EURGBP - Update, and trading recommendation

As per my posting below ( http://you-buy-the-high-i-sell-the-low.blogspot.com/2009/01/eurgbp-potential-lower-high-in-place-at.html) the expected break of trendline support off .7806 and .8844 has taken place. Examining short term structure, which is not detailed in the chart above, there is scope for today's fall to end close to .8820. If this does take place, then there is a possibility of a three legged correction and a return to the .9000 region. If however .8804 is broken to the downside, a bear flag will be triggered with the associated target lower. There is a reasonable chance of a return back to the .9000+ region hence the trade which is detailed in the chart above. Click on chart for a larger image.

I continue to think that sterling has a great deal of negativity priced in. In the balance sheet recession that we are in it is vital to have the flexibility to implement expansionary fiscal policy, as and when it is needed, (providing the debt capital markets don't punish you too severely for doing so). Given that members of the Eurozone are subject to the budget constraints set out in the Maastricht treaty this could turn out to be yet another item to add to the growing list of negatives for the Euro going forward.

AUDNZD - Trading recommendation

Using a daily time frame and taking into consideration the structure present in the market since the low at 1.1655, a reasonable point of entry for longs would be around the 1.2350 region (close to the 38.2% retrace of the 1.1655-1.2800 uptrend). Stops should be placed under 1.2200. Click on the chart for a larger image and further reasoning. Good luck.

AUDNZD - Big picture update with a new monthly candle

For those of you who do not have access to OHLC data I thought it might be useful to provide an update of the chart that first featured in; http://you-buy-the-high-i-sell-the-low.blogspot.com/2008/11/audnzd-history-and-outlook.html . As you can see we are approaching the monthly wedge resistance which comes in at about 1.2915. A break of 2008's high at 1.2970 would thus also lead to a break out of the wedge.

It seems that my expectation of a swift move higher has been proved wrong, but an attempt on the wedge resistance is still expected and indeed favoured by the technical structure. I will post a more short term chart and trade idea shortly.

EURGBP - Potential lower high in place at .9520

Those of you who have been watching EURGBP will have noted it's failure to push substantially higher than the 61.8% retrace of the .9805 - .8833 fall and it's failure to close above that particular retrace level reaching .9520 on 26 January. The weakness since then has now fallen below the 61.8% retrace of the .8833 - .9520 rise! (Hope I haven't lost you). This increases the probability of a push through trendline support off .7806/.8844. A push under this trendline, which is this writer's favoured outcome, would target .8833/.8844 initially, then .8548/.8233 and in my best case scenario outcome, .7947 is possible (see the above chart for details). I give my fundamental reasoning for this trade in

- http://you-buy-the-high-i-sell-the-low.blogspot.com/2009/01/eurgbp-weakness-likely-to-continue.html

and:

- http://you-buy-the-high-i-sell-the-low.blogspot.com/2008/12/from-sweats-to-shivers-eurgbp-one-to.html

so apologies for the highly technical approach now. Click on the image for a larger and clearer picture. I have a GBPJPY idea brewing so perhaps more on that tomorrow. Good luck.

AUDNZD - Building for a break higher and possibly out of the monthly wedge

Long suffering readers of this blog may be fed up with AUDNZD, but I can tell you that now is time to get very interested indeed. We recently met 1.2620 a major extension of the recovery seen since 1.1655. 1.2620 has since been left behind with a minimal retrace. With the RBNZ cutting by 150 basis points yesterday, I belive that the structure I pointed out in http://you-buy-the-high-i-sell-the-low.blogspot.com/2009/01/nzdusd-event-risk-may-extend-negative.html is even more likely to pan out. If AUDUSD maintains a degree of strength which it has so far (I have been watching it all day), then there is every chance that we get a significant extension higher perhaps towards 1.3180/1.4170 as detailed in one of my first posts (http://you-buy-the-high-i-sell-the-low.blogspot.com/2008/11/audnzd-history-and-outlook.html). This would mark the break out of the monthly wedge which is also detailed in the history and outlook post. If that does take place we could potentially have much more of the same to come. We are at a crucial juncture for AUDNZD. It either maintains its twenty year wedge range, or as the AUD now yields more than the NZD it finally makes a break for it and does the decent thing. Here's hopeing for a violent extension and break out higher. There is likely to be a battle by the wedge resistance but it will be stop city just above it. Lets hope those stops are triggered.

Alternatively we see a more substantial retrace, but that is not my favoured outcome due to the failure to stop for breath at 1.2620, but either way it's got to have a go at the wedge this time, surely!

By the way for those not aware, by clicking on the chart above you can view a larger image and stand a chance of reading the text!

A Good Read - The Holy Grail of Macroeconomics ; Lessons from Japan's Great Recession

A book I have been reading recently is a good example of how conventional wisdom can be challenged. The auther Richard Koo puts forward a very compelling arguement based on his observations of corporate Japan, about how corporate psychology changes in the aftermath of a bubble bursting. In essence one of the major assumptions of macroeconomics, that of profit maximization by the private sector is challenged. Evidence seems to suggest that they turn to debt minimization as opposed to profit maximization. Definitely gives the reader plenty to consider, and if anything is a potentially great example of behavioural finance. Here is the amazon link for those that might be interested: http://www.amazon.co.uk/Holy-Grail-Macroeconomics-Lessons-Recession/dp/0470823879/ref=sr_1_1?ie=UTF8&s=books&qid=1233259091&sr=8-1

If you do read it let me know what you think in the comments section.

An AUDNZD update should be with you shortly!

A new deal or a continuation of the bear?

I was looking at the Dow Jones chart after watching a documentary on the 1929 stock market crash and thought about what Franklin Roosevelt must have been faced with back in 1933. He followed the Republican Herbert Hoover, and adopted an economy in total disarray. Sound familiar? Well, look at what happened to the Dow Jones after the FDR inauguration:

So what will happen in 2009?

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.