Volatility Spikes and SPX still holding support: HK dollar peg in threat


With HK burning, there is a sense of fear and uncertainity in the markets. China believes that HK is US doing. This will further worsen the situation as China has already called of all all US purchases of agri items. US has now responded in approving F16 sales o Taiwan which is a big one. This is fast getting out of control.

The ultra-stable currency so far isn’t budging. It has held the peg versus the greenback since 1983, and since 2005 has moved in the tight HK$7.75-to-HK$7.85 per U.S. dollar range.  However option players are starting to circle. They are betting on the unthinkable: that they’ll breach a $448.5 billion wall that’s repelled attacks by some of the world’s most well-known activist investors, including George Soros. The market-implied probability this happens within the next six months has crept above 50 percent, compared with just 14% at the end of July, according to calculations by Bloomberg using implied volatilities.

This is not over yet as bets start to pile. Unlike last time when Soros was alone, this is more market wide.

See the volatility below.

Volatility has been rising for the last 6 consecutive days. Fear is starting to build up and the dams could burst any day if there is no quick resolution.

Dollar index

Dollar has been on a relentless rise over the last 6 months but 100 will be a bgi resistane level coming from 2008 levels.

Canadian Spread

The canadian yield curve has inverted first time since 2007. The yield curve inversion has gone global. CAD will be sold heavily against USD and others. Next wed is the CPI data and we could see a major tempering.

Front End inversion

The curve inversion is now being observed all durations. Even the overnight money market is seeing a major shift.

The Japanese10 year has gone below BoJ tolerance levels of -0.2 but we do not think BoJ will act at all.

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  • USDJPY has a +210 pips with a 75 pips Stop
  • USDCAD has a 210 pips with a 75 pips Stop
  • GBPUSD has a 210 pips with a 75 pips stop

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Here is trade history from yesterday

The trade history shows how the system has a slew of profitable returns and yesterday was no different.

The monthly returns are shown above. AUGUST =+22.5%
June = +10%

The total return now stands at +109%. Trading has been difficult in forex but not for QUANTO as performance has been absolutely rock solid into August. Four months of MT4 trading shows the stability of system.

August returns are at +22.5%.

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