Sunday 21 December 2008

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!

Sunday 14 December 2008

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!

Wednesday 10 December 2008

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.

Sunday 7 December 2008

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.