Seasons Greetings

With the christmas holidays now in full swing I would like to take the opportunity to wish all of the readers of this blog a fine christmas. I will aim to update a bit more frequently in the new year, but in the meantime I am taking a step back from the markets to allow some fresh ideas to grow. All the best to my readers and may your/our trading improve in the new year!

India's Nifty Fifty - Recovery favoured

Last weeks close above the 2860 level, which ties in with the lows seen on 06/07 November, now makes a continued recovery more likely, with a return to 3240.55 favoured over coming sessions. If this is breached on the upside, there is scope for a retrace to around the 4000 level, near the 200 day moving average.

USD Index update - Click on charts for larger image

As promised here is the USD Index update. Last weeks push below 83.823 bodes well for further declines in the index, however a sustained fall below this level is required. Support is seen around the 38.2% retrace, as shown above, near 81.67. If trendline support around these levels fail then a return to near 77.49 is favoured. Strength in equity markets goes hand in hand with a sustained fall in the USD Index, so attention needs to be paid there too.

Looking at individual currencies versus the USD, we can see some decent signs of reversal patterns, namely USDSEK exhibits a possible double top (above left), and USDNOK a triple top (above right). Continuation is now required. Returns to 5.8500 and 6.8500 in USDNOK, and USDSEK respectively are possible. The USDSEK double top requires confirmation with a fall under 7.8057.

Apologies for the placing of the images, I played around for long enough and just cannot get the layout I want. I guess seperate posts would have been better. Enjoy!

Dollar Index update

I aim to do a dollar index update as soon as I can get the latest OHLC data. Given my housebound flu status this can only be achieved on my return to work....

From sweats to shivers; EURGBP; one to watch

Being a daily user of the underground I have finally succumbed to a heavy dose of a variant of the flu. I have spent most of the night either shivering uncontrollably or sweating like a pig. This swing from one extreme to another reminds me of markets, how supposedly purely capitalistic systems are now turning to socialism.

With extreme positioning in mind I took a closer look at EURGBP. I have been a EURGBP bull since the lows back in 2007. The Eurozone's main engine Germany has recently released some dire figures with their industrial output being one of note, a worse than expected 2.1% fall during October. Given the fact that Germany was the worlds largest exporter of goods in 2007, just ahead of China and the US, any impact on its industrial output will have a material impact on its domestic economy. In currecy markets EURSEK, EURNOK, EURGBP are all at, or near, all time highs and EURUSD has not been hit as hard as other dollar rates in the recent bout of dollar strength. Thus it appears that external demand for German goods is faltering as the EUR maintains its strength. This is unlikley to be a coincidence.

Returning to EURGBP, I see the .8950/.9000 region as offering a reasonable zone to exit longs and depending on price action, should it get there, could act as a place to get short. EURGBP may have the red hot sweats now, but Germany is showing the first signs of a bout of the flu. Given Germany's position as the engine of Europe, combined with the peripheral economic basket cases of Italy, Spain, Portugal and Ireland, a chilling of economic conditions in Germany, may lead EURGBP to experience a swing from sweats to shivers.

USDCNY and mixed thoughts

I was reading an article in a well recognised daily financial publication last week showing the movement of the CNY versus the USD, and thought that should the Chinese monetary authorities decide to reverse the steady rise of the Yuan that has occured since 2005, this could have quite a material impact on the dollar index, and may be the last blowoff move required before a re-newed phase of dollar weakness can begin.

These thoughts also tie in with an observation that I have made over recent sessions as I have been sat in front of my terminal at work, witnessing the strength in equity markets and the selling of the USD. To this end I decided to take a look at the S&P500 and saw the formation of a pattern that in the world of technical analysis is termed an inverted head and shoulders, with a 'neckline' as shown in the chart above. A break of the 900 area could thus trigger a substantial move higher. However, these patterns are really only good for offering targets in the event that they work, and in my opinion sometimes the real wedge is to be made when they fail. In this case a failure would target a return to the annual low.

Thus could it be that the fate of the USD and S&P are inexorably linked? There is a degree of logic in that many of the constituents of the S&P500 gain large portions of their cashflows from operations external to their domestic US markets. Thus when they repatriate these cashflows for the purposes of producing finacial statements, a weaker USD equates to a higher cashflow and thus we have the link to stock prices; a reason why excessive USD strength is unlikley to be favoured by business leaders. Could we be entering a period when s/he who has the weakest currency has a chance of some re-orientation of GDP towards net exports? Afterall, the consumer is dead.

AUDNZD - Scope for a pullback

Resistance has been seen around 1.2200 in the last few sessions. This level also constitutes a projection of the initial move up from the 1.0630 low. Thus this seems like a reasonable area for a period of consildation to occur, or a correction lower. As detailed on the chart above, possible points of entry for longs are around 1.1800 and 1.1600, with the 1.1800 level tying up nicely with the low seen in mid Sepetember. A fall beneath the 1.1400 area which is also a likley area of support would question a return to the high at 1.2970, and lead your humble scribe to be grateful for his anonymity.

AUDNZD history and outlook

Here is the AUDNZD chart, as mentioned below. If anyone out there has more data I would be grateful if they could leave a comment and then maybe we can arrange for the data to be sent over to me so that I can get a better history. In any case we can see that the pair has been trading in a monthly wedge for the last twenty years. However the recent attempt at meeting the lower wedge support has been rejected with a swift push higher again. Based on the reasoning below I favour a return towards the recent high at 1.2970, and then should the wedge break to the upside, I have projected targets at 1.3180/1.4170/1.4760 further out.

Evidence; Big purple wedge = 21%

So here is the New Zealand export data for the last year. I eliminated all trading areas apart from 'Europe', and have just left the countries, (please see the key). In any case it turns out that my assumption was correct and that Australia is the largest trading partner of New Zealand. The Australian wedge of the pie represents about 21% of trade so quite a big slug. A monthly chart will follow shortly.....

AUDNZD - The beginning of a trading idea.....

I was talking to a friend today and we are both coming round to thinking that there is potential for AUDNZD to behave in much the same way as EURGBP has done in the last couple of years. In making this analogy we are thinking of NZD as being like GBP and AUD as being like EUR. This is not based on debt levels as such but by virtue of the fact that it is our assumption that New Zealand is more dependent on Australia economically then the other way round. I am getting some basic data sent to me to be able to manipulate it and will hopefully have a pie chart up soon.

New Zealand has been in a similar position to Iceland. It has experienced a vast inflow of capital due to its high interest rates (which are falling). This capital is now being withdrawn rapidly, and although not quite an Iceland, New Zealand is unlikely to have the depth in it's economy, when compared to Australia, to weather the contraction in liquidity and credit.

In the medium term, trade will be one of the few things that can relieve the likely economic situation that is unfolding for New Zealand. Thus a weak currency versus it's probable biggest trading partner is desired. I will upload a chart of the pair soon with some analysis. In the meantime I am left thinking that there must be an upwards bias to AUDNZD over coming months. I intend to look into this more and will update soon.....

USD Index hints at near term dollar weakness

The extension shown above appears to have exhausted itself. This combined with MACD divergence points to a sharp fall back to the 75.90- 80.00 region, before the possibility of a continued recovery in the USD index. This may also coincide with some strength in global equity markets, but that remains to be seen. A 25% apprcaitaion in the index since Mid July is quite a move. If this were to continue at the same rate going forward the US would price itself out of any hope of an export led recovery. To my mind this is one component of GDP that may enable the US to begin a recovery, but that would surely be made more sustainable if the USD were weaker not stronger. But more of that later.........

Swedish Krone update

Following on from my post below, I have updated the USDSEK chart and continue to view recent price action as being conducive to a substantial pullback. Although the high on 27 October was breached, in doing so a rising trend channel was created followed by a false break higher. This has now led to a push below the channel support. Incidentally The USD index also looks weak so targets between 6.8400 and 6.4400 are still reasonable. I will try and write a Dollar index post shortly.

The Swedish Krone, a possible buy at these levels

Falling inflation, and central banks that recognise it, have on the whole been rewarded. The Riksbank cut interest rates by 50 basis points on 23 October with more to come over the next six months. With dollar strenth somewhat over extended there is scope for a pullback in USDSEK before the potential for more USD strength. The extension shown in the chart above may unwind providing, the recent high is not broken. The danger to this trade is that the dollar index continues to head higher up to 91/92. Nothing travels in a straight line, and with the US shedding jobs at the rate revealed on Friday, the ability to export their way out of their troubles will be dented if the dollar continues to strengthen in the manner witnessed over the last 3 months. I appreciate the arguement about this being a consumer led recession, and the implication for the US current account and global liquidity, but the risk reward in my view is skewed to selling USD over the next few weeks/months. If the trade gathers momentum there is scope for 6.8400 and possibly lower.

Introduction

Dear visitor, welcome to You buy the high, I sell the low. With any luck this blog will be a place where you can visit to get some ideas for macro trading, and may at times be used to share ideas on economics and politics. I hope you enjoy the content and that you will re-visit many times in the future.