2014 has been a year of firsts for me as a trader. One of them was that I started trading currencies. Thankfully, it has been a good experience so far and I’m much richer both in terms of financials and experience for it. Most of my trading has been in the USD JPY, but I also had success in EUR USD and USD SGD.
I’ve watched the USD SGD rate for a very long time. I remember that in 2007, just before the Asian financial crisis, the exchange rate was 1.45. I know this because I needed the exchange rate to calculate the value of my basketball trading cards. Since then, I’ve followed this currency pair out of interest. During the 17 years since, the USD has largely been much stronger than 1.45. It has only been in recent times after the Fed launched QE that SGD started trading far below 1.45, going as low as 1.22. I’ve looked at this trend with much scepticism, perhaps shaped by what I saw during my growing up years. Hence, I’ve been watching for a turn in the currency pair for a long time, eager to ensure most of my life savings are in the world’s reserve currency.
This turn came about last year when Bernanke told Congress that the Fed would have to start tapering soon. This roiled the currency markets and USD started strengthening aggressively. I rued my missed opportunity convert my SGD into USD as the exchange rate soared from 1.24 to 1.29. Luckily, earlier in the year, the SGD strengthened for some strange reason and went back to 1.235. While I wasn’t lucky enough to make my conversion at this low, I managed to change a large chunk of my savings at 1.24. Thankfully, that has looked to be a good decision as the USD hasn’t looked back and is now trading north of 1.32.
I see this currency conversion not as a trade to profit from, but as to which currency is a better way to store one’s wealth. However, if I was to calculate it as a trading profit, I was surprised that my gains are actually very minute on an absolute basis. This shows the importance of using leverage in currency trading since the currency moves tend to be relatively small (though there are many examples that disprove this).
In 2014, I’ve started trading two other currency pairs in my portfolio – USD JPY and EUR USD. I’ve used GLOBEX futures for this as the exchange traded futures provide both ease of execution as well as inherent leverage. Let’s first review my experience in USD JPY.
I made 16 round-trip transactions in USD JPY during 2014. But first, some background on why I started trading USD JPY. When I first returned to Singapore in 2012, I met a friend who worked at a hedge fund. This coincided with the time that the BOJ first announced Japanese QE and my friend went on and on about how we should long USD and short JPY. As a value investor, I looked at currency trading as pure speculation and with great wariness and so I politely declined to participate. Even the giant move from 77 in Sep 2012 to 102 in May 2013 didn’t tempt me. In fact, I didn’t follow the currency pair at all. It was only in Feb 2014 where USD JPY caught my attention and I started following it.
My trades can be separated into 2 distinct phases. The first is a series of 7 round trip transactions from Feb to July 2014 while the second is the other 9 round trip transactions executed in Nov and Dec 2014.
After Bernanke talked about tapering in May 2013, I started gaining interest in a strengthening USD trend. After all, I’ve always believed that the USD is here to stay as the world’s reserve currency and that it’s inevitable that the USD will be strong again at some point. This conviction strengthened in Nov 2013 when the Fed started it’s first reduction of QE. In Feb 2014, my friend mentioned that it was a matter of time that the JPY starts weakening against the USD again. The markets were just waiting for the BOJ’s next move. I immediately gained interest in the currency pair and made my first trade to short yen at 102, the level it was trading at that point of time. Between Febuary and July, I essentially scalped USD JPY, shorting yen when it went below 102 and covering the short whenever it went above 102.5. I was happy to make this little extra to juice my portfolio returns.
However, this also meant that I missed the really big moves. In mid-Aug, the currency pair made an enormous move from 102 to 109.8, which I totally missed. I missed the second big move in mid Oct from 105 to 116 in mid Nov. This fear of following the momentum caused me to miss a big opportunity. The second move in particular was very unfortunate. My friend had texted me while I was having lunch to inform me that the BOJ had increased it’s QE program unexpectedly. But when I checked the market, the currency pair had already moved about 200 points and I decided that it was already priced in. Little did I know, the currency would move an addition 700 points in the next few days.
Missing out the big move in USD JPY made me eager to jump on the bandwagon which led me into the second phase of my trading of USD JPY. A chart, which I’ve reproduced below, that I saw in a SocGen report really influenced my thinking. Because of this chart, I waited until USD JPY reached 120.5 before I shorted yen again.
Unfortunately, that proved to be a most mistimed trade. Literally three days after I aggressively shorted yen between 120 and 121, the yen started strengthening and even reached 116 at one point. This was partially caused by the collapse in crude oil prices which sparked a flight to safety in the yen since Japan is a huge net importer of oil and is also traditionally seen as a relatively strong currency. Thankfully, I weathered the dip and my trading of the USD JPY currency pair has been a net positive for me in 2014.
The last currency that I’ve traded in 2014 is the EUR USD currency pair. I only started trading this pair in late November as I was looking for another way to express a bullish USD position instead of USD JPY which I feared had already run its course. In that time, I made 10 round trip transactions but at a much smaller profit per transaction. This makes sense as I tend to be very jittery when trading a new product so I take profit at much lower levels. Hopefully, my experience so far has made me confident enough to make bolder moves in 2015.