USD Index chart - Will the reversal pattern be triggered?

So here you go, the USD Index chart (Monthly candles):


The question is; will the reversal pattern be triggered, and if so, will it meets it's objective?

NZDUSD - Event risk may extend negative structure

This Thursday the RBNZ will announce it's next move in the OCR. The current market consensus is for a cut to 4% from 5%, with the likelihood of more thereafter. The structure of NZDUSD is bearish with an extension lower favoured. In holding this bias there is an assumption that the USD will continue to strengthen. That is the only part of the trade that I have a reservation with, as I see the USD index approaching a monthly inverted head a shoulders neckline. It is a somewhat unorthodox inverted head and shoulders, but a reversal pattern never-the-less. I personally favour a failure of the pattern! For those unable to view dollar index data, I will post a USD index chart so that you can make up your own mind!

Returning to NZDUSD, I would suggest getting short on pullbacks towards .5544 with a stop over .5651/.5760 depending on your risk tolerance. Initial target lies on the bear channel support close to the 100% extension of .6080-.5272 from .5544 at .4736. A push out of the channel would ultimately target .4237 the 161.8% extension of the same initial move down.

FTSE100 - Speculative trade

The recent structure of the FTSE 100 lends itself to an opportunistic trade idea. I would suggest buying inbetween 3734.07 and 3665.21 with a target back up at 4530.73. Your stop needs to be placed at a level that is consistent with your own risk tolerance. For a minimum 2:1 profit to loss ratio a stop under 3232.45 is appropriate for entry around 3665.21. In the case of an entry at 3734.07 stops should be under 3335.74.

Alternatively barring a false break under 3665.21, a push lower could be viewed as very bearish, so a tight stop could be employed. That is an individual trade decision. Personally I would allow for a small false break lower.

AUDNZD - New trade suggestion

Last weeks push over 1.2285 has increased the likelihood of a return to 1.2970, and further bolsters the positive structure. I would suggest trying to buy on a return to the the old trend line resistance running off 1.2285 and 1.2200. Idealy a push back to 1.2100 intraday would enable a good risk reward ratio, as any stop would have to be placed under 1.1740.

AUDNZD - The thin end of the wedge

Firstly sorry for the lack of updates I have been very busy indeed.

As returning readers will know I have been touting AUDNZD longs since this blog began. As time passes I feel that this is shaping up to be quite a decent macro trade. Unfortunately my trade suggestion did not get filled for those that placed orders, however, it was well intended. As I hope you are all aware S&P, for what they are worth, have warned that they may cut New Zealands foreign currency rating. On top of that business confidence has hit a fresh 34 year low.

Although the business confidence figures are not unique to New Zealand, the S&P attention highlights just how shallow the New Zealand economy is when compared with Australia. This will simply increase the rate at which capital will leave the country and accentuate the funding problems that the country may be beginning to face.

I will try and provide a technical update at the end of the week, but lets just say that we are on track to re-test the old 2008 high from last July and with that the potential of the wedge break just increases. Once out of the wedge the trade becomes a monster. It is by no means too late to contemplate getting in on pullbacks. Again, I will try and provide some direction on that front, but it will have to be later, probably over the weekend.....

AUDNZD - An opportunistic trading suggestion

What would this website be if it wasn't for AUDNZD! The desired push over 1.2280 did not materialise at first attempt. This could never the less be an opportunity for those wishing to get long to place orders below the recent low at 1.1655, as detailed in the chart above. A complex retracement may be forming with a false break under 1.1655 the favoured outcome. You guessed it, I'm still bullish.....

Whilst writing I would like to point out, however obvious it may seem, that any references to trade ideas are my suggestions, and that anyone wishing to speculate should consider carefully their own parameters and risk tolerance when formulating trades. All trades are executed at the traders own risk.

Indias Nifty 50 - Even more favourable levels

Well what can I say! Considering that most equity markets have had a down week, I think the fall seen in the Indian markets is quite reasonable considering the Satyam news. I continue to be bullish emerging markets, although not all of them, and think that just because 1 in 50 companies has been practicing fraudulent accounting procedures does not imply that they all are. If we assume that this is an isolated case, then this is just a better opportunity to buy into the 50 stock NSEI index. Furthermore, it is my understanding that Satyam will be removed from the index on Monday so it should not really have a long term effect. My prior projections still hold, and lower prices just make the stocks more attractive for a medium term trading opportunity.

EURGBP - Weakness likely to continue.

As per my earlier post (From sweats to shivers; EURGBP, one to watch), there finally now appears to be a more widely held realisation that Germany is going to be effected a lot harder then previously expected. The statistics continue to worsen and now economic confidence in the 16 country eurozone has fallen to levels not seen in the previous 24 years.

Being the worlds largest exporter (Using 2007 figures) and having a strong currency has finally been recognised as a bad mixture! It would seem an export driven market will be fast to recover when there is finally some kind of global recovery, but in the meantime any such region is likely to feel the pinch even harder. It is thus my contention that there are probably many opportunities in markets based on the sudden reversal of perceived fate of the Eurozone. EURGBP may be one good way of playing this theme. The dog of the currency markets, sterling, has armageddon priced in, whereas the EUR is only just turning. Perhaps, as hinted in my prior EURGBP post, the best trade would be to sell a basket of currencies versus the EUR (EURSEK, EURNOK, EURCAD, EURGBP to name a few). In any case you have to choose your own adventure, but I think EURGBP is a good short on pullbacks and see a return to .8233 as likely (see chart above). Another good trade would be to sell EURAUD, which I intend to look at in a fresh post.

It was also interesting to note that a german bond auction failed to be fully covered recently when the equivalent auction in the US was, I believe, covered 2.5 times. Is the bond market also coming to the same realisation now?

USD Index - Slight downwards bias, but pick your pair wisely

Above is an almost up to date weekly chart of the USD index. It is missing the last few hours of trade from yesterday but is more then adequate for my puposes. I continue to be mildly bearish on the USD given the movement of equities and the structure of currency pairs like AUDUSD which I believe has some more upside (I will provide a post about this if time permits). I do however continue to believe that the ECB does not know what is about to hit them. The belief that Germany can avoid deflation or is better prepared to weather the impending storm is ludicrous. It reminds me of the decoupling nonsense that was touted last year. Being the worlds largest exporter and with demand being destroyed virtually everywhere, combined with a strong currency, is a recipe for disaster. Thus playing weakness in the USD index may not be a case of going long EURUSD. If a sell off in EURNOK, EURSEK, EURGBP, EURCAD materialises, on the back of a realisation that a weaker currency may be favoured, for a period, by an export orientated region, the last thing you want to be is long EURUSD. So it's not totally clearcut, hence my slight downwards bias.

Fresh year, same old trade thank goodness!

I thought I would take advantage of the time to take a fresh look at AUDNZD. It appears that the pullback that was expected in my earlier post materialised and has provided a potential higher low from where a substantial extension higher is possible. I hope that some of you have managed to get long on the back of the recent pullback. Yesterdays 'quiet' trade in the currency markets has given us a decent push above 1.2025. I believe a re-test of the high seen on 08 Dec (1.2280) is now highly likely, and with it a return to the old highs from the end of (last) July. As returning readers will know I am an AUDNZD bull on fundamental and technical grounds. Provided we see a push over 1.2280, I think that the projections shown on the chart above are achievable over time. It is also possible that the envisaged extension could enable a break out of the monthly wedge that was referred to in an earlier post (see below). If that does materialise, this is only the beginning of a much bigger move. One step at a time........