Daily Trading Edge

What are the currencies to focus on now?

Thursday, May 17, 2012

The key to trading the pairs is understanding where the movement is coming from. Right now the dollar is moving higher leading the way for the risk OFF environment that is ruling the market and despite the fact that the Dow is not selling off with the same acceleration that the greenback is rallying, there are plenty of pairs that are moving with the fear that has taken hold of the market psyche.

The hesitation I have with the dollar-correlated pair (like the EUR/USD, USD/JPY, USD/CAD) is that the dollar while very strong still has a number of technical and fundamental factors that still has the market-at-large questioning its every move higher. In fact the dollar – despite the move from 80.00 to today’s 81.83 high is still only the transitional stages of an uptrend. The dollar is also nearing the previous highs from December 2011 where the selling pressure was too much for the bulls.

Past performance is not indicative of future results

The dollar was in an uptrend as 2011 wound down. The 82.00 level continues to elude the bulls who cannot find support above the major psychological level. This resistance could cause a shift in the dollar strength that has driven the EUR/USD lower and USD/CAD higher but the dollar is not the only consideration.

 

There is clarity in the yen’s strength, not just fundamentally but technically as well. Consider that the yen is strengthening despite many traders’ concerns about the BOJ intervening. But the previous interventions have not occurred until the USD/JPY has accelerated below 78.00. Even with today’s sharp move lower from above 80.00 (the market exhausted from 80.54) the USD/JPY has yet to break below the 200DMA. 

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Watch for those larger corrections in the trend!

Thursday, May 10, 2012

The risk off environment may be taking a breather and if it does a near-term floor in the Dow and ceiling in the U.S. dollar will be put in place as both these markets are in a chop.

Mind you, shifts in psychology often come in phases and this one will have to begin with a slow down in the RISK OFF attitude in the equities markets. If the Dow respects the previous support area, then the bearish exhaustion could lead to momentum higher, but there must be respect for support first to even attract bullish attention.

Past performance is not indicative of future results

The sell-off into the European close corrected the Dow’s early gains and with a post-Europe low in place, the markets can now determine if risk is going to be able to stay on the table as the Dow’s daily range lows are tested.

 

The yen becomes an interesting currency to then watch during this important session as the strength could begin to see a slowdown as the currency is borrowed/sold in an environment where the Dow to move higher of the range floor and encourage more risk taking. The yen has already lost intraday ground to the Australian dollar, Canadian dollar, and euro.

Past performance is not indicative of future results

The move higher in the AUD/JPY shows that there is some risk appetite returning to the market but notice that the pair is still trading below the 200DMA and has retracted from this level.

 

The tricky part of...

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Three Ways I’m Playing the Euro

Tuesday, May 8, 2012

While I know the EUR/USD is by far, the most popularly traded pair, there are other ways to play the drama unfolding in Europe and with more price and psychological clarity.

One of the first things I look for is a clear psychology on the daily chart of any market I want to trade. This step is as simple as answering the following question: Is the 34EMA Wave moving in either a “twelve to two o’clock” or “four to six o’clock” direction on the daily time frame. This is what I call looking for a trending Directional Bias. If there is a trend on the daily I then know that there is a dominant psychology ruling that market.

Consider that in an uptrend that there is more likely to be buyer support waiting on pullbacks and bullish momentum willing to carry the market to higher highs. On the flip side, in a downtrend, consider that there will be selling resistance on bounces and bearish momentum pressing the market to lower lows.

My focus is preferably on pairs that have trending Directional Bias. Choppy, range-bound markets are account killers. Yet interestingly the news surrounding Europe of course will attract traders to the EUR/USD but there is no clarity in the sideways range on that daily time frame. I think that attention on the euro would be better placed through pairs like the EUR/JPY and the EUR/GBP over the EUR/USD. Let’s take a look at all three and see why.

The EUR/USD is only as interesting at the gap is making it right now. That gap has attracted attention and attention to PRICE (not just the fundamentals surrounding a pair) is a good thing.

Past performance is not indicative of future results

The daily EUR/USD remains in a choppy range and while the move lower has attracted attention...

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AUD/JPY Correction Entry Set Up: Aussie Weakness and a "Risk Off" Play

Monday, May 7, 2012

As the Australian economy and dollar prepare for tonight’s 9:30pm EST release of the Trade balance number, the aussie is rallying against the yen, dollar, and loonie today. But each of these pairs are in bearish trends on the daily time frames, with the best clarity on the AUD/CAD and AUD/JPY.

The AUD/CAD has already triggered the swing short that I highlighted in the prior update, so that’s a trade that is already moving lower.

Past performance is not indicative of future results

The 240-minute AUD/CAD has triggered the swing short as prices corrected higher into the swing short zone between the 20 period SMA close and the 34 period EMA low.

 

With the move in crude bouncing from the 200DMA, the loonie got a boost from a resilient crude oil market but there’s no doubt that the sub-100 level on crude oil remains the line in the sand and crude bulls will want to retake this major psychological level as much as crude oil bears want to see it established as a ceiling.

Past performance is not indicative of future results

Crude oil has bounced with the U.S. equities market holding steady through what looked like a potentially bearish Monday open. This in turn helped the loonie. But remember that the loonie has a hawkish BOC behind it as it may be the first G7 country to hike rates. This morning’s much-better-than-expected Building Permits number helped boot the loonie as well.

 

The Dow Jones Industrial Average...

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Risk is OFF the Table: Set Ups I’m Watching

Friday, May 4, 2012

The exhaustion from the range highs in the Dow have finally pushed the bullish support aside and on the momentum of a dismal jobs number the bears are driving the equities market lower and taking risk off the table. The greenback is rallying even though this could put QE back in focus.

The Morning started with a crude oil market that continued its sell-off from 105.00 without much participation from the loonie. It was a sign that I should reassess my AUD/CAD and USD/CAD shorts.

The Australian dollar remaining weak was not necessarily the concern but loonie weakness was and as the dollar rallied on the miss in Non-Farm Payrolls, the USD/CAD finally began to rally. For an entire session, the Canadian dollar shrugged off the slipped through the 105 support level in crude oil.

Past performance is not indicative of future results

The meltdown in crude has broken through the 100/bbl major psychological level. The risk off that has hit the equities market as the first week of May winds to a close has lived up to the old adage: Sell in May and go away!

 

With the RBA to remain expectedly accommodative after the 50 basis point cut, the Australian dollar will likely continue its slide and this is baked into the cake therefore the AUD/CAD and AUD/JPY are still viable for more shorting opportunities.

Past performance is not indicative of future results

With an intraday correction to the upside – which is not out of line considering the four days days...

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The RBA and the Aussie: What’s being discounted now?

Monday, Apr 30, 2012

In an environment where the quarter-point rate cut seemed to be fully discounted, the aussie’s strength last week was not characteristic of a currency that was about to be weakened by its central bank.

Monday – the day before the RBA decision on rates – and the Australian dollar is weaker out of the gate falling against everything but the weaker loonie. (I’ll cover the loonie in a separate update)

The AUD/CAD is telling an interesting story as the miss this morning in the Canadian GDP not only resulted in loonie selling as the number disappointed but also had an effect on what could be seen as some rate hike expectations unwinding. Since there is a large segment of the market that is strengthening the loonie on expectations that the central bank will hike rates, there has be equally a concern between now and then and weak data could reduce the change of a rate hike.

Past performance is not indicative of future results

The daily AUD/CAD is bouncing into a swing short trigger at the 20 period SMA close and the 34 period EMA high as the aussie’s weakness was outpaced by loonie selling.

 

The likelihood for exhaustion will come as traders refocus on tonight’s RBA event and the rate but in the Australian dollar. The aussie has been sinking again versus the greenback as the daily chart of the AUD/USD has transitioned into a sideways market phase. While there is certainly more bearishness in this pair, the downtrend is no longer intact and therefore today’s move is one of exhaustion against a 50DMA ceiling and the 1.0480 to 1.0500 area that waits just overhead. The AUD/USD also stalled at the 1.0464 high from April 3. The April 3 high is relevant not only because it is a near-term high and a defining level...

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The Fed Aftermath

Wednesday, Apr 25, 2012

In what was an unexpectedly quiet day, the markets didn’t seem to react much at all to the steady stream of potentially volatile events that peppered Wednesday’s trading session.

The early fireworks of the miss in Core Durable Goods Orders set the tone for the morning and – in many ways – seem to be a prelude of the volatility to come, but it never really did.

The Dow tried pushing higher in a show of risk appetite but still could not overcome the resistance waiting at the April 17 high on the Dow Jones Industrial Average waiting at 13,131. The market still remains in the range set on April 17 and prices are approaching the highs of the near-term range.

 

Past performance is not indicative of future results

The Dow remains in what I call the “chop within the chop” as the larger congestion has formed a tighter consolidation inside the range of the April 17 session.

 

This Dow range is important for forex traders to understand because it explains the recent yen movement, the dollar’s holding pattern, and euro’s strength and EUR/USD resistance, as well as the chop that has been forming across multiple pairs.

Let’s examine this because I for one am excited to have the Fed behind us and now perhaps the “guillotine syndrome” will be lifted from the market.

I think the AUD/JPY story continues to be compelling because not only is it still indicating “risk aversion” but the weaker Australian dollar has been one of the more consistent plays in the past week. Whether that be the weakness against the loonie, yen, or dollar the aussie is one of the weaker currencies in the...

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The Dollar’s Squeeze

Tuesday, Apr 24, 2012

I think the dollar’s pierce of the triangle is not going to result in follow-through to the downside. That expectation comes from the back and forth chop that the greenback has been in on the daily time frame. The chop increases the likelihood of exhaustion and therefore pierces - like we see today - have a nasty way of yanking traders’ chains but not garnering sufficient momentum for a sustained move.

The dollar was congesting and as prices traded into the narrows of the pattern, the congestion turned into consolidation. This tightening of the range often promised to be the “coiled spring” that could release higher or lower depending upon who takes control of sentiment as the market is neutral.

By the way, the dollar is not alone in its indecision. The Dow is faring no better as it has yet to close beyond the range of the April 17 candle.

As the Fed decision looms. It’s not surprising that both the dollar and Dow has retracted back into their respective ranges. It’s what I call “guillotine syndrome”. Who wants to stick their neck out in front of such a potentially volatile situation especially when there’s no dominant trend on either of these daily charts?

Just like the pierce of 1.3000 suckered many-a-trader into a short position despite the daily chop on the EUR/USD, I suspect that today’s dollar pierce could be doing the same. Although consider the argument on the bears’ side - and it’s not unjustified: If the Fed signals QE, the dollar will breakdown.

The risk ON environment today certainly was part of the dollar’s weakness but the wick ("shadow") hanging below today’s candle body says a lot about the bears who were unwilling to keep the selling pressure on despite the uptrend line breakdown.

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Tides change: Yen strengthens but not substantially against everything.

Monday, Apr 23, 2012

Friday’s update was a discussion of the weakening yen in light of the risk ON that took hold of the market on Tuesday’s rocket fueled rally in U.S. equities. The shift is not a surprise as the Dow could not rally through the April 17 high. The question is now – with risk OFF the table today – can the bears push the Dow through the April 17 low?

The “chop within the chop” that is the daily chart of the Dow Industrial Average is making for an environment where a session-by-session is needed. Attachment to an intraday trend and expectation of a longer-term organization of sentiment and momentum is not a wise position to be in.

Past performance is not indicative of future results

Expecting exhaustion near the April 17 high means that within the context of today’s move lower, exhaustion should be equally as expected as prices sink through the April 17 high.

 

The fact that I was expecting resistance to hold – due to the market chop – means that as prices sink the expectation holds for buying support to build and despite the fact that the market tested the waters below the April 17 low at 12921, the water was apparently too cold to stay there long.

The Japanese yes has gained against the Australian dollar most substantially today. As compared to the way that it was held up by 81.00 on the USD/JPY and hasn’t mustered too much momentum south of the 107.00 level (despite breaking the major psychological level). For EUR/JPY bears though the 106.80 level holding as near-term resistance is a solid sign of weakness through the “00”. Now is the wait for acceleration and that selling momentum lower as opposed to the bounce from today’s 106.30 low. The yen was...

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The yen continues to weaken with risk appetite lingering

Friday, Apr 20, 2012

The Japanese yen has continued to weaken as risk appetite hasn’t faded from the market psychology yet. With the Dow maintaining gains but remaining rang-bound there is not a strong surge but rather optimism in the market.

The Dow’s strength is weakening the yen. The same yen that was stronger as the Dow pulled back, broke the uptrend on the daily chart, and sunk through 13,000. Now with a choppy range forming and prices pushing higher in the range, the yen is sinking on risk appetite.

Past performance is not indicative of future results

The Dow’s choppy range is now dominating market psychology and pushing the yen back lower.

 

The yen has been maintaining some strength versus the Australian dollar and the U.S. dollar, but the resilient euro has pushed the EUR/JPY higher towards 108.00. The EUR/JPY has got support from the 200DMA which was where the current rally began on April 16 after making at low at 104.61.

Past performance is not indicative of future results

The daily EUR/JPY has bounces from the 200DMA. This bounce is fueled by a stronger euro and weaker yen as risk appetite is taking over sentiment.

 

The question is how much longer can the Dow pressure the highs of the April 17 range before the momentum fades and can the bulls find footing above 13,000? The Dow is not in an uptrend any longer so exhaustion would be expected as prices reach the highs of the choppy trading range but those highs...

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