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Money Matters
- NZD/USD - The standstill provides opportunity
- NZD and AUD - Key Levels
- GBP/AUD - Divergent Central Banks
- Gold & Silver
- NZD/USD - Trend Ready
- USD Pairs - an intriguing week
- USD Pairs - an intriguing week (part 2)
- AUD/USD - Downmove should continue
- Dr Copper - Another clue
- USD - is the recent strength for real now?
- View archive...
Money Matters
NZD/USD - The standstill provides opportunity
All
The NZD/USD pair has been in a particularly tight range for the last 7 weeks. This lack of direction in the pair is presumably down to conflicting forces competing but no one factor prevailing.
NZDUSD – click here to view chart
Whilst this activity can frustrate the active trader it does present significant opportunity for those with a longer term horizon in mind. You see, as the ranges dwindle, the core input for pricing options, the volatility measure, declines accordingly. This phenomenon provides scope to prepare break out strategies at very good prices.
This is nothing other than abiding to the No1 core trading rule………………………. ‘BUY LOW, SELL HIGH’.
In this case we are buying FX options very cheaply and when inevitably, volatility returns to the NZD, the options increase in value.
Whilst I have a very downbeat view of global economic prospects (and thus the NZD) I cannot, as a trader, sit here arrogantly suggesting that the range breakout will certainly occur to the downside. Thus a simple two-directional break out strategy is suggested (there are many but I profile the most simple of them here – the Straddle).
I am going to buy both ‘the right to buy’ and ‘the right to sell’ NZD/USD at 0.8165 (current market rate) into the future.
1 month – Cost is 0.0199 points. So I need the pair to be above or below 0.8364/0.7966 in 1 month
2 month – Cost is 0.0291 points. I need above/below 0.8456/00.7874
3 month – Cost is 0.0376 points. I need above/below 0.8541/0.7789
Now invariably options look expensive on the day you look at them but the number of times my clients have thanked me only a matter of days after we’ve written them is significant.
Obviously for those traders that do have a strong directional bias, the low volatility measure will have a beneficial effect on those wishing to buy one directional options.
Regards G.
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.
USD Pairs - an intriguing week
All
I used the term ‘intriguing’ in my headline but I could just as easily substituted ‘nasty’. My sell recommendation in the AUD/USD was in the money by 100 points the very next day but two days later the AUD/USD was 220 points higher. Only the nimble made money.
Overnight the world seemed to go mad on embracing ‘risk’ but the world economies that I read about look decidedly troubled. Personally I am a bear on global growth which is suggestive of equities going lower and presumably ‘risk’ being shunned. However the charts as I interpret them do not support my view for the moment. That leaves me side-lined.
A few charts of interest that I am watching.
Dow Jones Index – I interpret this chart as the beginnings of a new bear market. The 7 month up-trend has been broken and the rally of the last two days I believe is just a re-test of the break down. Also bear markets are noted for their volatility and where you can see the grinding nature of the last few months up, the latest moves have been very ‘noisy’ (big down, big up).
Dow Jones – click here to view chart
NZD/USD – The kiwi is historically VERY highly correlated to the performance of U.S. shares. And yet this chart absolutely contradicts my equity market view right now. Right now, if the kiwi closes the week above 0.8261 then a ‘bullish engulfing week’ would be suggestive of higher ahead.
NZDUSD – click here to view chart
Not only is the kiwi showing ‘bull’ signals but EUR, AUD, GBP, Gold and Silver are all displaying positive signs on my short term models. Usually I’d just follow them but for some reason I can’t shake the ugly feel I get from reading about the prevailing fundamentals.
Personally I’ll be sitting the week out and looking for more clues come Monday.
Regards G.
USD Pairs - an intriguing week (part 2)
All
Friday’s price action is highly suggestive that my preferred ‘negative equities –slowing global growth’ theme (see below previously) is the prevailing wind. I’m suggesting selling EUR/USD here and now with sell signals in NZD,AUD, Gold and Silver very close at hand.
Technically if you look at the ‘risk’ complex they are all very ‘trend ready’……………..that is they have been confined to very narrow ranges (and thus very narrow Bollinger Bands) for a month or so and that is typically where the best moves spring from.
NZD/USD
NZDUSD – Click here to view chart
EUR/USD
EURUSD – Click here to view chart
Gold and Silver look on the edge of the precipice too with a move through last week’s lows likely to be a precursor to substantial falls.
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.
