The GBP/USD hourly chart has a possible cup and handle pattern if the hourly chart can push past the 38% retracement level and horizontal resistance that resides at 1.5225.
If the GBP/USD can break higher, the upside target resides near the 61.8% retracement and trend line that has been in existence since July 2014.
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am not long the GBP/USD but may establish a long position within the next 72 hours.
This is a monthly chart of the NZD/USD but probably one of my favorites. The reason why I love the long term charts like this is it provides me a “road” map for a bias longer term and allows me a more directional view when trading intraday or swing parameters.
This chart has a double top near the .8840 from 2011 and 2014. Support is a spike low from 2011 at .7370. A break below suggests a “long term double top” is now in play and a move to .6000 for 2015/2016 may be in the works. Considering the BOC surprisingly lowered rates last week, commodity (broad) weakness, deflationary pressures globally, and the fact that most banks are assuming the RBNZ raises rates another full basis point in late 2015 or 2016, s shift in expectations moving forward could drive the spot price significantly lower.
Here is the chart:
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am not short the NZD/USD currently
The USD index (today) has stopped near its 50% retracement of the highs in 2001, to the lows set in 2008, at 95.48 (50% retracement is at 95.85).
The reason why this should be alarming for USD bulls is the “last time” we had a major bounce from 1992 – 2001 the USD index also stopped near the 50% retracement (high was 121.02 and the 50% retracement was at 121.46).
H/T to @keepitrealdude for bringing to my attention.
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am long USD through the AUD, NZD and CAD crosses. Yes, I am nervous.
Personally, I don’t have the answer to that question. I like to say it is “beyond my pay grade.” However, if you read articles like this, it doesn’t seem so bad. But then again, if you read an article like this, or a speech like this, you may be a little worried if it knocking on our doorstep. Why would we be worried? Today, I read this Bloomberg article on “Draghi Commits to Trillion-Euro QE in Deflation Fight.” And, I know that following central bankers for the better part of 20 years, there is one word they will be wary of using. Yes, the D-word. If you search most “FOMC word clouds” you will notice in recent years “inflation” was used quite a bit. But as you know, especially in the Bernanke era, inflation was used a lot as “lack of inflation” rather than any other way. Looking back, it was obvious, and for years was my reasoning for falling gold prices.
So, back to the original question: Is deflation bad? My experience with deflation is minimal, but my lack of knowledge also provoked me to tweet a chart of the Nikkei, Japan’s stock market. Here is the chart and tweet:
Many refer to the period of 1991-2001 as the “lost decade.” That was the period that Japan realized they were in a deflationary spiral and stocks market bubble popped (obviously) and they fell precipitously from there. Let me stop you now…you can go ahead and comment that I am drawing parallels between us, them, the world then and now. But I am not. Different country, different demographics, different political and immigration issues, etc. What I am showing you is how Japan’s stock market performed during the time of their deflationary period. I recall it well. In 1991, I was stationed in Guam. I was a Marine, guarding nuclear weapons post Iraq invasion. I recall all the Japanese who built massive hotels in Tumon Bay, Guam. And the building (at that time) slowly came to a halt. I noticed less Japanese visiting. What I didn’t know at the time was that Japan was entering the “lost decade.”
Marine Barracks, Guam. Circa 1991 (my picture, and base closed 1992)
I understand why some would say deflation is “not that bad.” But, I also understand the mentality of a consumer in a deflationary environment I also understand I live in a consumer driven society (in the USA). I also understand that Ben Bernanke understood the risks of deflation since he knew that Japan could not turn the tide. It’s a mental state of an economy more than anything, and one that is not easily reversed (ask Japan).
I live in this world, just like you. I have kids that will be in college 10 years from now, and frankly, I can’t afford a lost decade and a 70-80% haircut in equities, can you?
I sure as hell hope Mario Draghi, Janet Yellen and everyone else enjoying Davos (at the WEF) this year can help the world avoid it.
Blake Morrow
Chief Currency Strategist, Wizetrade
Silver has broken a major down trend line, and like it’s sibling (the shiny yellow metal), it is breaking out. The downtrend line has been in existence since its peak in 2011, and we are now testing previous support at the 18.22 level (from 6/2013). This breakout could expose a retracement move towards the $26 (previous support 2012/3) or the $28 level which would represent the 38% retracement of the move from near $50 to the lows below $15.
Here is the chart:
Blake Morrow
Chief Currency Strategist, Wizetrade
The EUR/GBP is testing/breaking a very critical support level which also represents a 50% retracement from the 1999 lows to 2008 highs. That level is at .7750 (approximately).
Here is the chart:
This is one of the most heavily traded currency pairs in the FX market, so this pair could heavily influence the GBP and EUR on the crosses.
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I am looking to establish a short in the EUR/GBP in the next 72 hours.
The GBP/NZD is in process of carving out an intraday inverted head and shoulders pattern. However there is a lot happening in this chart to assist. Take a look:
The 4 hour chart broke to new trend lows after coming out of a triangle consolidation pattern. That likely tripped a lot of “long stops” and signaled new shorts for trend traders. However, the reversal back above the 1.9350 level exposed the possibility of a short squeeze after a false break lower. The current inverted H&S pattern looks set to target the (purple line) down sloping trend line that comes in around 1.9880 after the move above 1.9615 (previous support) today.
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer, I have been building a long term “long” position in the GBP/NZD
I am not sure if it is the fact that I see no reason to actually own a metal that serves really no purpose other than looking good around Mr. T’s neck. Or, the fact that if I own gold I know I am probably on the same side of the trade as Peter Schiff. Whatever the reason, over the last 20 years I have had a difficult time wrapping my head around the idea. I know, I know….as an investor there is a right time and place to put some gold in your portfolio, and in an inflationary period I could see the case. But, as you know, that is not the case, hasn’t been the case, and probably won’t be the case for the foreseeable future.
But one can’t deny that despite the massive rally in the USD over the last few months, that gold should have continued its decline. See chart below:
In addition to the fact that gold stopped falling, it is testing a downtrend line that has been in existence for the last couple years. Read my tweet yesterday here (quite a few comments on this chart).
And if you read here, you would know that the USD over the last couple days has rejected a key level of resistance. So, the question I am asking myself is “if the USD is to decline, pullback, or consolidate in the near term, will gold rally? And if it does, is it for any other reason that a squeeze or poor short positioning?”
If Gold decides to stage a rally from here, I am not sure I can get myself to actually buy it. However, I would like to participate “somehow” and a trader (JessieMacguire) today reminded me of a conversation we had yesterday on my daily webinar about Gold and the JPY. Take a look at the following “strong” correlation between the JPY (6J) and Gold:
Looking at this chart, one would think if gold rallies, the JPY should rally. The 6J is the JPY futures contract, that chart is the “candlestick” chart.
I can argue that this is a tough trade. You would be fighting the BOJ, Mark Cuban, Kyle Bass and every other asset manager from here to Timbuctoo. But for me, that boat (long JPY) could be a little lopsided as well. With a whiff of risk aversion or volatility due to the possibility of the FOMC raising rates sometime this year, perhaps that is the trade I go with.
Go ahead, leave your comments on “why” we all should own gold. You won’t be able to convince me. But that’s okay, I have the JPY!
Blake Morrow
Chief Currency Strategist, Wizetrade
Disclaimer: I have been long some JPY against the AUD, NZD and CHF for the last couple weeks. I am looking to add to my JPY exposure in the future.
I have to break today’s EDGE Chart of the Day into two chart. First is the daily chart od the USD Index, DXY:
As you can see in the “Daily Chart” We have completed two flag patterns. But what is more important is the weekly chart:
We have rallied to major resistance (blue line) from 2005, and very close to the highs at 92.63. (overnight, the high was 92.52).
I suspect the recent run higher in the USD has run its course, or it is close to running its course. There are 3 key events at the end of the month. ECB Meeting January 22nd, Greek elections the 25th, and FOMC Meeting on the 28th. After such an amazing US Dollar bullish run, I suspect that the market could get a little choppy as we complete this major technical pattern so close to key resistance ahead of these key events.
Blake Morrow
Chief Currency Strategist
The CAD/JPY 4 hour chart looks set to play out a bear flag, possibly taking the pair into new trend lows. The key components of this chart is the rejection (late December) of the 61.8% retracement level near 104.00. The pair has barely bounced as (both) risk and crude oil has bounced today. Should stocks and/or crude oil roll back over in the coming sessions we could take on levels below 100.00.
In addition, the White House is threatening to veto any bill on the Keystone Pipeline which should keep downside pressure on the already weak CAD currency.
Blake Morrow
Chief Currency Strategist, Wizetrade
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