- Chart of interest - USD Index (DXY)
- Chart of interest - AUD/EUR (the sleeper trade of 2013?)
- Hopeful for Gold and Silver
- The USD Super Cycle
- Chart of Interest - China PMI & AUD
- NZD/AUD - Sunk by back-to-back poor NZ data
- USD Pairs - All lined up?
- Systematic trading (avoiding the BIG losses)
- EUR poised for higher
- NZ GDP Comment
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Viewing entries tagged with 'AUD'
How strong is the USD ? Is the strength likely to last?
These two questions obviously go to the heart of matters at the moment and if the answer can be found then we can potentially unlock great profits.
After years of being shunned it appears that the U.S. is once again a preferred destination of investment. Since the start of the century, and accelerated by the onset of the GFC, investment funds flew out of the U.S. and headed for emerging markets. Such was the magnitude of the drive to exit ‘old’ for ‘emerging’ that a new term was coined. The rise of the BRIC’s (Brazil, Russia, India and China) was on everyone’s radar ……largely at the expense of the U.S.
However the U.S. has always been an early mover and we must admire them for the significant policy responses that were implemented in the wake of the GFC (compared to say the Japanese after their stock market collapse in 1989 which even until today was never adequately dealt with). These actions appear to now be bearing fruit just at a time when the BRIC’s, particularly China are slowing a touch.
Thus the massive flow of funds from old to new now looks to be slowing or even reversing.
Looking at the DXY chart this theme is strongly borne out.
The monthly chart of the USD Index is particularly revealing. Firstly there appears to be a long term ‘rounding bottom’ formation of some 10 years in the making. And significantly we are on the cusp of 2 bullish engulfing months within the last 4. To me that speaks volumes to the amount of USD buying presently going on. If history generally repeats, then the implications of a close to the month for the USD at these levels, implies multiple months of further USD gains.
The USD Index can be traded via the standard Futures contract or a CFD, both available on your BBY Online platforms. Or you may wish to simply spread USD risk through some of our old favourites in currency land, AUD, NZD, EUR, GBP and JPY. Indeed CHF could be added to this mix as a number of high profile analysts are calling for some serious weakness in CHF going forward, which makes Thursday evenings GDP release for Switzerland a must watch event (6.45pm NZT).
This is one of my dead set favourite trades.
Since the onset of the GFC the Australian dollar has appreciated against the EUR, almost doubling in value as the market sought refuge from the beleaguered EuroZone and finding haven in the high yield, proxy to China growth, AAA rated Australian dollar. What an incredible run.
However late last year things began to change with the Troika providing enough funds, and therefore time, for the EuroZone politicians to make the required fiscal changes i.e. labour market, pension reform etc. Meanwhile the RBA forecast an earlier peak in mining investment and resumed cutting rates.
It is my belief that the NZD and AUD currencies are vulnerable to their own success of the last few years (the cure for a high currency is a high currency – eventually it’ll hurt). I think too that Eurozone data will surprise to the topside in as much as it surely can’t get worse.
Technically the picture looks intriguing. We had the ‘head and shoulders’ break down below the neckline and then, as so often happens the retest. Now we look likely to resume the move that should head towards 0.7000
Recently Gold and Silver have been bucking the trend of a weaker USD, failing to rise despite the moves up in NZD, AUD, EUR and Copper etc.
I find this action rather strange given the background of the FED’s supportive action but you never know if, say for example, the IMF are selling Gold to send bailout money somewhere or if a large gold miner has to put on a hedge due to their treasury policy.
So with the above situation I have been stalking a reason to resume being long Gold and Silver. The action overnight hints that the precious metals may be worth a buy here with stop loss orders below the overnight lows.
1) Gold daily – recall the big picture. Gold has been in a brilliant uptrend since 2001 and in August broke higher out of a multi-year consolidation triangle
A closer look at Gold – support apparent now at the overnight low
2) Silver has a number of similar technical attributes including stopping at the important Fibonacci number, 61.8% decline of the last rise. Also Silver probed below, but closed above, the 4 month major trend line support.
The USD Index has fallen from 121 in 2001 to currently sit at 80 (has been as low as 71 at the height of the GFC 2008).
Essentially the FED’s policies since the GFC have been aimed at devaluing their way to prosperity. Remember when they had a ‘strong dollar policy’ that was quoted by officials at every chance ? That’s right, we haven’t heard that one for a very long time!
I have long maintained that this super cycle won’t end until the rest of the world cries out “Hey, you can’t devalue your way to prosperity at the expense of the rest of us”.
That will likely require an accord of some sort like we’ve seen in the past, see ‘Louvre Accord’ 1987 – halting the decline of the USD http://en.wikipedia.org/wiki/Louvre_Accord and the ‘Plaza Accord’ also 1987 – http://en.wikipedia.org/wiki/Plaza_Accord .
Already we have heard increasingly strained complaints from the likes of the outgoing RBNZ Gov. Bollard, the RBA and the BoE. This I’d suspect is only the beginning and the howls of anguish are only likely to get louder before this super cycle is finished. Unfortunately for our little export orientated economy that probably means coping with a much higher NZD/USD, and worryingly a higher NZD/AUD which recently has served as a bit of a circuit breaker for us.
Looking at the USD Index, the price action since the onset of the GFC simply looks like a consolidation and today’s FED announcement has every chance of propelling the USD down and out of the multi-year triangle consolidation.
NZD/USD at 0.9500 anyone ?
A lovely look at the components of yesterday’s Chinese Flash PMI. Note the big jump in export orders.
The 2nd chart is an overlay of the Chinese PMI plotted against the AUD/USD. 7 years of correlation suggest the PMI will lead AUD higher in coming days.
I have been a fan of NZ’s prospects over that of Australia in recent times given the Canterbury rebuild and a number of droughts around the world keeping NZ’s soft commodity prices elevated compared to that of Australia’s hard commodities. The strategy has given a couple of nice runs higher to trade on the NZD/AUD cross but recent data has abruptly turned that around.
Today’s very weak Retail Sales data, coming hot on the heels of the shocking 13 year high in NZ Unemployment, may see built up long NZD/AUD positions liquidated in coming sessions.
My modelling analysis worked very well today capping the recent bounce in the cross at 0.7860 versus the model sitting at 0.7870/92. The model is splayed wide which is suggestive of a strong move underway and the readings are dropping very quickly. That means selling NZD/AUD around here may have its risk mitigated very quickly, say within 2/3 days.
The daily chart is suggestive of a forthcoming test of one year support at 0.7745. A break of that level could get very ugly indeed.
No one expects that the RBNZ will need to cut because they think the boost from Canterbury will be ‘real’ in the RBNZ’s own words but if the world sinks a little again, we get another decent jolt delaying the rebuild.
I note a number of currency pairs against the USD are all poised neatly below short term resistances. After a long period of (boring) consolidation I wonder will these levels hold once again, confining us to familiar ranges, or are we on the cusp of a break out and a decent trend?
I still expect a resumption of USD weakness on the basis of, all other things being equal, that QE3 will weaken the USD just as the prior installations did. Also I expect Chinese PMI’s out tomorrow to confirm that the worst is behind for the Chinese economy.
I will be buying these pairs (on strength) on a 1 hour hold above the seemingly co-ordinated trend lines.
Fig 1 – NZD/USD
Fig 2 – AUD/USD
Fig 3 – EUR/USD
Fig 4 – GBP/USD
Over the years I have developed structure around my trading to avoid waking bolt upright, in a hot sweat at 3.00am wondering if my trading account has been destroyed. Trust me, I’ve had too many of those occurrences early in my trading career and they are to be avoided.
The market is never the most rational of places to risk your capital and strange short term moves always occur. With that in mind I thought last week’s action in the NZD/AUD would be a great example to document.
The method I employ now for my FX trading is for example, that if I am bullish, I will stay long whilst the price action is above a couple of shorter term moving averages. In effect this method is beneficial in two ways, one it creates a point to place my stop loss orders and two it avoids me ‘falling in love’ with a position (We see the pitfalls of trading through the actions of so many trading clients and one thing that often crops up is that the more a client believes in a trade the more likely it is that big losses will occur because the trader thinks his view MUST eventually happen so he won’t let go of the idea when wrong).
I’ve been long NZD/AUD from 0.7730 as I have been particularly opinionated about the prospects for this cross for many months now. My short term moving averages guided me to have my stop loss working at 0.7795. The unexpected happened early last week with a billion dollar flow from one of the local banks repatriating profits back to their Australian parent – the cross fell (alarmingly, to me !) triggering my stop loss order. Whilst obviously disappointed I knew the trade wasn’t necessarily over because, as the moving averages were still pointing up I needed to place a stop entry order above them to return to the trade should the price action reclaim the ‘model’.
Sure enough the big flow only had a fleeting impact on the trend of this cross rate and I was soon knocked back into being long.
Thus as it panned out I was cut from my long at 0.7792 and returned to the trade at 0.7818. So whilst annoying, the wash up means that I have only missed participating in 0.0026 points of this uptrend whilst avoiding the potential for a much bigger loss (it’s the big losses that see traders ruined). And importantly this trade still looks like it has much further to run with Australia likely to cut rates sometime ahead whilst NZ remains firmly on hold.
There’s two obvious ways to trade the market, get on the ‘rich list’ so that you can cope sitting on offside trades until they ultimately come right, or for mere mortals, trade systematically with appropriate risk profiles and watch your trading account slowly build, avoiding major losses along the way.
Avoid the hot sweats, talk to me and learn how.
Base case is that the (almost co-ordinated) central bank actions of the last few weeks support the market like the previous QE programs have.
Under that scenario we would then expect to see ‘risk’ higher.
EUR/USD moved strongly higher in anticipation of the FED and ECB programs so I view this 8 day pull back since the announcement as nothing more than a profit taking correction (buy the rumour, sell the fact).
Yesterday the EUR/USD appears to have reversed (key day reversal – lower low, higher high and close) and the 8 day gentle downtrend appears to have been broken to the top side.
This should be an important indicator for all pairs against USD suggestive that we will see NZD, AUD, GBP, Gold and Silver all (significantly?) higher in coming weeks.
Fig 1 – Daily EUR/USD chart
Fig 2 – A closer look at the downtrend line via the hourly chart
The last confirming level to cement my view will be if/when the EUR/USD lifts above my model level which is currently falling mildly at 1.2965.
I thought this line from Dominick Stephens, Chief Economist, Westpac, is potentially very telling.
|”New Zealand is going into a bulge of stronger GDP growth|
|fuelled by the Christchurch rebuild. It won’t be sustained in|
|the long term, but it’s got a wee while to run yet before the|
|rebuild peaks in 2014/2015.|
I’m very bullish on the NZD’s prospects against all comers.
A seasoned Corporate Treasurer I know well went to a presentation by the RBNZ two weeks ago, and the takeaway from that was, the RBNZ’s believe the export sector is actually holding up very well in the face of current exchange rates. Further, the treasurer said that the RBNZ’s message was consistent with the anecdotes he was hearing from around the country as well. Now the GDP data confirms.
Given the 3 year bulge of growth that the Christchurch rebuild will add, NZ data is going to look very different from the rest of the developed world for quite some time.
Anyone for NZD/AUD at 0.8800, NZD/JPY at 100 ?
Don’t let your thoughts be bogged down by old norms.