Category: TOTW

Australian Dollar

AUD has technically created a base, around 0.70 level on the back of Trump announcing his willingness to cut a deal with China after the G20 summit by the end of November. This could be the beginning of the end to the trade war story. This would bode very well for the Australian dollar as risk-on flows would pick up.

China is actively stimulating its own economy via liquidity injection and infrastructure spending. Which prompts increased raw material imports from Australia and thus aids the economy and AUD.

Australian Dollar has been trading much lower than Australian commodity price index. Usually, AUD tracks local commodity prices closely. A recoupling would transpire in a     3-5% (200-350 pips) rise in AUD against major pairs.

Statistical Arbitrage

Regression Linear of AUDUSD against AUS200 has an encouraging relation , and both series are cointegrated. Current series cover up until end of October.

Below is the same regression including latest prices. Evidently that a clear distortion is happening and the opportunity to exploit by exposing 1 buy lot in AUDUSD and short 0.6 lots of AUS200, denominate in USD.

COT ANALYSIS

Applying statistics and our core knowledge of COT data, commercials (the guys responsible for trend changes) are active on the sell side again. These guys are counter-trend traders. So most of the time when we see commercials arresting buys and start selling, down trends flip to the upside. And we are pretty much at this point. There is a great possibility that price gravitates around current levels for some days before it starts to rallying. 

We used Phillips-Perron  and Augmented Dickey-Fuller test to check the possibility of a stationary series for commercials net position and both return positive. We can accurately calculate how long it takes for the series to cross from zero to its peak using Ornstein–Uhlenbeck process. This gave us 30 weeks, and guess what, last week was the 30th week above zero.So it’s possible that a bottom is in place and we are ready to take off.


 Phillips-Perron  and Augmented Dickey-Fuller test
Last time commercials were short was 30 weeks ago

Half Life of the Series

CHARTS

How we trade TOTW, from entry to management and exit. It’s all communicated in private members group. Find out more here.

GOOD LUCK TO US ALL

LEO HERMOSO&MIAD KASRAVI

USDCHF 24.09.2018 28.09.2018

This week USDCHF is making a textbook example of pullback inside an uptrend, we are talking about cot data.

“During a correction from a prevailing uptrend, +40 point in movement in the Cot Index within a six-week period often marks the end of a corrective pullback, and the resumption of the major uptrend”(BRIESE, 2008, p.76)

Surge in Movement Index

We are in a very interesting point in USDCHF because we should consider the resume of an uptrend or a Trend change for the downside. “The failure of a +-40 point in Movement Index signal to restart prevailing trend is a tip-off to a major trend change” (BRIESE, 2008, p.76) 

“A failed signal is among the most reliable of all charts signal. When Markets fail to follow through in the direction of a chart signal, it very strongly suggests the possibility of a significant move in the opposite direction”(SCHWAGER; ETZKORN, 2017, p.205)

So right now we are at that point where the stop loss is the cheapest possible because we are in a turn/continuation point. Let’s see what options are telling us:

25D Risks of Reversal

Well, options are telling us the same story COT data, that the easiest path is to the upside. So we prefer Buying USDCHF!

SNB in their latest communications reiterated their commitment to devaluing the Franc and this should keep USDCHF downside limited.

How we trade TOTW, from entry to management and exit. Is all communicated in private members group.

GOOD LUCK TO US ALL

LEO HERMOSO&MIAD KASRAVI