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Money Matters
- NZD and AUD - Key Levels
- GBP/AUD - Divergent Central Banks
- Gold & Silver
- NZD/USD - Trend Ready
- AUD/USD - Downmove should continue
- Dr Copper - Another clue
- USD - is the recent strength for real now?
- AUD/USD - Is the correction over?
- Update - EUR/AUD - Another look
- USD Strength - was that it?
- View archive...
Money Matters
Viewing entries tagged with 'Futures'
NZD and AUD - Key Levels
All
The NZD and AUD have proved amazingly robust overnight in the face of a significant downturn in global sentiment. The overnight price action looks to have created corresponding CRITICAL levels in both pairs.
NZD/USD – Classic ‘uncertainty’ Doji yesterday. The pair had a wide range overnight effectively finishing mid-range near its open. A break of the low at 0.8085 would likely confirm the end of the range (particularly if the AUD/USD confirms as per below).
NZDUSD – Click here to view chart
AUD/USD – The overnight ACTION seemingly confirms the 7 month uptrend boundary.
AUDUSD – Click here to view chart
Whilst I remain bearish, the collective price action is supportive for now and not confirming of my view.
Regards G.
GBP/AUD - Divergent Central Banks
Hi all
The minutes from both the RBA and the BOE have been released this week and the circumstances of the two central bank are startlingly different.
The RBA stated “a case could be made for further easing” and clearly identified the Q1 inflation data due on the 24th as a likely catalyst for such action. The market expects an outcome close to the bottom of the RBA’s 2-3% inflation band whereas only 2 quarters ago the rate was above the top of the band.
The BOE in contrast admitted “ inflation was not falling as quickly as policymakers had hoped” and that“inflation could stay above 3pc into the second half of this year”
With the range bound nature of the USD pairs this divergence in central bank expectations makes this a lovely diversification trade.
A look at the charts is very enlightening. The pattern in GBP/AUD terms is what in classical charting is called a ‘cup and saucer’. In effect what you are looking at is a tea cup with handle. I don’t think I can recall ever seeing one so perfect.
GBPAUD – click here to view chart
Now for a bit of perspective this is happening at the (potential) end of a massive 10 year range making this a great trade for the value investor.
GBPAUD 10 Year Range – click here to view chart
Identifying trades is only one part towards the successful business of trading. Call in to discuss strategies and position sizing to benefit from this circumstance.
Regards Graham
Gold & Silver
All
I have had a bearish view of Gold and Silver recently. With that in mind I note Dennis Gartman of The Gartman Letter today.
Firstly regarding the metals traded on the CME, margins are to be cut for Silver, Copper and Palladium as of the close of trading today (overnight). The announcement came last week and normally this would be a reason to take metals prices higher. Instead, prices are weaker, and markets that do not respond to bullish news are not bullish. It is at times that simple and in this case very so. All things being equal, a cut in margin requirements, even a modest one, is bullish although cuts are not nearly as bullish as increases are bearish. Nonetheless here is a demonstrably bullish bit of news and the market’s reaction is manifestly bearish.
In layman’s terms the suggestion here is that if you are bullish of say Gold and the margin is cut allowing you room on your account to buy more then you would do so. To not buy more suggests the bullish view is at best weak, and at worst no longer in favour.
Regards G.
NZD/USD - Trend Ready
All
The NZD/USD is carrying over its relative weakness from overnight with another very poor performance today.The pair is TREND READY and following the false break profiled in my two recent articles (USD pairs – An intriguing week) that trend looks very likely to be DOWN.
My experience is that trending moves occur from periods of tight consolidation. The pair has been trapped in a narrow range for over 5 weeks now. If you like, think of it as a period of play where bulls and bears battle it out with little or no effect until the loser is vanquished and the winner free to have their way. This is precisely what is happening.
The false break to the upside on Thursday only serves to make the move down more enduring as week shorts get stopped out prior to the move unfolding thus removing a number of buyers on the way down.
Daily chart – Bollinger band are very tight reflecting the narrow range trade of recent. Thursday clearly looks to have been a false break.
NZDUSD Daily – click here to view chart
Hourly chart – a closer look. MACD is doubling down from below 0, not a good look.
NZDUSD Hourly – click here to view chart
As with all trades, no matter what the conviction, position sizing is paramount. For those wishing to trade this move please call in for discussion on appropriate positioning.
Regards G.
AUD/USD - Downmove should continue
All
Just a quick note first up this morning. The AUD/USD pair should continue to fall today following the significant ‘risk off’ theme overnight. With the Dow recording its largest fall this year, the IMF suggesting commodity prices will fall and China trade will slow, the AUD should be an easy target.
The charts shows not only a ‘bearish engulfing day’ (my all-time favourite indicator) but a break of the 7 month uptrend support line (NZD has broken its respective support too).
Dr Copper - Another clue
All
Since my piece of last week ‘Watershed USD strength – digging deeper into the FED speak’ market action has been somewhat mixed with the long standing relationship between a soft USD and stronger global share markets breaking down. So what is going on?
One clue could be the performance of industry integral, base metal, Copper (or Dr Copper, PHD as Gartman likes to refer to it). The following chart documents the rather large 6.2% fall last week.
The fall suggests traders see slowing global demand (and less scope for a growth supportive U.S FED?). This should be a poor sign for the likes of NZD/USD and AUD/USD with AUD and Copper being very highly correlated over the years.
G.
USD - is the recent strength for real now?
Hi all
FX traders are fond of studying charts because occasionally price action can speak volumes and weed out the important parts of the fundamentals.
As long time readers are well aware I have favoured the view that ‘good trends die hard’ and the FED would be there supporting the U.S economy given Dr Bernanke’s history as a student of the Great Depression and his well-documented fear of deflation (Helicopter Ben).
Whilst my heart still wants to believe in this contention the price action overnight paints a very different picture.
Chart – USD Index. The overnight response to the FOMC minutes has a striking similarity (key day reversal off the same moving average) to the action of 29th Feb when Dr Bernanke gave his last testimony to congress (no mention of QE3). The subsequent action is plain to see with the USD rallying more than 4%.
Chart USD Index – Click here to view
So for the moment I have no other option than whilst the 78.80 low of last night holds in the USD Index I cannot be bearish (or at least until I see a contrary signal appear).
Regards G.
AUD/USD - Is the correction over?
Hi All
The correction down off the 1.08 highs in the AUD/USD (and correspondingly the NZD at 0.8470) started after FED chairman Bernanke made no mention of QE3 in his semi-annual congressional testimony in early March. Through this period the market has concluded that the FED is finished with super easy monetary policy. I have constantly disagreed with this notion. Overnight, and on Monday, Bernanke has been quite clear. He views this recovery as weak and the recent improvement in jobless numbers as non-sustainable. My interpretation is that super easy is here to stay for a considerable time. Indeed the last FOMC minutes reaffirmed the commitment to that until ‘late 2014’.
Another focus affecting the AUD (and NZD) has been that Chinese growth is slowing. Firstly the Chinese themselves revised down their growth to (a still whopping) 7.5% and recent data releases have been weak. However I will contend that the very lengthy Chinese New year celebrations in the most important of all years (Dragon) are impacting on these recent releases and that we will soon see an improvement (Sunday’s PMI release?).
Looking at the charts, overnight the AUD/USD made a strong comeback precisely off my up-trend line off the October 2011 0.9400 low.
My suspicion is that the time to buy is upon us for a return to the dominant up-trend. That said, there is significant event risk in the form of the Chinese PMI released on Sunday and no doubt digested in the thin trading conditions of Monday morning.
A specific trade recommendation has been made available to our client base. If you would like to know more, please feel free to contact us.
Regards G.
Update - EUR/AUD - Another look
The option strategies profiled on 9 February (below) have performed excellently. Indeed, I had a number of clients try to express this view in ‘spot’ only to get knocked out with small profits in amongst the early two way chop before the cross took off. Guys with 3 month option strategies are up about 150% on investment at the moment.
Sent: Thursday, 9 February 2012, 12:58pm
Subject: EUR/AUD – another look (buy call option)
Hi again
I have just been exploring other ways to capture this trade as I am very upbeat that Greece will come up with the goods in the next few days. Greece has come this far that it is unlikely to cock things up now especially now that the country is governed by non-politician in Lucas Papademos, a Greek economist who was previously Governor of the Bank of Greece from 1994 – 2002.
His appointment has largely taken the political ‘conflict of interest’ (not having to be re-elected) out of the way. Indeed all the charts, be it EUR/JPY, EUR/USD or EURAUD all scream that the smart guys understand the likely outcome of the PSI negotiations.
A 1 month EUR/AUD ‘at the money’ call option is ridiculously cheap in my opinion at 0.0175 points. The cross went up that far on Tuesday alone, let alone having the opportunity for gains over 1 month.
Look at the long term chart of the levels needed to profit (I’ll expand it on the 2nd chart).
EURAUD Chart – click here to view
A closer look shows that the average move per month over the last 3 months has been about 600 points (premium in this case 175 points) and we know the EUR market is terribly short.
EURAUD Chart Expanded – click here to view
If Greece defaults you have no further risk that your premium paid, no slippage, no surprises.
Regards G.
USD Strength - was that it?
The last two weeks have been categorised by a sharp bout of USD strength.
Since U.S. Fed chairman Bernanke’s testimony to congress on the 8th of March, where he made no mention of another money printing program (QE3), the market has had it in their collective minds that the FED is changing course (super easy U.S. monetary policy has been at the very fore-front of FX moves since the GFC).
This is despite the fact that Bernanke, in his Q&A session at the congressional testimony, suggested that growth wasn’t following the improvement in jobs and that there was a ‘fiscal cliff’ approaching in the form of the withdrawal of some very supportive U.S government spending programs later in the year. Indeed in the FOMC meeting of last week, the FED reiterated their stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. Does that comment sound like the FED are about to change course?
So given my view that nothing has changed what can the charts tell us? Well everywhere I look the charts suggest that the USD strength was short term in nature and the bigger trends are reasserting themselves.
Exhibit 1 – NZD/USD weekly chart. A clear bullish hammer here last week with a similarly ill-fated trip south the prior week both suggestive that solid buying interest is present below 0.8180 (no closes lower than that the last two weeks despite dips toward 0.8060). Further the last 3 weeks appear merely ‘corrective’ to the bigger trend up off 0.7300. Note the gorgeous key weekly reversal at the 0.7300 lows!
NZD USD Weekly Chart click to view
Exhibit 2 – NZD/JPY weekly chart. Arguably the NZD/JPY is the ultimate arbiter of ‘risk’ and this chart is even more impressive. A fierce pullback on Bernanke testimony that was very short lived creating a very significant ‘hammer’ rejection followed by a seeming confirmation move higher last week.
NZD JPY Weekly Chart click to view
Exhibit 3 – The Dow Jones Index. The share market does not look concerned about higher interest rates anytime soon as it surges to new 4 ½ year highs.
The Dow Jones Index Chart click to view
In summation the 3 charts shown suggest strongly to me that the focus on a FED change these last two weeks is ill-considered and the broader conditions that have been in play for so long are now reasserting themselves.
