Midweek Position Summary

Portfolio Composition: 

Long EUR/CHF     16.67 Percent 

Short USD/MXN     50      Percent 

Cash                      16.67 Percent 

Rough few days of trading, booking profits too early and having my short GBP/AUD position get blown out.  AUD continues to be under mild pressure, dipping below 1.04 to the greenback.  Sterling has rallied, despite abysmal fundamentals.  I decided to cut my losses when Chinese PMI surprised to the downside.  As expected, AUD got whacked, so at least I stemmed the bleeding and stopped a moderate loss from becoming a substantial one.  

I am ready to take a break for a while from the crazy volatility we've seem in recent weeks.  I continue to buy USD/JPY on dips, and sell USD/MXN on rallies.  I prefer the latter, since I like earning a nice carry each day.  I also am looking to pick up some TRY/JPY on the next pull back, again, playing Yen weakness and Turkey's nice growth story.  

Two other currencies have peaked my interest of late, Korea's Won (KRW) and  Peru's Sol (PEN).  PEN is undergoing a 'managed appreciation' according to central bank, which is buying USD in the spot market to slow the Sol's rise.  However, Peruvian officials have stated that the Sol's rise is in line with excellent fundamentals and that the central bank simply trying to ease the currency adjustment so that the real economy has time to adapt.  Let's face it,  6.5 percent growth, a budget surplus, low and stable inflation, and a public debt at a mere 21.6 percent of GDP are all going to be extremely supportive of the Sol.   Alas, the Sol is not offered by any retain FX brokers that I know of, just one more reason I need to get an institutional account.  

South Korea continues to post solid growth, and sizable budget and current account surpluses.  The newly elected president Park Geun-hye intends to use budget surpluses to improve infrastructure and stimulate growth.  KRW has come under some pressure recently after rising throughout 2012.  The concern is that South Korea will be forced to enter the 'currency war' because Japan is one of its major trading partners.  However, to my mind, whatever action the Bank of Korea could conceivably take, it certainly would be far less aggressive than anything undertaken by the BOJ. Therefore, selling JPY/KRW appears to be a promising trade, especially considering its nice carry.