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April 30, 2012

We Like Buying US Dollars but In-House Index Keeps Us Sidelined for Now

Filed under: Business — Tags: , , , , , , — admin @ 12:27 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Euro remains very well supported on dips
  • Retail positioning still looking for USD strength
  • Cable and Cad SSI ratios stand out and warn of more USD weakness
  • Key event risk later today in the form of the FOMC rate decision

We have yet to see any real justification for the latest Euro rally, but at the same time, would not recommend any selling of the single currency against the buck. While technically, there might be some sense to selling rallies above 1.3200, retail traders are weighted on the short side, and this makes the prospects for a bearish Euro reversal less likely. While our in-house sentiment index shows retail traders short EUR/USD at nearly 2:1, there are some even more disturbing ratios out there in the major currency pairs which also point to additional USD weakness. Retail traders are now over 6:1 short GBP/USD and over 6:1 long USD/CAD. These are uncomfortably high ratios that suggest additional US Dollar weakness could be in the cards before we finally see any real capitulation.

Again, we stress that overall our bias is constructive for the Greenback, but at the same time, we can not get behind any long USD trades while retail ratios favor long USD positions. Instead, we recommend waiting a little longer before looking to enter the market. Still, we would look to establish a fresh short position in GBP/USD on a break back under 1.6100, and a fresh long position in USD/CAD on a break back above 0.9930. Generally, when the market starts to move in the direction that retail traders are looking for, these traders are quick to book profit far too early, which results in a normalization of the ratio. So in this case, should we see a break of the levels mentioned above in GBP/USD or USD/CAD, we would expect that the ratios will be much closer to 1:1, and we therefore be much more comfortable with the respective trades.

Another possible strategy, albeit a more aggressive countertrend strategy, would be to look to sell GBP/USD into another rally, and to buy USD/CAD into another dip should these ratios NOT continue to widen. The idea here is that as much as retail traders would like to be adding to USD longs as the buck falls more out of favor, they simply reach a point where they are already way too overextended and get stopped out of their positions or simply give up. In this case, the USD is still selling off, but the ratio which normally widens, actually starts to narrow despite the ongoing USD selloff.

Here too there is a compelling opportunity to look to establish a countertrend long USD position (in this case against GBP and CAD), as the normally ill positioned retail traders have finally given up, to make the trade much more attractive. It is usually at the moment when retail traders have finally given up that we find that a trend will often reverse in the direction that they had hoped for. We call this the “of course” moment, because at that moment, just after they have exited the position for a large loss, the market turns around and aggressively trades in the direction they had hoped for. The retail trader is left with nothing else to say buy “of course” …”now the trade finally goes my way.”

Looking ahead, key event risk for the day comes a little later on in the form of the FOMC rate decision. While no change to rates or policy is expected, market participants will be looking for any changes to economic forecasts from the Fed. Any upward revisions to the economic assessment will likely translate into more broad based USD buying.

 

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Last Friday’s bullish close opens the door for additional gains over the coming sessions, but ultimately, any rallies towards 1.3400 should be well capped. A break and daily close back under 1.3000 is now required to put pressure back on downside and accelerate declines to the early 2012 lows at 1.2660.

USD/JPY: The latest pullback from the 2012, 84.20 highs is viewed as corrective and it looks as though the market has finally found some solid support ahead of 80.00. The setbacks have stalled by the top of the daily and weekly Ichimoku clouds and we look for the formation of a fresh medium-term higher low somewhere around 80.00, ahead of the next major upside extension back towards and eventually through 84.20. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate. Any dips towards 80.00 should therefore be used as formidable buy opportunities.

GBP/USD: The recent break back above 1.6000 now opens the door for fresh upside towards the October 2011 peak at 1.6165. However, any additional gains beyond 1.6165 should prove hard to come by, and we once again see risks for a bearish reversal in favor of renewed weakness back down towards key support by 1.5800. A break and close below 1.5800 will then accelerate declines. Ultimately, only a weekly close above 1.6165 would negate underlying bearish bias.

USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now seems as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.

— Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

April 29, 2012

Euro and Risk Correlated Currencies Still Well Bid, But Not for Much Longer

Filed under: Business — Tags: , , , , , , , — admin @ 12:27 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Kiwi emerges as strongest currency post Fed
  • RBNZ warns of taking action to offset stronger NZD
  • Retail positioning still does not favor USD long positions
  • Fed offers no new insights from latest rate decision
  • US equities should be sold into rallies; deeper setbacks ahead

While we are not entirely surprised to see Kiwi find renewed bids on Thursday, in light of the broader currency strength in markets, we are taken with the outperformance in the commodity currency. The New Zealand Dollar is the strongest of the major currencies on the day, and this comes after the RBNZ left rates unchanged at 2.50% while also warning that the high Kiwi would lead to a reassessment of monetary policy. Yet, this statement from the central bank has not scared risk traders away, and the market has shot back above 0.8150. Still, we see the rally as corrective, and overall, our core bearish outlook for the NZD and currencies in general against the buck remains bearish.

However, as we highlighted in yesterday’s commentary, the prospects for a legitimate reversal back in favor of the buck are still on hold. Despite underlying fundamentals which we feel should support additional USD bids (shift in Fed policy, ongoing Eurozone uncertainty, threat of slowdown in China and correlated economies), market price action seems to still want to push the US Dollar lower. Our in-house sentiment index continues to show retail traders adding to USD longs, with the ratio of long USD against the Canadian Dollar at over 7:1, while the ratio against the Pound sits at around 6:1. Instead, we will wait until we see evidence of these ratios flattening out before dipping our toes back in the water. The strength in the Canadian Dollar is quite impressive, with USD/CAD dropping to back to levels not seen since September 2011. Meanwhile, the Pound has been just as prone to catching bids, with the currency easily shrugging off yesterday’s awful GDP reading to rally to its own multi-day highs against the buck.

Indeed, the Fed has left policy on hold as was widely expected, while also committing to keep rates ultra accommodative until 2014. This language offers no new real insights into the central bank’s outlook, and we think that Mr. Bernanke and co. will be waiting for more confirmation of sustained economic recovery before adopting a more hawkish stance. We have already seen a bit of a shift in recent weeks, with the prospects of QE3 diminishing significantly, but more time to show solid economic data performance will be required to inspire the next move towards reaffirming the reversal of monetary policy.

Tuesday and Wednesday’s recovery in global equity markets has also helped to inspire the currency bids and risk on trade, but here too we do not buy into the rally and instead continue to recommend selling equity strength in anticipation of a more substantial liquidation over the coming weeks. At the end of the day, we see US equities much lower, and the question over the short-term is whether we stall here and head lower, or whether we head back towards the 2012 highs from March before rolling over and triggering a more conventional bearish double top formation. As this outlook pertains to the S&P, we look for setbacks to extend below 1,300 over the coming weeks, with any upside well caped below 1,450. In short, our bottom line macro strategy is to wait a bit longer and then aggressively buy USDs across the board, while also selling global equities and other risk correlated assets. From a currency standpoint, those markets with higher interest rates should be most exposed going forward and most subject to relative underperformance.

 

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Last Friday’s bullish close opens the door for additional gains over the coming sessions, but ultimately, any rallies towards 1.3400 should be well capped. A break and daily close back under 1.3000 is now required to put pressure back on downside and accelerate declines to the early 2012 lows at 1.2660.

USD/JPY: The latest pullback from the 2012, 84.20 highs is viewed as corrective and it looks as though the market has finally found some solid support ahead of 80.00. The setbacks have stalled by the top of the daily and weekly Ichimoku clouds and we look for the formation of a fresh medium-term higher low somewhere around 80.00, ahead of the next major upside extension back towards and eventually through 84.20. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate. Any dips towards 80.00 should therefore be used as formidable buy opportunities.

GBP/USD: The recent break back above 1.6000 now opens the door for fresh upside beyond the October 2011 peak at 1.6165. However, any additional gains beyond 1.6165 should prove hard to come by, and we once again see risks for a bearish reversal in favor of renewed weakness back down towards key support by 1.5800. A break and close below 1.5800 will then accelerate declines. Ultimately, only a weekly close above 1.6250 would negate underlying bearish bias.

USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now seems as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.

— Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

April 28, 2012

Charts to End the Week 4/27/12

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

We don’t see things as they are, we see them as we are. ~ Anais Nin Good morning. Dollar is getting some relief as euro losses ground after Standard & Poor’s downgraded Spain. Here are some charts worth your attention today USD Index Trendline support is still intact, thanks to Spain’s downgrade S&P500 Bulls are more Read More


© 2012 FX Trading Blog

Daily Forex Fundamentals – April 27, 2012

Filed under: Currency Charts — Tags: , , , , — admin @ 1:28 am

What’s on the Economic Horizon

BOJ set to rock markets with monetary policy statement
GfK German consumer climate index to stay at 5.9
KOF economic barometer on deck
U.S. advance GDP expected to show 2.6% expansion

U.S. Dollar (USD)

Even though the Fed left the door open for QE3 in its FOMC statement on Wednesday, the dollar was able to limit its losses against its major counterparts. It lost 18 pips to the euro and 22 pips to the pound, while giving up 39 pips to the yen. Will today’s GDP report help it recover? Read more…

Euro (EUR)

Boy, does the euro know how to be sneaky! Despite the lack of economic reports, it tapped a new high against the dollar for the week yesterday at 1.3264. By the day’s close, EUR/USD was up 18 pips from its opening price at 1.3238. Read more…

British Pound (GBP)

It’s not only Bayern Munich that’s going to go on a victory party this weekend but Cable as well! Once again, Cable was able to post a winning day, thanks to improved market confidence. Cable, which had started the day at 1.6171, found itself at 1.6193 by the end of the U.S. trading session. Read more…

Japanese Yen (JPY)

Surprise, surprise! The yen was actually one of yesterday’s strongest performers! It swept the euro, pound, and dollar, as rumors went around that BOJ Governor Shirakawa may not be as supportive of a loose monetary policy as we think. How will the yen react to today’s much-anticipated monetary policy statement? Read more…

Canadian Dollar (CAD)

The Loonie hustled during the Tokyo session yesterday as USD/CAD rallied to its 7-month low at .9806. But come the London session, where did all ’em Loonie bulls go? The pair traded higher, paring its downward move earlier on in the day to close 5 pips above its opening price at .9840. Read more…

Australian Dollar (AUD)

The Aussie made headway on the charts yesterday, as the Greenback continued to weaken across the boards. Even though it didn’t have any solid reports to back its rally, AUD/USD was able to extend its climb by another 37 pips, ending the day at 1.0392. Read more…

New Zealand Dollar (NZD)

The Kiwi moved in two distinct waves yesterday. The currency started the day weakly but once the European trading session began, the pair was able to recover its losses and end the day with a small 9-pip victory. Read more…

Swiss Franc (CHF)

The Swissy was able to come out victorious in yesterday’s trading session again thanks to left over optimism from the FOMC statement. USD/CHF closed the U.S. trading session at .9089, down from its opening price at .9112. Read more…

Bonnie and Clyde, peanut butter and jelly, Justin Bieber and his hair. Some things just go well together.

In forex trading, you get better odds at securing pips when your fundamental analysis is complemented by technical analysis.

Head on to Big Pippin’s Daily Chart Art for some pip-locking technical setups!

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US Dollar Index Classical Technical Report 04.27

Filed under: Business — Tags: , , , , , — admin @ 12:27 am

The market remains locked in a multi-day consolidation and should continue to chop between the 9,600-10,100 area. Overall, we do retain a bullish outlook given the broader recovery structure out from a major base in 2011 and therefore recommend looking to buy on dips in favor of an eventual break above 10,100.

April 27, 2012

It is passed time for a MAJOR disappointment!

Filed under: Currency — Tags: , , , — admin @ 2:26 am

“I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

– Alan Greenspan

Are there no limits whatsoever to monetary policy?  It is beyond pathetic that a rising stock market seems the only substitute for real policy from our “best and brightest.”  Why doesn’t it matter to them that it isn’t working?  Are they that intellectually bankrupt and corrupt?  Is it odd that very smart people outside the government continue to bet on QE 3,4,5,6…?  Or is it the only bet?  What in the world is going on here?   

Orders for U.S. durable goods fell in March by the most in three years, indicating manufacturing will contribute less to growth this year.  

Bookings for goods meant to last at least three years dropped 4.2 percent, the biggest decrease since January 2009, after a revised 1.9 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists forecast a 1.7 percent decline, according to the median estimate in a Bloomberg News survey.  

Now, would throwing more money into the banking system “help” this problem of slowing US growth momentum?     

We also learned this morning that the UK slipped into a double-dip recession.  And of course, the UK’s primary export markets are heading into even deeper recession–it is called the Eurozone.   Not good.  Will more money help this situation?  

Isn’t that right, Ben?                            

We were a bit surprised this past weekend to see the EU telling the IMF and others that they have “done enough.”  A trillion euros dumped into the economy (skirting ECB rules to do QE in another form) and getting it past the German hard-money guys proves the ECB chief is indeed Super Mario.  But even super heroes need to rest sometime.  

We are expecting a major disappointment for the risk on crowd this afternoon when Ben speaks, and we’re looking for a several hundred point haircut for the Dow today.    

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Daily Forex Fundamentals – April 26, 2012

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

What’s on the Economic Horizon

Bernanke Still Open to QE3
RBNZ Keeps Rates Steady
U.K. Officially in a Technical Recession
BOJ Interest Rate Decision On Tap!

U.S. Dollar (USD)

Way to burn the Greenback, Big Ben! Thanks to the Fed head’s dovish remarks yesterday, the dollar continued to extend its losses against most of its counterparts. EUR/USD closed 33 pips higher at 1.3220 while GBP/USD rallied from its intraday low of 1.6081 to close at 1.6171. Read more…

Euro (EUR)

EUR/USD managed to finish near its highs yesterday, thanks to Federal Reserve Chairman Ben Bernanke’s optimistic comments on the U.S. economy. The pair ended the day at 1.3220, 33 pips higher from its opening price during the Asian trading session. Read more…

British Pound (GBP)

It’s official! The U.K. is back in a recession! So why did the pound strengthen against its counterparts? In fact, Cable even rose by 33 pips while Guppy closed 101 pips from its intraday low! What the heck happened? Read more…

Japanese Yen (JPY)

The yen was a lone wolf in yesterday’s trading, being the only one among the major currencies to score a loss against the U.S. dollar. USD/JPY ended the day 4 pips higher at 81.30 after it recovered from its intraday low at 81.08. Read more…

Canadian Dollar (CAD)

USD/CAD marked its fourth day of falling yesterday as it busted through the major support level at .9850. The pair ended the day at .9835, 45 pips lower from its Asian session opening price. With momentum starting to show that conditions are oversold, could the pair possibly pullback today? Read more…

Australian Dollar (AUD)

While Australians enjoyed their time off work in celebration of Anzac Day, Aussie bulls celebrated the dovish FOMC statement and rallied up the charts! AUD/USD pared the losses it scored on Tuesday as it closed 62 pips above its opening price at 1.0355. Read more…

New Zealand Dollar (NZD)

If you’re a range trader, then you probably loved how the Kiwi moved yesterday! Due to the absence of economic data releases, the currency simply bounced around a tight horizontal 50-pip channel versus the Greenback, finding resistance at .8150 and support at .8100. Read more…

Swiss Franc (CHF)

With no economic data from Switzerland, the franc traded at the mercy of its counterparts. EUR/CHF kept chillin’ like ice cream fillin’, but a broad dollar weakness pushed USD/CHF down by 33 pips to .9089. Read more…

Bonnie and Clyde, peanut butter and jelly, Justin Bieber and his hair. Some things just go well together.

In forex trading, you get better odds at securing pips when your fundamental analysis is complemented by technical analysis.

Head on to Big Pippin’s Daily Chart Art for some pip-locking technical setups!

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Japanese Yen Rebounds Sharply as US Dollar Slides after FOMC

Filed under: Business — Tags: , , , , , , — admin @ 12:27 am

USDJPY 5-min Chart: April 26, 2012

Overall, the Japanese Yen was the best performing major currency against the US Dollar, climbing by 0.67 percent. The Canadian Dollar was the worst performing major currency, shedding a mere 0.04 percent thus far on Thursday. Overall, the majors traded in narrow ranges versus the world’s reserve currency, with the Australian Dollar, the second best performer, only gaining 0.16 percent.

April 26, 2012

Midweek Charts to Watch 4/25/12

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

You may be deceived if you trust too much, but you will live in torment if you don’t trust enough. ~ Frank Crane Good morning. Euro is back to the upside, retesting $1.3200 and it seems that a breakout is in the cards. USD Index Support formed by the rising trendline connecting recent higher lows is Read More


© 2012 FX Trading Blog

WWRRD — What Would Robert Rubin Do?

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

He roller coaster
He got early warning
He got muddy water
He one Mojo filter
He say one and one and one is three
Got to be good looking
Cause he’s so hard to see
Come together right now
Over me

Come together, yeah
Come together, yeah
Come together, yeah
Come together, yeah
Come together, yeah
Come together, yeah
Come together, yeah
Come together, yeah
Come together, yeah
Come together, yeah

-The Beatles

 

It seems the European Central Bankers didn’t read the latest issue of Institutional Investor. Had they perused the pages, they may have stumbled on an acceptable strategy from former Goldman Sachs managing partner slash US Treasury Secretary slash Citigroup chairman, Robert Rubin. In the words of writer Ben Baris, speaking on the subject of restoring the US economy Rubin said, “A potent combination of political will and the legislative agenda must come into alignment and rejuvenate Washington in order to achieve any goals.”

Funny, later in the article Rubin criticized the Europeans for how they were handling their crisis (implying their stop-and-go tactics should be avoided in the US.)

I would have liked to have been sitting with Sir Robert around an infinity edge pool at some Caribbean getaway this weekend when the European Central Bank tore away their metaphorical WWRRD bracelets in protest of added bureaucratic pressure from “above.”

The G-20 met this weekend to approve additional funding of the IMF that could backstop, particularly with respect to Europe, any nation that might come under pressure during a critical period of economic reforms. Member countries were heard to be singing a cappella to The Beatles hit song, Come Together, which explained comments after the meeting that suggested most finance ministers were on board with this move to bolster IMF resources.

That is except for two relevant parties: the US (who did not want to ask Congress for any more money) and the European Central Bank.

The IMF expressly asked the ECB to cut interest rates back further and ready the liquidity spots in hopes of further relieving economic pressure. And the US’s reluctance to probe Congress didn’t stop Treasury Secretary Geithner from laying responsibility on the back of the ECB. Even though the IMF’s stated goal of raising an additional $400+ billion was achieved this weekend, there is plenty of negativity surrounding the ECB’s discretion.

  • ECB executive board member Joerg Asmussen

“We think we have done our task in the last months by quite a number of standard and non-standard measures we have taken,”

  • ECB Vice President Vitor Constancio

“The stance of our monetary policy is fully appropriate … It’s appropriate to the situation and the prospects that we (face) right now.”

  • ECB’s Jens Weidmann

“You cannot solve structural problems in the economy with instruments of the monetary policy.”

“Higher interest rates are also an incentive to restore lost confidence. The common monetary policy must not be used to compensate for shortfalls in reforms.”

The euro is under pressure this morning. [A major slump in German PMI manufacturing – 46.3 vs. expectations of 49.0 – is not helping, especially since recent sentiment numbers out of Germany have been cause for optimism.]  

The euro is trying for a third time to break and stay above its 20-week (100-day) moving average. A failure here bodes ill for the broader market which continues to keep the euro in its crosshairs as a major indication of risk appetite.

It’s hard to imagine a scenario in the eurozone economy that can be supportive of the euro, i.e. risks to Sovereign debt and deteriorating economic rationales to remain in the monetary union are not supportive of the euro; the only support comes from pressure on the US dollar, should it materialize to a substantial degree. Although, since this whole campaign is like an addiction to some bad hallucinogenic drug, what happens in the eurozone between now and the next round of bailout rhetoric might not really matter.

Again, we find ourselves knocking on the door of the Federal Reserve for answers.

[Heavy sigh. Exit stage left …]    

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