French Election – We got the markets wrong

As usually, we made the internal assessment of the this weekend’s French elections. Following these latest weeks information paraphernalia we have concluded the most likely outcome would be that both Emmanuel Macron and Marine Le Pen would make the cut to get to the second round, as it came to happen. Contrary to some other voting recent events, we assessed that there wasn’t much room to any other outcome which didn’t include Emmanuel Macron in the final two runner-ups. This would be seen as market and Euro friendly.

We should be happy with the fact that we have consistently got the outcome of the latest binary events right. But we estimated wrongly the pricing the market had placed in other possible outcomes, namely the possibility that the second round would be decided between two anti-European protagonists. It’s clear now that, after the surprises of Brexit referendum and Trump election, the market is heavily pricing outcomes outside the consensus.

At the close of Friday’s session, our ARION strategy had two opened positions: A short EURCHF and a Long on XAUUSD (Gold). To put it simply, our assessment was:

a) if the result of the elections would come out to follow the consensus (Emmanuel Macron included in the final two runner-ups) no large movements would be seen as there would be no relief rally (outcome = consensus would mean business as usual and therefore no large market movements).

b) in the unlikely chance of an unexpected market unfriendly outcome, the market would, in our view, fly to safety assets such as Gold or to CHF, placing our trades in profit.

Clearly it was an error was to assume the market was mainly pricing consensus and not highly unlikely scenarios. The relief rally seen upon the election results, both with a strong appreciation of the EUR and a almost alike depreciation of Gold, showed us that after all market was strongly pricing a surprising outcome, which is in itself a strong paradox.

Whatever were the merits of our assessment, the important point was that we got the markets wrong this time and saw some negative trades with relevance due to the gaps verified at market open. As well as we point it out when we get it right, we do acknowledge when we get it wrong. We got it wrong this time and we are therefore sorry for the profits the strategy gave back due to this misread of the situation.

The positive point is that ARION is a highly diversified strategy and the impact was after all of limited dimension and not dramatically hard to be recovered. We took however our learnings from this event and know now that consensus now can mean surprise.

As always we are working hard to return to regular monthly profits soon.

We wish you a happy week ahead!

March 2017 ARION Wrap-up – Why this might be a good moment to initiate a subscription in Arion

The volatility in the markets stays in multi-month lows, a feature that in the latest months has been affecting our running strategy ARION.  ARION needs good volatile days to enjoy impactful trades. Impactful trades can have either a positive or negative outcome and ARION relies then on the statistical edge to pocket gains over a large number of impactful trades trades.

Let’s take the VIX as a proxy indicator of the general volatility in the Forex Market and take a look to the following chart:

Source: CBOE

Some relevant information can be extracted from the above chart:

1- The VIX has been hovering in the region of 10 to 12 what is commonly known as a super-low VIX. In the last year there hasn’t been such other long period of super-low VIX.

2- This super-low VIX period, corresponds to the following ARION monthly returns:

Jan: +3.6%  ; Feb: +0.6%  ;  Mar: – 2.0% 

Sure enough overall YTD (Year To Date) ARION has a  positive performance of shy above 2%, but that hardly brings us any big satisfaction as these figures don’t add up to our long term return objective, of at least a positive 2% average monthly return.

3- In the past year, the two moments when VIX reached it’s highest values on record, coincided with the moments when ARION too recorded it’s best months in the same one year period, both pip wise and in real money return. We must also point out that Odysseia Capital decided to stop trading prior to the BREXIT referendum, therefore in June ARION only traded approximately half of the month. This explains why the month of June 2016 was the “only” the 2nd best when in fact this was the month when the highest VIX figure was recorded.

4- It seems that the markets might be entering a new higher VIX period. This should bring no surprise in itself, as the geopolitical situation has been degrading on a daily pace, be it the hardships the USA president Donald J Trump has been experiencing in approving core pieces of his intended policies, be it the resulting change of the US focus from internal politics to the external international stage, with increased rhetoric in warfare issues.

The view of a coming increased VIX might have to do (or not – time will tell) with the recent note from Credit Suisse on its internal “Fear Barometer Index” and the fact that it’s currently seating at all time high levels (read the report here):

Source: Credit Suisse, Business Insider.

If geopolitical tensions don’t ease up (and they seem to be deepening, be it North Korea, US-Russia relations or Syrian and Afghanistan conflicts) , it seems the markets are in an optimal position for an higher VIX leg, which it could be a good setup for ARION.  

To whomever might be hanging on the fence to subscribe our ARION service, this might be the a good moment to do it and take advantage of a possible next upper leg in the VIX and ARION trade results. The service can be either subscribed here or at the market place simpletrader.net. Please don’t hesitate to contact us with all your questions before placing your order.

Odysseia Capital is about to making changes to the portfolio, aiming to be better positioned to this eventual market development. These will be announced soon.

 This week’s wrap-up:

Great comeback this week with 480 pips packed in our ARION account. This was enough to almost cancel the pending loss of this month. This coming week is calmer in terms of economic events, but let´s see that it brings to close the month.

To perform well ARION needs days with increased volatility, so generally it´s not good idea to switch off the signal by customer´s own discretion on foreseeably less than extreme events. This week it was clearly FED´s interest rate decision packed together with Janet Yellen’s press conference.

We are introducing some changes in the strategy that will be announced very, very soon. Stay tuned.

Coming to the end of the month…

Approaching the end of the month and facing the expectation of today’s Bank of Japan (BoJ) interest rate decision and monetary policy statement, we update a couple of topics:

• BoJ announcements have been both benign and malign for ARION in the past. For instance in September the lack of credibility of the BoJ governor’s speech and the JPY whipsaw price movements led to the 2nd worst drawdown period in ARION’s history. But there has been also many neutral and/or benign events to ARION around the BoJ announcement This is even more important when USDJPY is a core instrument traded by ARION. All things considered, we decided to keep business as usual and we hope BoJ will be, one more time, benign to ARION. If not, and if BoJ surprises against the opened positions or, worse, announces a non-credible monetary policy change, that makes JPY prices jump around, we know our journey is made of ups and downs, and we will have to be exposed to the downs to get the more interesting ups.

• The “worst” market day so far in 2017 took a toll in what was being so far a quite competent month. At this moment, the monthly return is still interesting and above our long term target but, of course, nobody likes to give pips away. The 3 independent strategies that contribute to diversify ARION, united all together this Monday and all took away precious pips from the accumulated stock, which is annoying being so end to the month, but that’s just how markets work. The 3 strategies work to diversify ARION ion but even so, there are times where all of them work in the same (negative) direction and even taking the same view in the same currency pairs, it’s normal.

THERESA MAY SPEAKS ABOUT BREXIT:

Tomorrow UK’s PM Theresa May will deliver a speech over BREXIT. The tension is high as seen in today’s session, by the large GBPUSD weekend gap of around 200 pip, with no other reason than the expectation of an hard brexit stance (meaning clarification of leaving the single market in order not to accept freedom of movement) in tomorrow´s May’s speech.

This high impact event is now already shown in most events calendars (MyFxbook, Forex Factory). Last week the calendars were not even showing the event. However, be alert about the exact timing of the speech. It has been changing in MyFxbook and it’s still tentative in FF.

ARION’s new all time Balance record

Whether you like the man or not, if you agree with him or not, that´s not the point.
The only important point to us is that, thanks to yesterday’s uniquely featured press conference, ARION was able to grasp correctly several market movements and establish a new all time record in the account balance.

THANK YOU VERY MUCH MR. PRESIDENT ELECT !

Disclaimer: this is not by any means a political featured message. At Odysseia Capital we try to balance professional approach to trading with a grain of humor. Truth is, we have no relevant political views, but surely acknowledge the potential impact political events may have in trading. Happy Thursday !

Christmas 2016 trading at ODYSSEIA CAPITAL

Christmas is fast approaching. At this time of the year volumes are usually low and with that or strategies are prone to show a more erratic behavior with increased probability. Therefore as of mid this week we’ll be reducing the exposure of the strategies to about half of our normal trading.

With that said we wish merry festivities and that 2017 might be a great year with lots of health, happiness and, of course, great returns !

TODAY’S FEDERAL RESERVE INTEREST RATE DECISION:

About today’s very anticipated FED rate decision announcement, OC has decided to keep trading as normal. This FED decision has been much anticipated by the markers and any other outcome than an interest rate increase of 25 basis points would come as a shock to market participants.

Possibilities are:
a) no rate increase
b) a rate increase of 25 bps (0.25%) – expected
or
c) a rate increase of 50 bps.

We think any other scenario than the expected is highly unlikely.

FED has been tireless to reaffirm that their decisions are “data dependent” and the vast majority of the economic data points since last rate increase have been favoring a rate increase. Presidential election is also behind our backs and markets have reacting in a quite surprisingly well behaved fashion. FED has been accused over and over to be behind the curve and to be unable to “walk the talk” and raise rates when the economic prerequisites have been apparently achieved. Finally, the mark of one year since the last increase (which occurred in December 2015) and he fact that the FED expected wishfully to raise several times in 2016 entails extra pressure to finally decide on the 2nd rate rise in 10 years.

With all this setup in place we (as well as pretty much all of the market) see no reason for a new delay in the FED´s decision to increase the interest rate.

At the same time a higher than 25 bps would go against all the the FED has been communicating for the past months (if not years). Uncertainty in Trump’s presidency, style and policies, its impact in economy and the fact that the recent equity market´s rally doesn´t represent any substantial improvement in the real economic recovery, would make any rate increase above 25 bps very hard to justify. Some analysts speculate if the FED would make a bold move and raise 50 bps to signal its independence from politics and moreover from Trump presidency, but, again, this would go against all what we have been hearing from the FED since much, much long ago.

Anyway, we will keep monitoring our USD exposure as any outcome outside this scenario (especially a 50 bps rate increase) would result in a quite unexpected scenario and bold moves in the exchange rates.