Positive carry high yield currency basket

FX:NZDJPY   New Zealand Dollar / Japanese Yen
131 9 8
In this chart we can see how the NZDCHF             and NZDJPY             pairs have behaved over time.
Correlation has been negative in some cases, giving place to a hedged carry trade setup, if taking solid long entries.

I decided to take on a longer term trade, by opening two long trades risking 5% of my whole account to get an expected 100% return from interest alone after a year, by using a trend following system, with a loose stop loss of 66 daily periods' average true range . The trades will be long only, and taken based on the daily/weekly charts.

The surprise decision to maintain the 5% interest rate in the Kiwi by the RNBZ gave place to a strong reaction in these two pairs, immediately invalidating intermediate term downtrend forecast signals, and thus giving place to this trade setup. This fundamental event, paired to the recent gold             strength is a strong background for a long position of these characteristics.

I entered long in both pairs, at 0.7569 and 93.04 respectively.

I'll update this chart regularly.


Additional information:

This pair has been behaving nicely on the long side, if the stop is wide enough.
I think a selective positive swap only approach using weekly and daily for entries might be ideal.
Price had a brief decline, but it's holding on nicely.
Interest racks up some passive profits while stops are not hit.
+1 Reply

Fair probability of a trend continuation after this decline.
NZDCHF on the other hand, looks like it'll continue ranging.
Interesting background: http://www.rbnz.govt.nz/monetary_policy/ocr/

14 quarters ranging, now a bullish breakout...Short term we might have a chance of seeing a decline into the level in the chart (white horizontal dotted line) but I'd be very surprised of it going below that level, and I'm not that convinced of that event happening.

This is a large uptrend, monthly charts don't make it justice. Thankfully we have the MTPC indicator that can plot quarterly range bars.
We can see that the uptrend in place is a strong breakout, coming off a 14 quarter base.

Major banks and retail speculators alike invest into this pair, to benefit from the rate differential, and any brief pause in the uptrend is merely a big player closing a long position, or what's known as a carry trade unwind.
IvanLabrie IvanLabrie
Averaged entry price down by buying another batch after the pullback.
Already accrued interest for one day. If I manage to achieve a 52 week ATR profit, I can move stops to break even and increase the exposure with further long positions, but for now I'm limiting myself to a 5% risk size.
Profit was 0.1% whole account, in interest rate gains today.
IvanLabrie IvanLabrie
It might be worth to incorporate a third pair into the equation, to hedge with short positions. AUDJPY might be good for this purpose but it'd need backtesting and precise calculations.
IvanLabrie IvanLabrie
Interest rate is 3.5%, so, sorry for the typo.
Two days worth of interest, and more to come.
I'm working on coming up with a bigger currency pair basket for this trade, seems promising.
Nice background discussion. Looking forward to your updates !
+2 Reply
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