Charts & Trade Setups [Euro-Dollar, Cable, Beast, & U.S. Dollar-Yen]
RemixTrades, August 31st, 2010 at 3:08 am, Comments: 0

It’s time for some charts. In the past month, my posts focused on either fundamental, psychological, or quantitative factors regarding currencies. In today’s post, I’ll be focusing on charts and trade setups.

Note: On all charts, Blue Line = 200 simple moving average (“SMA”), Orange Line = 100 SMA, Green Line = 55 SMA, Purple Line = 21 SMA.

We’ll start with the $GBPUSD. Since talking about fundamentals reasons to short the Pound Sterling in the longer term, the currency has not seen a lot of action. In relation to the U.S. Dollar, the Pound has only drifted slightly to the downside.

At the time of writing, given the performance of global equities  and the recent economic data, my bearish bias on Cable ($GBPUSD) continues to stand. I’m still looking to short from the 1.5580-1.5600 level, or even the 1.5700, all the way into the 200 daily SMA. If the pair closes below the 200 SMA, I’m looking for the 1.5321 level, followed by the 1.5112 level.

Click on images to see Full-sized CHART

The S&P 500 ($SPX) is currently testing the 1,040 level. A break below this major support would easily see Cable at the 1.5300 level as investors seek the safety of the U.S. Dollar. It’s going to take a substantial rally in the global markets to see Cable break above the 1.5700 level and regain the 1.5900 zone. While it can happen, I see it as the lower probability outcome in the week.

However, the highly volatile and impactful U.S. Non-farm payrolls number comes out this Friday, which means that anything could happen.

The $GBPJPY cross is also looking bearish. The pair recently tested its broken daily trend line and failed to hold above it. It’s now trying to close below the 130.80 once again and re-test its lows. The bounce of the trend line followed by a close below 130.80 paints a very bearish picture for the pair. It’s now more severe because the hope of an intervention by the Bank of Japan is disappearing. When the pair closed below 130.80 on August 24th, the Yen was gaining across the board and BoJ intervention rumors surfaced across trading floors.

It now seems that the BoJ will not be intervening in the near-future. As a result of the aforementioned factors, I would be looking for a re-test of the 2010 low of 126.76. The only catalysts that could possibly reverse the pair are a BoJ intervention and/or great manufacturing + jobs number from the US.

The Euro-U.S. Dollar ($EURUSD) chart seems to be neutral. Until the pair break above the 1.2783 or below the 1.2610 levels, I see the cross as range bound and would be looking to sell and buy the top and bottom of the range, respectively. At the 1.32-1.33 level, I thought Euromesia was at play. At 1.2800, the pair was near its natural level. Now, I need to see a breakout in order to form a momentum bias.

The last cross to analyze is the $USDJPY. Last week, I talked about how we would likely see more downside in the cross as yields continued to decline and the threat of central bank intervention faded. As the chart below shows, the down trend is intact and the pair needs to close above the 21 SMA before thinking about a reversal. I don’t have any specific targets on the downside, but I would be looking for 83.00, followed by the big round psychological level of 80.00

Overall, the idea would be to short any rallies until the pair closes above the 21 SMA and/or good U.S. data starts to be consistently better, starting with the jobs number this Friday.

I will also note that MACD and Stochastic bullish divergences appear to be emerging on the daily chart.

That’s all for this week’s chartology session. And remember to look for inter-market and possible data confirmation when trading based on chart setups.

Lastly, what’s your favorite setup right now?

Tickers: $EURUSD, $GBPUSD. $GBPJPY, $SPX, USDJPY

ForexEDU with Raghee Horner (08/29/2010)
ragheehorner, August 30th, 2010 at 10:13 am, Comments: 0

An in-depth discussion and explanation of Dow Theory, timeframes, and market cycles: mark up, mark down, accumulation, and distribution.

Tickers: accumulation, continuation, correction, distribution, Dow Theory, mark down, mark up, market cycles, timeframes, trend

Using Gold For Clues In Euro
faithmight, August 29th, 2010 at 12:00 am, Comments: 0

Correlations with gold is not a new concept for $DX_F traders. And if you are trading any currency versus the US dollar, you have paid attention to or looked at $GLD to get a clue on moves in the USD. But I recently learned how price action in gold ($GLD) can be used to identify currency leaders and laggards across the forex market rather than just the USD. @alaidi tweeted this video that included some great charts of Gold/EUR AND Gold/USD. After watching I thought about the recent price action in the $EURGBP.

As a reserve currency and because gold is denominated in US dollars, the USD and $GLD were highly negatively correlated. Hence, a move up in one asset saw a near simultaneous move down in the other. However, since the European sovereign debt crisis became a global concern, the EUR has become more highly negatively correlated than even the USD. This change in correlation away from the USD to the EUR signals that the EUR is actually a weaker currency than the USD.

Assessing that EUR is a currency laggard right now, traders can take advantage of its performance versus $GLD for clues in direction for the $EURGBP. After being rangebound between 0.8250 – 0.8170, the market respect gold’s rally versus the euro and breaks the range to the downside for the first time since late June. A sustained break below 0.8170 opens the way to 0.8100 and then ultimate MT support at 0.8062. If the break below the channel bottom does not hold, the first area resistance will be 0.82 and then the 100SMA on the hourly chart at 0.8220 and then the range top around 0.0.8250/70.

Since breaking the bottom of the range, price got bid and rallied to the 61.8% Fibonacci level at 0.8227 where price topped out twice and moved back lower. However, we have higher lows and lower highs indicating that this pair is consolidating once again. Last week Gold/EUR broke above the 50% Fibonacci €960 level signalling more weakness in the EUR. Even if price breaks above the previous highs at 0.8230, price has to break above the range top at 0.8270 to change the bias on the pair to bullish. For now, as gold continues its rally versus EUR, EUR will continue to weaken.

How is EUR trading in your favorite euro currency pairs?

Tickers: $EUR, $GLD, $USD, correlation, EURGBP, gold

ForexAM with Raghee Horner (08/25/10)
ragheehorner, August 25th, 2010 at 10:50 am, Comments: 0

Tickers: $DJIA, $DX_F, $EURJPY, $EURUSD, $USDX, $YM_F, AUDUSD, Crude Oil, GBPUSD, USDCAD, USDJPY

The U.S. Dollar-Yen (USD/JPY) Showdown
RemixTrades, August 24th, 2010 at 8:32 am, Comments: 0

The Japanese Yen is the new Swiss Franc. As the threat of a Japanese central bank intervention has taken over the market, retail traders have started to go short the Yen in large crowds. The SWFX Sentiment Index, a simple indicator of retail investor positions, shows that 80% of investors are short the Japanese Yen. While the $USDJPY is making fresh 2010 and 15-year lows below the 84.70 level, the contrarian sentiment indicator suggests that more losses are to be expected.

The hope of BoJ (“Bank of Japan”) intervention is nothing new and reminds me of a recent storyline in the FX markets. All through 2010, investors had been short the Swiss Franc and long the Euro (thus long the $EURCHF cross) as many believed that an intervention by the Swiss Central Bank grew larger by every upside pip in the Swiss Franc currency. As 2010 progressed, the interventions by the Swiss central bank did occur yet they were useless. Short-term spikes in the $EURCHF cross were quickly followed by downside retracements. Overall, the pair still reached the 1.30 handle after billions of Swiss Francs were used for central bank intervention.

The moral of the story is simple: intervention is unlikely to change a strong market trend supported by fundamentals. As a result, taking opposite positions after an “intervention” appears to offer the best risk-reward trade. Retail traders have lost substantial sums of money in 2010 by going long the $EURCHF in the hope of a big intervention-led reversal. Committing the same error with the $USDJPY cross is not recommended.

The fundamental factors supporting the lower $EURCHF were the European sovereign crisis and slower global growth. Lower yields in the U.S. Treasury market (with the 10-Year as a proxy) and global bond markets have been one of the main drivers of the Japanese Yen strength and the U.S. dollar weakness. It also appears that the trend is not likely to change anytime soon as bad economic data continues to dominate markets.

The common mistake by retail investors have been to believe in what I like to call “the big bottom”. In the current case, it is the idea that  bond yields ‘cannot go any lower’, which is similar to the belief in 2008 that the S&P 500 could not possibly go any lower than 1,000. This type of thinking can be pervasive and detrimental to short-term traders. Remember, bond yields can reach zero. I’ll repeat, the number stated was zero. While that may not happen, 2% on the 10-Year could happen. The same applies for 1%.

Click on image for larger chart of 10-Year Treasury Notes Futures

And don’t forget about Japan. It’s been quite some time since the era where shorting Japanese bonds were the “big trade”. Yields had “nowhere to go but up”. We are witnesses that it has been decades and deflation has kept Japanese yields near all time lows.

If the same faith applies to the U.S. economy, do you still believe $USDJPY at 79 is not reasonable?

Don’t bet on intervention. Bet on the data. Additionally, when something “cannot happen” in financial markets, it appears to become a reality.

Tickers: EURCHF, USDJPY

ForexAM with Raghee Horner (08/23/10)
ragheehorner, August 23rd, 2010 at 12:25 pm, Comments: 0

Starting with a scan of the economic calendar and StockTwits streams, a comprehensive look at the majors ($EURUSD, $USDCHF, $USDJPY, $GBPUSD, $USDCAD, $AUDUSD).

Tickers: $DJIA, $DX_F, $EURUSD, $GLD, $USDCHF, AUDUSD, GBPUSD, stocktwitstv, USDCAD, USDJPY

GBPUSD Remains At A Crossroads
faithmight, August 22nd, 2010 at 4:26 pm, Comments: 0

When $GBPUSD rallied all the way to 1.5996, bulls got excited as price moved above 1.5500 and the previous weekly chart high at 1.5521. However, the last 2 trading weeks have seen consolidation and a pullback on both the weekly and daily charts.

The red area represents the Fibonacci area on of the bear price move from 1.7040 to 1.4228. The purple area represents the Fibonacci retracement area of the bull rally from 1.4940 to 1.5996. What was interesting last week was that price continued to be sold in the red area and bought again in the purple area. Though the market was rangebound, price made progressively lower highs and lower lows in the yellow area. The upside remained capped by 1.5700 level which also coincided with the 38.2% Fibonacci level of the bear move on the daily chart. The downside found nice support at the 200SMA on the daily chart. It took an empty economic calendar on Friday to finally allow the technicals of the chart to play out and the $GBPUSD broke out below the 200SMA to the downside. So what now?

Despite the breakdown, price remains in the purple area meaning that until we get break below 1.5450, bulls can realistically come back in and bid cable back towards the highs between 1.5640 and 1.5700. However, continued failure at 1.5700, keeps cable weak to the upside. To the downside, once $GBPUSD breaks below 1.5450, the next level of support is 1.5400. But the next major support level shows up on the weekly chart at 1.5340, the 61.8 Fibonacci level and then 1.5250 former resistance-now-turned-support.

This week, price action is likely to be dominated by developments with the US dollar as the calendar is very light out of the UK until Friday. The major events for the $GBPUSD currency pair will be the release of both the UK and US GDP numbers this Friday. Leading up to the US GDP report, the market will first digest US manufacturing numbers, home sales, and durable goods orders all released throughout this new trading week.

Bulls have lost considerable control of this market. Developments in the sterling index and shifts in the fundamental landscape of both the USD and the GBP (as discussed by myself and @RemixTrades) certainly support the case for bears. Bulls have 1 more line of defense in the purple area at 1.5450. But if the charts are any indication, I expect we see a break below 1.5450 before a break above 1.5700. Pay attention to the calendar and trade what you see.

Tickers: GBPUSD

FX Quarterly Update from CME Group is LIVE
Phil Pearlman, August 20th, 2010 at 1:27 pm, Comments: 0

The FX Quarterly Update from CME Group is live!  This is a must read for serious market participants and includes volume and open interest data, historical volaitility analysis, IMM Commitment of traders data, High-Low Price differences data for Q2 2010 and more.

This document provides a comprehensive global trading summary for FX Options and futures from the world’s largest regulated marketplace.

You can dowload it HERE.

Tickers: CME Group, FX Futures, FX Options, FX Quarterly Update, High-Low Price differences data, historical volaitility analysis, IMM Commitment of traders data, volume and open interest data

Afternoon Market Highlights by Ashraf Laidi
alaidi, August 20th, 2010 at 6:55 am, Comments: 0

The Swiss franc is taking the bulk of risk aversion flows due to risk of more easing from Japan and US.

$POT and $BHP are causing moves in the Canadian dollar.

Tickers: $BHP, $EURUSD, $POT, $USDCHF, AUDJPY, EURAUD, EURCHF, fundamental, GBPUSD, USDCAD