Just as both long and short institutions were studying and investigating the motives of their counterparties, and immediately making adjustments to their trading strategies.
Late at night, during the US trading session.
A hawkish speech by a key figure from the Federal Reserve at a financial summit instantly disrupted market expectations that the Fed would continue its loose monetary policy and postpone interest rate hikes, causing the US Dollar Index to surge rapidly by nearly 50 basis points around two or three in the morning, Beijing time.
The surge in the US Dollar Index...
also led to a rapid decline in the exchange rates of non-USD currencies in the global forex market, as well as spot gold prices.
By the time Su Yi woke up, had breakfast, and arrived at the company.
As the global trading session re-entered the Asian session, the British Pound exchange rate, burdened by the surging US Dollar Index, had fallen from its highest point of around 1.5420 last night to around 1.5360, a total retracement of approximately 60 points.
"General Manager Su, market expectations seem to have shifted. This should be good for us."
In the trading room, Qu Zecai saw the changing market expectations for the US dollar after the Fed's key figure spoke last night, and couldn't help but smile, saying,
"The stronger the US dollar, the more bearish it is for all non-USD currencies in the forex market. Naturally, the British Pound exchange rate will also be under pressure. Coupled with the adjustment of opening leverage multiples in the British Pound market, under these circumstances... it will likely not be so easy for these long institutions to continue their aggressive short squeeze. We should be able to catch our breath for a short while."
Su Yi's gaze swept across the K-line chart of the British Pound exchange rate, and he smiled, saying,
"Not necessarily. The short-term strengthening of the US Dollar Index will indeed put pressure on all non-USD currencies, but the British Pound exchange rate temporarily has support from the Bank of England's open market operations.
At the same time, with the stimulating news that our institution's short positions are close to margin calls, facing the temptation to force major short players in the market to stampede each other with just one more step, these major long institutions in the market will not easily give up."
Qu Zecai said,
"General Manager Su, do you mean... These major long institutions in the market will continue to invest a large amount of capital to further push up the British Pound exchange rate?"
Su Yi nodded slightly and said,
"Certainly. After all, with the Bank of England as a supporting force for the long side, the longs' confidence in going long will not wane. At the same time, although the Federal Reserve has released some hawkish statements, inoculating the market for potential future interest rate hikes and shifting some market expectations.
However, as for the current actual situation. it is still too early for the Federal Reserve to withdraw from its loose monetary policy and officially begin raising interest rates.
In other words, the short-term strength of the US Dollar Index will not form a trend. After a likely bounce, it will probably fall back into a volatile situation.
Since the US Dollar Index cannot form an upward trend, and there are no such market expectations. Then, during the period of decline after the US Dollar Index rebounds, the British Pound exchange rate will inevitably turn upwards again.
Coupled with the Bank of England's current monetary policy and open market operation strategy, facing the temptation of huge short-squeeze profits right now, how could these major long institutions in the market possibly resist?"
"General Manager Su, since you've analyzed that the British Pound exchange rate will continue to rise, why don't we temporarily cover some long positions, and then, after the British Pound exchange rate surges past the 1.5400 mark again, close out the long orders and conversely increase our short orders?"
Qu Zecai asked.
"This way, we can both reduce our current short position losses and alleviate our capital pressure."
Su Yi smiled and said,
"Some short-term expected profits in the market cannot be earned, because this would disrupt the overall trading strategy and trading approach. At the same time, there are definitely differences between our expectations and the actual market trend.
What if the actual market trend doesn't develop as I predicted? Then, by establishing long positions to cover, we would only be throwing ourselves into disarray."
"That's true."
Qu Zecai nodded slightly.
Su Yi said,
"Let's continue according to the original plan and strategy. Since we firmly believe that the British Pound exchange rate cannot be sustained above the 1.5000 mark for long, and we also believe that the UK's June 23rd Brexit referendum will be a heavy blow to the British Pound's trend, and the trend of the British economy stopping and declining cannot be changed, then there's no need to pay attention to temporary market fluctuations."
"Alright."
Qu Zecai nodded.
Immediately, he continued to direct the traders to execute trades according to the established trading strategy.
After their conversation...
As market trading time progressed, it was almost exactly as Su Yi had predicted.
As market trading hours gradually transitioned from the relatively quiet Asian session back into the European session, the British Pound exchange rate, with efforts from market longs, indeed fluctuated upwards, recapturing the 1.5400 mark and recovering from the sharp drop during last night's US session.
Just as the British Pound exchange rate recaptured the 1.5400 mark.
Fang Wanqing also called Su Yi again, asking him to meet at a restaurant in Hong Kong City at 6 PM.
Su Yi heard Fang Wanqing's words, knowing that what he had told her last night likely had some developments, and quickly said thank you twice.
Then, as the time approached 6 PM.
He left the company and arrived alone at the location agreed upon with Fang Wanqing.
When he entered the private dining room of the restaurant, he saw Fang Wanqing and Ms. Li, and besides the two of them, there were also three middle-aged men in the room.
"Miss Fang, Ms. Li..."
Su Yi smiled and greeted the two, taking the opportunity to size up the other three.
"I heard you've already lost over 300 million US dollars in the British Pound market?"
Ms. Li looked at Su Yi.
"And I heard that the short positions held by your 'Huayi Capital' are on the verge of margin calls? I even heard you're sick? It seems... there are quite a few rumors here!"
Su Yi smiled as he sat down, replying,
"Ms. Li indeed has keen insight. These rumors are indeed false. In reality, the losses on our British Pound short positions held by 'Huayi Capital' have not reached 300 million US dollars. At the same time, our cash reserves are quite substantial.
As for me being sick, that's even more baseless nonsense. It's just that... at this current stage, I hope the more rumors there are in this regard, the better."
"Oh?"
Ms. Li paused slightly,
"Why is that?"
Su Yi smiled without answering, instead turning his gaze to the other three.
Seeing Su Yi's expression, Ms. Li also quickly smiled and introduced him,
"This is Zhang Yanshun, General Manager of Asset Management Business at 'Huayin International'. Old Zhang and I knew each other when he was at 'Huajin Company' years ago.
After all these years... we still have some connections. The last time we had dinner, I mentioned you briefly to Old Zhang, and he was quite interested in you, so this time I took the opportunity to let you two meet and exchange ideas."
"Hello, General Manager Zhang!"
Su Yi stood up and proactively extended his hand to greet him.
Zhang Yanshun carefully sized up Su Yi, then also smiled and shook his hand, saying,
"General Manager Su is indeed a young hero, with extraordinary bearing and full of spirit!"
Su Yi said,
"You flatter me, General Manager Zhang. I can't bear the title of 'young hero'."
Zhang Yanshun replied,
"You certainly can, you certainly can! This time, General Manager Su made a multi-hundred-million-dollar gamble on the British Pound exchange rate, inciting global capital to engage in long-short contention over the British Pound. It's truly extraordinary, truly extraordinary!
Oh... by the way, you just said you hope there are more bearish rumors about your institution in the market. What did you mean by that?"
Su Yi replied,
"The more bearish rumors there are about our institution, the more confident the long institutions orchestrating the short squeeze in the market will feel, and the more capital they will invest in the squeeze, thus falling deeper and deeper into this 'long trap'."
"You're saying the current market trend in the British Pound exchange rate is a 'long trap'?"
A slightly younger man next to Zhang Yanshun couldn't help but ask,
"Why do you say that?"
"And this is..."
Su Yi inquired.
Zhang Yanshun replied,
"This is Kong Fansheng, manager of our institution's Investment Department One. Xiao Kong is also one of my old subordinates, and the investment direction of the Investment Department One, which he oversees, also involves the forex market."
"Oh, hello, Manager Kong."
Su Yi smiled, shook his hand, and continued,
"Currently, in the British Pound exchange rate market, net long positions have reached almost 800,000 lots. However, according to information I've obtained, within mainland UK, excluding core cities like London, there isn't a significant difference between the public supporting Brexit and those opposing it.
Overall, the outcome of the entire Brexit referendum event still carries considerable uncertainty.
Furthermore, the British Cabinet has approved the referendum bill. And the Bank of England has continuously released signals and conducted open market operations to stabilize the exchange rate before the referendum begins.
It can be analyzed that among the members of the British Cabinet and key government personnel, those supporting Brexit are also not a minority. Combining the performance of UK economic data over the past years and trend developments.
It can be seen... that in the years since the UK joined the European Union, it has not gained substantial benefits, but rather has undertaken numerous obligations, conceded many markets, and provided economic subsidies to many member states with less favorable economic conditions.
Previously, the economic structure of mainland UK was relatively sound, and its economic vitality and growth momentum were also decent.
Relying on its pillar industry of finance and high-value-added advanced manufacturing, it could still reap global capital, and its citizens could still enjoy relatively good lives and welfare benefits.
But now, with the shift of the global manufacturing hub and global financial centers; the development of the UK's economic structure has become increasingly hollowed out, its development potential is getting lower and lower, and naturally it is unable and unwilling to bear some of the EU's obligations, nor does it want to share its cake with its relatively poor relatives and neighbors.
And I believe this is the fundamental reason why the British Cabinet passed the Brexit referendum bill at this time.
Since the essence is for national interests; then, from the perspective of national interest, it seems that whether to leave or remain, which is more beneficial for the UK's future economic development, cannot be generalized.
But from the perspective of public life; for ordinary individuals and small families, Brexit would certainly be more beneficial for everyone.
Because by reducing aid to other 'poor relatives,' the welfare benefits and portions of the cake they receive will naturally appear to be more.
That is to say, thinking from the public's point of view; it's possible that more people would actually agree with Brexit. Currently, the referendum assessment data from major global institutions are basically preliminary sampling data collected from major cities. I think this is clearly biased.
But regardless of the referendum outcome. The rift of interests between the UK and the EU has already formed. The crisis of trust between the two has already emerged. And this means that with misaligned core interests, the two will eventually go their separate ways.
Since such an expectation has substantively emerged, the supporting logic for European currencies, especially the British Pound exchange rate, has naturally changed.
Furthermore, there are excessive net long positions in the British Pound exchange rate market at this time. Once there's news-driven volatility and longs collectively cover their positions, how the market will change on the trading floor, I think Manager Kong already has a good idea, right?"
"General Manager Su's analysis is truly excellent."
Another middle-aged man next to Kong Fansheng smiled and said,
"I said before that the aggressive long institutions in the British Pound market at this time would likely stumble. Now, hearing General Manager Su's words, this 'long trap' is indeed becoming clearer and clearer. No wonder Mr. Frederick of the 'Aberdeen Asset Evolution No. 1' hedge fund is making this big gamble alongside General Manager Su."
"May I ask your name, sir?"
Su Yi glanced at the middle-aged man and asked.
The middle-aged man extended his hand and shook Su Yi's, replying,
"I'm Meng Shengfei, manager of 'Huayin International's Investment Department Two. You can just call me Old Meng."
"So it's Manager Meng."
Su Yi smiled and nodded,
"It seems great minds think alike!"
Meng Shengfei replied,
"My insights are not as profound as General Manager Su's. I've long heard of General Manager Su's great reputation, and seeing you today, it truly lives up to its name."
"Thank you for the praise, Manager Meng."
Su Yi replied.
"According to what General Manager Su just said..."
Kong Fansheng pondered for a moment, then added,
"From the very beginning, by establishing short positions in the British Pound exchange rate, you were luring longs into the market to squeeze shorts, and then using the UK's June 23rd referendum event to ignite this long-short battle in the forex market?"
Su Yi nodded slightly and said,
"More or less. However, my personal ability, and 'Huayi Capital's cash reserves, are simply insufficient to independently face the hunting of so many long institutions."
Kong Fansheng said,
"So, you came to us. You hope we can enter the market to short, to help you resist the continuous short squeeze from the longs, and prevent you from being forced by the long institutions in the market to stop losses and cover your positions before the UK's June 23rd referendum?"
Su Yi replied,
"I'm not trying to find you for help. I just think this is a great opportunity for a comprehensive short attack."
"Oh, Old Kong, don't think of people's intentions as so malicious."
Meng Shengfei said with a smile,
"General Manager Su's intentions are also good, and... I truly think this is a good shorting opportunity. With so many net long positions, just imagine... once the market sentiment shifts, and longs collectively cover their positions in a stampede, what kind of extreme market conditions will that create, and what kind of lucrative opportunities will it trigger?"
(End of Chapter)