Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am currently long the USD/SEK and intend on staying long for several days.
The USD/SEK is attempting a weekly breakout (nearly 4 year trend line) above the critical 5.5600 level. RSI is breaking higher as well, confirming the SEK weakness. Just last week Sweden’s CPI registered the lowest level we have seen in years which confirms the weakness in the SEK as traders and investors fear the Riksbank may take further stimulus measures to fight deflationary pressures. .
The AUD/USD has been working an inverted H&S pattern and counter trend bull flag pattern to the 78.6% retracement just to over .9500.
Assuming the RBA minutes are fairly hawkish we should test those levels later tonight. On the other hand, this is one of the most discussed chart in the FX at this time, sometime traders tend to take profits ahead of the key levels since they know many traders are looking at the same chart.
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am short the AUD/USD near current levels since Friday and am looking to add at HIGHER levels.
False breakout (upside) led to breakdown on the E-mini futures. Range extension targets will be 1790-1775 sometime into next week.
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am short equities via an ETF
From a risk/reward perspective, if you want to be long the USD/JPY or Nikkei futures, this is the time to do it.
However, considering the risks fundamentally (loss of faith of Abenomics, massive JPY short positions, Japan starting its nuclear power programs again, etc) and the risk of the JPY carry unwind (which, as many know I am not a believer of this story but the market still trades on it like the AUD has an 800bps advantage over the JPY still…lol) should risk aversion pick up, you may think otherwise.
I want to turn your attention to the massive supports both sit on:
The USD/JPY is sitting on the massive 101.00-101.50 support
The Nikkei massive support is at 14,000.
If you are like me, and trade correlations, then you also know the JPY (6J) and SPX have a very strong inverse correlation.
And here is the 10 Year and JPY (6J):
Lastly, here is the USD/JPY (candle) matched up with the E-mini’s, Nikkei and Bonds.
Correlations in markets are a lot like dominoes. One falls, it tends to knock down the other, then the other…
Playing long risk is fine for now, but the USD/JPY or Nikkei are so close to support, if they break down, you better “watch your 6!”
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer, I am long the JPY against most major currencies and have been for weeks.
Last week, I was having a conversation with one of my friends, @Vulgi about a research piece that was written by Nordea bank. The research showed how historically the USD would not rally just as the Fed would raise rates. I took it upon myself to look and see if that was the case or not.
As you can see in this chart, since 1970 this is the EFFR (Effective Fed Funds Rate) and the USD overlayed:
The vertical lines are when we started a rate hike cycle (Red) and when the USD rally followed (Green). What I noticed is that the USD (in most instances) rallied quite some time after the Fed actually hiked rates.
The “Taper is not tightening” TV expert monologue may actually be quite true in today’s market. And frankly, even when the Fed (sometime in 2015) decides to hike rates, it may also be true that the USD may not rally immediately following any monetary policy tightening from the FOMC.
One function of the USD that is true at the moment, and has been for quite some time, is that the USD is the reserve currency of choice. Which means, during prolonged periods of risk aversion the USD tends to be the beneficiary.
The USD does have a unique role as the reserve currency of choice for most (for now until there is a better alternative). What you will notice about the chart above, when the stock market moves lower, the USD is usually already in demand, especially in 2000 and 2008. If the Stock market does turn lower in the next couple of months, the USD could benefit from risk aversion flows, and if the FOMC is still hell bent on raising rates at that point, the USD rally could continue.
So, before you get too comfortable with shorting the USD, do take note we are in the “apex” of a long term wedge which make it increasingly difficult to trade.
Also, keep in mind the SPX may be at the upper end, or top, of an up sloping channel of the last 5 years.
One last thought. Steve “Sully” S also said “this ain’t your Daddy’s FOMC” which is very true. This isn’t your Daddy’s market or monetary policy he has ever seen.
Excuse the website for now, it is a work in progress.
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am pretty sure within the next 72 hours I will buy and sell the USD in some way shape or form.
NZD/JPY has a bearish wedge pattern (blue) with the pair looking to break trend line support (red line).
If the pair trades below the 88.50 and close below this level, downside may be opened up towards .8400 in the coming days.
I will update with chart in the event that happens.
Blake Morrow
Chief Currency Strategist, Wizetrade
For those familiar with the NZD/USD and the Milk futures strong correlation (China consumption of milk increasing from middle class….from New Zealand….get it?) we have been following this chart for a while.
Milk is sitting on key support here and next week should Milk futures slip through the red line (support), we will see a nice fall in the NZD (perhaps across the board)
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer, I am short the NZD/USD at .8595 avg
The USD/SEK is threatening some major breakout points. A close above 6.5700 could be potentially a huge move higher.
With Mario Draghi of the ECB intent on capping the EUR/USD and fighting the deflationary monsters at his dorrstep, is seems that other European currencies (like the krone) may feel the heat as well.
Blake Morrow
Chief Currency Strategies, Wizetrade
Disclaimer, I am long at 6.5314
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