While the rest of the majors have contented themselves in their anti-dollar advances, the USDJPY looks as if it may be turning in the greenbacks favor. While this may have to more to do with risk trends than anything else, we do not have to concern ourselves with the particulars. What is notable for us is the proximity of notable Fibonacci levels and the pressure those technicals will have in building up a potential breakout. Resistance is clearly defined by an easily read 38.2% retracement of the 12/27 to 1/23 bear wave. Support, on the other hand, is at the 50% Fib level of the shorter lived 1/23 to 2/14 swing high. I am still flat on this pair, but I will be watching intently to see if a break can offer greater direction for the USDJPY.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib1_2-26.gif
The Fibonacci Personality: As the great master of Pisa once noted all of life is composed of Fibonacci. I use these golden ratios to understand the movements of the market and profit from their predictions. Let me know what you think of my analysis on the Fibonacci Forum. • Euro Strength Persists, But Profit Potential Fading
• Pound Breakout Restrained By Fib Confluence
• Congestion Still Dominates The Yen, Though A Break May Be At Hand • Swiss Franc Inches Closer To Generational High Against US Dollar • Trend Channel Falls, Canadian Dollar May Be Looking At Reversal • The Magnetism Of New Multi-Decade Highs Draws The Aussie Dollar Higher • New Zealand Dollar’s Steady Ascent Overwhelms 22-Year High
EUR/USD
Strategy: Bullish against 1.4435, Targeting 1.5000
My target has been met for the euro, but we are have yet to see a confirmed direction from EURUSD. I have moved my target for my bullish inclinations up by another cent to 1.5000, as this will be an attractive milestone for euro traders to reach; but such an advance may not be reached over the coming week. Currently a wedge is defining price action and building pressure for an eventual breakout at the same time. I would not enter long as these prices, but a cheaper price near the bottom our wedge would present a higher probability, relatively quick trade. I am not waiting for a break of 1.5000 (to flush the market’s interest in this psychological level) or a break move below 1.4435 (which would change my medium-term market bias).
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib2_2-26.gif
GBP/USD
Strategy: Bullish against 1.9335, Targeting 2.0030
The downtrend that had developed in the GBPUSD since the sharp reversal on November 9th continues to fade into the background. Price action is now confined to a range between 1.9400 and 1.9750, but these confines are not likely to hold the volatile GBPUSD for very long. I retain my bullish bias as 1.94 has held and a new subsequent swing lows from the initial January test have not produced a deeper test. Despite this outlook though, I will not be aggressively bullish until 1.98 falls to pound strength as there is some Fib confluence in the 1.9725/1.9800 area. Hedging a good, long-term entry may be a good idea until a break is confirmed.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib3_2-26.gif
USD/JPY
Strategy: Flat, waiting for either a break above the medium-term 38.2% fib at 108.60 or a move below 104.95
While the rest of the majors have contented themselves in their anti-dollar advances, the USDJPY looks as if it may be turning in the greenbacks favor. While this may have to more to do with risk trends than anything else, we do not have to concern ourselves with the particulars. What is notable for us is the proximity of notable Fibonacci levels and the pressure those technicals will have in building up a potential breakout. Resistance is clearly defined by an easily read 38.2% retracement of the 12/27 to 1/23 bear wave. Support, on the other hand, is at the 50% Fib level of the shorter lived 1/23 to 2/14 swing high. I am still flat on this pair, but I will be watching intently to see if a break can offer greater direction for the USDJPY.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib4_2-26.gif
USD/CHF
Strategy: Flat, waiting for a confirmed, break above the short-term 38.2% fib at 1.1060 or clearing record lows with momentum
Though USDCHF has broken the bounds of its tight range from last week, direction was quickly lost and the pair fell right back into a stifling congestion zone. The choppy price action from this pair may be the work of a market trying to gradually build a floor for price action; but it is too early to qualify such speculation. Without direction, there is limited profit potential and high risk in being whipped out; so I will wait for 1.1060 (the 50% retracement of the 12/21 to 2/4 swing low) to fall before taking a short-term upside outlook. The more sound probabilities are behind continuation of the long-term trend to the downside; but qualifying momentum in this direction may prove more difficult.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib5_2-26.gif
USD/CAD
Strategy: Flat, waiting for confirmed move below 0.9875 or the bull trend to push back above 1.01
USDCAD has pulled back to the stop point we had put into place last week after the pair dropped below the support of its medium-term, rising trend channel. Notable resistance has stepped in quickly to temporary plug bearish momentum in the form of a 38.2% retracement of the 11/7 to 1/22 bull wave; but after such a clear break of a long-term technical like our rising trend channel, it would be risky to gamble on a rebound. I will stay on the sidelines until a bearish break is confirmed or the bull trend is revived.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib6_2-26.gif
AUD/USD
Strategy: Bullish against 0.9050, Targeting 0.9405
The Australian dollar’s climb is relentless. Considering today’s market conditions and the majors’ struggle to find direction, the AUDUSD’s advance is surprising. Composing myself from this surprise, it is now time to move up my stop to secure profits on this steady advance. A 0.9050 floor should prove reliable as it falls below a notable fib, pivot point and the pair’s short-term rising trend. Our next target remains a test of the multi-decade 0.9405 high (which seems a more probable target considering the record highs seen recently in NZDUSD). Should this level fall in the coming week, I will have to turn to extensions to calculate the next target on AUDUSD follow through.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib7_2-26.gif
NZD/USD
Strategy: Bullish against 0.7850, Targeting 0.8275
In an unusual twist of market fate, the New Zealand dollar’s advance this past week has been more momentous than its Australian counterpart’s. NZDUSD has surpassed its previously set 22-year high on Monday and punctuated the milestone by closing above the 7/24 intraday high. However, despite the technical significance of these new highs, there has been very limited follow through with the pair holding to the same choppy conditions that ushered it to a multi-decade high. The lack of follow through suggests hesitation; and I have therefore moved up my stop and drawn up my next bullish target: the 161.8% fib extension from the 1/15 to 1/22 downswing.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib8_2-26.gif
Technicals:
When currencies are trading at multi-decade highs, it is extremely difficult to find clear resistance levels.
Today’s high of 0.8114 serves as the first resistance point.
The doji formation, which is a sign of exhaustion on the daily charts, is worrisome.
If the New Zealand dollar breaks 0.8060, there is a strong chance that we will see a move down to 0.7950.
On the upside, there is no major resistance until 0.8284 which is the 61.8 percent Fibonacci retracement of the 1.0985 to 0.3906 bear wave that dates back to 1978.
Beyond that we have resistance at 0.8395 which is a congestion zone high from 1981.
For more techincals on the NZD visit our Currency room.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Top_2-25.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-2.gif
Dollar – Dropping to New Lows?
Dollar declined for the second week in a row as the economic data produced nothing but drab news.CPI continued to press higher with core readings reaching 2.5% while headline prices clocked in at 4.3% as rise in commodities showed that inflation is very much alive.But price stability is not a concern for the Fed at the moment. US monetary policy are solely focused on reviving growth. This week horrendous readingin the Philly Fed index which reached a 7 year low,was a loud and clear signal that demand is contracting rapidly.Add to that the fact the weekly jobless claims have averaged well above 350K for the past four weeks and it becomes easy to see that markets now expect another 50bp cut in March.
As we noted last Monday, “In the past few weeks, the euro has come under heavy assault on fears that ECB will soon be forced to follow the Fed towards a more accommodative monetary policy. However, if market perception changes, with traders coming to a consensus that EZ rates will remain at 4% for at least the first half of 2008, the unit could regain its upward momentum and challenge new highs as interest rate differential dynamics come back into play.”
Next week the calendar is quite busy but most the data will be second tier. The one exception to that rule is the Durable Sales report due on Wednesday. The market expects a massive decline to -4.0%from prior months jump of 5.0%. If the news confirms the dourforecast the dollar may see further selling as the notion of an oncoming recession will begin to solidly in the market.However, if the report surprises to the upside, it could prove to dollar positive suggesting that maybe, just maybe economic demand is more resilient than most traders believe. In short, it promises to be another volatile week as prices in EURUSD approach record lows once again.
Visit our recently updated EUR/USD Currency Room for more resources dedicated to the US Dollar. – BS
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-3.gif
Euro – Decoupling or Not?
On Friday The flash estimates for Eurozone PMI services surprised to the upside printing at 52.3 versus 51.0. Contrary to consensus calls of a slowdown, the PMI services component saw gains in employment and new orders, strengthening the ECB’s argument that the Eurozone economy remains string enough to weather the current credit crunch without the need for monetary easing.
As we noted in our daily, “The euro bulls argument that the two largest economies in the world are in fact decoupling in their growth outlooks, received a strong boost from the PMI releases.For the near term, the price action in the pair is likely to be driven almost exclusively by US news. With Euro-zone economic growth slowing only slightly leaving rates in the region stationary at 4%, the only real question for the market is how low will US rates go if the US economy begins to contract. If the Europeans can continue to expand albeit moderately, while US experience an actual decline in GDP growth, the pair could easily break the 1.500 barrier as dollar sentiment will sour further.”
Although the focus will be on US next week, there is one piece of EZ data that could derail any potential EURUSD rally. The IFO report is due on Tuesday with markets lookingfor print below the 103 level.If the IFO does indeed show significant weakness, all the hand wringing about ECB being too hawkish could drive the pair right down to the bottom of the recent range. However, should IFO remain at last months levels the case for decoupling will only grow andthe pair could make a run to new highs as the decupling thesis will be confirmed.
Visit our recently updated EUR/USD Currency Room for more resources dedicated to the Euro. – BS
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-4.gif
Yen Looking To A Healthy Mix Of Risk And Data For Direction
A week of congestion ended with a breakout in the yen’s favor last Friday as risk sentiment overwhelmed the few economic indicators that lined the Japanese economic docket. In the week through the 22nd, there were very few market moving economic indicators, though where these numbers were lacking in market impact they offered made up for it with a broad look into the health of the world’s third largest economy. The December Tertiary report printed a worst than expected 0.6 percent contraction which inevitably weighed on the Friday All-Industry Activity Index for the same period. A 0.2 percent drop in activity marked the first back to back contraction in nearly a year, suggesting businesses were suffering from rising pessimism among domestic consumers and cooling demand for Japanese goods abroad. The Merchandise trade account delved more deeply into export activity. The first deficit in a year was the product of the yen’s strong rally and waning US demand. Despite the negative reading from the trade report though, exports did improve over the month as demand from China and Russia filled in for the slump in US orders. This is a promising dynamic, but can it last?
Outside the confines of the economic docket, there was a tangible interest in risk developing behind the yen’s ebb and flow. For most of the week, the market was fleeing from its risky positions. The cost of credit default swaps (used to protect investors from corporate bond risk) continually won record highs through the week. This fear was fed by reports that major bond insurers were attempting to split off their subprime units (and opening $580 billion in assets open to downgrades), news that the UK government would nationalize troubled lender Northern Rock (and thereby admitting the problem was severe) and deepening fears of a US recession. However, at the last minute, risk appetite found a little reprieve with news a bail out plan may be put into action for insurer AMBAC next week with a $2 to $3 billion dollar injection from a number of banks. This could turn risk trends this week, if the market is finally comforted that debt won’t be downgraded.
Beside the volatile whims of risk appetite/aversion, the economic docket will undoubtedly have its influence on growth expectations, if not the yen itself. Kicking the heavy data off on Wednesday, industrial production is expected to cool over January thanks to steadily rising costs and fading domestic and foreign orders. Inflation trends on the other hand are expected to maintain their upward momentum (mimicking the growth/price tradeoff in the US and UK). Core inflation is expected to hit a 0.9 percent annual pace – setting a new 9 year high. Along with an expected uptick in the jobless rate, rising costs should begin to weigh on consumer spending; but not for January according to market expectations. Household spending is expected to grow 0.3 percent and retail sales 1.8 percent over the same period. – JK
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-5.gif
British Pound Recovers As Inflation May Prevent BOE Rate Cut in March
It was a rocky week for the British pound, as bears took advantage of the dovish Bank of England MPC meeting minutes from February to drive GBP/USD down to 1.9361. Indeed, the minutes revealed an 8-1 vote to cut rates by 25bp to 5.25 percent, as über-dove David Blanchflower dissented in favor of a 50bp cut to 5.00 percent. However, Blanchflower cited concerns that UK data was similar to prior US data, suggesting that embarking on an aggressive rate cut cycle may be necessary to avert a US-style credit crunch and possible recession. Indeed, his concerns are well-warranted, especially as Northern Rock becomes nationalized, the housing sector slows, and consumption begins to deteriorate. However, other MPC members noted a risk that faster inflation may only stoke expectations, which seems especially pertinent after crude oil hit a new high of $100.32/bbl on Wednesday. Furthermore, the BOE’s Quarterly Inflation Report - which was released just last week - indicated that CPI could breach the 3.0 percent level this year, which would force BOE Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling explaining how the bank plans to bring inflation back to target.
That said, there is very little chance that the BOE would even consider raising rates to offset these upside inflation risks, as the downside risks to growth are far too large. Indeed, the bank is far more likely to cut again this year, but given the hawkish inflation concerns revealed in the MPC meeting minutes and in the Quarterly Inflation Report, the chances of another 25bp reduction in March are small. The markets took this into consideration when UK retail sales proved to be much stronger than expected, which helped propel GBP/USD on a 250+ point rally.
Looking ahead, this week’s economic data isn’t like to sway market expectations significantly, as UK GDP for the fourth quarter will likely only confirm what we already know – the economy slowed at the end of the year – while GfK consumer confidence is anticipated to fall back. As a result, the direction of US dollar trade may be the critical determinant of where GBP/USD heads next, but given the recent reversal in trend the pair may be angling for a push to 2.00. – TB
Where is the British pound heading next? Discuss the topic with other traders and DailyFX analysts in the GBP/USD Forum.
Visit our recently updated British Pound Currency Room for specific resources geared towards the GBP/USD pair.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-6.gif
Swissie Gains On Strong Data, Will Risk Aversion Come Back Into Play?
The Swiss franc ended the week on a stronger note with the help of a softer US dollar and some better-than-expected economic data. The Swiss trade surplus widened more than expected in January, as the balance rebounded to 1.22 billion francs from 0.2 billion francs in December. Indeed, it appears that demand in emerging markets like China is helping to offset declining orders from the Euro-zone, as the 15-nation region faces an economic slowdown. However, with cooler growth anticipated to impact the global economy, Swiss exports may only find limited support from Asia. Furthermore, once producers cut back on output more significantly, this will eventually start to dent labor market conditions and domestic demand - a major contributor to the economy - which does not bode well for Swiss expansion this year. Meanwhile, inflation pressures continue to build in Switzerland as producer and import prices rebounded in January. Indeed, the producer price index jumped 0.6 percent while the import price index gained 0.5 percent, which was primarily the result of rocketing commodity prices. Nevertheless, the news will be disconcerting for the Swiss National Bank, as they weigh the challenges presented by upside inflation risks and major downside risks to growth. Nevertheless, the SNB is likely to follow the lead of the European Central Bank, which last left rates unchanged despite tighter credit market conditions.
Looking ahead, the status of risk seeking behavior in the market could be a major driver of Swiss franc trade. To a certain degree, the financial markets have stabilized over the past week and trades have not been as risk averse, which has allowed carry trades to appreciate slightly. If this sentiment becomes shaken and equity markets – particularly in the US – begin to break down, FX traders may flock to buy up currencies like the Swiss franc and Japanese yen. On the other hand, Swiss economic data scheduled to be released over the course of the week will likely show that growth in the country has peaked, with consumption and the KOF leading indicator anticipated to fall back. If the news is extremely disappointed, the releases could weigh on the Swiss franc. However, when risk aversion/seeking behavior becomes a dominant force in the market, Swiss fundamentals have very little bearing on the national currency. – TB
Visit the updated Swiss Franc Currency Room for additional news on the Swissie.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-7.gif
Canadian Dollar Sees End-Of-Week Sell Off As Data Falters
A mixed week of data keep the USDCAD pair range bound, locked in between the 100 and 200 day SMA’s, where it has settled for most of 2008. Bearish loonie sentiment was fueled when Canadian core CPI eased 1.4% to its slowest pace since July,2003 clearing the way for a March BoC rate cut. The MPC has been reluctant to follow the Fed on a path of multiple rate cuts, but recent data from the U.S. and Chairman Bernanke’s dovish comments has reinforced the belief that Canada’s main trading partner may already be in a recession. In order to prevent a similar downturn in their own economy they may have to be just as aggressive. The source of the BoC’s reluctance has been strong domestic demand, which is now showing signs of weakening, as retail sales printed at 0.6% versus expectations of 0.8% in December.The sales ex automobiles showed an underlying weakness as it declined for the first time in five months by 0.4 percent. Overall, outside of a recent boom in car sales due to price reductions, the Canadian economy has begun to feel the affects of slowing U.S. demand.
After approaching resistance levels mid week, record oil prices and an influx of foreign investment into Canadian mining companies led investors to buy the loonie and send the pair back towards parity. The global demand for commodities will continue to be a source of growth for the Canadian economy as developing countries continue to show signs that they can withstand a U.S. slowdown. However, oil which hit a record 100.10 a barrel, has eased on increasing supplies and speculation that global demand may slow. If demand for commodities starts to slow we may see the pair break through resistance levels before the BoC’s rate decision.
A barren economic calendar for most of the week, will leave traders debating the impact of a U.S. economic slowdown and commodity prices on the MPC’s decision and whether a quarter or half point rate cut is coming. Event risk will come from the U.S. economic calendar, until Friday’s release of the current account - whichis expected to produce the first deficit since 1999. – JR
Visit the updated Canadian Dollar Currency Room for additional news on the Loonie.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-8.gif
RBA Minutes Rally Speculation Of A Hike And The Australian Dollar
A new week has brought a new high for the Australian dollar. The commodity currency sustained its steady advance for a fourth week as dour, global interest rate speculation continued to highlight the appeal of the Australian benchmark lending rate. The key to the currency’s momentum was the minutes from the RBA’s February 5th monetary policy meeting released on Monday. A hawkish bias was fully expected given Governor Steven and his colleagues’ decision to lift the overnight lending rate 25 basis points to an 11-year high 7.00 percent. However, what the market read was far more hawkish than most had expected and ramped up expectations for at least one more hike in March. According to the policy group, the decision between a 25 basis point and 50 basis point rate hike was “finely balanced.” The decision to tighten only quarter percent was eventually decided on as officials suggested the market had already delivered its own hike as commercial institutions have had to lift their rates to compensate for the global credit crunch. Such a hawkish lean plays well with an equally inflationary quarterly monetary policy statement released the week before and core inflation well outside the tolerance band at 3.5 percent.
The minutes clearly gave the Australian dollar a marked boost, as AUDUSD easily cleared resistance seen around 0.9100. As the week wore on, there was little interference from other scheduled events for crossing the wires. The Wage Cost Index for the forth quarter maintained the outlook for inflation trends that would not correct themselves. According to the government’s data, Australian wages grew 4.2 percent – matching the fastest pace of growth since records began back in 1998. Besides this report, the rest of the data for the week fell to the third rung status and allowed the Australian dollar to advance with economic impunity.
Over the coming days, the economic docket is looking to only a few scheduled reports – though any of the indicators could dent the Aussie’s steady rise. Up first is Wednesday’s fourth quarter reading of construction activity. The housing market is still a strong component of consumer wealth and confidence, not to mention growth component. On the following day, the Conference Board’s Leading Index for December will provide an outlook for growth trends over the coming three to six months. However, like the Westpac’s report, the fourth quarter GDP report do next week will likely render this data irrelevant in the market’s eyes. Finally, Friday will bring the fourth quarter measure of consumer lending through January. This will be a good measure of consumer’s appetite for credit and spending against the backdrop of global credit market problems and a hawkish central bank. On the whole though, this week’s data will likely be glossed over as speculation surrounding the following week’s GDP, retail sales, trade reports and RBA rate decision will keep traders’ eye on the horizon. - JK
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/strategy_pieces/tof/02.24.08_02.29.08-9.gif
New Zealand Dollar Closes In On 26-Year High
The demand for yield proved to be a stronger force in the market than the fear of risk. Though there were few major economic indicators scheduled for release over the past week and the interest rate outlook for the RBNZ was still more neutral than it was hawkish, the New Zealand dollar was still able to outperform its Australian counterpart (which came fully equipped with a recent rate hike and heavy speculation of another one to come in March). Through Friday, the kiwi had posted seven consecutive daily advances against its US counterpart; and this despite the tales of risk that left many traders unsure about selling low yielders like the yen and the franc. Nevertheless, the currency is up nearly 700 points from its January 22nd swing low and only stones throw from its 26-year high set at 0.8007 last July. No doubt, this milestone will egg kiwi bulls on, calling for at least a toe over the landmark level and perhaps even a rally into record breaking territory.
While the lure of a record high has kept kiwi bulls on the charge, there has be little, recent fundamental push to this impressive move. The economic calendar was virtually empty last week – with only two economic indicators present to hold event risk traders over. Business NZ’s Performance of Services Index for January was the first indicator to cross the wires with disappointing results. According to the survey, activity in the economic sector slowed for the second consecutive month as sales and new orders dropped. The saving grace for the report was the pick up in employment which boosts consumer confidence. And, speaking of the consumer, the credit card spending over the same period unexpectedly rebounded from an 11 month low. This was unexpected given that credit is more expensive as banks try to compensate for the instability in the lending markets and inflation has raised the cost of living.
Over the coming days, the economic calendar will fill out; but the data will likely take a back seat to the demand for yield and the kiwi’s personal mission to overtake a multi-decade high. Nevertheless, the calendar opens up with a new indicator: the RBNZ’ s two year inflation forecast, measured each quarter. And, with the first quarter CPI data not due until April, this report may hold rate watchers over. Later that same day, building permits will measure housing sector activity. A fifth consecutive decline would be mark the worst conditions for the housing market in seven years and could mark the first major crack in growth and the RBNZ’s persistently hawkish front. After that the NBNZ’s five and a half year trend underwater will print a new reading and the trade account will be measured for the influence of waning global growth and a quickly appreciating New Zealand dollar on demand for the nation’s exports. – JK
Hedging Strategy of the Week
Currency Pair:
GBPUSD Long Term Bias:Bearish
Long Term Position:
Holding Short (from 11/09 swing high at 2.1160) Short Term Bias:
BullishShort Term Position:Long Against 1.9335, Target Falling Trendline (1.9640 for 01/21)Long-term GBPUSD bears have held a very lucrative position, but it has not come without its periods of counter-trend rebounds. Now, over the past month, the pair has set up a potential floor with a loose triple bottom. Those that already have profitable short positions on should not exit as the long-term trend is still intact. Instead, a short-term hedge should be established around recent levels to offset a potential rebound from support around 1.9350/400. The target for the shot-term long should be at the top of the channel and its stop should be just below support. Should GBPUSD break the channel and clear the previous swing high, the long-term position should be reconsidered.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Hedge1_2-13.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Hedge2_2-20.gif
When should I use the hedging feature?
Markets hardly ever trade in the same direction for long. Though there are general trends that may unfold for weeks, months and years; there is almost always considerable fluctuation in price during these periods – sometimes leading to significant retracements. There are a few common strategies that traders use to immunize their risk to counter-trend moves while still holding to the long-term trend. One method of reacting to these changing tides is to actively enter and exit a trade on each swing, which requires constant attention and a superior ability to pick tops and bottoms. The other, more passive, strategy is to hold on for the long-term trend through retracements in the belief that the higher trend will reengage. Taking a temporary hedge positions through the counter-trend moves, on the other hand, requires less accuracy in picking tops and bottoms and at the same time lowers the drawdown while increasing the potential for return.
EUR/USDStrategy: Bullish against 1.4435, Targeting 1.4900
As I noted last week, “The next challenge for the pair is at the 1.4625 (38.2% of the 2/1 to 2/7 bear wave) and the subsequent, higher level Fibs that are not far above.” Having now cleared those levels the EURUSD appears to be headed for a retest of all time highs and only a close below the 1.4435 would negate the bullish wave. Alternatively, with mind to the broader wedge formation that has defined EURUSD price action since November, the next major leg for EURUSD will be determined in a breakout. Once direction is confirmed, the Fibonaccis will need to be redrawn to account the changing market conditions.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib1_2-19.gif
GBP/USD
Strategy: Bullish against 1.9335, Targeting 2.0030
The Pound is loosing its direction. While the pair has posted a series of higher lows (currently trying to establish a base around the 1.9500 level), it has more poignantly been unable to muster the necessary momentum needed to make a run for the 38.2% Fib of the 11/9 – 12/22 bear wave settled just above 2.0000. On the other hand, the unit has maintained its 1.9335 swing low; and the longer the pair bases, the stronger the possibility of a strong upswing. All of this considered, I remain long; but I will be keeping a close eye on the 1.9335 level.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib2_2-19.gif
USD/JPY
Strategy: Flat, waiting for either a break above the medium-term 38.2% fib at 108.60 or a move below 104.95
USDJPY continues to churn, but we may be finding medium-term direction is under development. While the pair has built up momentum into a tentative bullish advance, it took only the first major fib retracement in the 38.2% retracement of the 12/27 to 1/23 bear wave to knock the advance off pace. However, with a trend clearly forming under price action, support behind a revived attempt on a serious rally may be at hand. Should we surpass the aforementioned 38.2% Fib, it may be time to change my bias.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib3_2-19.gif
USD/CHF
Strategy: Flat, waiting for a confirmed, break above the short-term 38.2% fib at 1.1075
USDCHF price action is still defined by the Fib formation that had been drawn up from last week. As I noted last week, “USDCHF remains hemmed in by the Fibs formed from the pair’s most recent bear wave – from 12/25 to 2/1.”
With the considerable congestion developing in this pair’s long-term lows, I remain on the sidelines until direction can be confirmed. My mark for bullish move would come in a true break through the 50% Fib of the above mentioned wave.
The view lower will come with a few more contingencies.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib4_2-19.gif
USD/CAD
Strategy: Bullish against 0.9875, Targeting 1.0380
Having held the 9875 level, USDCAD is starting to reward our patience as the pair breaks a short-term range and begins to move towards our target of 1.0380. With the additional support of a channel low, the Fibonaccis have clearly paid off. If we meet our objective in the coming week, I will immediately take heed of the top of the channel and scan the market for the next, market-worthy Fib sequence.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib5_2-19.gif
AUD/USD
Strategy: Bullish against 0.8875, Targeting 0.9405
Last week we wrote, “Having now cleared the 0.9050 – the last of the major Fib levels in this congestion zone – bullish sentiment underlying the pair could easily target the multi-decade high 0.9405 as an ultimate goal.” With the pair having cleared 0.91, the action looks even more conducive for bulls. My objective remains 0.94 for now, but as we close in on this level, a new sequence will likely need to be considered.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib6_2-19.gif
NZD/USD
Strategy: Bullish against 0.7900, Targeting 0.8115
Unlike the Aussie, the kiwi has not progressed with the same bullish fervor in its move to retest generational highs. Even a break through a rising trendline that has capped swing highs going back to October is not associated with notable momentum or follow through. As I had stated last week, I remain guarded on this bullish advance as congestion has clearly sapped the momentum from a clear market direction. Furthermore, with my target close at hand, it is time to move the stop on this bullish bias up to protect profits.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib7_2-19.gif
Trading the News: US University of Michigan Consumer Confidence SurveyWhat’s Expected
Time of release: 02/15/2008 15:00 GMT, 10:00 EST
Primary Pair Impact : EURUSD
Expected: 77.0
Previous: 78.4
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/fxcmtr/News/02.14.2008.img1.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/fxcmtr/News/02.14.2008.img2.gif
How To Trade This Event Risk
The fundamental coffers are virtually empty heading into the end of the second full week of February. In fact, the only indicator with market moving potential is the University of Michigan’s monthly consumer sentiment report. The preliminary reading for this month is expected to erase the unexpected rebound in optimism reported through January as the cost of living continues to rise and lending restrictions continue to tighten. However, the true weight on consumer sentiment now seems to be economic data itself. Signs that unemployment is rising, the service sector contracted for the first time in nearly four years and general growth cooled sharply through the end of 2007 have all weighed on American’s outlook for the economy’s health and their own financial condition. While this indicator has not had much impact on the dollar in the past month, conditions have changed in favor of a more serious reaction from event risk traders with the right surprise. Key to a potential trade is the fact that there are no other major economic indicators scheduled for release in the US session to interfere with potential follow through after the sentiment gauge is released. What’s more, market participants and economists will be more interested in consumer confidence everyone looks for signs that the world’s largest economy is heading for a recession. Though Treasury secretary Paulson and Fed Chairman Bernanke recently predicted the US would avoid a recession in 2008, the market has not been struck with the same confidence. And, since the consumer is the last leg of positive growth, the stakes are that much higher.
There is little speculation behind an improvement in consumer confidence through the most recent month; therefore, a strong improvement may catch the market off guard and lead to a rally from the greenback. The consensus among economists is already looking for a moderate drop in the sentiment gauge to a 76.0 reading. What’s more, ancillary sentiment reports support such an outcome. The ABC/Washington Post’s Consumer Comfort Index for the week ending February 10th fell to its lowest level in 14 years. What’s more, more than 50 percent of respondents to the survey had a pessimistic outlook for their personal finances for the first time since 1993. Despite the surprise factor in a stronger-than-expected report, we will still look for a significant increase from the indicator (5 points or more) before considering a long dollar (short EURUSD) position. With the right fundamentals and a red five minute candle, we will go short two lots with a stop above the nearby swing high (or reasonable distance). Our first target will equal the risk and the second will be set by discretion. To conserve profit on a winning trade, we will move the stop on the second lot to break even when the first takes profit.
On the other hand, with the dollar thoroughly battered and officials still forecasting a rebound in growth; a drop in confidence could accelerate a dollar drop. We will look for an equivalent disappointment for a short and follow the same strategy as above, just reversed.
What's your outlook for US Economy? Think EURUSD will break its range? Voice your opinion in the DailyFX Forum!
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/fxcmtr/News/02.14.2008.img3.gif
EUR/USDStrategy: Bullish against 1.4435, Targeting 1.4900
As we noted last week, “the pair may need to undergo further churn before tackling new highs” and most recent price action indicates that the corrective decline below the 1.4500 level may be over. The next challenge for the pair is at the 1.4625 (38.2% of the 2/1 to 2/7 bear wave) and the subsequent, higher level Fibs that are not far above. If this Fib congestion resistance is overcome the EURUSD will recapture its bullish bias with renewed vigor.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib1_2-12.gif
GBP/USD
Strategy: Bullish against 1.9335, Targeting 2.0030
Much like the EURUSD the pound appears to have carved out a clear double bottom and the pair once again may look to test the key 2.0000 level (more precisely the 2.0030 38.2% Fib of the major bear wave from 11/9 to 1/22). Regardless of whether this target is met though, the psychological figure will be key to establishing the next major GBPUSD trend. Retaking the aforementioned 38.2% retracement level would officially conclude a trend of lower swing highs. Until this major signal on direction is confirmed though, we remain bullish targeting that retest as our fake profit level.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib2_2-12.gif
USD/JPY
Strategy: Flat, waiting for either a break above the short-term 61.8% fib at 108.15 or a move below 104.95
USDJPY continues to range between 105.75 and108.15 as it forms a bear flag of the most recent wave down from 1/10 to 1/25. We are sidelined as the price action remains compressed with Fib levels too close together to provide any clear trading levels. However, with a Fib time sequence approaching, breakout potential is growing. On the other hand, even if the pair does put in for a breakout, momentum on the move may not carry. With a spike low just below 105 and the past months’ swing highs steadily falling, there is clearly a broader range containing price action.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib3_2-12.gif
USD/CHF
Strategy: Flat, waiting for a confirmed, break above the short-term 38.2% fib at 1.1075
Like USDJPY, USDCHF remains hemmed in by the Fibs formed from the pair’s most recent bear wave – from 12/25 to 2/1.
Only a break higher and recapture of the 50% Fib of that same wave at 1.1181 would turn us unabashedly bullish; but for now I remain neutral on price action.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib4_2-12.gif
USD/CAD
Strategy: Bullish against 0.9875, Targeting 1.0380
My confidence in the bullish case for USDCAD is waning by the minute, but as long as the pair holds the 0.9875 level - which is defined by both the 38.2% retrace of the most recent rally from 11/7 to 1/22 and a distinct rising trendline, the argument for a long remains valid.
At the same time, bull runs continue to hit their head on resistance spotted around 1.0100 which is a Fib confluence of the 50% retracement of the 1/22 to 1/30 down leg and more importantly the 38.2% Fib of the 2/8/07 to 11/8 downtrend. The pair is in clear consolidation with bulls and bear battling it out at the key Fib support levels.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib5_2-12.gif
AUD/USD
Strategy: Bullish against 0.8875, Targeting 0.9405
Last week we wrote, “The price action in the Australian dollar remains constructive to the upside especially now that the pair has recaptured the 38.2% level of the large 11/7 to 1/22 bear wave; and appears intent on testing the next immediate retracement level just above 0.8950.”
Having now cleared the 0.9050 – the last of the major Fibo in this congestion zone – bullish sentiment underlying the pair could easily target the multi-decade high 0.9405 as an ultimate goal.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib6_2-12.gif
NZD/USD
Strategy: Bullish against 0.7780, Targeting 0.8115
The kiwi, having long ago cleared the 61.8% resistance level of the massive 7/24 to 8/17 bear wave from last summer, is in a consolidation pattern with an upward bias. As such I remain bullish but guarded as the pair has failed to clear the 0.8000 on more than one occasion. Therefore, I have tightened my stop to 7780 and monitor momentum with great interest.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib7_2-12.gif
EUR/USDOur Short EUR/USD call last week was on the money.
We pointed out that there was a triple top forming and our preferred strategy was to short the EUR/USD (at the time, it was trading at 1.4815), lock in profits on half of the position at 1.4685 (target it).
Our second target was 1.4425 and the EUR/USD low last week was only 12 pips above that at 1.4437.
For those who are short, you should remain short with 1.4625 as your stop.
Trading Strategy
1.
Stay short EUR/USD (now 1.4500) with a stop around 1.4625.
Lock in profits on half of the at 1.4375 move stop on rest to breakeven, targeting 3 times risk at 1.4125<!---->
<!----> 2.
Buy EUR/USD on a break of 1.4650 with a stop below 1.4500.
Lock in profits on half of the position at 1.4800, move stop on rest to breakeven, targeting 3 times risk at 1.5100.
Arguments for Further Weakness
1.
Three Outside Down Formation on Daily Charts
2.
Spinning Top
3.
Price Below Shoulder Line of former Inverse Head and Shoulders
4.
Triple Top on Daily Charts
5.
Price Below 100-day SMA
6.
<!---->Price Below First Standard Deviation Bollinger Band on Daily Charts
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Candle1_2-11.gif
GBP/USD
Our Short GBP/USD short call last week was on the money.
We pointed out that a shooting star on the weekly chart indicated that further losses were likely.
Therefore our preferred strategy was to stay short the GBP/USD (at the time, it was trading at 1.9760) and lock in profits on half of the position at 1.9615 (target hit).
Our second target was 1.9350 and the GBP/USD low last week was only 40 pips above that at 1.9389.
For those who are short, you should remain short, but tighten yours stop to 1.9550 to lock in more profits.
GBP/USD Trading Strategy
1.
<!---->Stay Short (now 1.9490), move stop down to 1.9550.
Lock in profits on half of the position at 1.9430, move stop on rest to breakeven, targeting 1.9310.
2.
<!---->Buy after a daily close above 1.9550 with a stop below 1.9460 stop.
Lock in profits on half of the position at 1.9640, move stop on rest to breakeven, targeting 1.9820.
Arguments for Continued Weakness
<!----> 1.
<!---->Identical Three on Daily Chart
2.
<!---->Dark Cloud Cover on Weekly Chart
Arguments for a Rebound
<!----> 1.
<!---->Double Bottom?
2.
<!---->Spinning Top on Daily Chart?
3.
<!---->Price Holding the 100-Week SMA
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Candle2_2-11.gif
USD/JPY
USD/JPY traded within a tight range throughout the past week, which means that our long and short USD/JPY strategies would have worked.
However the moves on both sides stopped a few pips short of our targets.
Range trading continues to be the predominant theme in the currency pair.
USD/JPY Trading Strategy
1.
<!---->Long USDJPY (now 106.71) with a stop at 105.50 (1/21, 1/22 and 1/31 low).
Lock in profits on half of the position at 107.85, move stop on rest to breakeven, targeting 109.90 (50-SMA)
2.
<!---->Short (now 106.71) with a stop at 108.00.
Lock in profits on half of the position at 105.50, move stop on rest to breakeven, targeting 101.70.
Arguments for a Bottom
1.
<!---->Long Legged Doji on Weekly Chart
2.
<!---->Triangle Formation on Weekly Chart
3.
<!---->Three Inside Up Formation on Daily Chart
Arguments for Further Weakness
1.
<!---->Bearish Harami Formation on Daily Charts
2.
<!---->Three Inside Down on Daily Charts
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Candle3_2-11.gif
AUD/USD
Last week, our long AUD/USD Trading Strategy was stopped out for -48 pips.
However, those flipping short on the close below 0.9040 would have hit the first target of 0.8992 AND the second target of 0.8890.
AUD/USD Trading Strategy
1.
<!---->Stay long (now at 0.9045) with a stop at 0.8950.
Sell half of the position at 0.9135, move stop on rest to breakeven, targeting 0.9315
2.
<!---->Short on a close below 0.8950 with a stop at 0.9100.
Lock in profits on half of the position at 0.8800, move stop on rest to breakeven, targeting 0.8500
Arguments for Further Gains on a Short Term Basis
1.
<!---->Strong Bullish Candle After Doji
2.
<!---->Moving Average Support on Daily Charts
3.
<!---->Price above First Standard Deviation Bollinger Band on Daily Charts
Arguments for Fading Strength
1. Identical Three Crows on Daily Chart
2. Dark Cloud Cover on Weekly Chart
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Candle4_2-11.gif
NZD/USD
NZD/USD Trading Strategy
1.
<!---->Stay long (now at 0.7888) with a stop at 0.7775.
Sell half of the position at 0.8000, move stop on rest to breakeven, targeting 0.8220
2.
<!---->Short on a close below 0.7850 with a stop at 0.7935.
Lock in profits on half of the position at 0.7765, move stop on rest to breakeven, targeting 0.7595
Arguments for Fading Strength
1.
<!---->Dark Cloud Cover on Weekly Charts
2.
<!---->Consolidation, 3 Consecutive Dojis
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Candle5_2-11.gif
USD/CAD
USD/CAD Trading Strategy
1.
<!---->Short now (1.0007) with a stop at 1.0120.
Buy back half of the position at 0.9894, move stop on rest to breakeven target 0.9668
2.
<!---->Long on a close above 1.0120 with a stop at 1.0000.
Sell half of the position at 1.0240, move stop on rest to breakeven, targeting 1.0500
Arguments for Further Weakness
1.
<!---->Three Outside Down on Weekly Chart
2.
<!---->Trendline Break on Weekly Chart
Arguments for a Rebound
1.
<!---->Triple Bottom on Daily Charts, Matching Lows
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/other/other/Candle6_2-11.gif
Trading the News: Bank of England Rate Decision
What’s Expected
Time of release:
02/07/2008 12:00 GMT, 07:00 EST
Primary Pair Impact :
GBPUSD
Expected:
5.25%
Previous:
5.50%
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Eventrisk-4.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Eventrisk-2.gif
How To Trade This Event Risk
Whereas the Bank of England’s monthly rate decision used to be overlooked in favor of the ECB’s gathering (thanks predominately to the latter’s news conference generating more event risk when both central bank’s voted to keep rates unchanged), the tables have clearly changed for the benefit of pound traders. The markets and the Bloomberg consensus of economists’ forecasts agree that the BOE will enact a quarter point cut to the benchmark lending rate. However, looking at the data build up heading into the MPC’s gathering, there is reason to factor in the risk of no change in policy. Fourth quarter UK GDP proved to be stronger than expected at an annualized 2.9 percent, while jobless claims fell more than forecasted in December and services PMI showed a surprising improvement in January. The most damning pieces of evidence, however, are the most recent inflation numbers. CPI in December stubbornly held at an annualized 2.1 percent – just above the Bank of England’s 2.0 percent target – while upside inflation risks remain given the impact of the drop in the British Pound on import costs. Furthermore, the minutes from the January MPC meeting reflected some hesitance to make policy more accommodative as the committee noted, “For most members, no change in Bank Rate was necessary this month…a second period during which inflation was significantly above target so soon after the one in Spring 2007, might be more likely to lead people to revise up their expectations of future inflation.” BOE Governor Mervyn King took it a step further two weeks ago when he said, “It is possible that inflation could rise to the level at which I would need to write an open letter of explanation, possibly more than one to the Chancellor.” With this “level” well above at 3.0 percent, it is rather obvious that inflation is on the mind of King, and will likely be a concern of other MPC members as well. The uncertainty engendered between economists, traders, and the data could lead to a jump in volatility and a possible trend change for GBPUSD.
Speculation of a rate cut from participants usually leads to prepositioning to counter the growing event risk. If the BOE holds steady at 5.50 percent, there is likely to be a considerable unwinding of shorts – and the pound’s steady decline over the past few months would only exacerbate such an outcome. For a long GBPUSD fundamental trade we will look for rates to be left unchanged. Our confidence in such a position would be substantially increased should a hawkish statement be released (though the bank does not typically issue policy statements when policy is unchanged). With the right fundamental mix, we will look for a green five minute candle to confirm entry on two lots with an initial stop at the nearby swing low (or reasonable distance). Our first target will equal risk on the position and the second will be based on discretion. To preserve profit, we will move the stop on the second half of the trade to break even when the first half takes profit. A short trade after a quarter point cut, on the other hand, may be dampened by prepositioning; so a bearish statement could help take out support levels. We will follow the same rules for entry for a short GBPUSD trade as the long described above, just in reverse.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Eventrisk-3.gif
EUR/USD
Strategy: Bullish against 1.4309, Targeting 1.5223
The price action in the EURUSD, while consolidative in the near term remains constructive for further upside action in the long run. The pair has held above the 38.2% support (1.4704) of the most recent (1.4364-1.4963) bull wave and as long as prices remain within that level the path of least resistance is up. Fib projection of 1.5223 continues to be valid but the pair may need to undergo further churn before tackling new highs.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib02.05.08-1.gif
GBP/USD
Strategy: Bullish against 1.9625, Targeting 2.0030
Rejection or continuation? Having come so close our Fib target of 2.0030 the pair failed just ahead of the 1.9999 9 (38.2% level)of the massive 2.1160-1.9335 bear wave, but while such price action would typically be viewed as bearish the bounce of the near term trendline suggest that cable may want to stage a second run at the 2.0000 figure.Having tightened our stop from 1.9575 to 1.9625 we remain bullish for the time being.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib02.05.08-2.gif
USD/JPY
Strategy: Flat
Although yen remains well below the 38.2% resistance level of the large 115.91-104.95bear wave, recent price action suggest that the pair may have put in a near term bottom as it traces out higherlows on the daily chartand for the time being we prefer to be sidelined looking for better price levels to enter possible shorts.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib02.05.08-3.gif
USD/CHF
Strategy: Bullish against 0.9871, Targeting 1.0465
The pair appears to have found solid support at the 38.2% level of the 9056-1.0346 bull wave. Our stops are just below that support and the longer the pair bases the more likely the possibility that it will break out to the upside.Our stops remain close but the longer the price action remains supportive the more confident we feel about this trade.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib02.05.08-4.gif
USD/CAD
Strategy: Bullish against 0.8825, Targeting 0.9400
Having cleared the final major 61.8% Fib barrier of the most recent 9399-8897 bear wave, the Aussie looks set to go higher possibly targeting a retest of the 9400 level.With price action now turning decidedly positive we have ratcheted up our stop to just below the 38.2% level of the recent bear wave because the pair needs to hold these levels in order to maintain its upside bias.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib02.05.08-5.gif
AUD/USD
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib02.05.08-6.gif
NZD/USD
Strategy: Bullish against 0.7520, Targeting 0.8107
Kiwi like Aussie remains in an uptrend having long ago cleared the 61.8% resistance level of the massive 8107-6639 bear wave from last summer. But the pair is having a difficulty clearing the 8000 level and the price action may suggest a corrective move down before it can make a fresh assault on new highs. We remain bullish but have tightened our stops to curb risk.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Fib02.05.08-7.gif
EUR/USD Daily ChartTrading Strategy
<!---->1.
Short EUR/USD now (1.4815) with a stop around 1.4945.
Lock in profits on half of the at 1.4685, move stop on rest to breakeven, targeting 3 times risk at 1.4425 <!---->
<!---->2.
Buy EUR/USD on a break of 1.4933 with a stop below 1.4800.
Lock in profits on half of the position at 1.5065, move stop on rest to breakeven, targeting 3 times risk at 1.5332.<!---->
Arguments for Short Term Weakness
<!---->1.
Triple Top on Daily Charts<!---->
<!---->2.
Long Legged Doji on Daily Charts<!---->
<!---->3.
Price Below First Standard Deviation Bollinger Band on Daily Charts<!---->
Long Term Strength
<!---->1.
Hammer on Weekly Charts<!---->
<!---->2.
MACD Still in Positive Territory<!---->
<!---->3.
Price Opens Above First Standard Deviation Bollinger Band on Weekly Charts<!---->
EUR/USD Daily Chart
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Candle1_2-4.gif
GBP/USD Daily Chart
GBP/USD Trading Strategy
<!---->1.
Stay Short (now 1.9760) with a stop at 1.9925.
Lock in profits on half of the position at 1.9615, move stop on rest to breakeven, targeting 1.9350. <!---->
<!---->2.
Buy after a daily close above 1.9925 with a stop below 1.9800 stop.
Lock in profits on half of the position at 2.00, move stop on rest to breakeven, targeting 2.02.<!---->
Arguments for Fading Strength
<!---->1.
Spinning Tops<!---->
<!---->2.
Long Candle on Friday, Closed at Day’s Low<!---->
<!---->3.
Shooting Star on Weekly Charts<!---->
Arguments for a Rebound
<!---->1.
Downtrend line broken <!---->
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Candle2_2-4.gif
USD/JPY Weekly Chart
<!---->1.
Long USDJPY (now 106.68) with a stop at 105.50 (1/21, 1/22 and 1/31 low).
Lock in profits on half of the position at 107.85, move stop on rest to breakeven, targeting 109.90 (50-SMA)<!---->
<!---->2.
Short (now 106.68) with a stop at 108.00.
Lock in profits on half of the position at 105.50, move stop on rest to breakeven, targeting 101.70.<!---->
Arguments for a Bottom
<!---->1.
Long Legged Doji on Weekly Chart<!---->
<!---->2.
Triangle Formation on Weekly Chart<!---->
<!---->3.
Three Inside Up Formation on Daily Chart<!---->
<!---->4.
MACD in Positive Territory, Hammer on Friday (Daily Chart)<!---->
Arguments for Further Weakness
<!---->1.
Prior Low of 107.22 Already Breached<!---->
<!---->2.
Inverse Hammer on Daily Charts as Well, Bottom Also Broken <!---->
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Candle3_2-4.gif
AUD/USD Daily Chart
AUD/USD Trading Strategy
<!---->1.
Stay long (now at 0.9088) with a stop at 0.9040.
Sell half of the position at 0.9140, move stop on rest to breakeven, targeting 0.9235 <!---->
<!---->2.
Short on a close below 0.9040 with a stop at 0.9088.
Lock in profits on half of the position at 0.8992, move stop on rest to breakeven, targeting 0.8890<!---->
Arguments for Further Gains
<!---->1.
Breakout of Former Resistance at 0.9050<!---->
<!---->2.
Recent Hammer on Daily and Weekly Charts<!---->
<!---->3.
10 and 20-day SMA Crossing the 100-day SMA<!---->
<!---->4.
Bullish Marubozu like formation on Daily and Weekly Chart<!---->
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Candle4_2-4.gif
NZD/USD Weekly Chart
NZD/USD Trading Strategy
<!---->1.
Stay long (now at 0.7935) with a stop at 0.7880.
Sell half of the position at 0.7990, move stop on rest to breakeven, targeting 0.8100 <!---->
<!---->2.
Short on a close below 0.7850 with a stop at 0.7900.
Lock in profits on half of the position at 0.7800, move stop on rest to breakeven, targeting 0.7700.<!---->
Arguments for Further Gains
<!---->1.
Breakout of 4 month trading range <!---->
<!---->2.
Hammer on Weekly Charts <!---->
<!---->3.
Three White Soldiers on Daily Chart<!---->
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Candle5_2-4.gif
USD/CAD Weekly Chart
USD/CAD Trading Strategy
<!---->1.
Short now (0.9942) with a stop at 1.0120.
Buy back half of the position at 0.9764, move stop on rest to breakeven target 0.9075 (11/07 low) <!---->
<!---->2.
Long on a close above 1.0120 with a stop at 1.0000.
Sell half of the position at 1.0240, move stop on rest to breakeven, targeting 1.0500<!---->
Arguments for Further Weakness
<!---->1.
Three Outside Down on Weekly Chart<!---->
<!---->2.
Identical Three Crows on Daily Chart <!---->
<!---->3.
Trendline Break<!---->
Arguments for a Rebound
<!---->1.
Triple Bottom on Daily Charts, Matching Lows<!---->
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/02/special_report/special_report/Candle6_2-4.gif
Trading the News: US Change In Nonfarm PayrollsWhat’s Expected
Time of release: 02/01/2008 13:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: 70K
Previous: 18K
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/fxcmtr/News/01.31.2008.img1.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/fxcmtr/News/01.31.2008.img2.gif
How To Trade This Event Risk
The dollar is almost across the finish line on one of its most event-risk intense weeks in months. However, before the weekend liquidity drain, dollar traders will have to absorb the top market-moving, non-farm payrolls report. And, given that many of the majors are positioned right against market-defining levels of dollar support. Heading into Friday’s release, official and speculative forecasts have clearly taken diverging paths. The consensus among Wall Street economists is calling for a 70,000 jump – a reading that would effectively temper the negative sentiment surrounding last month’s release, which was the weakest print from the series since August of 2003. Supporting this aggressive forecast was the Wednesday’s ADP release. Though the private payrolls report’s correlation to the government numbers has seen considerable volatility in the past, its130,000 print was more than three times the market’s forecast and should not be ignored. In fact, Deutsche Bank revised its projection from 70,000 to 160,000 after the ADP number. Despite these somewhat bullish forecasts though, ancillary economic data has not supported a similar outcome. After the fourth quarter GDP number crossed the wires matching its worst pace in five years, the possibility of a recession became very real. Should the consumer sector falter, it may very well tip the US economy. Looking at the usual round of employment numbers that proceed the NFPs, the picture isn’t promising. Initial jobless claims marked their biggest drop since Hurricane Katrina last week, the 4-week moving average on continuous claims is hovering near a two year high, the Hudson employment index held at its record low and consumer confidence just barely held off a two-year low.
Predicting the outcome of the January NFPs is only the first step – and perhaps the easier one. Even if the headline print were known, the market’s reaction will likely be difficult to discern in the throes of volatility. In looking for a long dollar (EURUSD) position, we will be fighting the economic trend. As growth threatens to dive into a recession, the market is keeping an eye out for the fundamental indictor that will signal the turn. A strong employment report may be considered forestalling the inevitable. Therefore, we will look for a strong reading on the labor data across the board. A 100,000-plus print on the headline, a steady or improved jobless rate and a pick up in wage inflation. On the other hand, we don’t want a blow out number, as this could sabotage follow through. With the right fundamentals, we will go long after closing a red, five minute bar and put an initial stop at the nearby swing high (or reasonable distance). Our first target will equal this risk, and the second will be discretionary. To preserve our profit, we will move the stop on the second to breakeven when the first target is hit.
Alternatively, a disappointing NFP number would align to the bearish economic trend – though the impact will have to be great enough to push EURUSD through major resistance. We will follow the same strategy as above for a long trade, just reversed.
Discuss this event risk and trade possibilities with DailyFX analysts and other traders in the DailyFX Forum!
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/fxcmtr/News/01.31.2008.img3.gif
EUR/USD
Strategy: Bullish against 1.4309, Targeting 1.5223
Breaking through the 1.4710 (61.8% of the latest bear wave correction) seems to be just the first step in a new EUR/USD upswing. With 1.50 so tantalizingly close there seems to be simply too much interest not to run it. Like many of my fellow traders, I am positioning for a break above November’s record high. But, unlike the others, I have a more precise objective in mind than just targeting the universally watched 1.50 level. The 138.2% Fibonacci extension of the 11/23 to 12/21 bear wave offers a first target of 1.5223. However, I will have to stay on top of the looming event risk from the US docket for sure. A surprise from any one of the top market moving events could quickly clear my fibs and mark the beginning of a new trend.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/images/Fib1_1-29.gif
GBP/USD
Strategy: Bullish against 1.9575, Targeting 2.0030
What a difference a week makes. The impressive recovery off the 1.9335 lows suggests that pound is primed to retest the 2.0000 figure. While spot is currently struggling with the 38.2% retracement of the 11/28 to 1/22 descending channel, a more prominent Fibonacci level should stand as more convincing target. In fact the 38.2% fib level of the large 11/9 to 1/22 bear wave is a very real possibility as cable works off its severely oversold condition.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/images/Fib2_1-29.gif
USD/JPY
Strategy: Bearish against 110.06, Targeting 104.42
Although the yen continues to meander in the 106.00-107.00 region the overall bias in the pair remains to the downside as it traces out a series of lower highs. Near term resistance is seen around 108, having created a virtual ceiling over the past several days. Yet even if the pair clears that region it faces a host of Fib retracement levels from the 11/27 to 12/22 bear wave. With my bearish forecast I continue to target the 138.2% extension of the above mentioned wave to 104.42.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/images/Fib3_1-29.gif
USD/CHF
Strategy: Flat, waiting for a direction to develop from the range low around 1.0835/75
Having hit a solid wall of support just below 1.0900 the Swissie is in state of flux. The pair could attempt a rally back to the 1.1170/1.1260 area which encompasses price action between the 38.2% and 50% Fib level of the most recent bull wave from 11/27 to 12/25; but if there is a confirmed break below 1.0850, the most likely target is 138.2% extension to 1.0616. For now, I am on the sidelines.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/images/Fib4_1-29.gif
USD/CAD
Strategy: Bullish against 0.9965, Targeting 1.0465
Although the pair has receded from its recent highs USDCAD is holding its uptrend and as such the 1.0450 50% Fib of the massive 2/28/07 to11/07/07 bear move remains a valid target. However having moved back below the 38.2 Fib of the same wave, and after testing the waters below the psychologically significant 1.0000 level, the outlook for USDCAD is decidedly less certain. I remain bullish but my stops are very close.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/images/Fib5_1-29.gif
AUD/USD
Strategy: Bullish against 0.8600, Targeting 0.9400
The price action in the Australian dollar remains constructive to the upside especially now that the pair has recaptured the 38.2% level of the large 11/7 to 1/22 bear wave and appears intent on testing the next immediate retracement level just above 0.8950. I am bullish for the long term targeting a full retracement and retest of the 0.9400, multi-decade high.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/images/Fib6_1-29.gif
NZD/USD
Strategy: Bullish against 0.7375, Targeting 0.8107
The kiwi continues to cut a very large range; but having confirmed a second touch of the 50.0% retracement level of the 7/24 to 8/17 bear wave, the floor looks firm and the long-term bullish trend seems to hold intact. I remain long NZDUSD, targeting a possible run to the recent generational highs around 0.8100; but in the interim we’ll have to deal with the broad consolidation range between 0.7900 and 0.7400.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/images/Fib7_1-29.gif
Strategy: Bullish against 1.4633, Targeting 1.5223
Breaking through the 1.4710 (61.8% of the latest bear wave correction) seems to be just the first step in a new EUR/USD upswing. With 1.50 so tantalizingly close there seems to be simply too much interest not to run it. Like many of my fellow traders, I am positioning for a break above November’s record high. But, unlike the others, I have a more precise objective in mind than just targeting the universally watched 1.50 level. The 138.2% Fibonacci extension of the 11/23 to 12/21 bear wave offers a first target of 1.5223.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib1_1-15.gif
EUR/USD
Strategy: Bullish against 1.4633, Targeting 1.5223
Breaking through the 1.4710 (61.8% of the latest bear wave correction) seems to be just the first step in a new EUR/USD upswing. With 1.50 so tantalizingly close there seems to be simply too much interest not to run it. Like many of my fellow traders, I am positioning for a break above November’s record high. But, unlike the others, I have a more precise objective in mind than just targeting the universally watched 1.50 level. The 138.2% Fibonacci extension of the 11/23 to 12/21 bear wave offers a first target of 1.5223.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib2_1-15.gif
GBP/USD
Strategy: Flat, awaiting direction from price around 1.9525
Has there been a currency less loved than the pound in the past few moths? The unit has seen a nearly uninterrupted drop from 2.1000 to 1.9500. But, tempting as it may be to follow the trend, my Fib analyses suggests that caution is in order. Cable has not conclusively cleared the 61.8% zone of the 1.8517 - 2.1164 bull wave which may be using the influence of the even 1.95 level to build a bottom. Admittedly, this is an unusual place to pull a Fib retracement with so many viable peaks; but wave happens to pull up the bottom of a thick confluence of levels between 1.96 and 1.95. So for now it’s best to wait and let the price action guide us.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib3_1-15.gif
USD/JPY
Strategy: Flat, watching 107.20 as the time fib cycle approaches
Is USDJPY setting up for a double bottom? According to my Fibonacci time analysis, it may do just that. Today’s daily candle marks the next Fib time cycle in the sequence from 11/26's swing low. This sequence has already proven itself to me as the cycle on 12/24 marked the turning point for the pair’s December rally. While market-wide dollar selling has already led USDJPY to drop below the November swing low at 107.20, it will be important to monitor today’s and tomorrow’s closes for clues as to whether USDJPY’s downside momentum can truly be sustained. Until the path is clear, I will remain flat.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib4_1-15.gif
USD/CHF
Strategy: Flat, waiting for a fib time cycle and double bottom at 1.0855 to clear
The Swissie represents an interesting conundrum for Fibonacci fans. On the surface the pair appears to be headed lower. But, don’t jump to conclusions so fast my friends. USDCHF now finds itself at a crossroad for both time and price as it must first clear a potential double bottom at 1.0885 while a Fib time cycle ominously passes. Until price confirms a direction, we’ll just have to wait and see.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib5_1-15.gif
USD/CAD
Strategy: Bullish against 1.0000, Targeting 1.0455
Having barreled through the 38.2% level of the immense 1.11871 - 0.9050 bear wave, USDCAD looks ready to extend its already considerable retracement. As seems typical in this pair, few obstacles seem to stand in the pair’s way. I remain bullish the pair though a break beyond the broad swing high from 12/14 at 1.0250 will be necessary for my target of 1.0455 - the 50% Fib of the above mentioned, multi-year decline. The nearby risk for my outlook is set back at parity.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib6_1-15.gif
AUD/USD
Strategy: Bullish against 0.8874, Targeting 0.9075
Can the Aussie re-test its multi-decade highs? My Fib analysis says yes.
AUDUSD has yet to clear fib congestion between 0.9071 and 0.8973, but the rising trend favors a break to the top side. Recently, the pair failed to hold onto a break above the 50% Fib level of the 0.9401 - 0.8554 bear wave; yet I will maintain my bullish bias until risk at the 38.2% Fib of the aforementioned wave at 0.8874 gives way. My ultimate target is merely looking for a double touch of the 23-year high from early November, which is just short of 0.94. However, meeting this objective will depend on whether spot can overtake the 0.9071 in the current upswing.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib7_1-15.gif
NZD/USD
Strategy: Bullish against 0.7645, Targeting 0.8150
The kiwi much like the Aussie looks primed to go higher. My Fib analysis shows that if it can clear the range at 0.7834, the next stop on the express train is 0.8150 (138.2% projection of the recent consolidation between 7363-7834.
It has tried to break out twice before, but as they say third time is the charm, so I am bullish here against 0.7645 risk.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Fib8_1-15.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard01.gif
Find out where the Candlestick Warrior thinks currencies are headed this week.
About the Candlestick Warrior:
I am a big believer of Paralysis by Analysis.
I feel that most chartists use too many technical indicators or always try to find the perfect combination of indicators that validates their trade idea. That’s why I like to keep things simple, basing my trading decisions almost exclusively on Japanese candlestick formations.
Here’s where I think currencies are headed this week.
Let me know what you think my analysis on the Candlestick forum, which I will be monitoring from time to time.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard02.gif
Strategy: Flat.
The candlestick outlook for the EURUSD is unclear.
On the weekly chart, which is shown below, there is a potential hammer, but this is the third week of the advance and the two candlesticks show weakening upside drive.
The daily charts show a strong bullish engulfing candle formed this past Thursday.
The relatively small body of the Friday candle indicates that for the time being, the EUR/USD is holding onto its strength.
Therefore I’m flat on the EUR/USD and will update the pattern next week if a more constructive opportunity reveals itself.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard03.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard04.gif
Strategy: Cautiously bullish GBP/USD against 1.9483, targeting 1.9766
The GBPUSD continues to decline strongly through recent trade, but GBP bulls can see a glimmer of hope on a makeshift daily hammer candlestick. The bullish reversal pattern signals that we could see GBPUSD rallies in the days ahead, and gives us reason to get long the currency pair. A more recent GBP pullback gives me pause, but I think that the recent selloff has grown a bit too extreme and we may see a worthwhile rally before new lows.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard05.gif
Strategy: Flat.
The candlestick outlook for the USDCHF is somewhat mixed, but it seems as though the weekly candle will close as an inverted hammer after several weeks of sizeable declines—a signal that price could reverse through the near-term. I hesitate to advocate a bullish position after such a strongly bearish engulfing candle just a week ago and prefer to stay to the sidelines on the USDCHF; price has fallen far too fast to make for an attractive short, but the long likewise looks perilous.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard06.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard07.gif
Strategy: Cautiously bullish USD/JPY against 108.39, target 110.13
The USDJPY continues to tumble, but its hold of a key price floor at 108.00 and an inverted hammer on the weekly chart suggest that there could be a short-term rally. As such, I’m cautiously bullish the pair, but will be watching for any close below the 108.39 mark. This is somewhat of a “punt” trade, but it seems as though increasingly overstretched Yen bullishness will show signs of waning in the week ahead—providing an optimal opportunity to go long the USD against the JPY. Longer-term, however, the prognosis remains bearish for the pair.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard08.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard09.gif
Strategy: Bullish against 0.9757, Target to be Determined
USDCAD has finally shown willingness to rally after remaining relatively rangebound through the past several weeks of trading, and the current candle formation is flashing a solid buy opportunity. After a strongly bullish engulfing candle in November, the USDCAD subsequently saw a doji through December and remains solidly positive to start 2008. Though I don’t like to admit it, I will look at trendlines from time to time as well, and the USDCAD’s break of a multi-month downtrend certainly reinforces my bullishness.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard10.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard11.gif
Strategy: Bullish against 0.8683, Targeting 0.9350
The bullish engulfing candle on the weekly charts flashes a strong buy signal for the AUD/USD.
This represents a major shift in trend and tells me that we could head back to the currency pair’s multi-decade high of 0.9400.
My trading buddies who follow fundamentals say that Australia has been reporting strong economic numbers which backs my call for further gains.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard12.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard13.gif
Strategy: Cautiously bullish against 0.7600, Targeting 0.8100
Like the AUD/USD, on the weekly charts, there is a nice long green body in the NZD/USD.
I’m not as bullish the NZD/USD as I am the AUD/USD because in the AUD/USD, we are coming off 3 months of weakness.
The NZD/USD however has been stuck in a range since November.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/Clipboard14.gif
Though NZD/USD volatility has risen over the past six months, the pick up in price action has been contained to a congestion trend since the end of September. The pair’s broad channel and relative higher volatility make it an attractive pair to hedge trade as spot may range between our profit targets more quickly.
Currency Pair: NZD/USD
Entry Zone: Go both long and short at the market if spot is within the 0.7950 – 0.7550 range
Protective Stop: The long position’s stop should be below 0.7350 and the short position’s stop above 0.8150 (or two ATRs beyond the channel as it rises)
Profit Target: Long Target at 0.7950 and Short Target at 0.7550 (The targets should be adjusted as the channel rises)
Profit Potential: 400 pips (excluding transaction costs and slippage)
Given the consistency of the NZD/USD trend channel over the past three and a half months, it presents an attractive hedge candidate. To enter the trade, enter a long and short order at the market as long as prices are within the Hedging Zone. This is an unusual Hedge trade, however, as the channel the pair is trading within has a positive slope. Therefore, an initial profit target of 0.7950 (the first level of resistance) for the long leg and 0.7550 (the first level of support) for the short leg should be adjusted as the channel rises. At the same time, the initial short order stop at 0.8150 (the second level of resistance) and long order stop at 0.7350 (the second level of resistance) should be adjusted as the range advances.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/other/Hedging/2008.01.11.gif
When should I use the hedging feature?
The most effective way to trade a market in which you are not sure if it will continue in the same direction or reverse is to find concrete support and resistance levels. Trading in such a price environment involves isolating currencies that are trading sideways in ranges (or channels), and then selling at the top and buying at the bottom of the channel. This allows you to pinpoint levels where significant price action will take place; and at the same time removes the risk of having to determine and catch major tops and bottoms. Currencies that tend to trade sideways are often currencies with low interest rate differentials such as the EUR/CHF and the EUR/GBP.
AUDCAD – A Currency Bet on Gold/Oil Divergence
If our thesis on gold/oil divergence proves correct than the AUDCAD may be an interesting way to express that view in the currency market, Australia, which is the second largest exporter of gold in the world, continues to perform exceedingly well. In fact the last employment and retail sales data have handily beaten markets forecasts as demand continues to boom, Under these conditions any thoughts of monetary easing cannot even be entertained. In fact if anything, traders anticipate that the RBA may tighten once again if growth continues at this torrid pace.
Not so in the case of Canada, where economic data recently hit a bump.Canada, which is the largest supplier of oil to the United States is inextricably tied economically to the price of crude.Furthermore, because Canada is also US’s largest trading partner, its economic growth is highly dependent on demand from the neighbor next door. If US growth begins to suffer, Canada’s may as well. Already we’ve seen signs of trouble in the Canadian economy as retails sales have been tepid, suggesting consumer demand may be waning. Bank of Canada has acknowledged these problems and has already lowered rates by 25bp last month. Some market participants anticipate further rate cuts as the year progresses.Thus in 2008 we may see an environment where the Australian economy supported by gold and continued demand from China, outperforms the Canadian economy hobbled by lower crude prices and slowdown of the US economy. This dynamic could benefit the AUDCAD cross especially if interest rate differentials begin to expand. The pair therefore merits consideration as a possible play on these macro economic trends.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/01/special_report/special_report/ssp1.10.08.gif
[ 本帖最后由 hefeiddd 于 2008-5-21 11:36 编辑 ]
Trading the News: US Durable Goods Orders
A string of lackluster US economic data leaves expectations relatively muted for the upcoming Durable Goods Orders release, with consensus forecasts calling for only a modest improvement.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/general/1.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/general/2.gif
Trading the News: Canadian Retail Sales
What’s Expected
Time of release: 12/21/2007 13:30 GMT, 08:30 EST
Primary Pair Impact : USDCAD
Expected: -0.4%
Previous: -0.2%
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.20.2007.img1.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.20.2007.img2.gif
How To Trade This Event Risk
A big shift in fundamentals, evolving technicals and unusual market conditions are a few key considerations for making a fundamental trade on the Canadian retail sales report. As for the indicator itself, expectations are for a second monthly decline that would double September’s report with a 0.4 percent print. This consensus seems to find some support from the wholesale sales indicator after the gauge marked modest declines in food and auto related spending.However, the wholesale/retail correlation is likely to hold little water for Friday’s release as the relationship has been absent for the past three months and a 0.5 percent increase in business to business sales is modest anyways. On the other hand, a sharp rise or fall in consumer spending could have a significant impact on the fundamental framework of Canadian positioning. Just week’s ago, the Bank of Canada lowered its benchmark lending rate for the first time in a year in response to financial turmoil and tepid inflation. And, while their economic outlook remained quite upbeat, clear concerns over trade, business spending and consumer sentiment have developed. What’s more, the reaction to this event risk will also be warped and guided by technicals. USDCAD has just recently confirmed its first serious correction since the pair began its rally from its November 7th spike low. More importantly, the entire currency market will be under the influence of holiday trading. As many traders have already squared their books early, a fundamental surprise will likely have to be that much larger to generate a profitable trade.Finally, the monthly GDP number scheduled for release at the same time could conflict or amplify a reaction to the retail data.
Technically, a strong Canadian sales report could find a strong USDCAD response as the pair has just recently tested parity and broken below a rising trendline for its first retracement in a relatively steady six-week advance. With regards to the GDP release, we would prefer to see it fall in line with expectations and not interfere with sales or print a stronger than expected number to contribute to loonie strength. Regardless of these other conditions, we must see a considerable upside surprise from our primary indicator to encourage us to take a trade in this quiet market environment. We will look for an upside surprise of 1.0 percentage point (a 0.6 percent reading) or more. With the right fundamental bias in place, we will look for a five-minute, red bar to confirm short entry on two lots of USDCAD. Our initial stop will be set at the nearby swing high (or reasonable distance) and our first profit target will equal this risk. The second objective will be based on discretion; but to preserve profit, we will move the stop on the second lot when the first half of the trade hits its target.
For a long trade, we would will take the same precautions as mentioned above. Of primary importance is a downside surprise of the same magnitude described for the long scenario. We will use the same trading strategy for a long as we laid out for a short, just in reverse.
Interested in this specific event risk or the USDCAD in General? Discuss both in the USDCAD thread of the DailyFX Forum.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.20.2007.img3.gif
Trading the News: US Consumer Price Index
What’s Expected
Time of release: 12/14/2007 13:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: 4.1%
Previous: 3.5%
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.13.2007.img1.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.13.2007.img2.gif
How To Trade This Event Risk
The closely-watched Consumer Price Index has been a limited mover over the past few months as the turmoil in the financial markets overshadowed concerns of heightened inflation pressures for rate speculators. For the November release, the CPI’s impact on the Fed’s rate policy will once again be the primary focus for the currency market. Earlier this week, the Federal Open Market Committee cut the benchmark US lending rate by another quarter percent for a cumulative 100 basis points worth of easing. What’s more, the brief statement that accompanied the decision revealed policy makers had dropped the past observations that upside risks to inflation were “roughly” balanced with downside risks to growth. At the same time, the statement retained its concerns that rising energy and commodity prices, among other factors, would contribute to price pressures well beyond the central bank’s tolerance level. Considering the uncertainty surrounding inflation’s influence on Fed policy - and more importantly, speculation for Fed policy - any trades taken on this event risk would be best served with a substantial divergence between the actual print and the official consensus.
Considering the market is expecting a further acceleration in the headline CPI gauge, a long dollar position (short EURUSD) would likely experience the most exaggerated response to a surprise print when the data crosses the wires. What’s more, after the upstream, producer price index recorded its biggest monthly increase in 34 years and the fastest pace of growth on an annual basis 1981, the pressure for a better than expected print has grown. Taking our cue from the reaction from the market after the three previous CPI releases, we will keep our risk limited in the even the data rises in line with expectations. What’s more taking a trade on this outcome would be somewhat risky as the fundamental edge is slight; so, we will set our second profit objective close to (or perhaps even equal to) our first target. Ultimately, such a trade will be defined by major support levels seen in EURUSD. Alternatively, if there is a marked upside surprise from the annual headline and/or core CPI numbers (0.3 percentage points for the headline number and 0.1 percentage point for the core, or more), we will be more confident in our trade and allow for more aggressive targets. With the right mix of fundamentals, we will look for five minute red candle to confirm a short on two lots of EURUSD at market. We will immediately put a stop at the nearby swing high (or reasonable distance) and set our first target equal to a single lot’s risk. Our second target will be discretionary and to preserve profit, will move our stop on the second lot to break even when the first half of the trade hits its target.
On the other hand, with the Fed easing its inflation warnings and the market pricing in a 100 percent chance for a rate cut at the January meeting, an unexpected cooling for the CPI could break the dollar’s rebound. Our strategy for a long will be similar to a long, just in reverse.
Discuss this event risk with DailyFX analysts and other traders in the EURUSD thread of the DailyFX Forum!
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.13.2007.img3.gif
Trading the News: US Change In Non-Farm Payrolls
What’s Expected
Time of release: 12/07/2007 13:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: 80K
Previous: 166K
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.06.2007.img1.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.06.2007.img2.gif
How To Trade This Event Risk
The top FX market-moving indicator has come around once again. The latest consensus for the Bureau of Labor Statistics’ non-farm payrolls report for November is calling for an 80,000 increase in national hires. Ironically, this is almost exactly the same forecast for the October report – the one that doubled expectations. Our rules and strategy for trading this event risk will be very much the same that is for most of our Trading the News reports, but looking back over the reaction to the previous three payrolls reports it is clear that the discretionary element of our trade needs to have a few conditionals. First, it is important to immediately take note of both the headline number and any revisions to the previous figures. If a headline print produces only modest surprise but a revision to the October report see a substantial adjustment, the latter will like be the market moving element of the data. Also, eye should be kept on the secondary labor data – the unemployment and the average hourly wage growth numbers. Finally, any exogenous adjustments like the one we saw in September (an 810,000 adjustment over the period from March 2005 to March 2006), should be noted. Heading into the Friday employment release, the usual battering of preview employment statistics already has the unofficial consensus aiming for a disappointment. Both the ISM manufacturing and services surveys’ employment components have cooled. Perhaps more concerning, the four-week moving average of the initial jobless claims report rose to its highest level since October of 2005, while continuing claims rose to a January 2006 high.
Discerning whether the NFP data is bullish or bearish will be the most difficult aspect of trading this event risk. However the data prints, it could be a vital clue for market participants and policy makers as to the health of the economy and whether speculation of a 50 basis point rate cut next week is reasonable. For a bullish dollar trade (short EURUSD), we will optimally look for a considerable upside surprise (75,000-plus) from the headline number and an equally impressive revision to the October number. If this the case and there is no other data interfering, we will look to go short two lots of EURUSD at market on the close of a red, five minute candle. Our initial stop will be set at the swing high (or reasonable distance) and our target on our first lot will equal its risk. The objective on our second lot will be discretionary and to preserve profit, we will move its stop to break even when the first lot reaches its target. If we are entered into a short position, it will be essential to note technical support in placing our targets.
Alternatively, with the data already lining up for a weak NFP report, we will need a considerably weaker than expected - perhaps negative - print to institute a long EURUSD position. We will follow the same strategy and rules for a long as the short layout, just in reverse.
Discuss this trading oppurtunity with analysts and traders in the EURUSD thread of the DailyFX Forum.
Watch the DailyFX Calendar to see the number when it hits the wires (don't forget to hit refresh!).
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/fxcmtr/News/12.06.2007.img3.gif
Trading the News: Canadian Retail Sales
What’s Expected
Time of release: 11/21/2007 13:30 GMT, 08:30 EST
Primary Pair Impact : USDCAD
Expected: 0.0%
Previous: 0.7%
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/11/fxcmtr/News/11.20.2007.img1.gif
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/11/fxcmtr/News/11.20.2007.img2.gif
How To Trade This Event Risk
Looking back over the market’s reaction to the last three retail sales reports from Canada, it is clear that there needs to be more at work than a mere surprise between the actual number and the official forecast to trade this event risk successful. One consideration that has proven its influence on the reaction to the retail sales gauge in the past is the wholesale report. For September, the wholesale report could have a modest impact on its retail counterpart as the former rose 1.1 percent versus expectations of no change and a 1.9 percent drop in the previous month. On the other hand, with the correlation having broken down over the past two months, this indicator’s sway over expectations is dubious at best. Another, far more influential facet to consider setting up a possible fundamental trade is the general direction and interest in the Canadian currency just ahead of the release. In the past, the steady appreciation in the Canadian dollar (especially during times when momentum was rising) has overwhelmed event risk traders and left the currency to continuation moves. This could add an extra level to the discretionary aspect of whether or not to take the trade, as well as placement of the stop and profit target. Looking at the market right now, technicals show a sharp ‘V’ bottom and an 800-point rally in USDCAD.
Considering the upside momentum in this pair, trading a strong retail sales figure would be going against trend and could easily fade into the background. What’s more, recent developments in data and the Bank of Canada’s stance on monetary policy may further impede a strong reaction from the Canadian dollar to a jump in retail sales. During the G20 summit this past week, BoC Governor David Dodge hinted to the public that they should prepare for a possible rate cut in the near future as the downside to global growth counterbalances inflation pressures. Adding to this pressure, the consumer inflation data released today has defied the central bank’s forecasts for a 3.0 percent figure by year end before cooling to 2.0 percent. Headline inflation unexpectedly dropped to 2.4 percent while core pressures have dropped below the 2.0 percent target. Considering all of this, we will look for a very big jump in spending to take a short trade. If we get a large jump in spending and five minute red candle we will short two lots of USDCAD with a stop at the nearby swing high and profit target on the first lot equal to this risk. The second objective will be based on discretion and its stop will be moved to breakeven upon booking T1.
On this same premise, a weaker than expected spending number would suggest growth and inflation are making it easier for the central bank to move to cut the overnight lending rate. We will use the same trade setup for the long as we did for the short, just in reverse.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/11/fxcmtr/News/11.20.2007.img3.gif