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Australia dollar dives to six-year lows after RBA rate cut – Shorting opportunity now?

Yesterday, the Australian dollar tumbled more than a cent to a six-year low, after the Reserve Bank of Australia cut interest rates to a record low of 2.25 per cent. What does this mean for the AUD/USD, and are there any good trading opportunities?

Statement by Glenn Stevens, Governor: Monetary Policy Decision (Abridged)

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.25 per cent, effective4 February 2015.

Growth in the global economy continued at a moderate pace in 2014. China’s growth was in line with policymakers’ objectives. The US economy continued to strengthen, but the euro area and Japanese economies were both weaker than expected. Forecasts for global growth in 2015 envisage continued moderate growth.

Commodity prices have continued to decline, in some cases sharply. The price of oil in particular has fallen significantly over the past few months. These trends appear to reflect a combination of lower growth in demand and, more importantly, significant increases in supply. The much lower levels of energy prices will act to strengthen global output and temporarily to lower CPI inflation rates.

Financial conditions are very accommodative globally, with long-term borrowing rates for several major sovereigns reaching new all-time lows over recent months. Some risk spreads have widened a little but overall financing costs for creditworthy borrowers remain remarkably low.

The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.

For the past year and a half, the cash rate has been stable, as the Board has taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad. At today’s meeting, taking into account the flow of recent information and updated forecasts, the Board judged that, on balance, a further reduction in the cash rate was appropriate. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.

Source:
http://www.rba.gov.au/media-releases/2015/mr-15-01.html

 

Daily chart of AUD/USD

Daily chart of AUD/USD

 

Looking at this daily chart of AUD/USD, we can see that the AUD/USD had traded nicely within a trend channel, providing many easy trades to short and take profit.

While this rate cut may have come as a surprise to some, it certainly did not surprise the price action.

Because while it may have hit new lows, prices rebounded nicely from the bottom trend channel line, after profit-taking by those who shorted near the channel top.

My profit target which was near that level got hit as well.

So, can I short this now?

While the AUD/USD is clearly on a downtrend, I would prefer to minimise my risk and look for a good pullback to go short again, perhaps somewhere in that yellow shaded region marked on the chart.

Remember, trading is about following the trend, but it is also about finding the best low-risk opportunities to enter the trend.

Good luck! 😀

Is Keppel Corp a Good Long-Term Investment Now?

Recently, there has been a lot of interest in Keppel Corp, since it provides one of the best exposure to oil, which is currently at record low prices. I have received many emails and enquiries whether this is a good buy, and my answer should be self-evident in my portfolio, where I am currently vested 16% in Keppel Corp (full portfolio updates will be coming up in the following days).

Firstly, Have Oil Prices Bottomed?

OPEC’s Secretary-General is calling the bottom in oil prices. While he’s not the first to call a bottom, he does lead the organization that currently controls the oil market so his comments do have a lot of weight. Further, he’s also suggesting that the cuts that oil companies are making could have a dramatic impact on future oil prices as the under investment has the potential to cause oil prices to rocket higher if demand grows faster than future supplies. That, however, would all be part of OPEC’s plan as it purposely pushed for lower oil prices now so it could control market share once oil prices surged in the future. It’s willing to endure short-term pain for the potential of a big long-term gain.

Long-Term Crude Oil Supply Growth

Long-Term Crude Oil Supply Growth

Source: http://www.fool.com/investing/general/2015/01/31/opec-sees-oil-prices-exploding-to-200-a-barrel.aspx#ixzz3QWYJUUGz

Keppel Corp Quick Overview

From its humble beginnings as a local ship repair yard in Singapore in the 1960s, the Keppel Group has expanded into three key businesses of Offshore & Marine, Infrastructure and Property, with operations spanning over 30 countries. The Keppel Group of Companies includes Keppel Offshore and Marine, Keppel Integrated Engineering, Keppel Energy, Keppel Telecommunications and Transportation, K-Green Trust, Keppel Land and K-REIT Asia, among others.

Keppel Corp Events Calendar

Keppel Corp Events Calendar

 

Keppel Corp Insider Trades

Keppel Corp Insider Trades

The next dividend payout will be in April, so from now till then, buying Keppel Corp will entitle you to the dividend payout.

There have been quite a lot of insider buying since November 2014, especially by Keppel Corp itself, as well as Temasek Holdings. This is a definitely a good sign.

Source: www.shareinvestor.com

 

A Detailed Look at the Charts

Keppel Corp Daily Chart

Keppel Corp Daily Chart

Looking at the daily chart, we can see that the recent strong rebound from a low of $8.00 to $8.70 was preceded by an obvious volume TURN, which was where I started loading my portfolio with this stock.

However, for it to go higher, it will need to clear the $8.80-$9.00 zone, before it can proceed back to the $10.00 level.

This might prove challenging for 2 reasons:

  1. It is still on a long-term downtrend (refer to the red ribbon at the bottom of the main chart pane)
  2. Oil prices are still heading lower

This means that we might see a new low or successful test of the $8.00 bottom before we can confirm a successful trend reversal.

That said, my view is that oil prices will recover in the long-run, and Keppel is one of the strongest blue-chips to gain exposure to this recovery.

My strategy is to take 50-80% profits on Monday if prices gap/advance updwards near the $9.00 level, and wait for the next entry opportunity, either when it successfully clears $9.00, or if it drops to new lows.

Good luck! 😀

 

[Update: In response to some questions asked about whether it is for trading or investing, let me clarify my opinion. For trading, I will trade within the range of $8-9, and from $9-10 if it breaks out. For investing, I will accumulate between $6-8 for a 2-3 years timeframe.]

Guest Speaker at CIMB Securities: The 7 Best-Kept Secrets of Professional Traders

I have been invited by CIMB Securities to give a free 2-hour content-packed workshop to share my trading secrets of how I achieved financial freedom at 27 by spending only 15 minutes a day trading, and how anyone can do it once they pick up the right skills. Seats are very limited, so please turn up if you RSVP! Thanks, and see you there! 😀

guest speaker at cimb securities

 

Registration for FREE tickets:

29th January 2015 (Thursday) at CIMB Securities
https://www.eventbrite.sg/e/free-workshop-the-7-best-kept-secrets-of-professional-traders-live-tickets-15386480377

Click here to find out more about the free workshop syllabus (and get a free starter guide):
http://synapsetrading.com/free-workshop-7-best-kept-secrets-professional-traders-live/

HFT Forex Trading | EUR/CHF – When was the last time you saw a 2315 pip plunge?

Just yesterday, the Swiss National Bank (SMB) unexpectedly announced that it was ending its minimum exchange rate of 1.20 swiss franc per euro, dropping this bombshell just a week before the ECB’s expected announcement of quantitative easing.

In addition, they also announced the lowering of the interest rate on deposit account balances that exceeded a given exemption threshold, from -0.25% to -0.75%.

The SNB noted the end of solidarity was one reason to discontinue the cap, saying division is “a trend that is likely to become even more pronounced.” As the Fed readies to tighten monetary policy, deflationary forces mean the ECB is looking to ease anew. The Bank of Japan has already done so.

The SNB had imposed the floor limit in 2011 during the height of the Eurozone debt crisis as the franc strengthened considerably in that period, raising the risk of deflation in the country. Following that, EUR/CHF has hovered around 1.20 for more than three years, never having risen above 1.25 in that period.

 

Euro dollar vs. Swiss France

Euro dollar vs. Swiss France

 

However, a weak Eurozone economy, plus the ECB’s constant stimulus measures, caused the euro to weaken significantly in the past year, which has forced the SNB had to continuously depreciate their Swiss franc to maintain the floor limit. But Switzerland has no need for monetary stimulus. While it has been hit by the dire straits of the Euro-area, its economy is not in too bad a state and does not require any boost from the central bank.

To have conducted stimulus when there is no need to, the SNB risks the huge possibilities of high inflation and major price distortion. This has been made worse by Russia’s recent troubles, which saw a huge demand for Swiss francs by Russian billionaires.

The removal of the 1.20 floor is probably a strong signal that the ECB will announce some form of QE in next week’s monetary statement. The SNB has probably judged that Switzerland’s economy cannot afford to run the risks of price distortions brought about by the ECB’s QE and has chosen to abolish the floor limit to negate this risk.

 

EUR/CHF - Crazy plunge of 2315 pips!

EUR/CHF – Crazy plunge of 2315 pips!

 

Some food for thought after the 1.20 EUR/CHF floor removal

  • After much sharp movements (see chart above) which included a spike down followed by a bounce, the market appears to think that the fair value for EUR/CHF is around 1.00.
  • Virtually every position which was long USD/CHF was margin-called.
  • Most macro hedge funds, which were long EUR/CHF, were crushed.
  • How much of the SNB’s credibility has been hit? Switzerland has long had a reputation of financial stability; in fact two days ago it just reaffirmed its commitment to keep the floor limit. The shocker yesterday may test the trustworthiness of the Swiss banking system.
  • Currency supremacy war? The US dollar had no competition at the start of the year for the running of best-performing currency in 2015. With a freely-traded franc, that conclusion suddenly doesn’t look so assured.
  • Will Hong Kong be next in breaking its peg with the USD? A rising USD has caused the value of the HKD to climb unnecessarily; previously a weak USD (and hence HKD) plus fund flows from China drove property prices in HK to extremely high levels.
  • How badly will Switzerland’s export-oriented economy be hit?

Christmas Season – Shopping my Pips Away :D

Today, after my weekly massage session, I decided to spend the day shopping for my Christmas party supplies and gifts.

I also chanced upon the filming of a commercial/show by a local celebrity, and noticed that there were many street buskers plying their trade along the busy street.

When I reached home, I realised that my orders for EUR/USD and GBP/USD had been triggered, with profits of 102 and 84 pips respectively.

A big thanks to these 2 trades, for sponsoring my festive splurging. 😀

Good luck for the remaining few trading days, and don’t forget to splurge a little!

Here's the damage for today :D

Here’s the damage for today 😀

Guess who I saw literally picking up girls at Orchard :P

Guess who I saw literally picking up girls at Orchard 😛

Acrobatic kids from China busking

Acrobatic kids from China busking

HFT Forex Trading | EUR/USD - 102 pips profit!

HFT Forex Trading | EUR/USD – 102 pips profit!

HFT Forex Trading | GBP/USD - 84 pips profit!

HFT Forex Trading | GBP/USD – 84 pips profit!