The EUR/AUD FX Cross and VXO alarm bells are ringing

Image

Illustration 1: EUR/AUD FX cross exhibit high correlation & R-square with VXO … predictive ability of unknown stresses ahead in financial markets when both heads higher?

There are a number of price movements of various financial instruments that Asianmacro had observed before that I simply do not have a logical explanation that satisfy either a scientific mathematical finance approach or a qualitative explanation.  Perhaps I do not have the eloquence nor knowledge of those strategists or economist in coming up with convincing arguments for everything that happens since my pursuit is simply on whether to buy, sell or hold in making profits as the sole objective.

One phenomena that I chance upon is the propensity for EUR/AUD FX cross together with VXO (http://www.cboe.com/micro/vxo/) to always head higher when markets enter into some uncertainty especially when negative events start occur or develop in the financial markets.

Image

Illustration 2: EUR/AUD FX cross heads higher post Gold collapse since 12 April 2013 & Boston bombings …. sign of potential further negatives ahead to develop in markets?

I will be very cautious and on a somewhat ”sell risk on rally” mode across various asset classes especially stocks and commodities as this unexplained EUR/AUD & VXO indicator is flashing on my radar screen.  Whether it is due to AUD/USD coming off and under pressure due to poor China economic data (http://www.scmp.com/business/money/markets-investing/article/1215611/investors-dump-stocks-poor-china-economic-data) …. or EUR/USD heading higher … Damn how can that be with uncertainty in EU still smarting from Greece, Cyprus, …… ?  It does not matter … I rather be lucky than smart!

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

Advertisements

Time to OZ …. AUD has probably lucked out!

Image

Illustration 1: AUD/USD vs. IMM Commitment of Traders (Non-Commercial) positions vs. AUD/USD 1-month risk reversal vol skew … all points to AUD at risk of correction lower

Asianmacro has previously opined on Australia and AUD .. the lucky country that happened to have all the minerals underground that China and the rest of the world needed http://tradehaven.me/2013/02/12/to-oz-or-not-to-oz/.  The range for AUD/USD is 1.03 – 1.05 on the narrow with risk of overshooting on either side especially the lower bound on any significant China flu or global risk off.

Australia employment report is out this coming Thursday 11 April 2013 and I don’t know about you but with all the global economic data hitting a softer patch especially on the employment front, and with commodities (precious, base and softs) correcting lower over the past month, I will be damned surprise if Australia can be so lucky again !  From Illustration 1: the market in AUD/USD still seem pretty long from the IMM CFTC commitment of traders report (non-commercial).  In addition, there is still a skew to calls over puts in the options market.  There exist relatively cheap opportunities to be playing Australia turning on its luck via outright short AUD/USD or put options spreads and strategies like 1.035 put RKO (reverse knock out) 1.0550.  We target 1.01 level in the next 1 month if this plays out well enough for us.

The nail in the coffin I think for Australia is the recently announced changes to the Superannuation plan where new taxes (where there wasn’t are introduced) to rob the chaps down under.  *Please see summary below (where essentially Superannuation contribution are after your earned income already already taxed and now you are taxed again on your returns from your superannuation that is supposed to support your retirement!)

Superannuation changes

  • From July 1 2014, earnings on superannuation pensions and annuities of more than $100,000 annually will be taxed at 15 per cent, instead of being tax-free.
  • Superannuation earnings below $100,000 a year will remain tax-free and this threshold will be indexed to the Consumer Price Index.
  • The change will not apply at the accumulation stage.
  • The Government says around 16,000 people will be affected by this reform, which will save around $350 million over the four-year forward estimates period.
  • From 1 July 2013, people aged 60 and over will see increased concessional caps from $25,000 to $35,000.
  • Excess concessional contributions will be taxed at the individual’s marginal rate, plus an interest charge.
  • The Government says this will mean individuals are taxed on excess concessional contributions in the same way as if they had received that money as salary or wages.

There are some opinion on this matter http://www.afr.com/p/business/financial_services/super_tax_may_hit_accounts_under_3xxgtzhxnNCaKTJU67cMHP.  If I am a chap down under, I will find various ways and means to get all my money out of the country before it is rounded up unfairly by the Australian government … no surprises why so many Australian billionaires have or are thinking of moving to Singapore!

http://www.globalpost.com/dispatch/news/business/120609/australian-economy-billionaire-nathan-tinkler-singapore-tax-rate-asia#1

http://blogs.wsj.com/scene/2012/08/01/australian-billionaire-sets-new-property-records-in-singapore/

And we definitely expect to see more Aussie names in the richest Singapore residents list shortly http://www.altiusdirectory.com/Society/top-singapore-richest-list.html

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.