Wednesday, February 10, 2010

AUDJPY: A Change Of Mind

Finally, something has happened to lift the pall from the AUD/JPY market.

What happened? The Australian economy showed signs of heat. We have recent employment numbers that absolutely blew away expectations.

Apparently, today, the AUD/USD moved from a value that gave a 25% chance of a hike in march to a 50% chance of a hike in march.

Do you remember me talking about the need for a upside surprise to start movement off a possible bottom? In order to continue upward all we need is some nice stats from China and the lack of a new crisis of confidence.

There is a lesson in this -- as if you don't know this already.

When the world has given up and this has been priced in (baked in) there will be a good chance to grab an upside move. The employment report could have been traded by taking a position with a reasonable stop prior to release... if you thought employment was going to be strong (hopefully because you had insight or evidence instead of just raw gambling).

My insight offering would be that a ship the size of China doesn't turn around overnight just because of some tightening. Alternately, tightening credit in China with an aim to keeping growth at 8% or so isn't tightening in the same sense that we'd consider it in the western world.

This was an obvious and big miss...

What I see is an opportunity to figure out some of the blind spots that the big money has -- let them spend their powder moving the herd and then pick a good point to have their mistake revealed, such as Australian employment stats, and take a stop protected position on it.

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