EUR/USD nearing major resistance

28. January 2016 · Write a comment · Categories: EDGE Chart of the Day · Tags: , ,

The EUR/USD is on my radar today (and the rest of the week) as we are at a major inflection point. This is major resistance here as we approach the 1.1000 level. Take a look at the chart below:

1-28-16EURUSD

In the past, I had looked at the pair as having strong bear flag formation, but a move above the 1.1000-1.1050 level would put that previous analysis in jeopardy:

1-28-16EURUSD1

Conventional wisdom would tell you after the ECB meeting (Mario Draghi hinting at more action in March) and the FOMC a little less dovish than the market expected this week, the pair would move lower from here. But sometimes in the market conventional wisdom doesn’t always pan out.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have no EUR/USD position, but may initiate one in the coming days

 

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Technically, the EUR Currency Looks Very Weak

21. June 2015 · Write a comment · Categories: Uncategorized · Tags: , , , ,

Many people believe that a Greek compromise between the EU and Greece is right around the corner, and it very well may be. Whether one is going to be finalized in the coming week or not, the EUR looks very vulnerable technically, and is probably going to be a good short regardless of the outcome.

If Greece eventually defaults and is shown the exit, or stays in the European Union with a parallel currency, or even stays in the EU with a new set of reforms and possible concessions, it really doesn’t matter. If you think about every one of those scenarios, the European Central Bank will probably have to stay defensive to promote price stability and confidence with ultra-low rates and extremely loose monetary policy for the foreseeable future. Ultimately, that will drive price action in the currency market and keep the EUR single currency pressured.

Below, we will take a longer term technical look at the EUR against most major currencies on the weekly charts:

6-21-15EURAUD

EUR/AUD – Although the pair has seen some recent upside the last few weeks, the pair is trending lower.

6-21-15EURCAD

EUR/CAD – The pair has been attempting to complete an inverted H&S pattern but has fallen short of the objective the last couple weeks. The downtrend line comes in near 1.4000 and is keeping a lid on price.

6-21-15EURCHF

EUR/CHF – This currency pair is one of the more vulnerable currencies in the near term, in my opinion. If Greece and the EU can’t put some sort of “deal” together, a Greek default could lead to a massive rush into Swiss Francs for safety. Despite the hefty negative interest charged on deposits with the Swiss National Bank, most institutions, risk managers, banks, etc. won’t care about that in the near term to ensure the safety of their deposits.

6-21-15EURGBP

EUR/GBP – With renewed beliefs that the BOE will be the central bank shortly after the FOMC to raise rates, the EUR/GBP looks as if we can push levels not seen since 2004 if the EUR continues to weaken.

6-21-15EURJPY

EUR/JPY – The last couple weeks the EUR/JPY has stalled at the Golden Fibonacci ratio (61.8%) and has failed to rally past it (140.75) on a sustained basis. The pair looks vulnerable to a correction now.

6-21-15EURNZD

EUR/NZD – The EUR/NZD sharp correction from 1.4000 has led a test of resistance at 1.6400 in just a couple of months! Mostly this was due to the RBNZ’s surprise rate cut. We can’t rule out further strength here and really is the one currency the EUR has had a lot of strength against recently. After a sharp rally like we have seen here, a likelihood of a correction is building.

6-21-15EURUSD

EUR/USD – The pair has been bouncing in recent weeks as the positioning of USD longs and EUR shorts have been at extremes in recent months. As Marc Chandler of BBH noted this week, the EUR long positions “was the largest accumulation in a year, which itself was the biggest since January 2011.” The EUR looks like we could reach as high as 1.1640 (2005 lows) before turning lower. The setup would be similar to that of the EUR/GBP (flag pattern) which is a continuation pattern of the recent predominant trend.

So, in other words, if a Greek/EU deal does materialize in the coming week(s) I will be looking for the EUR to turn lower after a knee-jerk initial move higher.

There has been speculation recently that if Greece is forced out of the European Union, that the EUR would ultimately rally, The thought process would be if you remove the weakest country (Greece) the Union itself would be stronger as a whole and the EUR would turn higher as a result. Although long time listeners of my daily webinars knew this was an idea I had also subscribed to years ago when the EZ periphery first showed signs of trouble, I still think the “unknown” or fear of the potential fallout or contagion to other Eurozone countries would keep the EUR downside pressure initially before that could take place. Investors loathe fear and the unknown, so I suspect the EUR would stay under pressure until the market was absolutely sure the potential for contagion was contained.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I do not have any exposure in the EUR. I will be looking to initiate EUR shorts in the coming sessions.

 

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ECB is doing QE! Should I still buy stocks?

26. February 2015 · 2 comments · Categories: Uncategorized · Tags: , , , , ,

As my colleague Steve B just said it best today “The best trade over the last 5+ years have been buying the indexes when their respective Central Banks unleashes Quantitative Easing.”

I can’t argue that. Here is the proof:

2-26-15SPX

In November 2008 the Fed started to buy mortgage backed securities with QE1. Since then, QE2, Operation Twist and QE3 have been implemented. Obviously, going long the SPX late 2008 was the right trade.

2-26-15Nikkei

In October 2010 the BOJ announced that they too would implement QE. However it was “Abenomics” three pronged approach that really moved the market higher following QE. Once PM Abe was elected the Nikkei took off. Also, keep in mind the BOJ also did QE back in the early 2000’s but concluded at the time that it did not work. Anyway, since October 2010, buying the Nikkei was definitely the right thing to do. It took some time, but still worked well.

2-26-15DAX

On January 22, 2015 Mario Draghi of the ECB finally announced that they too would finally (long awaited) start QE. The DAX would arguably be one of the biggest beneficiaries of ECB QE and the DAX has responded accordingly.

At this stage in the game we have to ask are stocks are well priced as they were back when the FOMC and BOJ first announced QE? The SPX was falling as a result of the GFC (Great Financial Crisis) and had lost close to 60% of its value from the highs. The Nikkei had been suppressed for years and buying stocks at those levels made sense to most investors from a risk/reward scenario.

Take a good look at the DAX. Following the GFC that had crippled the world’s economies, the DAX Is up over 200%. Is the DAX (or other European markets) that well priced currently? I may not be the guy to answer that question, but I do know the DAX is closing in on a multi-year 161% extension. That’s a number known as a “Golden Fibonacci” level to technicians, and a level I always pay close attention to for reversals (Don’t mind the SPX is at the 161% now, that is for another blog). In the DAX, we trade a few hundred points from there now. I think there could be more upside, but how much more?

2-26-15DAX2

Why do I as a currency trader care? I care a lot because currencies are very sensitive to equity flows. “Risk on” and “risk off” carry a lot of weight in my market from what I trade to what currencies I get long or short. I am sensing we may be closing in on a pivotal high for stocks, it could potentially change my game plan in the currency market. I may be buying more USD’s and JPY in the near term.

When I was a kid, I remember at the age of 5 playing a game called musical chairs. In the financial markets, we play musical chairs all the time when a large move ends. If you don’t have a chair, or have not sold and locked in profits, when the music stops the reversals can by nasty. When you get caught in those reversals its as if the music stopped and you are frantically looking for a chair that is simply not available.

I have a feeling we are nearing the end of the song, and there are not many chairs left. Whenever the music stops, whenever that may be…my opinion is make sure you have a chair. Since the DAX has been outperforming the SPX and Nikkei recently, the chairs in the US and Japan may be taken when the music stops in Germany.

Blake Morrow

Chief Currency Strategist, Wizetrade

@pipczar

 

Disclaimer: I am currently long some USD’s and do have marginal long JPY exposure already.

 

 

 

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Is Deflation Bad?

22. January 2015 · 2 comments · Categories: Uncategorized · Tags: , , ,

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:

1-22-15Nikkei

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.”

MarineBarracksGuam

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

 

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Analysis of Draghi

06. June 2014 · Write a comment · Categories: Uncategorized · Tags: ,

I am attempting to come to grips with my thoughts on the successes of Draghi.  And I think I am looking at him through the wrong set of eyeglasses.

Bernanke was measured by what he was able to accomplish for the American economy.  He kept deflation (mostly) in check, and kept the US stock market from collapsing, even though it took until March 2009 for the trading public to believe him and start buying stocks.

Should Draghi be measured differently?  It seems he is charged with keeping deflation in check also, but to keep the various European stock markets from falling in the future, he has promised to loosen the reins on credit.  Without implementing anything, he has successfully jawboned the market into believing his rhetoric (we will do whatever it takes, part II) and promised future programs, like targeted long term repo ops, but the only real thing the bank did was to change the interest rate structure to one of charging interest on the banks who hold reserve funds overnight with the ECB (what would happen if other banks like the US Fed or the BOJ did that???)

Yes, just like in America, stocks welcomed the move in Europe and the DAX nearly surpassed the 10,000 level for the first time in its history.  Is this what Draghi wanted?  A picture of a growing economy by viewing the strength of stocks?  If so, then he succeeded, and unlike Bernanke, he did not have to spend money to do it.  Bernanke had to implement QE 3 times and spend FED money, Draghi just had to hint at it.

So why in my mind do I measure the success of Draghi by looking at the exchange rate?  With the Euro strengthening on the move yesterday, I was thinking he failed.  With a strong Euro, it makes manufactured products to be exported less competitive.  But who does Europe export to?  They mostly trade amongst their own member nations.  So keeping European companies growing and their stocks strong may be Draghi’s objective.  Bernanke was not measured on the strength of the US dollar, so why should Draghi be similarly measured?  With their strong Euro, they certainly can buy more Chinese imported goods, which they seem to do a lot of, same as here in the US when our dollar experiences occasional bouts of strength.

So changing the filter on my glasses helped me see that Draghi is accomplishing what Europeans want him to do.  It is not necessarily a race to see which central bank can weaken their currency the most so that manufactured goods can be competitive on a world landscape, it is what path is taken to ensure that the stock market or markets governed by that central bank can keep growing.  In the case of Japan, those markets only grow by exports.  In Europe and the US, those markets grow by having access to nearly free credit.

Bottom line, Draghi does not care about the strength of the Euro, so why do we here in America care? Why were so many analysts here in America criticizing him for it?  I think I finally settled this in my mind. I thought I would share it all with you, too.

 

Steve Beilby

Wizetrade Analyst

 

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USD Index “Long Wicks”

09. May 2014 · 1 comment · Categories: Uncategorized · Tags: , ,

One of the best technical indicators for me is when I am looking at a Japanese candlestick on a daily or weekly trend, and see a “long wick” as we near a close or an interval. The reason why this is so powerful is because that means that traders were caught  a little wrong footed early on, and may have got “caught on the wrong side” and are forced to trade the other direction to cover shorts or liquidate longs. Hence a reversal takes place.

In the case of the USD, the market has definitely been bearish. No signs of letting up…until yesterday’s ECB meeting. This meeting has changed the outlook near term of the EUR and the ECB future policy actions, hence the USD index (which is comprised of about 57% of the index) may be influenced as well. Some pundits will say “the ECB has yet to act” but the market seems to care less since it seems to be caught a little “wrong footed.”

Whether or not the USD can capitalize or not on this recent squeeze or not, will be dependent on central bank activity in the coming weeks. However, 2014 has been the year of the hibernating bull for the USD. Don’t look now, but I think the bull just growled at you!

USD Index Daily chart:

5-9-14DXYDaily

 

USD Index Weekly

5-9-14DXYWeek

 

DJ FXCM USD index Weekly (for a little more balanced USD view)

5-9-14USDWeek

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I started buying USD selectively against European currencies post ECB meeting yesterday

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