(This is an excerpt from an article I originally published on Seeking Alpha on April 15, 2013. Click here to read the entire piece.)
When it comes to the Australian dollar (FXA), traders have to stay nimble and on their toes. Just two days ago in “Poor Employment Report Only Slows Australian Dollar’s Breakout,” I noted how easily the Australian dollar recovered after weaker than expected jobs numbers triggered rapid selling in the currency. I concluded that “the currency is much more likely to respond to changes in commodity prices and by extension economic conditions in China.” Sure enough, proof positive came in the form of Q1 GDP growth of 7.7% in China. Industrial production also disappointed by “only” growing 8.9% in March year-over-year. As Bloomberg notes: “That compared with the 10.1 percent median forecast of 37 economists and a 9.9 percent gain in the first two months of the year.”
So suddenly after two Chinese economic series each register one new discouraging data point, China’s growth (really the rate of growth) is slowing. {snip}
The technical damage in the wake of the Chinese economic data is clear. {snip}
The technical damage for yen crosses could just be getting started. {snip}
{snip}
One interesting backdrop to the sudden re-emergence of fear is a surge in call buying on the VIX, the volatility index. {snip}
The implication is that once traders lose their hedges with the VIX call options, they might be more inclined to sell out of S&P 500 positions if the market is weak going into expiration. {snip}
Source for charts: FreeStockCharts.com
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on April 15, 2013. Click here to read the entire piece.)
Full disclosure: net long Australian dollar, net short Japanese yen, long SSO calls