Interesting news from China today. On the eve of US president’s visit to this country, People’s Bank of China issued a monetary policy report which outlined possible release Yuan from US Dollar peg.The exact wording was “Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange rate formation mechanism,”. OK, so in reality it is a big maybe, kind of like saying “There is a sliver of a chance for possible un-pegging of Yuan, sometime in the future, as measured by cosmic time unit, if you are lucky”. But it is a start, of sorts and something what US counterparts want to hear.
Delighted US officials responded by saying what the Chinese wanted to hear. During his stop over in Japan, U.S. Treasury Secretary Timothy Geithner said during news conference “I believe deeply that it’s very important to the United States, that we maintain a strong dollar.” And, since US deficit is under international scrutiny, he added ““we’re going to bring our fiscal position back to a sustainable balance.” I guess if you say something often enough you start believing in it, irrespective of evidence to the contrary. Now, since the visit already accomplished what it intended to do (win some concessions) does it even has to happen? We can just be telling each other these grossly exaggerated half truths and smile nicely, without spending money on silly meetings.
Something I should have updated yesterday, EUR-GBP trade discussed in Federal debt limit post. My intention was to sell it using 4H charts, at 0.8902. Order was triggered and price immediately turned around, as it happens when trading breakouts. Unfortunately this time it was a reversal, not just a bounce. I allowed the price to build a minor high but eventually got out once that was taken out, for a loss of 74 pips. Behavior of this pair is representative for all Pound crosses over last couple of days. They were pounded.
Couple of days ago I was discussing straddle trading with a reader. Last night I had an occasion to use one in real life, the way it is intended to be. Pound pairs were giving inconclusive hints about next moves and ranges contracted before London open, which is normal. In my mind it was a good environment for a straddle trade, so I placed one on GBP-USD.
One buy order, one sell order, with a fixed stop for each at 50 pips. Buy order was filled couple of hours into the session, but got stopped out almost right away, too. Price reversed and the sell side of the straddle was triggered. I let it ride for a few hours and closed it shortly ago for 133 pips gain. Total for the set up is +83 pips. So, reader, this is how straddle looks like in practice.
With the Veteran’s Day in US, one should expect light trading session in all financial markets. Currencies are no exception. I’m taking it easy, too- done for the day.
Mike K.
Pretty flipping funny.
Yes, Chinese are going let Yuan appreciate and Geithner will strengthen the dollar and solve budget deficit. Perfect world.
was hoping you’d address this
Heather- if it isn’t yet it will be soon.
Sceptisizm? Not exactly behaviour of model citizen. Shame on you.
Indeed. You know all about shame, don’t you?
Even if the Chinese relax the peg a little bit, it will be very gradual. I wouldn’t expect anything drastic. As little as they can get away with.
I just managed to squeak out 47 pips with a straddle on the EUR/JPY. Probably not what the straddle is designed for, the whole purpose being to get in early on those coiled springs. I set my stops smaller, in fact turned the buy into a stop once I got picked up short. In your straddle link you suggest a longer chart but I see you used the hourly above. I guess it all depends on how tight the movement is.
Straddles should be used when you expect a sharp move, but have no directional bias. Most of the time people have directional bias. Straddles in themselves are some “magic” strategy- both of the orders can be stopped out. Like most other tools they are suitable during certain times, but not always.
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