US Dollar Entering a Long Term Buy Zone

25. August 2015 · Write a comment · Categories: EDGE Chart of the Day · Tags: ,

The US Dollar (DXY) has been under significant pressure the last week, and we may have just tested a critical support for long term traders who are looking for longs.

Before we take a look at the chart, let’s talk about the reasons (the market believes) the DXY has pulled back:

 

  • Recent market turmoil has traders and investors thinking the Fed won’t raise rates in September, and some don’t think rates will go up until next year. Barclays just revised its outlook from September till 2016 due to volatility in the market. Although I think the market is having a mini tantrum (think taper tantrum in May 2013 when the Fed announced it would taper asset purchases and the markets fell) but I am not sure it is a done deal that the Fed will cater to the needs of the market at this time. Keep in mind this is the Yellen Fed, not the Bernanke Fed. I believe the Bernanke Fed was a little more sensitive to market forces. The Jury is still out with Janet Yellen at the helm.
  • Traders and Investors note that the “carry trade” unwind in the EUR denominated trades are being unwound as stocks and commodities fall. Correct me if I am wrong, China’s rates are just over 4%, Australia at 2%, New Zealand at 3% and Mexico at 3%. Tukey is at 7.5% which could make sense for a “carry” trade. In a world where most central banks are near ZIRP, I can’t see this being a huge catalyst and not very attractive to hold carry trades with such small rate differentials and accounting the volatility associated with holding a trade. Especially with some of the said currencies under performance in recent years. I think the next reason could be the bigger catalyst.
  • The market has been aggressively long the USD this last year. But as Forex Live reported last week, EUR shorts continued to trim positions (previous to the recent EUR surge). Is there still lopsided positioning long the US Dollar at this point? Perhaps, but I would assume after the move in the EUR/USD this last week or so, it is more “neutralized” as US Dollar longs got liquidated.Since the DXY is weighted 56.7% EUR, this may be a key point.

 

How much more US Dollar weakness will there be?

Based on this long term chart of the DXY, I think we are closing in on some serious support.

8-25-15DXYblog

DXY is testing the breakout points from 2004-5, and also still is in a bull flag formation. We just tested this week the 38.2% Fibonacci retracement level near 92.50.

Personally, I am now on the lookout for US Dollar longs.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

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GBP/AUD tested major resistance today

24. August 2015 · Write a comment · Categories: EDGE Chart of the Day · Tags:

Amid all the chaos in today’s equity markets, we have also seen some intense volatility in the Forex market in recent trading sessions. Some traders cite the relentless march of the EUR/USD higher was the big news in the currency market. However I think even the more interesting news is that some of the commodity crosses touched, broke, tested some major levels on the crosses. For example, the GBP/NZD finally tested (and held) a massive downtrend line and inverted H&S target today. Read this post from May of this year.

Another pair that I find extremely interesting is the GBP/AUD. What you will notice is that we have tested (and held) a major Fibonacci resistance level today on a weekly basis.This pair has been a fun long trade in recent months but may struggle with some resistance as seen below:

8-24-15GBPAUD

I believe three things currently that could weigh on this pair. 1) The GBP currency has been drug (tooth and nail) higher with the EUR’s rise against commodity and emerging market currencies. 2) I believe the EUR/USD is due to correct from its recent rise which may lead to a correction in the GBP. 3) I think stocks have the ability to bounce in the coming days, which tends to lend support to commodity currencies like the AUD, which may also lend to a correction of the GBP/AUD.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

 

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EUR/GBP Descending Wedge Breakout

21. August 2015 · Write a comment · Categories: EDGE Chart of the Day · Tags:

The EUR/GBP is posting a big reversal pattern after spending a few months stalling near a major support (161% extension of 2012 lows to 2013 highs). I originally tweeted the chart yesterday, and (full disclosure) have been building a long position in the pair the last week.

One of my favorite reversal patterns are descending (and ascending!) wedges since the initial reversal (thrust) tends to give the quickest push. Take a look at the chart below:

8-21-15EURGBP

Many traders attribute the EUR/USD rally to just USD weakness. I think it is a combination of both USD weakness and EUR strength on many crosses, like the EUR/GBP, EUR/AUD, EUR/CHF, etc. Keep in mind the EUR/GBP is one of the more liquid and highly traded pairs in the world of FX, which is just adding fuel to the EUR “squeeze” fire.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I am long the EUR/GBP, and I am looking to stay long for the days to come.

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Since everyone is looking at the EUR/CNH….we should too!

12. August 2015 · Write a comment · Categories: EDGE Chart of the Day · Tags: , , ,

As Zerohedge has pointed out the big move in the EUR/CNH is causing a bit of a squeeze in Euro pairs, I think we should take a good look at the daily chart:

8-12-15EURCNH

In 2 days we have retraced about 61.8% retracement of the entire 2015 move. Also, from the highs in May 2014 we are near the 38.2% retracement.

The EUR may be close to being finished squeezing here against the CNH for now. Make sure you are careful with EUR/XXX trades from here, especially if you are trading them long.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

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Is Crude oil below $40 a barrel too far-fetched?

11. August 2015 · Write a comment · Categories: EDGE Chart of the Day · Tags: ,

At some point in your investing or trading career, you find out nothing is ever “too far-fetched” for the markets. I can’t tell you how many times I have heard (or said myself) that “there is no way (insert any asset class, stock or market instrument) will drop to those prices!” Or “no way it’s going that high!” The market proves to us time and time again that trends can last a lot longer than most think.

I believe it was best said by John Maynard Keynes, “The market can stay irrational longer than you can stay solvent.”

When I look at a chart of any market, I have to assume prices can go there. Also, I have to think what type of knock on effects it may have on other asset classes in the event it does. Asset classes, like crude oil, have strong correlations with currencies like the Canadian Dollar or the Norwegian Krone because of their heavy crude oil exports. If prices in crude move aggressively, some currencies may also stage an aggressive move as well.

Today Business Insider quoted Jeffery Gundlach in a presentation from December 2014 referencing if crude oil goes to $40 then “something is very wrong with the world, not just the economy.” Fast forward to August of 2015, and we are back near $42, a price that we had been at just a few months ago in March and January right after Mr. Gunlach made that statement. So, here we are again back near those levels. Is it possible we go lower from here? Technically, not only do I think it is possible, but I think the odds are increasing daily that we do visit levels below $40. Take a look at the monthly chart:

8-11-15crudeblog

There are a lot of “days” left in the month of August, so the current monthly bar has time to change. You can see the very large red bar already developing. We are well-situated below the rising trend line of 15+ years. Also, you will notice the last several months we have had a very shallow bounce. Shallow bounces like this tell me there is not much interest to buy an asset class at these prices, even after a steep drop like we have seen in crude oil this last 12 months. In turn, this means that we may have further to drop.

Frankly, I can’t imagine crude oil drops much farther. It sounds irrational at this point. But when we were near $100 last year, it really was no surprise to me that we would come down eventually, as noted in this Yahoo Finance article back in August of 2014. I am unsure how long we will sustain these prices, but I have to ask myself as a currency trader, what am I to do in the event we do break $40 in crude oil and “what if” we sustain these lower levels? As irrational as it seems.

I turn your attention to the USD/CAD. I had been playing on the long side the USD/CAD for several weeks. I have been in and out, booking profits when I can and being very careful about being long as we are near these multi-year highs. With the BOC and the FOMC moving in opposite direction with monetary policies and the persistent weakness in crude oil prices (CAD and Crude are strongly correlated most of the time) this has been a fairly straight forward trade in recent months.

Let’s imagine that crude does break $40, and let’s also imagine that prices sustain these lower levels for the foreseeable future. The USD/CAD currency pair has a long term “cup and handle pattern” which has developed in recent months that point the pair over time towards the mid 1.5000’s exchange rate. Take a look below:

8-11-15CADblog

Here is a chart showing the strong correlation of the USD/CAD to crude prices longer term. USD/CAD is the blue line:

8-11-15CADCLblog

I know it sounds crazy, doesn’t it? It sounds almost “irrational.” C’mon, ANOTHER 2000+ pip move higher in the USD/CAD? Really? That’s just silly.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have both long and short CAD exposure currently.

 

 

8-11-15sticker

Do you think these Canadian/US price differences come back again?

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The AUD/USD is +/- 100 pips from major support, should we be long?

03. August 2015 · 1 comment · Categories: EDGE Chart of the Day · Tags: , ,

The AUD/USD has been in a relatively strong decline since mid 2013, and now we are approaching some critical “confluence” of major support. As you can see on this monthly chart, we are very close:

8-3-15AUDUSD

The lows in 2001 to the highs in 2011, we are at the 61.8% Fibonacci retracement near .7200. The lows post financial crisis in 2008 to the highs in 2011, we are near the 78.6% retracement near .7100. The 127% extension of the lows in 2010 to the highs in 2011 come in just below where we are currently at, near .7230. if you draw a trend line across all the lows that comes in near .7100. Normally, from a risk reward perspective, I would typically get long near here. The risk is manageable in relation to the upside reward for a bounce. However, I am hesitant. Here are some reasons why, compare the S&P to the AUD/USD:

8-3-15AUDUSDSPX

If you add the SPX futures (yellow) to the chart, you will notice until 2013, the AUD/USD and SPX had a very tight correlation. One would argue that because of the slowdown in China and the divergent central bank policies of the RBA and FOMC the two had diverged. The SPX has benefited from continuous loose monetary policies of the FOMC and other central banks in recent years. As you know, this may be coming to an end here in the US. I also believe the SPX is attempting a rounded top formation due to a tighter monetary policy in the coming months. If I am correct, what will the AUD/USD do? With the potential of the FOMC raising rates this year, and at best, the RBA on hold, the AUD/USD may continue lower, especially if US equities head that direction too.

In addition, take a look at the AUD/USD vs. Copper (Copper is the candle chart, AUD/USD is yellow line). Copper looks as if it wants to test the 2.00 level.

8-3-15CopperAUD

This is a big week for the USD and for the AUD. Tonight we have retail sales and the RBA decision (RBA is expected to leave rates unchanged), Wednesday evening is the Australian jobs report. On Friday we are expecting our own employment report in the US, and most are expecting a steady showing of more than 200K jobs again. I suspect after this week we may have a better idea if this is the level we want to be long the AUD/USD, or perhaps we start a new leg lower?

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have no position in the AUD/USD, but may towards the end of the week.

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