  • USDCHF ► prices look poised to breakout, but the RR ratio doesn't look too good for longs - I expect any break higher to be met with good resistance
  • AUDUSD ► good and conservative opportunities not available - await formation of bottom
  • USDCAD ▲ similar stance as last week, favour the short side, and now there is a defined stop at 1.3470 
  • NZDUSD ► still in a LT range, so wait for 0.7150 for short opportunities

Continue reading "FX Weekly – 2019 Week 11"

FX Weekly – 2019 Week 10

Summary:

  • EURUSD ► bias remains to the downside, awaiting for mid-term bottom to be formed - the best risk-reward opportunities lie below Nov 2018 lows of 1.1210 
  • GBPUSD ► news-driven strong run-up last week stopped out the sell trade, but current levels look ripe to ride the correction down with stops at 1.3350 high
  • USDJPY ► LT direction slightly biased to the upside - trend continues to support bullish stance - maintain longs and add to position on pullbacks - prices currently at channel resistance
  • USDCHF ► sell positions not looking too good technically and idea will now be removed - sells can be closed off at near breakeven for conservative trades, while aggressive trades can still take the chance of a deep fall to 0.98 levels
  • AUDUSD ► good and conservative opportunities not available - await formation of bottom
  • USDCAD ▲ very strong news-driven move now opens the pair to a pullback this week - lean on the short side on any opportunities
  • NZDUSD ► still in a LT range, so wait for 0.7150 for short opportunities

Continue reading "FX Weekly – 2019 Week 10"

Should you currency hedge your USD portfolio? (Part 2)

Continuing from Part 1 where we concluded that the costs of hedging will almost certainly outweigh the benefits, we now look into detail as to the return drivers of the hedge, and why they amount to nothing.

 

Correlations

Currency hedging typically works well when the  foreign currency is negatively correlated with the foreign asset, as this means that the currency hedge gains when the asset is falling and vice versa, with a net effect of reducing the volatility of the hedged portfolio.

In this case, the Pearson correlation between the returns of SPX and the hedge (short USDSGD) is +0.235 (slightly positive), and so that does not help in reducing volatility.

From the scatter plot we can see that the returns are rather evenly clustered around the origin. The R-squared value for the linear regression is a mere 0.055 - suggesting that linear relationship of the two returns are very weak.

Taking a look at rolling correlations, the monthly returns of SGD (short USDSGD a.k.a. the hedge) have been more positive than in earlier periods (1990s and ~2005).

Notably, the 2008 crisis caused the SGD to be rather highly correlated to the SPX for several years. It has more recently subsided to the ranges of 0.30 but this is still positive and this means that leaving it unhedged actually provides some diversification benefits, as the USD strengthens (against SGD) when the S&P is not doing well, and vice versa.

Thus, in the short term, we don't expect to gain much from the hedge.

 

Fundamentals and regime shifts

Taking a longer-term perspective, it is unlikely that the SGD can repeat such a dramatic ascent from its levels of 2.0 USDSGD to present levels of 1.35, representing a 48% increase in value (SGD terms). This rise can be attributed to Singapore's rapid development which brought her into the ranks of developed countries, which is an unrepeatable event.

Source: United Nations HDI (http://hdr.undp.org/en/content/human-development-index-hdi)

Thus, in the long term, we don't expect to gain much from the hedge either.

Altogether, it continues to argue for the case that we should leave the USD unhedged.

FX Weekly – 2019 Week 09

Summary:

  • EURUSD ► bias remains to the downside, awaiting for mid-term bottom to be formed - the best risk-reward opportunities lie below Nov 2018 lows of 1.1210 
  • GBPUSD ► medium term bias to the downside, 1.3060 resistance area proved to be a good area to sell for ST trades last week - aggressive sell trade at current price 1.3050, keeping stops as high as 1.32 to guard against whipsaws to the upside and targeting 1.29
  • USDJPY ► LT direction slightly biased to the upside - trend continues to support bullish stance - position can be held due to positive swap
  • USDCHF ► sell positions not looking too good technically and idea will now be removed - sells can be closed off at near breakeven for conservative trades, while aggressive trades can still take the chance of a deep fall to 0.98 levels
  • AUDUSD ► good and conservative opportunities not available - await formation of bottom
  • USDCAD ▲ short term trade at 1.32 from last week closed out with small loss - now the pair is likely to head lower, so await formation of a bottom
  • NZDUSD ► still in a LT range, so wait for 0.7150 for short opportunities

Continue reading "FX Weekly – 2019 Week 09"

Review of Trade-Ideas.com AI strategies

2018 performance for the 3 A.I. stock trading strategies at trade-ideas.com

I recently paid for a membership to take a detailed look at the strategies, and having trawled through the historical data, I present my findings below. 

The very short conclusion is that you cannot simply follow the A.I. signals regardless of Risk On or Risk Off method.

Major edit to this article: I'd like to stress that while I present Risk On on a statistical basis, the underlying data that was presented to me has a fundamental flaw and so the results are biased and misleading (more details in post).

The Risk Off method remains a true reflection of 2018 performance.

 

Expectations vs Reality

The strategy itself seems good - taking every single trade (at standard lot size of 100 shares) would have earned you $69,829 for the Risk On method, and  $27,463 for the Risk Off method.

Continue reading "Review of Trade-Ideas.com AI strategies"