"The trend of the GBP exchange rate on the market has a bit of a 'bulls killing bulls' meaning."
Seeing the GBP exchange rate continue to plunge, falling below the lowest point of the morning session, in Hong Kong City, at the 'Valico Hedge Fund' institutional trading room, fund manager Zheng Wenjun frowned and said.
"It seems that the GBP exchange rate has indeed effectively fallen below the oscillation range of 1.5300 to 1.5400 points,"
replied Gao Jianli, head of the 'Valico Hedge Fund' trading team,
"Could it be that the GBP exchange rate will... choose to break downwards here?"
"Alas, it's hard to say,"
Zheng Wenjun sighed lightly and said,
"The existing long orders in the market are sharply decreasing, while short orders are continuously increasing. The net long positions have sharply decreased by nearly 40,000 lots in just half an hour. This indicates that in addition to short funds rapidly increasing their positions, many investors who previously held long positions in the market are also continuously reducing their positions, either taking profit or stopping loss and closing out."
"However, the market news and sentiment haven't changed much compared to before,"
Gao Jianli said.
"Although last Saturday's meeting yielded no results, the Bank of England is still conducting open market operations, and its strategy remains focused on stabilizing the GBP exchange rate. Furthermore, some new news regarding referendum sampling survey data and simulation results also lean towards the bulls in the market.
Moreover, the GBP exchange rate has already fallen for nearly two consecutive years. The current exchange rate is at a historical low. In this situation, it feels like there isn't much downward momentum for the GBP exchange rate; instead, the probability of a continued upward rebound is significantly greater than a downward movement."
"The trend of the GBP exchange rate, whether breaking upwards or downwards, has long ceased to be related to so-called patterns and technical trends,"
Zheng Wenjun said.
"With such massive long and short positions accumulated in the market, the direction of the trend basically depends on which of the major long and short institutions in the market can't hold on first and closes their positions to cover. As long as one major institution with positions of 100,000 lots closes out, the long and short investor groups in the market will likely start a stampede."
"But currently... judging from the market news and the changes in positions of major institutions in the market..."
Gao Jianli said,
"The positions of the major institutions in the market haven't changed much."
Zheng Wenjun nodded slightly and replied,
"That's what's puzzling me!"
"It feels like the trend during the Asian trading session is mainly due to the impact of weekend news and the short major institutions increasing their positions to force out long positions in the morning,"
Gao Jianli said.
"Based on my guess, I think this is likely still a bear trap. Subsequently, as the negative reaction to the weekend news completes and the intraday speculative bulls in the market, as well as the short major institutions taking advantage to suppress the market, slow down their aggressive operations, sentiment will recover, and the GBP exchange rate will definitely rebound quickly, recovering from the current plunge."
"According to you..."
Zheng Wenjun said,
"Should we continue to hold our large long positions and wait for the GBP exchange rate to rebound?"
Gao Jianli nodded and said,
"I think the underlying logic for the market's bullish expectations hasn't actually changed. The likely outcome of the referendum on the 23rd, currently... still leans towards a greater probability of remaining in the EU. Given this, it makes no sense for the GBP exchange rate not to rebound after briefly clearing out intraday speculative positions and stabilizing market sentiment.
Furthermore, from the intraday high until now, the GBP exchange rate's plunge has already approached 100 points. From an intraday trading perspective... After the GBP exchange rate fell below 1.5300 points, intraday traders who had gone long in the 1.5300 to 1.5400 point range previously had a strong need to stop loss and close their positions.
But now, with the GBP exchange rate having pulled back to this level, also above 1.5300 points, especially many intraday traders who went short at the morning high, also have a need to take profit and close their positions.
In other words, as long as there are no further significant changes in market news. As market trading time progresses further, I believe that the long and short forces in the market will soon reach a new equilibrium.
Next, unless the major short institutions in the market continue to inject massive funds to suppress the market, otherwise... it should be difficult for the GBP exchange rate to fall below the 1.5200 point mark.
In summary, no matter how the GBP exchange rate changes during this period.
I consistently believe that before the referendum results are released on June 23rd, or rather, before the market anticipates the June 23rd referendum results to become clear, the market trend of the GBP exchange rate will most likely remain highly volatile.
However, as the competition between major long and short institutions in the market intensifies, the oscillation range on the market will definitely also intensify, and the amplitude of the oscillations will certainly become larger."
"Your analysis certainly makes some sense,"
Zheng Wenjun said.
"But our institution's current long positions are still relatively heavy. What if the GBP exchange rate's trend repeatedly exceeds our expectations? What if the 1.5200 point mark is quickly broken again?
Overall... the meeting last weekend not achieving the expected results was below expectations. When trading, we still cannot rely on luck. Since the market news feedback differs from our previous expectations, and the market trend is not as strong as we previously anticipated.
Then, it also means that the market's long and short sentiment is essentially gradually changing. Since the market's consistent bullish expectation is gradually weakening, it is inevitable that the market trend will not be as strong as before.
Moreover, the net long positions in the market are still maintained at a relatively high level. Many early long position holders in the market who are not firm in their conviction, or who feel the market trend is not meeting expectations, already have strong intentions to take profit or stop loss and cover their positions.
Thus, with numerous factors superimposed. Although the current expectation in the GBP exchange rate market, overall, still leans towards the long direction. But in fact, the certainty of the trend is no longer as high as before."
"So, according to General Manager Zheng... should we reduce some positions?"
Gao Jianli asked.
Zheng Wenjun nodded and replied,
"While our fund's overall long positions haven't fallen into loss, reducing the long positions with higher holding costs, lowering the overall position, and reserving more funds to cope with subsequent market trends, I think this will be more beneficial for our initiative on the market."
"Alright!"
Gao Jianli thought for a moment and responded.
Since Zheng Wenjun already had a clear trading decision, anything more he said would be futile.
After responding, Gao Jianli immediately, in accordance with Zheng Wenjun's trading strategy requirements, conveyed the relevant trading instructions to the traders in the trading room.
When the corresponding trading instructions were conveyed.
The traders quickly used their operational accounts to cover and close positions.
They rapidly reduced the fund's long positions to a reasonably controllable risk level, and at the same time, further lowered the fund's overall holding costs.
However, due to their institution's large amount of closing and covering positions in a short period.
Coupled with the covering of other long positions and the addition of short positions on the market.
The GBP exchange rate, whose decline had initially slowed, suddenly plunged sharply again, breaking directly through 1.5230 points in one wave, rapidly approaching the 1.5200 point mark.
"From the morning high until now, the GBP exchange rate has plunged over 120 points during the Asian session. Moreover, the imbalance between long and short forces on the market is becoming increasingly severe. If this trend continues, I'm afraid the 'bulls killing bulls' situation will intensify, and by then... even the 1.5200 point mark might not be able to hold,"
reported Gerald, head of the trading team at 'Huifeng Global Asset Management Global Hedge Fund' trading room in Hong Kong City, at 3 PM, immediately to fund manager Godfrey, after noticing that the GBP exchange rate not only didn't stop falling after continuous plunges but also triggered a chain reaction, rapidly making continuous new intraday lows.
"Mr. Godfrey, we cannot let the GBP exchange rate market develop like this. If the exchange rate continues to fall like this, and continues to break through the 1.5200 point mark, the bullish sentiment in the market will likely weaken further, and it may also trigger more severe chain reactions."
"On today's market, the bears, leveraging the weekend's news feedback, indeed counterattacked fiercely."
Seeing that the fund's intraday loss on long positions had exceeded 30 million US dollars, and the overall position had also reached the breakeven point, Godfrey gazed at the GBP exchange rate's market trend with his eyes, his expression not overly tense, and after sighing, continued,
"Since these major short institutions in the market want to take this opportunity to further expand the conflict, then we will continue to play along with them."
Currently, although their fund holds long positions as high as 220,000 lots, the proportion of positions is still not high within the vast capital scale of the entire fund.
Moreover, he can also coordinate with institutions like 'Mitsui Kaiyu Investment Company', 'Tianhe Capital', and 'Pacific Capital' to launch simultaneous attacks.
Thinking this, Godfrey quickly...
On one hand, he instructed Gerald to command the traders to continue increasing long positions.
On the other hand, he immediately contacted the trading rooms of other major long institutions to express his strategic ideas.
"Breaking the 1.5200 point mark will indeed have a huge impact on bullish sentiment in the market, and will also create a more severe 'bulls killing bulls' situation on the market,"
Sato of 'Mitsui Kaiyu' responded after hearing Godfrey's analysis.
"Since this level must be defended, our institution can only follow with 10,000 lots, working together to maintain the GBP exchange rate above 1.5200 points, and then wait for developments."
Throughout the weekend, through his lobbying within the group, and his daringness to stake his career, the headquarters increased his credit line for investing in the GBP exchange rate.
Therefore, now Sato, facing his large-scale long positions and an overall holding status that has fallen into a slight floating loss, is no longer as panicked as before and can calmly join forces with the 'Huifeng Global Hedge Fund' led by Godfrey.
"I'll follow with 5,000 lots,"
replied Gu Chijiang of 'Tianhe Capital'.
Compared to the capital of 'Mitsui Kaiyu Foreign Exchange Investment Fund' managed by Sato, and 'Huifeng Global Hedge Fund' managed by Godfrey, the available capital in his hands was far less significant, so his investment approach was relatively more conservative and cautious.
But no matter what...
At this moment, everyone was on the same side of interest.
Once the market is not maintained and the GBP exchange rate is allowed to quickly fall below 1.5200 points, it would mean huge losses for everyone's positions.
With several major long institutions continuously injecting funds to counterattack.
Around 3:30 PM, the GBP exchange rate, after continuous plunges, finally stabilized near the 1.5200 point mark.
Subsequently, as market trading time shifted into the European trading session.
As European investors, speculators, and numerous long and short major institutions became active.
The trend of the GBP exchange rate on the market then began to gradually recover, gradually leaning towards the bullish direction.
"It seems that all European capital institutions, in their expectations for the June 23rd referendum results and for the GBP exchange rate trend, are still clearly biased towards the long direction,"
Meng Shengfei from 'Huayin International' Investment Department Two in Hong Kong City lamented helplessly, seeing the GBP exchange rate once again fluctuate towards the long direction after trading hours shifted to the European session.
"Every European trading session, the GBP exchange rate always rebounds and rises."
Hearing Meng Shengfei's grumbling, Su Yi responded with a smile,
"That's not surprising. The major institutional funds going long in the market are mostly European capital to begin with."
"The GBP exchange rate clearly showed resistance at the 1.5200 point line. At this moment, the long forces in the market have once again taken the initiative. I'm afraid it's unlikely for us to further drive down prices, guide bearish sentiment on the market, and break through 1.5200 points,"
said Kong Fansheng of 'Huayin International' Investment Department One.
"But if we don't do this and allow the market to rebound sharply, all our efforts in the morning session would have been completely in vain."
"Why not go with the flow and cover the newly added positions with intraday floating profits?"
Frederick of 'Aberdeen Asset Evolution No. 1 Hedge Fund' chuckled in response to Kong Fansheng's concerns.
"Before the expected outcome of the June 23rd referendum becomes clear, it's virtually impossible to decisively defeat the major long forces in the market in one fell swoop, causing a complete collapse of bullish confidence and triggering extreme market conditions.
Since it's impossible to achieve everything in one go, we might as well follow these speculative funds in the market amid violent market fluctuations, and engage in some intraday trading.
This way, we can reduce some holding costs, harvest some small profits, control our positions within a reasonable range, and always maintain sufficient margin to ensure our initiative on the market."
"Mr. Frederick's idea is good,"
Su Yi responded with a smile.
"This long-short battle is not yet at its decisive moment. Given this, our operations on the market indeed need to be flexible."
(End of chapter)