RyanVarghese

First Ultra Pain Trade for 2020 - Long the Aussie !!!

Long
FX:AUDUSD   Australian Dollar / U.S. Dollar
Please Note: This is a pain trade as I am going against the consensus but the reasons laid out with respect to the fundamentals are what I have based my thesis and biased. Previous Pain trade for going Long GBP in August 2019 proved right. But past performance doesn't indicate future results. Hence, the chances of being wrong is very high and of you can take this analysis with a pinch of Salt ! :)

Let's dive into why I think Aussie is close to bottoming out.

As we know, Antipodean currencies are proxies to the Chinese business environment and growth. Hence, if China has a good business and economic sentiment, then it will directly reflect upon Australia and New Zealand`s business outlook. The global market got jittery with fears around Corona Virus (ConVid - 19) that led to the collapse in the US stock market of approximately 16% in the last two weeks before it closed at 12% down from All-time highs. Fear is the ingredient that led to people selling off their holdings and its quite natural. So, One can either look this in a way of getting a discount once again or staying away from the market.

Either way, someone needs to participate and keep the game going. To keep it more interesting, We got CaixinManufacturing from China which gave a reading of 35.7 v/s 50.7 expected. The huge gap of 15 points was priced in due to the Convi-19 issue because many businesses and cities were shut, especially Shenzhen area in where the main manufacturing happens were closed. Therefore, a low reading.

However, I am expecting this virus issue to be solved in the near term that would give a V-shape recovery in Chinese fundamentals and business environment with respect to Consumer confidence.

Australian Dollar Fundamental

1. Unemployment Rate : The latest print from Australia showed rise in unemployment people which was at 5.3% and further two readings are expected to tick higher
before the resumption of low unemployment rate begins. The further anticipated readings/print will be higher due to Convid -19 issue because of which businesses in the whole
Asia-Pacific were impacted. SO, this will be priced in.

2. Annual GDP Growth Rate : The Annual GDP growth rate in Australia is at an increasing pace which is currently at 1.7% but future readings from CHina on the same will show
the contraction that would still have an impact on the Aussie Dollar. This could also be taken into consideration.

3. Inflation: The rate at which Inflation is growing presently at 1.8% is still expected to tick higher because Business and COnsumer confidence is heading higher with respect to last 4 readings.

4. Manufacturing PMI : The manufacturing sector in Australia is contracting for some time and it has a high chance of rebounding. Once we start seeing that, shorts on AUD futures will be covered.

5. Interest Rate : IR stands at 0.75% and despite poor fundamental readings and business sentiment that hampered due to Bushfire, Reserve Bank of Australia didn't cut the interest rate and kept it on hold. But the latest Cnvid-19 issue would make RBA to re-analyze the entire situation. Hence, this is tricky but I personally think that RBA won't budge and take an immediate rate cut decision based solely on Convid-19 consequences. we do have RBA interest rate decision on 03/03/2020.

6. Retail Sales: Retail sales print in Australia are rebounding and it can be predicted by looking at business and consumer confidence and sentiment.

Based on the above readings, I think the future bad news is priced in. Hence, Traders and Institutions holding short positions in Aussie since the start of 2020 will definitely look to cover their positions for Q1 2020 ending and overall, we could see a heavy accumulation @ at the price between 0.3 and 0.65 before we start seeing a structural trend toward 0.70 mark.

We could even witness good paint on the tape of AUDUSD in the same manner as to how we saw in GBPUSD in 2019.

Deploying Capital: This is a structural Long play. Hence, pyramid positions must be built because it takes time to form a base.

Entry: 0.6335/50 & 0.63
Stop loss: 0.62 / 0.6180
Target : 0.65 / 0.67 / 0.70 / 0.74

The above reasonings are my own hypothesis and this is not a trade recommendation/suggestion. I am simply putting my views here because I always like to catch the pain trades where risk-reward are skewed to the higher side. Please feel free to drop your opinions and we could have radical transparency in data which I may have missed or didn't consider.





Trade active: ORDER TRIGGERED
Comment: First target is reached.. Kept the SL at breakeven

Comments

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