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March 31, 2010

Long Term AUDUSD Outlook

Filed under: Forex General — Tags: , , , — admin @ 5:36 pm

Once again the Aussie Dollar is trading around the long-term historical resistance area of 0.8000.

There are several interesting patterns on the AUDUSD that I’d like to share.

Here’s a weekly chart of the AUDUSD.

Notice how we have an extremely large (and albeit ugly) head and shoulders pattern. Add to the fact that the right shoulder didn’t dip as far south as the left shoulder and we have a currency ready to move.

Not only that but we also have an ascending triangle that has formed over the last 3 years.

So what does all this mean? Well I for one am quite bullish the AUD/USD – as this is a weekly chart I’ll be keeping an eye on how the AUDUSD closes at the end of this week, and then how it reacts to any successful close beyond 0.8000 the week after. As an example, if we have a successful break this Friday, yet by the following Friday we see the AUDUSD back below 0.8000 then resistance is still strong and we may get further downside before it attacks it again – provided the AUD/USD doesn’t retrace too far.

Potential targets for this move would be the ascending triangle’s side of about 1200-1300 pips (0.8000 – 0.6800), therefore being, around 0.9200-0.9300. The head and shoulders target is phenomenally higher again giving a target some 3200-3300 pips above 0.8000 (0.8000 – 0.4700) – if this gets reached then we’d see the ol’ 1980 glory days of the AUD!

But is this a strategy that anybody could use? It definitely isn’t one for us small retail traders – our stops would need to be very large making the position size so small we wouldn’t even be able to enter in.

However, by providing a long-term view of where we perceive a currency may go in the future it can help our trading by only short-term taking trades in the long-term direction.

Currency Analysis

Lockhart: No double dip, wary of Greek contagion

Filed under: Central Banks — Tags: , , , , — admin @ 5:36 pm

Atlanta Fed president Lockhart says he is not expecting a double-dip recession and that he is quite confident of a sustained recovery. He says he is watching the Greece situation and is not totally discounting the risk of sovereign debt contagion.

He says he is concerned about the US fiscal situation and would think long and hard about a second stimulus.

Dude, we just had the second stimulus ($15 bln jobs bill)

Synthetic Payroll Day

Filed under: Forex Strategies — Tags: , — admin @ 4:44 pm

Welcome to payroll day! OK, it’s not literally payroll day, but given that a) we get ADP today, and b) markets are actually open on the day, punters might do well to treat this afternoon as a “synthetic” payroll day. After all, the ADP will presumably contain the “meat” of the payroll report anyways, which is private sector hiring; markets are surely clever enough to look through the Census hiring as temporary, right? Right?
While there has been much rumbling about the strength of Friday’s payroll figure much of it will, after all, be that temporary government hiring. After all the ink spilled and bonds sold in anticipation of Friday’s figure, Macro Man cannot help but wonder if it’s now firmly in the price. A weak-ish ADP would be a useful test of that thesis.

Macro Man was also intrigued to see the leak in Caijing (sadly, he cannot find a link, but the story is alluded to here) that China will move back towards a managed crawl next month. Now, regular readers will know that your author has long supposed that the current hard peg would remain intact through H1, but given the brewing storm of protectionism in Congress, might the Chinese decide that discretion is the better part of valour and allow the RMB to jiggle before they are named (if not shamed) in the Treasury manipulators’ report?

And if they do, would that not cause a) more hot money flows into China, and thus more reserve growth, and b) something of an entente between China and the US? If so, perhaps China might re-emerge as a buyer at Treasury auctions, which could come in handy at next week’s 3, 10, and 30 year efforts.

Moreover USD/JPY, an asset price closely linked to US yields, has reached what might be presumed to be a local top. Not only has it bounced off the early-January high on this, the first day of the new fiscal year, but the seasonality turns bearish for much of April into early May.
While there’s clearly no guarantee that any link between US yields and USD/JPY will be maintained at current levels/rations/whatever, it still gives Macro Man pause for thought. The US flattener, which was flavour of the month a couple of weeks ago, has retraced 61.8% of its move from late Feb to last week.

Call Macro Man crazy, but he finds himself sorely tempted to flirt with a bit of long duration or perhaps the flattener on synthetic payroll day…

EUR/JPY – Breaks Inverted Head-and-Shoulders Neckline

Filed under: Technical Analysis — Tags: , , , , — admin @ 3:56 pm

Price action on EUR/JPY, a daily chart of which is shown, has made a tentative breakout above the horizontal neckline of a well-formed inverted head-and-shoulders formation (a bullish reversal pattern). This neckline resides in the important 125.00 price region. The key initial upside target on this neckline breakout resides in the very significant 127.00 support/resistance area. For more technical analysis on this currency pair, please click here for Wednesday’s (3/31/2010) Chart of the Day.

James Chen, CTA, CMT

* For information on my DVD set, High-Probability Trend Following in the Forex Market, please click here.
* For information on my book,
Essentials of Foreign Exchange Trading (Wiley), please click here.

Fed Rate Hike Still Distant

Filed under: Central Banks — Tags: , , , — admin @ 2:15 pm

Analysts and Fed-watchers have been speculating for almost half a year about the possibility of a Federal Funds Rate (FFR) hike. With each prognostication of a rate hike comes a flurry of market activity, followed by an invariable ebb, as investors accept that the Fed will hold the FFR at 0% until at least its next meeting.
Many traders (forex and other) look to interest rate futures for guidance as to when the Fed will ultimately hike. If you “believe” that futures prices are an accurate predictor, then there is currently a 68% chance that the FFR will rise by 25 basis points at the Fed’s December meeting. Until then, markets are pricing in a very low probability of any rate hikes. Besides, there is very little reason to put any stock in interest rate futures more than a few months away, because uncertainty is high and volume is low. Think about it: if you had looked at interest rate futures in the summer of 2008 (right before the onset of the credit crisis), you would have been anticipating a continued tightening of monetary policy, rather than the torrential loosening that followed the collapse of Lehman Brothers.

In fact, “Researchers at the Federal Reserve Bank of Cleveland said, in 2006, the fed funds futures market isn’t terribly good at predicting actual rate moves more than a few months into the future, even when the Fed is actively adjusting its target.” That being the case, there really isn’t any point in scrutinizing futures contracts that mature after May 2010. With regard to contracts that mature during the next two months, well, you don’t need to monitor futures prices to know that there is very little likelihood that the Fed will hike rates any time soon.

FFR August 2010 Meeting Outcomes Implied Probability Rate Hike
But don’t take my word for it. What do members of the Fed’s Board of Governors have to say about the matter? In his semi-annual testimony before the House of Representatives last week, Chairman Ben Bernanke said that ” ‘the economy continues to require the support of accommodative monetary policies.’ And in response to questions, he reaffirmed that the high level of unemployment and low rate of inflation will continue to justify very low rates ‘for an extended period.’ ”

Janet Yellen, President of the San Francisco Fed, has also insisted that “the U.S. economy still needs ‘extraordinarily low’ rates.” That “Yellen is the Fed’s extended-period language personified” is worth noting, since she is reputed to be President Obama’s pick to serve as vice-Chairman of the Fed. If it isn’t enough that Bernanke is a monetary Dove in the extreme, now he may be joined by Yellen, who will certainly echo his belief in the need for low rates.

Without a doing a further role call of the Fed’s power players, suffice it to say that low rates are in the cards for the near future. You’re probably wondering: Who cares?! With so much else to focus on in currency markets these days (namely the still-evolving EU fiscal crisis), is it really worthwhile to pay close attention to the Fed? The answer is Yes. While long-term interest rates (i.e. those that are most impacted by sovereign debt concerns) weigh heavily on all asset prices, currencies are driven largely by short-term interest rate differentials.

The related phenomena of the Carry Trade, Fisher Effect, Purchasing Power Parity, etc. are all based on short-term interest rates. If the Fed leaves rates low for an extended period as it promises, and/or other Central Banks (Australia, Canada, Brazil) nudge their respective rates higher, it probably won’t bode well for the Dollar. It helps that the Dollar is still ahead of the curve compared to the other majors (EU, UK, Japan) both monetarily and fiscally, which means that the Dollar should fare okay against their currencies. When you put the Dollar head-to-head against some of the smaller currencies, its position is much less favorable, due in no small part to the Fed.

US Dollar Index Spot Price

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Triangle pattern forms on the USD/CAD daily chart

Filed under: Currency Charts — Tags: , , , , , — admin @ 3:41 am

11-30-2009 10-11-46 AM.gif

The daily USD/CAD has formed a symmetrical triangle as the prices are being squeezed as the pair moves sideways in an accumulation cycle.

The sideways market is a perfect environment for this USD/CAD set up…my only gripe is that the time of year could create some whipsaws for this momentum set up. Use the MACD Histogram to confirm the direction of the break and keep an eye out for major psychological levels at the entry.

11-30-2009 10-12-20 AM.gif

Remember that triangles are “self limiting” patterns that will eventually put a squeeze on prices to the point that there is not where left to go. The momentum at the time of the breakout or breakdown will offer some near term insight into the potential follow-through.

Volatility for Sterling Forecasted Following UK Indicators

Filed under: Forex News — Tags: , , , , — admin @ 3:10 am

Source: Forex Yard

Sterling traders can expect a busy trading day today as the U.K Nationwide HPI and Current Account reports are likely to shake up the market. The reports, scheduled for 06:00 GMT and 08:30 GMT respectively, may provide the Pound with the necessary momentum to make gains on both the U.S. Dollar and Euro.

Economic News

USD – Consumer Confidence Report May Lead to USD Gains

The CB Consumer Confidence Survey, set to be released at 14:00 GMT today, will likely lead to heavy trading among USD pairs. The survey asks 5000 respondents to rate how they perceive the current and future economic climate in the United States. This month’s survey may prove to be more important than others, largely due to the fact that the American unemployment levels are forecasted to improve in the near future. An increase in consumer confidence combined with solid employment figures will likely lead to significant Dollar gains.

Analysts are forecasting a figure of around 50.2 for the Consumer Confidence report. This would mark a pronounced increase over last month’s figure of 46.0, and may signal a real turning point in the U.S. economy. Traders can expect USD to rise against its major counterparts, providing the predictions come true. That being said, an unexpected drop in consumer confidence would likely hurt the Dollar, and could signal a bearish trend for the rest of the week.

Looking further ahead, traders are reminded to pay careful attention to the U.S. Non-Farm Employment Change figure set to be released on Friday. This is one of the most critical U.S. economic indicators, and it consistently creates heavy market volatility.

EUR – European Market Set For Volatile Day

Several British economic indicators are likely to lead to heavy trading in the European Market today. The Nationwide Housing Price Index, (HPI), is a leading indicator of the health of the U.K. housing industry. With the British economy largely sagging over the last few months, a positive result from this report may signal the turning point traders are looking for. Additionally, the Current Accounts report, which indicates the difference in value for imported and exported goods and services, is widely seen as a leading market indicator.

While the HPI is forecasted to show positive gains in the British housing market, the Current Accounts will likely be unchanged from last month. Traders will want to pay attention to both reports, as any positive news out of Europe will likely lead to risk taking among investors. This would likely lead to gains for both the Euro and Pound against the safe haven currencies.

JPY – Number of Indicators Set to Impact Yen Today

While the Yen has been trading with mixed results against its major counterparts as of late, today’s British and American economic reports will likely lead to a more stable direction for the Japanese currency. Providing the British Current Accounts report remains unchanged from last month as forecasted, investors will likely shy away from risk taking. This could boost the safe haven Yen in afternoon trading. This sentiment could be reinforced if the U.S. Consumer Confidence survey comes in line with expectations.

That being said, traders should be warned that any unexpected results from either indicator may cause risk taking, likely leading to the Yen falling. With no significant JPY news events scheduled for today, it appears the Yen will have to rely on external indicators for its direction in trading.

Crude Oil – Crude Prices May Drop Following British Reports

While Crude Oil prices have been fluctuating quite heavily as of late, a decrease in risk sentiment among investors may lead to a prolonged downtrend. Investors are likely to be turned off from risk taking depending on the outcomes of both British reports set to be released today. Additionally, if USD receives a boost due to the Consumer Confidence report, traders are warned that the price of oil may drop.

Of course, any trend that oil takes today may change drastically after Wednesday’s U.S. Crude Oil Inventories report. Traders should be aware that if the inventory comes in below expectations, the price of crude will likely rise in afternoon trading.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Daily analysis and trading strategies 3-30-2010

Filed under: Technical Analysis — Tags: , , , , — admin @ 3:06 am


Trading strategy: standing aside

The euro holds gains into recently conquered territory of 1.3450-1.3500. Next upside barriers come around 1.3550 and 1.3600. Short term sentiment remains bearish for now and a close above 1.3600 is needed to sustain the ongoing recovery. Intra-day sentiment is neutral; in case of a pullback from current levels, look for near term support at 1.3450, then lower – at 1.3360/85. Except for Friday’s NFP release in the U.S., this week’s economic schedule is light, and trading may remain slightly quiet ahead of Easter weekend. Current exchange rate is 1.3498 @06:00 GMT

Support: 1.3450, 1.3360/85, 1.3300 and 1.3265
Resistance: 1.3500, 1.3550/60 and 1.3600
Market sentiment: long term – bullish, medium term – bearish, short term – bearish, intra-day – neutral

EURUSD 4hrs chart 3-30-2010
EURUSD 4hrs chart 3-30-2010


Trading strategy: looking to sell at 1.5160, stop at 1.5230(0.5% risk), objective at 1.5020

Cable couldn’t break above 1.50 yesterday and consolidated for several hours into the 1.4960-1.50 range but today it seems stronger and currently tests offers around 1.5010. A better than expected GDP figure at 9:30 GMT should fuel further gains towards 1.5150 where next important resistance is seen. Short-term sentiment remains bearish while below the upside said barrier. Current exchange rate is 1.5034 @06:00 GMT

Support:  1.5000, 1.4950, 1.4880/00 and 1.4850
Resistance: 1.5100, 1.5150/70 and 1.5200
Market sentiment: long term – bearish, medium term – bearish, short term – bearish, intra-day – bullish

GBPUSD 4hrs chart 3-30-2010
GBPUSD 4hrs chart 3-30-2010
GBPUSD daily chart 3-30-2010
GBPUSD daily chart 3-30-2010

Have a good day!

© liviu for, 2010. |
Permalink | Post tags: eurusd, gbpusd

A hefty helping of chartage.

Filed under: Currency — Tags: , , — admin @ 2:24 am

Key News

  • Britain’s economy emerged from an 18-month recession at the end of last year in better shape than previously thought, although analysts still anticipate a treacherous path to sustainable growth. (Reuters)
  • Nice reaction today in the British pound (GBPUSD):

  • Uncomfortable [unanswered] questions from Wolfgang Münchau’s editorial in the
  • Financial Times yesterday:

    • Is the Greek austerity plan realistic?
    • Will Greece be able to pull through?
    • What happens if Portugal gets into difficulty?
    • What about Spain?
    • What about Italy?
    • Is there an agenda to deal with current account imbalances?
    • Will Germany ever accept responsibility for the cohesion of the eurozone, other than expecting others to converge with Germany?

    Greek/German 10-year Yield Spread: Edging higher again…

    Portugal/German 10-year Yield Spread: Only 1.2% higher than Germany? Hmmm…

  • Japan’s industrial production fell in February and the unemployment rate held at the lowest level since March 2009. (Bloomberg)
  • Let’s see: Twenty-years of Keynesian pump priming in Japan; cost—several trillion Japanese yen; mired deep in deflation with anemic industrial production—priceless!

    Japanese Consumer Price Index:

    Can you say carry trade? Rumor has it the Bank of Japan may cut again—incredibly!

    US (black) vs. Japan (red) Yield Curve Comparison:


“The Nixon shock holds lessons for China as well as Mr Obama. Like China today, Germany in the 1960s disavowed any responsibility for the world’s imbalances, insisting that the solution lay with tighter policies in deficit countries rather than looser policies in surplus countries. (Germany is still singing a version of that song.) But by holding fast to the dollar, Germany ended up importing America’s laxity. It could not insulate itself from the loose monetary policy engineered to help Nixon win the 1972 election. German prices rose by over 5% in 1971. China, too, risks a loss of macroeconomic control if it continues to peg to the dollar. Its money supply grew by about 35% in the year to February. That kind of surge may be a precursor to inflation.”

                           The Economist

Daily Economic Roundup – March 30, 2010

Filed under: Currency Charts — Tags: , , , , — admin @ 1:27 am

What’s on the Economic Horizon

US CB Consumer Confidence Due Later
Darling Set To Speak Today
Retail Sales in Australia Expected To Rise by 0.3%

United States

The greenback woke up yesterday on the wrong side of the bed as it got trumped by all of the other majors except the yen and the euro. The return of risk appetite led investors to buy up the high yielding currencies and to sell the USD. More…

Euro zone

The EUR was still on recovery mode yesterday as it climbed against the USD and JPY. Aside from the slow return of investors’ confidence in the EUR, strong economic reports were also able to push the EURUSD towards the 1.3500 handle and keep the EURJPY above the 124.00 mark. More…

United Kingdom

Up and down trading for the pound yesterday, although it remained within range considering how volatile GBP pairs are. After covering the weekend gap, the GBPUSD closed slightly higher, finishing the day at 1.4982. More…


Yen crosses took some hits in yesterdays trading rounds, as higher yielders benefited from a run of risk appetite. The EURJPY and GBJPY both saw themselves floating slightly higher. Could we see the same today? Or will the yen strike back? More…


The Loonie found itself on the winning side of the fence yesterday. The USDCAD, after hitting a high of 1.0304 last Friday, fell on heels of risk appetite to close out the US trading session at 1.0211. More…


Thanks to some unexpected hawkish comments from RBA Governor Glenn Stevens, the Aussie was able to stage a stellar rally in yesterday’s trading session. The AUDUSD found itself at 0.9177 by the end of the US trading session, almost 150 pips higher from its week open price. More…

New Zealand

The Kiwi was able to make some progress in yesterday’s trading as it rallied to a high of 0.7117 against the US dollar. Would it be able to hold on to its gains or even push for more today? More…


The Swissy had a bad hair day yesterday as it slumped against both the EUR and the USD. The EURCHF rose to and closed at 1.4321 from 1.4279. Similarly, the USDCHF also reached 1.0624 from 1.0592. More…

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