AUD/USD
The RBA kept rates on hold yesterday; but left the door open for a future rate cut, saying: "The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand." As historically, the RBA has never cut interest rates past 3.00% before, and interest rates are currently at 3.00%, I wonder if they are even considering a rate cut. I think the more plausible likelihood is that they've watched in complete shock as Japanese government officials have effectively depreciated their currency simply by jawboning. Could it be that the RBA is finally realizing that communication tools are an effective path to lower what they have long deemed a "high exchange rate?"
The rate statement, combined with retail sales: Actual: -0.2%, Est: 0.3%, Previous -0.1% (revised to -0.2%) has pushed the AUD/USD to test the recent swing low at 1.0360 where it currently trades. If this currently downward momentum breaks the swing low from December at 1.0345 then a lower low has been put into place, which is a significant bearish signal. The first real range of support below current levels is the 200 SMA converging with a 0.618 fib retracement at 1.0315 with the big figure below it. A close on the daily chart below a previous spike low at 1.0287 should open the door for a further move to the downside.
AUD/USD Range of Support: 1.0315 - 1.0290
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Tuesday, February 5, 2013
Monday, February 4, 2013
Forex Trading: GBP/USD
The GBP/USD rebounded from support during the European session and now appears to be consolidating. The pair has been propped up by the EUR/GBP cross rate, due to weakness in the Euro and European equities across the board. GBP/USD has come down from the 1.6300 area while EUR/GBP has gone straight up, so a consolidation in the GBP/USD over the next couple of days seems plausible. Also, the GBP has depreciated substantially against the commodity currencies recently (GBP/AUD: 714pips, GBP/NZD: 1325pips, GBP/CAD: 582pips.) If the U.S. equity markets start unwinding (down around 1.0% atm), then the commodity currencies should start depreciating against the GBP - giving GBP/USD support.
There's a small price inefficiency that has not been filled yet from 1.5750 - 1.5810. If this price inefficiency is not filled, and price moves below the .618 fib retracement at 1.5675 serving as support, it would be a clear break of the consolidation and opens the door for a move down to 1.5500.
There's a small price inefficiency that has not been filled yet from 1.5750 - 1.5810. If this price inefficiency is not filled, and price moves below the .618 fib retracement at 1.5675 serving as support, it would be a clear break of the consolidation and opens the door for a move down to 1.5500.
Friday, February 1, 2013
Forex Trading: NZD/USD
This is a weekly chart of NZD/USD where an ascending triangle is clearly visible. Ascending triangles usually break higher, rather then lower, because the offers holding price action down eventually get overwhelmed after being tested several times. Here's an example - when price gets rejected for the 2nd time at a level and pushed down, offers begin to build up at that level. When price is trading at say, .8200, and there are very few sellers below .8450-.8475 (where offers are clustered), there's no point in selling at the current level for a longer term trade because price isn't likely to go lower since most of the large traders who want to sell have their offers 250 pips higher then where price currently is. The lack of sellers causes the price to be bid up, until price arrives back at the horizontal line of the ascending triangle and meets the offers (resistance).
(Note: if the price is going up, it's unwise to assume it's due to increased buying power. It may just be a lack of sellers. I know it sounds like a technicality, but it's important to recognize the difference.)
Here we have a Daily chart, where I have outlined a series of higher lows, which signify an uptrend. Note that this triangle on the weekly chart has been compressed into a very small range. A breakout of the triangle is imminent. A breakout to the upside is likely; but we believe there's a chance this could be a false break due to the overbought conditions of equity markets around the world. False breaks typically look like normal breakouts, but they typically just serve to flush out the stops of everyone who was short the pair and to get a lot of "buy stop" orders triggered. Once that is accomplished, price usually rips in the other direction. The key to trading a breakout without getting hurt by false breaks is to get long entries in good places and to get a stop-loss in front of that entry as soon as reasonably possible.
Below is the 60 minute chart with some notations. This is a particularly strong uptrend on the hourly chart driven by fundamental news flow. Absent some highly compelling fundamental reasons to short this pair, the dips should be bought and played for a break of the ascending triangle on the weekly chart.
(Note: if the price is going up, it's unwise to assume it's due to increased buying power. It may just be a lack of sellers. I know it sounds like a technicality, but it's important to recognize the difference.)
Here we have a Daily chart, where I have outlined a series of higher lows, which signify an uptrend. Note that this triangle on the weekly chart has been compressed into a very small range. A breakout of the triangle is imminent. A breakout to the upside is likely; but we believe there's a chance this could be a false break due to the overbought conditions of equity markets around the world. False breaks typically look like normal breakouts, but they typically just serve to flush out the stops of everyone who was short the pair and to get a lot of "buy stop" orders triggered. Once that is accomplished, price usually rips in the other direction. The key to trading a breakout without getting hurt by false breaks is to get long entries in good places and to get a stop-loss in front of that entry as soon as reasonably possible.
Below is the 60 minute chart with some notations. This is a particularly strong uptrend on the hourly chart driven by fundamental news flow. Absent some highly compelling fundamental reasons to short this pair, the dips should be bought and played for a break of the ascending triangle on the weekly chart.
Thursday, January 31, 2013
Forex Trading: Market Update
EUR/USD EUR/JPY USD/JPY
The Euro pushed higher against the Dollar today as there was USD weakness across the board except against the Yen. The Yen pairs were being sold, pushed higher by USD/JPY in expectations of the senate passing the bill to extend the debt ceiling. When the bill passed, USD/JPY immediately pushed higher (from 91.55 to 91.80 in 6 minutes.)
The move higher in EUR/USD was more from the USD weakness than Euro strength today, which can be proven by looking at the cross rates. In the European & US sessions EUR/GBP traded sideways/down, EUR/NZD & EUR/CAD fell, and EUR/AUD traded sideways. It's worth a note that this is the second day in a row the European equity indices have fallen. Most notably the FTSE MIB down around (-3.50%) yesterday and the Ibex (-2.45%) today. EUR/USD could be vulnerable to a pullback IF (and that's a big IF) we see some USD strength come into the market.
NZD/USD
Yesterday we had a rate statement where the RBNZ chose not to cut rates due to strong HPI data. That gave the currency strength throughout today, and was further bolstered after RBNZ's Wheeler made positive remarks about the economy in a speech today. Ironically, Wheeler wants a much lower exchange rate but regularly causes the Kiwi to strengthen with his remarks. If he possessed adequate knowledge about how the markets functioned, he would realize that he could cause his currency to depreciate simply by jawboning without actually having to take concrete steps to devalue it. He's scheduled to give a speech on currencies on Feb. 20th. Maybe he'll figure it out by then.
AUD/USD
We just had Chinese PMI released, and there was a surprising divergence between the government's PMI number and HSBC's PMI number.
8:00pm CNY Manufacturing PMI Actual 50.4, Est. 51.1, Previous 50.6
8:45pm CNY HSBC Final Manufacturing PMI Actual 52.3, Est. 52.1, Previous 51.9
Out of both numbers, we think the government's PMI number carries more weight, because they are typically suspected of tweaking the number to slightly above positive, and would probably not release a print lower than the consensus estimate unless they wanted to keep the number they were releasing and the actual number in the same ballpark. This should cause the Aussie to further weaken across the board going into February's RBA rate decision. AUD/USD is currently in an uptrend, and may be forming a bottoming pattern above the 200 day EMA on the daily chart. If the bottoming pattern does hold, then we favor the Aussie higher through the 1.0650. The number to watch on the downside is the .618 fib at 1.0370. If that breaks, then 1.3050 should follow quickly and the 200 day SMA at 1.0315 should temporarily serve as support.
The Euro pushed higher against the Dollar today as there was USD weakness across the board except against the Yen. The Yen pairs were being sold, pushed higher by USD/JPY in expectations of the senate passing the bill to extend the debt ceiling. When the bill passed, USD/JPY immediately pushed higher (from 91.55 to 91.80 in 6 minutes.)
The move higher in EUR/USD was more from the USD weakness than Euro strength today, which can be proven by looking at the cross rates. In the European & US sessions EUR/GBP traded sideways/down, EUR/NZD & EUR/CAD fell, and EUR/AUD traded sideways. It's worth a note that this is the second day in a row the European equity indices have fallen. Most notably the FTSE MIB down around (-3.50%) yesterday and the Ibex (-2.45%) today. EUR/USD could be vulnerable to a pullback IF (and that's a big IF) we see some USD strength come into the market.
NZD/USD
Yesterday we had a rate statement where the RBNZ chose not to cut rates due to strong HPI data. That gave the currency strength throughout today, and was further bolstered after RBNZ's Wheeler made positive remarks about the economy in a speech today. Ironically, Wheeler wants a much lower exchange rate but regularly causes the Kiwi to strengthen with his remarks. If he possessed adequate knowledge about how the markets functioned, he would realize that he could cause his currency to depreciate simply by jawboning without actually having to take concrete steps to devalue it. He's scheduled to give a speech on currencies on Feb. 20th. Maybe he'll figure it out by then.
AUD/USD
We just had Chinese PMI released, and there was a surprising divergence between the government's PMI number and HSBC's PMI number.
8:00pm CNY Manufacturing PMI Actual 50.4, Est. 51.1, Previous 50.6
8:45pm CNY HSBC Final Manufacturing PMI Actual 52.3, Est. 52.1, Previous 51.9
Out of both numbers, we think the government's PMI number carries more weight, because they are typically suspected of tweaking the number to slightly above positive, and would probably not release a print lower than the consensus estimate unless they wanted to keep the number they were releasing and the actual number in the same ballpark. This should cause the Aussie to further weaken across the board going into February's RBA rate decision. AUD/USD is currently in an uptrend, and may be forming a bottoming pattern above the 200 day EMA on the daily chart. If the bottoming pattern does hold, then we favor the Aussie higher through the 1.0650. The number to watch on the downside is the .618 fib at 1.0370. If that breaks, then 1.3050 should follow quickly and the 200 day SMA at 1.0315 should temporarily serve as support.
Wednesday, January 30, 2013
BeamFX's Managed Forex CTA "Iron Fortress" Returns 18.64% in 2012
In what many consider to be a difficult year for forex trading, Iron Fortress FX USA's G10 FX Program returned 18.64% to investors in 2012.
Iron Fortress came in 7th place on Autumn Gold's Top 50 CTAs Trend Followers List, and 40th place in the overall standings for the quarter ending December 2012 on a YTD basis. Autumn Gold's Reports Include NFA Members Only.
This marks another successful year for Iron Fortress, having returned 22.69% to clients in 2010 and 44.17% to clients in 2012 on an annualized basis.
To learn more about our managed forex program contact us at support@beamfx.com
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. For full details see our Risk Disclosure Statement.
Iron Fortress came in 7th place on Autumn Gold's Top 50 CTAs Trend Followers List, and 40th place in the overall standings for the quarter ending December 2012 on a YTD basis. Autumn Gold's Reports Include NFA Members Only.
This marks another successful year for Iron Fortress, having returned 22.69% to clients in 2010 and 44.17% to clients in 2012 on an annualized basis.
To learn more about our managed forex program contact us at support@beamfx.com
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. For full details see our Risk Disclosure Statement.
RBNZ backs up kiwi dollar jawboning with $199 mln sell down
Straight from the Business Desk over at "Scoop News" for anyone who trades NZD/USD:
Thursday, 31 January 2013, 11:37 am
Article: BusinessDesk
RBNZ backs up kiwi dollar jawboning with $199 mln sell down
Jan. 31 (BusinessDesk) - The Reserve Bank is putting its money where its mouth, selling down its holdings of New Zealand dollars last month as governor Graeme Wheeler continues to call the currency overvalued.
The bank sold a net $199 million in December when the trade-weighted index was an average 73.92, adding to the $64 million sold in November, according to Reserve Bank figures published yesterday. That's the biggest monthly sale since mid-2008 when the kiwi dollar plunged going into the global financial crisis.
Wheeler today said the kiwi dollar, which recently traded at 83.59 US cents and 75.17 on a trade-weighted basis, is overvalued and is the main reason inflation is tracking below the bank's target band.
Mike Jones, currency strategist at Bank of New Zealand in Wellington, said the central bank is backing up its heightened rhetoric with some action, and is signalling a TWI at 75 is too high.
"The bank is walking the talk by selling the kiwi dollar a little more aggressively," Jones said.
Since taking the Reserve Bank reins in September last year, Wheeler has criticised the strength of the kiwi dollar, calling it overvalued and saying it's holding back the economic recovery. He has previously ruled out intervening in currency markets, which he says wouldn't have a sustainable influence on the kiwi.
The central bank last intervened in currency markets in 2007 when it sold more than $2 billion to ease the last peak in the kiwi dollar.
The bank manages foreign exchange reserves to allow for efficient intervention and crisis management, and had an intervention capacity of $9.14 billion, as at Dec. 31.
The last major monthly movement in the Reserve Bank's foreign reserves was $525 million of net purchases in March 2011 in the wake of the Canterbury earthquake when then-governor Alan Bollard made an emergency cut to the official cash rate. The TWI was an average 67.72 that month, 11 percent weaker than the average sale last month.
Jones said the central bank has been running more of its foreign exchange programme unhedged, which is more expensive than running a hedged programme.
"The bank made a whopping big profit in the GFC, but since then, it's been haemorrhaging cash to fund its net short positions," he said. "They're hoping they can smooth the peaks and troughs, and can make some money to offset currency costs."
Article Link
Thursday, 31 January 2013, 11:37 am
Article: BusinessDesk
RBNZ backs up kiwi dollar jawboning with $199 mln sell down
Jan. 31 (BusinessDesk) - The Reserve Bank is putting its money where its mouth, selling down its holdings of New Zealand dollars last month as governor Graeme Wheeler continues to call the currency overvalued.
The bank sold a net $199 million in December when the trade-weighted index was an average 73.92, adding to the $64 million sold in November, according to Reserve Bank figures published yesterday. That's the biggest monthly sale since mid-2008 when the kiwi dollar plunged going into the global financial crisis.
Wheeler today said the kiwi dollar, which recently traded at 83.59 US cents and 75.17 on a trade-weighted basis, is overvalued and is the main reason inflation is tracking below the bank's target band.
Mike Jones, currency strategist at Bank of New Zealand in Wellington, said the central bank is backing up its heightened rhetoric with some action, and is signalling a TWI at 75 is too high.
"The bank is walking the talk by selling the kiwi dollar a little more aggressively," Jones said.
Since taking the Reserve Bank reins in September last year, Wheeler has criticised the strength of the kiwi dollar, calling it overvalued and saying it's holding back the economic recovery. He has previously ruled out intervening in currency markets, which he says wouldn't have a sustainable influence on the kiwi.
The central bank last intervened in currency markets in 2007 when it sold more than $2 billion to ease the last peak in the kiwi dollar.
The bank manages foreign exchange reserves to allow for efficient intervention and crisis management, and had an intervention capacity of $9.14 billion, as at Dec. 31.
The last major monthly movement in the Reserve Bank's foreign reserves was $525 million of net purchases in March 2011 in the wake of the Canterbury earthquake when then-governor Alan Bollard made an emergency cut to the official cash rate. The TWI was an average 67.72 that month, 11 percent weaker than the average sale last month.
Jones said the central bank has been running more of its foreign exchange programme unhedged, which is more expensive than running a hedged programme.
"The bank made a whopping big profit in the GFC, but since then, it's been haemorrhaging cash to fund its net short positions," he said. "They're hoping they can smooth the peaks and troughs, and can make some money to offset currency costs."
Article Link
Tuesday, January 29, 2013
What Will Happen When the Markets Crash?
What will happen when the market crashes?
This has as much to do with the currency markets as it does equity markets, because when stocks begin selling off in a fervor led by high frequency trading (HFT) algorithms that jump in front of orders and accelerate the sell off, the currency markets will follow suit. What does this mean for us the FX market? The textbook answer derived from the crises last year is that when the stock market drops money will flow into the "safe haven" currencies such as the USD, Yen, and Franc.
However, since the market last had a substantial drop the possible scenarios of what might happen in the event of a future sell off have changed dramatically due to recent actions taken by central banks. The question that needs to be asked is: in the next major crisis, will the safe haven currencies of choice be the same as last year? We don't think so.
When it comes to the Yen, why would investors choose to put their money into a currency that they know the Japanese are dead-set on destroying? Various market participants have told us that Japan's economy will ultimately implode, with Kyle Bass's prediction of this event happening 18 to 24 months from now being a fan favorite.
The Swiss National Bank has been directly intervening in the FX market to keep their currency weak and has even gone so far as to have some Swiss banks implement capital controls (customers are CHARGED interest rates on their deposits.)
That leaves the U.S. Dollar. With quantitative easing expected to come to an end in 2014 and interest rates set to rise sometime in the next 12 months after that, we believe that the U.S. dollar will be the primary beneficiary of the next crisis.
So when will the markets crash?
Trying to call the top or bottom of a market and trading it before receiving confirmation from price action is one of the most common ways traders lose money and/or blow up their accounts. My philosophy for trading turns in the market is simple: if I know what I'm looking for when a major turn in the market happens, then I'll know when I see it. Playing a move prior to letting price action confirm my hypotheses has rarely ended well for me.
So for everyone frantically trying to call the top of this market on CNBC, please just chill out. When we get a large exogenous shock, whether it's from political BS in Washington, people realizing the economic reality of the continuing Eurozone crisis, or Israel taking out Iran's nuke sites, it will show up in price action. Trying to trade an event that may or may not even happen is gambling. It's not trading.
This has as much to do with the currency markets as it does equity markets, because when stocks begin selling off in a fervor led by high frequency trading (HFT) algorithms that jump in front of orders and accelerate the sell off, the currency markets will follow suit. What does this mean for us the FX market? The textbook answer derived from the crises last year is that when the stock market drops money will flow into the "safe haven" currencies such as the USD, Yen, and Franc.
However, since the market last had a substantial drop the possible scenarios of what might happen in the event of a future sell off have changed dramatically due to recent actions taken by central banks. The question that needs to be asked is: in the next major crisis, will the safe haven currencies of choice be the same as last year? We don't think so.
When it comes to the Yen, why would investors choose to put their money into a currency that they know the Japanese are dead-set on destroying? Various market participants have told us that Japan's economy will ultimately implode, with Kyle Bass's prediction of this event happening 18 to 24 months from now being a fan favorite.
The Swiss National Bank has been directly intervening in the FX market to keep their currency weak and has even gone so far as to have some Swiss banks implement capital controls (customers are CHARGED interest rates on their deposits.)
That leaves the U.S. Dollar. With quantitative easing expected to come to an end in 2014 and interest rates set to rise sometime in the next 12 months after that, we believe that the U.S. dollar will be the primary beneficiary of the next crisis.
So when will the markets crash?
Trying to call the top or bottom of a market and trading it before receiving confirmation from price action is one of the most common ways traders lose money and/or blow up their accounts. My philosophy for trading turns in the market is simple: if I know what I'm looking for when a major turn in the market happens, then I'll know when I see it. Playing a move prior to letting price action confirm my hypotheses has rarely ended well for me.
So for everyone frantically trying to call the top of this market on CNBC, please just chill out. When we get a large exogenous shock, whether it's from political BS in Washington, people realizing the economic reality of the continuing Eurozone crisis, or Israel taking out Iran's nuke sites, it will show up in price action. Trying to trade an event that may or may not even happen is gambling. It's not trading.
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