Medium-shading | Forex Blog

November 24, 2009

Weekly Outlook from InnerFX

Filed under: Forex News — Tags: bullish, cambria-math, colorful-shading, data, eurusd, light-shading, medium-shading, priority, short, usd — admin @ 7:49 am

EUR/USD

Yesterday’s rebound against the US dollar (USD) provides a clue about a potential resumption of the longer term uptrend. We’ll see if the euro will manage to hold gains above the fresh breached barrier into the 1.4950 region (which is currently under minor pressure) – formed by the falling trend line coming from 1.5045 over the previous lower highs. In case of an extended pullback below 1.4950, the 1.4850-1.4900 level will eventually limit losses in order to keep the bullish structure under development. I maintain my bullish stance on euro but I’m slightly cautious due to the repeated price action hesitation against the 1.5000-1.5060 top side. As I said earlier today: it won’t be easy to break higher, but it won’t be easy to drop lower (below 1.4800/50) either, while signs of hesitation continue to rule across the board – resulting in short-lived moves in a chop-chop manner.

: EURUSD 4hrs chart 11-23-2009

: EURUSD daily chart 11-23-2009

NZDUSD

In my previous short-term outlook, I mentioned that a pullback from .7440 would probably face solid bids around .7300, and eventually lower – around .7150. The upside remains favored for now as the pullback has faced a solid support, indeed. The rising trend line coming from .6475 also coincided with the recent bottom, so there are some valid reasons to keep the bullish view on NZD valid. Keep an eye on the .7400 handle as a breach is needed to fully confirm that the corrective cycle has ended.

Gold seem unstoppable and continues to rally to fresh highs on a regular basis – recently exceeding the upper boundary of the uptrend channel, as seen in the chart below, and the 1130 region is expected to provide support on pullbacks within the coming days. While it continues to push higher, dollar weakness across the board is likely to continue.

Let’s take a look at current Gold and S&P500 charts: both seem to provide enough bullish clues (for now) to support the ‘weaker dollar’ scenario. The important levels to watch are: 1130 support for Gold; 1095-1100 support region for the S&P500 along with the 1113 resistance.

: Gold chart 11-23-2009

: S&P500 short-term chart 11-23-2009

Have a great week!

Tags: analysis, charts, Conlon, data, dollar, dow, easy, EUR, Euro, eurusd, fx, gold, Il, live, lower, nzd, pair, pairs, scheme, short, Swiss, time, trend, uptrend, USD

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October 21, 2009

The World Series of Money (WSOM)

Filed under: Forex News — Tags: euro, exception-locked, game, light-shading, medium-grid, medium-shading, priority, protective-stop, reference, reserve-bank — admin @ 11:11 am

Currency Markets, Vegas-Style!

Let’s face it; the currency market is akin to the ultimate final table in the World Series of Poker. At that table, you have eight people sitting around, all trying to bluff one another. Some have large stacks of chips, while others are short-stacked. Some like to talk a little more than others, while others prefer to let their cards do their talking. Ultimately, there will be one winner.

And that is where the similarities end. For in the currency market, there are many winners and many losers. But depending upon the actions of one player, a lot of money hangs in the balance. Imagine if every time Phil Helmuth blew up, you just lost some of your purchasing power. Also imagine that you had no choice in which player you were backing and that the player you have to back was based solely on where you live or work. And you’re watching in disbelief as the player you are forced to back is making dumb move after dumb move and slowly running out of chips. Sounds frustrating and scary, doesn’t it?

Welcome to the world as we know it.

And be thankful that the currency market exists! Why? Because even though you may be forced to cheer for the worst player in the room, you can still vote as to who you think is doing the best. You do that by buying the currencies of the strong players, and selling currencies of the weak ones. This is essentially known as a carry trade.

And in executing a carry trade, you also get rewarded by receiving the difference between the higher yielding currency (the one you buy) and the lower yielding currency (the one you sell) in the form of interest.

And just who are these players whose prowess or lack thereof affects the lives of so many? Why it’s the finance ministers, Central bank governors, and monetary policy makers of the most commonly-traded world currencies out there!

(Cue Michael Buffer voice) Representing the Euro-zone is Jean-Claude Trichet. From Japan, Hirohisa Fuji. From New Zealand, Allan Bollard. All the way from the outback of Australia, Glenn Stevens. Hailing from Canada, Mark Carney. Representing the UK, “Swervin’” Mervyn King. And last, but certainly not least, from the United States, Helicopter Ben Bernanke!

So how do you know who is winning (besides looking at the cards or the amount of chips)? Well that’s easy. Look for the guy who keeps raising the pot, and stay away from the guy who keeps telling you he has the best hand, yet keeps folding and has to borrow money to stay in the game. Also, be conscious of who is speaking the loudest but doing the least.

What you also may notice, is that there appears to be one empty seat at the table, as if there should be someone else playing in the game. This person holds a lot of chips, and can be seen giving them to one specific player time after time.

So when the WSOM (World Series of Money) rankings come out, can you guess who’s atop the leader-board and who is at the bottom?

1^st Place: Glenn Stevens, Australia. Shows his willingness to raise the pot and actually does it.

2^nd Place: Alan Bollard, New Zealand. Shows his ability to stay in hands by talking up the pot and may be very close to raising.

3^rd Place: Jean-Claude Trichet, Eurozone. Keeps winning hands because others keep folding to him.

4^th Place: Mark Carney, Canada. Also winning hands because others keep folding, but his talking down of his cards haven’t fooled anyone yet of his strength.

5^th Place: Mervyn King, UK. Not winning many hands, but his erratic play is keeping everyone on their toes.

6^th Place: Hirohisa Fuji, Japan. Just folds every hand and loses his blinds.

7^th Place (Last): Ben Bernanke, USA. Continued bluffing has fooled no one, and is losing hand after hand and has to keep borrowing chips to stay in the game from the player who is not at the table.

Mystery Player: Zhou Xiachuan, China. Doesn’t sit at the table and therefore isn’t bound by its rules. Keeps lending chips to Bernanke and engages in backseat poker playing. Outcome is uncertain as he has never actually ever played a hand.

So, if you are forced to wager and bet on who the winner might be, you just may want to consult these rankings!

To learn more about the currency markets, be sure to check out our currency trading courses!

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September 29, 2009

Yen/Yang?

Filed under: Forex News — Tags: australia, diversify-away, government, japanese, medium-shading, sideways-action, street, united-states, with-the-aussie — admin @ 11:00 am

I’ve written recently about the strength of the Japanese yen and some of the reasons behind the move that brought JPY to an eight month high vs. the US dollar (USD). Last week, Japan’s Finance Minister Fuji had voiced his opposition to government intervention to slow the strength of the Yen, but this week he may be changing his tune. And all of this comes on the heels of the G-20 meeting which wrapped up last week, where who knows what was actually discussed.

Today, Japan reported that consumer prices fell a record 2.4% as deflation is putting further pressure on an already fragile Japanese economy. Combined with the strengthening Yen, this could be a recipe for disaster which could derail economic recovery. It’s no wonder that ex- Bank of Japan Officials and others are back-pedaling from those statements and trying to talk down the Yen, whose strength could harm Japan’s exports.

So what’s going on with the Yen and what does that mean for other currencies and markets going forward? Well if the current correlations hold up, there could be some interesting times ahead in both the stock and currency markets.

Let’s start with a chart of USD/JPY (click chart to enlarge):

Well for starters, the trend on USD/JPY has clearly been down (down means up for the Yen for our currency market neophytes) going back as far as April 2009. However, we’re seeing a huge doji (hammer) on the chart for Monday’s price action which could signify a major reversal. Also to note is that body of that hammer closed just below the lower Bollinger band, which could also been seen as a bullish reversal signal.

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This falls right in line with the new comments that are coming out of Japan that in fact they may not be as adverse to currency intervention as Bank Minister Fuji had just claimed. If deflationary pressures increase, then the BOJ may be forced to intervene in order to spur exports to foster growth and increase employment.

This could reverse the notion that the US dollar has now become the vehicle of choice for the carry trade and could send USD higher as the appetite for dollars picks up. And should the dollar strengthen, than it’s possible that the stock market will decline, as will commodities.

The stock market has had a nice run from its March lows, so a bit of a pull-back may be welcomed. Add to the mix the fact that there is increased chatter about replacing the US dollar as the world’s reserve currency and this time Bernanke & Co. may have to take action.

Just today, Dallas Federal Reserve President Richard Fisher said that the Fed policy reversal could be swift, although he is not an FOMC voting member. This is yet another vocal attempt to re-assure the other nations to stay the course and that the US is not going to let the dollar completely tank.

So the million dollar question is at what point does the Fed reverse policy? Well, it may not be as far away as some market participants think.

Some nations appear to be exiting the recession with New Zealand and Australia leading the way. The global recovery is dependent upon the United States exiting recession, so any sign that we have stabilized could inspire confidence to act.

So while other Finance Ministers are also concerned with the big picture, they also have to look out for their own interests. This could force the Fed to act before they are truly ready, which could send the Japanese yen much lower.

With the all of the uncertainty out there, the one thing we can be sure of is a rise in market volatility, and look for USD/JPY to rise. Let’s just hope this doesn’t take all of the other markets down with it!

To learn more about how to trade currency markets, be sure to check out our currency trading course!

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September 28, 2009

Aussie Leads the Way on Rate Hike Speculation!

Filed under: Forex News — Tags: articles-below-, australia, australian, central-bank, government, governor, interest, medium-shading, need-practice, sound-economy, spending-needs, street, united-states — admin @ 10:26 am

In a Bloomberg report out today, Australian Central Bank Governor Glenn Stevens announced that “government stimulus spending needs to be eased and that interest rates need to be raised” in light of Australian’s expanding economy. This of course is good news for AUD/USD (+.79%) and GBP/AUD (-1.11%) today as the US dollar is now the “carry trade” vehicle of choice and we’ve already discussed British Pound weakness ad nauseam in the blogs articles below.

This means that investors and traders will be selling USD and buying AUD in order to profit from the interest rate differentials. As long as the Australian economy continues to expand, this will be a profitable trade as they are clearly ahead of the US with regard to having a sound economy which will need to “cool off”.

So keep an eye on Aussie strength and both USD and GBP weakness in the days/weeks to come.

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September 23, 2009

Sound As A Pound….For Now!

Filed under: Forex News — Tags: accent, colorful-grid, exception-locked, light-list, medium-shading, plans, reference, unhide — admin @ 10:44 am

Yesterday, the Bank of England vote unanimously to leave the size of its asset purchase plan unchanged at 175 billion pounds and voted to leave interest rates unchanged at 0.5%. This is seemingly good news for the Pound in the near-term, as the currency markets are reflecting this morning with the British pound up vs. other currencies. But what is the outlook for GBP going forward?

Back in August at the BOE, there were some who had wanted even more quantitative easing yet were comfortable with following through with the plans laid out in August, as the September minutes show. So while economic conditions have stabilized just enough to warrant a continuation of policy, is a full blown recovery already underway?

Methinks Not!

Let’s take a look at a few factors that could “weigh heavily” on the British pound and what this means for other markets as well.

For starters, it is commonly known that the British are more “conservative” than their free-wheeling Yankee neighbors across the pond. This means that they usually take more thought-out measures and need more convincing that a dire situation may persist. Thus it is no surprise that they left policy unchanged. Some would argue though that this makes them more re-active than pro-active, and that by the time increased negative forces come to light, it could be too late. Quite the opposite of Bernanke et al. So in this regard, we can’t rule out the possibility of further quantitative easing should conditions deteriorate.

But the British Bankers Association (BBA) just reported that loans for home purchases declined from the previous month and missed expectations, a sign that perhaps their economy is not ticking up or that the QE measures the BOE has taken haven’t taken hold yet as tighter credit conditions haven’t sparked an uptick in demand. Should housing demand continue to fall, then this could prolong the economic recovery they are hoping for.

So if housing prices decline as a result of falling demand, then the BOE might just have to deal with deflationary pressures rather than the inflation they are hoping for. This could mean more QE which would put further pressure on the British pound.

However, in the near-term, I can’t see the GBP falling against the US dollar as Bernanke’s path to dollar destruction has been well-established. As I wrote on Monday, nothing is going to change at today’s FOMC meeting as Bernanke doesn’t want to spook the stock market. And the correlation between the S&P 500 index (SPY) and the British pound (FXB) has been pretty tight. Here’s a 3-year chart (Click to enlarge):

So if we are expecting the stock market to advance on Bernanke’s non-action at the FOMC meeting, then it follows that the dollar should decline and the pound should advance.

However, should the stock market run out of gas later this year, this could coincide with British pound weakness as a result of sluggish economic growth in the UK. This could be the double-whammy that the stock market Bears have been looking for.

But until that occurs, keep your eyes on the British economy and don’t fight the Fed!

To learn more about how currencies and foreign economies can affect your investments, be sure to check out our currency trading course.

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September 22, 2009

That Didn’t Take Long!

Filed under: Forex News — Tags: a-big-sip, accent, confirmation, dollar, exception-locked, light-list, markets, medium-shading, meeting-at-the, only-question, other-markets, reference, the-short-term, unhide, whether-or-not — admin @ 8:14 am

It looks like the markets now are soooo convinced to not expect anything out of the FOMC and Ben Bernanke that they are not even going to wait for the confirmation. Risk appetite is back today in a major way and the dollar is giving back some of the short-term gains I mentioned in yesterday’s blog post and then some. The US dollar is down across the board, most notably against the commodity currencies; kiwi NZD (-2.07%) and aussi AUD (-1.13%). The US equitites markets are positive and its been good morning for oil (+1.82%) and gold (1.48%) as well.

The only question that remains is whether or not the G-20 meeting at the end of the week will change the course that the US Fed is on. I’m guessing that outside of the usual suspects clamoring for a new world reserve currency, everyone is going to be on board as they realize that the only way to see dollar strength is to watch all other markets collapse.

So pick your poison, hold your nose, and take a big sip!

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September 21, 2009

Dollar Strength Going Into the FOMC Meeting, G-20

Filed under: Forex News — Tags: accent, colorful-grid, colorful-list, highly-unlikely, locked, markets, medium-grid, medium-list, medium-shading, meeting-at-the, reference — admin @ 10:08 am

All eyes are on Bernanke and the FED this week as investors are seeking a little more clarity over Federal Reserve Policy going forward and what they plan to do with regard to interest rates. Couple that with the G-20 meeting this week and growing concerns over the rising US fiscal deficit and you have a potentially explosive situation.

However, if you’ve been watching the markets as of late, you would know that the potential for fireworks is highly unlikely. The “Ben Bernanke Show” is in full effect and market contrarians and early participants go through this exercise with every FOMC meeting like clockwork. It basically starts with the US dollar showing signs of early strength, followed by a drop in commodity prices and lower US equity futures. Next, the claim is made that the “fundamentals” are coming back into play and that inflation may be rearing its ugly head. This naturally leads to the conclusion that the Fed may have to start raising interest rates, which send the US dollar higher and all other markets lower—temporarily. I wrote about this earlier as right now there are essentially two trades out there.

Here’s what’s really going to happen:

There is not a snowball’s chance in hell that we’re going to hear anything remotely related to rising inflation. In Bernanke’s mind, we need to RE-flate before we IN-flate. There is no chance that the FED is going to raise rates in this session and it is highly unlikely that he’s going to change the language going forward. Right now the market is still extremely fragile so anything remotely related to the possibility of higher interest rates could send global markets into a death spiral.

Another factor to be considered is that market players are concerned that the FED may signal the end to the stimulus plans. Again, not gonna happen. Bernanke is so concerned with avoiding the Great Depression 2.0 that he will not spook the markets. And even the euro contingent of the G-20 is calling for continued stimulus. It’s more probable that he is going to try to bore market players and break the will of those who attempt to fight the Fed then take action that will potentially harm markets.

Lastly, concern about how the FED is going to wind down its quantitative easing and the potential impact it will have on interest rates is causing investors to take some money off of the table. Bernanke just announced that the recession was likely over last week, so it is also highly unlikely that he would do anything this soon to counter that claim. Today’s markets are more about perception than reality.

So expect the US dollar to strengthen and equities and commodities to weaken going into the FOMC meeting. Smart traders are lightening the load and taking profits, nothing more. While everyone loves to call a market reversal, dollar strength means trouble for stocks and Bernanke just won’t let this happen.

And after the FOMC meeting’s conclusion, be prepared to do just the opposite. The trend for the US dollar is clearly down and should continue for some time, and there appears to be room for stocks to move to the upside.

We’ve all seen this show before.

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September 16, 2009

Currency Markets Drinking the Bernanke Kool-Aid!

Filed under: Forex News — Tags: accent, colorful-list, long-as-the, markets, medium-shading, pizza, recession, the-recession, with-the-risk — admin @ 12:21 pm

It is appears as though the currency markets are believing the economic numbers that are coming out of the US, that inflation is tame at .4% so that there is no chance that Bernanke and the Fed will even consider raising rates anytime soon.

Also, yesterday Bernanke suggested that the recession in the US may have ended. While this “technically” may be correct, I would be a little more cautious before breaking out the pizza and ice cream just yet.

Nevertheless, the currency markets are acting predictably, with the risk trade back on. As a result, NZD and AUD are the big winners so far today, and USD and JPY the losers. NZD/USD (+1.14%) and NZD/JPY (+1.19%) showing good gains for the Kiwi, with Aussie right on its heels AUD/USD (+1.00%) and AUD/JPY (+.98%).

As long as the cheerleading keeps coming and the numbers don’t look too bad, look for these trends to continue. And hope that the party doesn’t end too soon!

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