Turkish Lira Longs Running With 1,100 Pips

Update: Our short positions on USDTRY have sinced been closed out via their respective take profit buy limit orders, netting us a total of +1,340 pips. Actual trade tickets posted below.

 Both our USDTRY shorts were closed on 3/31 via their respective take profit buy limit orders, netting us +1,340 pips in total. 

Both our USDTRY shorts were closed on 3/31 via their respective take profit buy limit orders, netting us +1,340 pips in total. 

There are many ways to skin a cat that is the global weakness in the U.S. dollar. Like we have previously mentioned on many occasions, we are bearish the dollar on many aspects and have been looking at different ways in which to gain a healthy short exposure on the greenback.

Congruent with our view that emerging market currencies would outperform most in the FX complex, not withstanding heavily shorted currencies such as the Canadian dollar and Aussie dollar, we have chosen to take the path of being short USD against a basket of EMFX.

Before we continue, it is important that you understand all of the trading content we put out on these pages are real trades on a real account that we trade ourselves. We're using real capital and trading live prices. You can find out more about our trading system here. You can also view our entire trading journal here. In publishing such articles, we want to help traders from all walks of life better understand how successful traders approach the markets, and translate ideas into actions.

Techncials & trade details

Which is what our 2 shorts on USDTRY reflect. Two weeks ago, we initiated our first of the 2 shorts on the dollar against the Turkish lira, at what we believe (and has so far been validated by price action itself) was a good price both fundamentally and technically. Both shorts are now floating on approximately 1100 pips of unrealized profits.

 The top pane (H4 chart) details our specific entries on USDTRY via 2 short positions at 2.8842, and 2.8890 respectively. Our first short was initiated almost 2 weeks ago, while our second short was initiated about a week ago when price revisited what we have defined as a key pivot zone for the pair. We have included our trade tickets to validate our entires (there are skeptics amongst yourselves, we know). These 2 shorts are currently floating with approximately 1100 pips in profits, net of the carry we've gained from being long the lira against the U.S. dollar.  The bottom pane (daily chart) provides a macro view of how we have structured the price action of USDTRY. Notice how our entries were inside our "key pivot zone", where sellers were readily willing to offer into corrective advances. USDTRY also formed a large Head and Shoulders pattern with price failing to clear the highs seen in January this year, before breaking down impulsively (right below the rightmost shoulder). As we type, price is approaching key support which should see some bulls defending.

The top pane (H4 chart) details our specific entries on USDTRY via 2 short positions at 2.8842, and 2.8890 respectively. Our first short was initiated almost 2 weeks ago, while our second short was initiated about a week ago when price revisited what we have defined as a key pivot zone for the pair. We have included our trade tickets to validate our entires (there are skeptics amongst yourselves, we know). These 2 shorts are currently floating with approximately 1100 pips in profits, net of the carry we've gained from being long the lira against the U.S. dollar.

The bottom pane (daily chart) provides a macro view of how we have structured the price action of USDTRY. Notice how our entries were inside our "key pivot zone", where sellers were readily willing to offer into corrective advances. USDTRY also formed a large Head and Shoulders pattern with price failing to clear the highs seen in January this year, before breaking down impulsively (right below the rightmost shoulder). As we type, price is approaching key support which should see some bulls defending.

We have included much of the trade details on top of technical analyses in our charts on USDTRY above and will therefore not be repetitious in our narrative.

Once again, only our Premium Subscribers are updated in real time on our live trades, so be sure to hop in the bandwagon if you want a part in the fun!

Some context

Regular readers will know that we've been calling for dollar weakness since the start of March, as we've most recently detailed here have since been expecting this view to play out, and it has thankfully happened without much of a hiccup.

  "How we ABSOLUTELY NAILED every move in the U.S. dollar (proxied by DXY) since 4 March. Proof is all public, you're welcomed to go back in time to view them."    Business Of Finance on Facebook, 30 March 2016  

"How we ABSOLUTELY NAILED every move in the U.S. dollar (proxied by DXY) since 4 March. Proof is all public, you're welcomed to go back in time to view them."

Business Of Finance on Facebook, 30 March 2016 

Going back even further, we provided indepth detail on why we were bullish risk assets in general (equites, and EM currencies). Later on, we publicized our profitable trades based on our long risk call (equities). We aren't going to repeat why we are of these views, so read our older pieces if you're interested in knowing why.

We are no strangers to this as we've always been advocating proper execution of trade ideas, whether short or long term, translating what's on paper to a real and live trading account/portfolio. We have proven, on these pages, that successful traders always approach the markets with a bias (whatever it may be), and transmit those biases into trades via a well formed system and set of rules. We cannot reiterate the importance of this point.

Fundamentals

Much of the reasons that led us to be bearish the dollar against EMFX haven't changed much but they have indeed been augmented and strengthened by recent developments. Starting of with the March FOMC event which we also provided coverage earlier on. The latest catalyst for dollar weakness was this week's speech made by Fed Chair Janet Yellen in New York; Yellen was deemed by most to be more dovish than hawkish, dropping hints that, as the head of the world's most influential and powerful central bank, she was in no hurry to tighten monetary policy.

The dollar index has seen its worst string of losses in more than 5 years, and is set to end the month with a loss exceeding -3% (something that is huge for a world reserve currency). On the other hand, many currencies such as those of emerging markets, oil and commodity based currencies such as the Canadian dollar, Aussie dollar, and even the Singapore dollar have seen their best back-to-back daily gains in almost a decade.

 A couple of the best performing (March) emerging market currencies against the U.S. dollar. The pack is led by the Russian ruble and Brazilian real (both gaining a touch above 10% in a single month!). Even extremely weak currencies such as the Malaysian ringgit have gained more than 6% in March alone. The Turkish lira (which we are long on), is up about 4.5% this month.  Emerging market currencies have been heavily sold for much of this year and certainly in 2015, and were the biggest underperformers in FX for reasons like weakening economic growth, financial instability, and budgetary concerns - leading to strong capital outflows, and sharp declines in asset prices in those regions. While the fundamentals still remain weak for most of these economies, in the short to medium term, we believe that technical factors such as correlation and fund flows will continue to dictate EMFX performance.  Chart courtesy of Bloomberg

A couple of the best performing (March) emerging market currencies against the U.S. dollar. The pack is led by the Russian ruble and Brazilian real (both gaining a touch above 10% in a single month!). Even extremely weak currencies such as the Malaysian ringgit have gained more than 6% in March alone. The Turkish lira (which we are long on), is up about 4.5% this month.

Emerging market currencies have been heavily sold for much of this year and certainly in 2015, and were the biggest underperformers in FX for reasons like weakening economic growth, financial instability, and budgetary concerns - leading to strong capital outflows, and sharp declines in asset prices in those regions. While the fundamentals still remain weak for most of these economies, in the short to medium term, we believe that technical factors such as correlation and fund flows will continue to dictate EMFX performance.

Chart courtesy of Bloomberg

We believe a lot of the outperformance in EMFX has to do with unwinding of large short positions that were built up for the most part of 2015 and the first 2 months of this year. Seasoned traders will appreciate just how powerful fund flows from short covering can be in driving asset prices in the opposite direction from where they were previously trending.

It might be called a capitulation in the long dollar consensus trade, or a broad global re-risking trade inspired by efforts to shore up QE and NIRP by the ECB, and a more dovish than expected Fed. We think it is a potent mix of all of these factors which has led to dollar longs running for the hills.

  "Bloomberg: "It's 18 years since emerging market currencies had it this good"    Why, are we no surprised at all. In fact we have a decent short exposure on the U.S. dollar against EM currencies as we speak.    Regular followers will know that we've been calling for dollar weakness and EMFX strength since the start of March. We have seen exactly that in a combo of factors not limited to what we term a "hawkishly-dovish" Fed."    Business Of Finance on Facebook, 30 March 2016

"Bloomberg: "It's 18 years since emerging market currencies had it this good"

Why, are we no surprised at all. In fact we have a decent short exposure on the U.S. dollar against EM currencies as we speak.

Regular followers will know that we've been calling for dollar weakness and EMFX strength since the start of March. We have seen exactly that in a combo of factors not limited to what we term a "hawkishly-dovish" Fed."

Business Of Finance on Facebook, 30 March 2016

Do we expect this trend to continue? It depends. While we won't be revealing our full thoughts and future plans to the public, we are very much watching price action and the environment to based our decisions on. As circumstances can change at a flick of a finger, we are geared towards being aggressively nimble in trade management. 

We will also highlight another key motivating reason of why we initiated longs on the lira against the dollar in a future post, so stay tuned for that. But in the meantime, happy riding the back of this wild bill in emerging market currencies! 

Once again, subscribers to our Premium Signals Service were kept updated in real time on all of our positions and had exclusive first hand insight to our trading activity as it unfolded. Many of them were short USDTRY with us and are sitting on a decent amount of profits. Congrats to those that did!