Equity Markets // The Unknown “The Aussie”

Kept long position on Equity markets (Nikkei, Euro Stoxx 50 and MSCI Taiwan Index futures). Despite fluctuations of the past 14 days markets have virtually remained trendless. Positive signals exhibited today by the SMI breaking the pattern to new temporary highs, giving credence to a nascent bull trend in formation.

The moment of truth however remains the “Aussie”. It has hit new all time highs against the Euro ( 1.500) and the Pound 1.6550. The market paradigm is the Australian Central Bank will continue to tighten interest rates mutatis mutandnis providing a positive yield for the Aussie against cross rates. I contend the Austrailan Central Bank’s hands are tied to China. China began and continues to tighten its monetary stimulus this year through Bank reserves, interest rates, curtailment of new loans. This has a direct causal effect on the Australian economy. The Australian economy is coupled to China and wouldn’t risk removing the punch bowl and water at the same time.

It however remains a heuristic yet to prove expedient. Increased long position on Euro against Aussie significantly, buying heavily at the 1.5030 level (Eur.Aud). Further began buying GBP.AUD also at the 1.6570 level. I have placed tight stop at two ATR’s below entry levels. The pivots are close, making my margin of error opportune.

By Andrew Shawn – Recursive Investments in Global Financial Markets