USD Strength Driving Trade In Early 2015
Long USD remains the favoured trade heading into 2015. During the second half of 2014, investors began to build a large long position in expectation of the FOMC ending its QE programme in October, in line with the time frame signalled by Fed Chair Yellen earlier in the year. The USD remains the largest long position overall heading into 2015, but not yet at an extreme, leaving scope for the USD to strengthen further into 2015.
There is plenty of scope to build EUR shorts. At year end, investors appeared to be positioned neutral in the EUR, as the ECB disappointed hopes for new measures in December, causing investors to pare back their short EUR positioning from the autumn. Going into 2015, EUR positioning has turned net short, but remains moderate. This moderate short position leaves scope for further EUR selling, especially as we continue to anticipate a substantial broadening of the ECB’s asset purchasing programme, leading to the EUR being used as a funding currency.
If you took each signal that the Order Flow Trader issued in line with the COT Indicator, which was alerting you to the building bearish positioning in the market, you could have 10 profitable short positions running in the Euro with open equity of 11,620pips net.
The strategy here is simple, once you have initiated the primary short position via the Order Flow Trader signal you monitor the COT indicator, and as the modules of the indicator confirm bearish sentiment in the market, you continue to add to your short exposure with each daily Order Flow Trader signal. This allows you to build significant exposure to the trend move and create a large profitable position.
FX positioning shows that the early 2014 high-consensus long GBP trade has been covered, as GBP positioning has turned bearish. GBP has started the year on a weak footing, and the market expects this will continue into 2015. Political uncertainty, a softening growth outlook and declining inflation are likely to weigh on GBP. What’s more, we have begun to see signs that investment inflows into the UK have slowed, which leaves the currency vulnerable given its trade deficit.
As you will see from the chart above, using the same trading approach as we did with the EURUSD – the combination of the Order Flow Trader and the COT Indicator – we were able to profitably navigate the choppy upswing in the early part of 2014 before being able to position at premium entry levels for taking advantage of the big Cable declines witnessed in the second half of the year. You would currently be running 10 open short trades with an open running equity of 8,500pips.
The market remains of the view that the JPY will be the weakest performing G10 currency. BOJ policy should lift inflation expectations resulting in negative real rates which, coupled with normalisation of Fed policy, will lead to JPY capital outflows. Official comments are likely to become geared to maintaining two-way price action.
As the chart above demonstrates, the theme of early 2014 range trade carried over into the Yen with a tight range playing out early in the year that then expanded in a protracted up trend. Using the combination of the Order Flow Trader and the COT Indicator you could capitalise on this move with multiple long positions in play and an open equity of 3,070pips.
Domestic activity and inflation are improving and the BOC is turning less doveish. While broad US Dollar strength is likely to pressure USDCAD higher, market sees the CAD as a relative outperformer in the commodity bloc, in particular against the AUD. Falling oil prices pose the main risk to the CAD
From the chart above, you can clearly see that the combination of the Order Flow Trader and COT indicator helped the disciplined trader profitably navigate the ranging trade in the early part of 2014, and then facilitated excellent entry to the Loonie trend move that took hold into the second half of the year. Once again, you would have multiple long positions in play with an open equity of 3,695pips.
AUD looks poised to weaken over coming weeks, as high-yielding FX pairs face pressure against USD. Should risk continue to weaken, due to a combination of concerns about slowing global growth and political risks in Europe, high beta currencies such as AUD could see pressure. Growth in China will also be key for the fortunes of the AUD.
The combination of the Order Flow Trader and COT Indicator successfully navigated the markets in 2014 allowing profitable trading throughout the year, but as with the other majors it really came into its own as the Aussie sentiment turned bearish allowing us to align with the bear trend and continue to run multiple profitable positions with an open equity of 2,867pips.
The CHF will continue to trade as a funding currency. With the SNB adopting negative deposit rates and actively intervening in the FX market, the market is positioned for and expects further CHF downside. Many economists forecast a further rate cut by March.
2014 was a stand out year if you were trading the Swissie with the Order Flow Trader and COT Indicator. The combination led to multiple low risk entries into the strong bullish trend that played out during the year, with multiple profitable positions running and an open equity of 9,985pips.
From the review above, it is clear to see the power of the combination of the Order Flow Trader and the COT Indicator. With a very simple and logical trading strategy, following the Order Flow Trader signals and allowing profits to run with the added confirmation of the broader market sentiment and positioning delivered via the COT Indicator, you can really ramp the profits in your trading accounts – delivering 39,737 pips in profits in 2014.