“30 Year View” of the USD

I was reading an article in the FT last night (forwarded to me by @P_Ambrus) and could not help to read the quote – we are “in a different world than in 2005-11” over and over again. That quote got me thinking…

Let’s take a look at the 30 year chart of the USD index:

Take note that from 2005 to 2011 the USD did drop precipitously. And if this article has any merit (or, perhaps the China data is relevant and has merit), the USD has been basing for the last year and looking to put in a longer term reversal. I have been saying for the last year that the USD is in a trend reversal (process) and about to shock the world as we rally back to 100. Macro view supports this too. Think: China and BRIC slowing, interest rate differentials shifting, Europe recession and debt crisis, US economy underlying strength (yes, questionable), USD’s coming home, etc.

Maybe…just maybe…I’m wrong…but are you sure about that?

Follow me on StockTwits or Twitter @PipCzar

 

Disclaimer: I have no USD position at the moment, but predominantly trade the long side every day.

$GBPAUD Back on my “Radar”

The GBP/AUD has been really good to me over the last couple months. Back in March we identified a “rounding bottom” and then in April we identified a “cup and handle” formation. For me personally, they were some of my best trades of the quarter. And now, the pair is back on my radar for another long setup.

Currently, the pair is breaking a daily downtrend line, which (possibly) is setting up for a longer term flag pattern (see below). This corresponds with the other flag patterns and correlated market setups I am seeing on a weekly basis. Most other markets are pointing to a prolonged period of risk aversion (see weekly copper and USD charts) which would explain the possible rise in the GBP/AUD exchange rate where traders sell the high beta currencies like the AUD and buy back the lower yielding ones like the GBP. With the daily chart breaching the upper trend line and intraday charts showing a possible bullish wedge, the GBP/AUD may be ready to stage another rally to challenge recent highs.

Daily trend line break and possible longer term flag pattern

Intraday bullish wedge pattern sitting on minor trend line support

Above you can also see the correlation the GBP/AUD has to the SPX. Scary, isn’t it?

You can follow me @pipczar on StockTwits or Twitter

Disclaimer: I have no position in the GBP/AUD….yet.

 

 

What do I do with “This” Chart Pattern?

I absolutely loathe the infamous Head and Shoulder’s pattern. If there is any chart pattern in the market I dislike, this is the one. I hate that they are unreliable, poorly analyzed (buy some of the “best” technicians) and risk/reward is spotty at best. Worst of all the most over hyped chart pattern I have ever seen.

However, should you respect it?

You bet.

Should you respect it when you see it line up on multiple markets at once?

Absolutely.

So how do I treat them?

I let them help and shape my bias from day to day. Typically I will not try to play them as a pattern (trade and let them complete to targets or stops) but help them formulate my bias for the coming sessions (or hours if seen on an intraday chart).

See daily charts below:

I tweeted this on Stocktwits @pipczar earlier today (daily SPX)

There are plenty more to show you. The last chart is the USD/JPY and that pair will play out (more than likely if it is going to) after the FOMC tomorrow. However, the fact of the matter is that the AUD/JPY, USD/CAD, SPX, 10 year (chart not shown) and others are pointing to a market that once to take risk assets higher.

Although this goes against my longer term macro view of the markets, the charts don’t lie. Tomorrow post FOMC these charts could be turned upside down, but for now we have to respect what we see.

Disclaimer: I am long the AUD/JPY, USD/JPY and short the USD/CAD. I am unsure if I will hold them through tomorrow’s FOMC meeting.

Sunday Weekly EDGE 6-17-2012

First and foremost, Happy Father’s Day to all the Dad’s out there. Keep up the great job being a positive role model for all the younger folks out there.

Today we are awaiting the results to the Greek elections. As of right now, exit polls are indicating a possible majority of the New Democracy (ND) and a win would quite possibly gap the market higher this evening. Traders on my stream are saying that pre market indications are showing the EUR/USD trading in proximity of the 1.2700 level. Here is an update from Bloomberg.

(Update: Looks like the ND will win, so seeing if they can form a grand coalition)

In other election news, French Socialists win absolute majority in parliament.

AEP say that is really doesn’t matter what party wins, Greece is out of here…

Here is an interesting article that got some attention on Friday of last week. However, if you have not heard about the “not so secret” EU summit document circling around about a banking union, here is it.

Don’t forget that this week the FOMC meets and there is speculation that the Fed will do “something” with operation twist with the recent slide in economic data. Considering the USD is already on its back foot with last weeks sell off, extending operation twist could further pressure the buck. Inaction of the Fed would catch the market off guard (in my opinion) since it is widely believed they will act this week.

Economic data that may have a high impact to the market this week will be pretty light but the data coming out is pretty heavy. Aside from the G20 meeting the beginning of the week, we have German ZEW on Tuesday,  FOMC on Wednesday with NZD GDP later in the day followed by China Manufacturing PMI later that evening. Thursday retail sales from GBP and CAD followed by existing home sales and Philly Fed from US. German IFO and CAD CPI round out the week on Friday.

Company earning as fairly light this week, but a few that caught my eye were FDX, DFS, ADBE and JBL on Tuesday. BBBY and RHT on Wednesday. KMX and ORCL on Thursday. DRI and CCL to finish up the week on Friday.

Lastly, most of you know that my team and I broadcast daily from 6AM ET through the NY stock market close. To access our live webinars daily (which are free, and our live in the market analysis has been for nearly 9 years now) just click on this link. Make sure you follow me on Twitter or Stocktwits @pipczar for my thoughts as the FX market opens this evening.

Here are some charts which I think will matter for the markets this evening and this week:

I know I’m not the only trader looking at this ES daily chart.

I am assuming both trend lines in the EUR/USD and AUD/USD get hit. “How” the market reacts to them will determine my action this week.

Anticipation vs. Confirmation

Many traders (myself included) like to trade in “anticipation” vs. “confirming” a move before it takes place. For me, usually it comes by confirming a technical, macro view, and intermarket correlation at once. That multiple mode of confirmation usually allows me to make that decision. However, I consider myself a fairly advanced trader so it is a methodology that I personally practice when I get the opportunity. When teaching less experienced traders I usually tell them to wait for the “confirmation” before getting into a trade. But yesterday, I was a bit “anticipatory” in one of my trades so I thought I would share with you how I typically do it, at least from a technical perspective.

NZD/USD

Today, the NZD/USD is a good example since I saw this technical formation developing yesterday:

Yesterday this was the chart I posted on @StockTwits as we were looking for a move higher in risk assets and a move beyond this bullish wedge on the 4 hour chart. Since this was before the breakout, and I was “anticipating” I took a ½ size position long at these levels. If the trade worked against me, I would have reduced my risk and limited my losses since the position was ½ size.

Fast forward to today, you can see the pair has now moved to the breakout area and looks to be moving to the .7900 level which would be channel resistance. I have since added to my position and now my cost average is below the breakout point and stop is at breakeven. So if it is a false breakout and I get stopped out, no harm no foul. However, if it moves up to my target area I have a descent cost average and full size position to work with.

 

Disclaimer: Currently I am long the NZD/USD from yesterday and today. I could be minutes from being limited or stopped out of my long.

Sunday Weekly EDGE 6-10-2012

Unless you have been under a rock since last week, you probably know that Spain was seeking a bailout from the EU this weekend, and they did get it (125 billion USD). The full story here. Interestingly enough, pre market indications do not show the EUR/USD gapping up that strongly at the moment, but don’t let that fool you. The market could very easily make a run higher as retail traders come through the door. But there are some questions regarding the Spanish bailout that could be holding the EUR/USD back at the moment (thanks @spz_trader for the link). I think the best course of action that I talked about on Friday is to watch the EUR (and the rest of the FX market) within the first couple hours of the open. Price action at the open and within the first couple hours will be key. I have a plan on how I will be looking (and possibly trading) the EUR/USD below.

A couple other stories that caught my eye:

China released a lot of data over the weekend, with CPI below forecasts along with Industrial production and retail sales slightly lower on Saturday. Trade balanced did manage to top forecast. Here is a story from Bloomberg on the data releases.

Here is an opinion piece in Bloomberg on how Germany should leave the Euro, not Greece. If you listen to my daily webinars, you know why I disagree how this would ever happen.

As you can imagine, with Greece, comes Spain, comes…well, the other periphery is lining up now (imagine that!).

Economic data that may have a high impact to the market this week will be pretty light. Tuesday we have manufacturing production in GBP, Wednesday we have PPI and retail sales in the US, with the NZD rate decision and press conference following that evening. Thursday will be CHF rate decision (which the risk will be raising the floor from 1.2000 to 1.2500 on the EUR/CHF exchange rate by the SNB) followed by CPI and weekly unemployment claims in the US. Late Thursday night/Friday morning will be the JPY rate decision and BOJ press conference. Obviously some rhetoric on the “strong JPY” is coming that evening. Lastly on Friday we have University of Michigan consumer sentiment here is the US.

Company earning are fairly light this week, but a few that caught my eye were FNSR on Monday. PIR, KR and CPST on Thursday.

Lastly, most of you know that my team and I broadcast daily from 6AM ET through the NY stock market close. To access our live webinars daily (which are free, and our live in the market analysis has been for nearly 9 years now) just click on this link. Make sure you follow me on Twitter or Stocktwits @pipczar for my thoughts as the FX market opens this evening.

Here are some charts which I think will matter for the markets this evening and this week:

EUR/USD trading plan above

E-mini futures this evening will (unfortunately for you equity traders) be influenced a lot this evening by the EUR/USD

Both weekly charts of Copper and Crude look very similar, but both sitting just above key support levels. Either one breaks last weeks lows and we could see some “risk aversion” hit the market.

$EURUSD – Why Prof. Roubini And Ferguson Weekend FT Op-Ed Cure Is Academic Hot Air..

 

Why Prof Roubini And Ferguson Weekend FT Op-Ed Cure Is Academic Hot Air..

 

 

 

 

 

 

 

When I read an op-ed like “Berlin Ignoring The Lesson Of The 1930′s” by Prof Roubini and Ferguson it is impossible to remain silent. So full of themselves and full of it..these two academics talk theory well but seem to have little understanding of what actually drives human behavior. When I read their history lesson and Germany must do prescription I think it absurd. More so to blame Germany’s “too little to late policy”  as part of the problem ignores the real problem completely. The problem is clearly ego, vanity and disingenuous fraud  ..on the part of EU leaders (Sovs and Banks) and perhaps the esteemed professor’s.

First The Professors

Would either risk 50% of his net worth now and promise 50% of the next 10 years (at risk) earnings power to save a distant financially irresponsible relative? How about 5 different distant relatives that all speak different languages and their families? And of course the economic reality these relatives can not possibly change their existing debt load, operating expense structure, production capability..

Reminds of Warren Buffet’s pay more taxes so the US government can become larger, more cumbersome and useless as he then donates the majority of his net worth to avoid the same government flushing the fruit of his life’s work down the good intention toilet.

So like Warren Buffett does not do what he says others should do ..So to the Professors would not do what they say Germany should do. Spending other peoples money in op-ed print is fun… but what about the meat of the rest of their educated prescriptions. Here they fail also.

#1 ->“First, there needs to be a programme of direct recapitalisation” ..would love to be able to make that wrong answer sound used on game shows ..but in print I have to settle for just writing the word .. WRONG..in capitals.

No recap program will work without first quantifying the size and scope of writing down the bad loans. This needs to be done for most every single bank in EU. To do this would require removing the opaque nature of most of the bank balance sheets. Why would this be avoided at all costs?  This would destroy most of the EU leaders life’s work (ego’s) as the truth ..insolvency, impossible expectations heaped onto the badly designed structure of the EURO, absurd risk management assumptions, fraud, bureaucratic corruption and inability to really accomplish anything would be stated as ..FACT.

#2 -> “Second, to avoid a run on eurozone banks – a certainty in the case of a Greek exit and likely in any case – an EU-wide system of deposit insurance needs to be created.”

The above statement and when I read the rest of their number 2 prescription, equally makes me laugh and cry.. in effect paraphrased of course

..what the burning building needs is a fire escape ..and a fireproof safe room to be installed now..while the fire is raging out of control ..to be funded by the people jumping out the windows to escape the fire.. then when they do land safe but broke and shaken .. they need to take a class on building fire escapes and fireproof rooms..then design and build it by committee..

At least the installation should be easy..by then..the fire will be out and the building an empty shell..the next sentence was great ..

“Structural reforms that boost productivity growth should be accelerated. And economic growth needs to be jump-started”

Let me paraphrase ..invent the Iphone..create a huge marketing buzz, build a world wide manufacturing and distribution center then develop a completely new type of retail experience..or cure cancer..

#3-> “Finally, given the unsustainably high public debts and borrowing costs of certain member states, we see no alternative to some kind of debt mutualisation.”

Paraphrased .. the kid likes to watch TV, sleep, play video games, smoke pot, eat pizza.. and will not be out of bed before noon… just shut up and pay the bills..you adopted him.

 

Sunday Weekly EDGE 6-3-12

 

As we saw on Friday, we quickly learned that the US Dollar is not immune to losses, even during periods of high risk aversion. Although I would not expect that dynamic to last (since the USD was punished due to the dire jobs report Friday) it did show us that we have to be flexible while trading and understand that correlations are never 100%.

The good news for equity market bulls is that the near term USD weakness (chart below) may help produce a bounce. The bad news is that we are (technically) breaking down (see chart below).

Over the weekend, the news flow has been fairly light, therefore producing very little gaps in the FX market, however equity markets are moving lower at the moment. Here is a rundown of a few articles I read:

The lead story in Reuters is how Germany is pushing for major steps for a “fiscal union” which when first introduced seemed like a fantasy, but now may become a reality.

The lead story in Bloomberg shows that German Chancellor Merkel continues to oppose European wide “debt sharing.”

One supportive factor for the US equity markets may be in tomorrow’s ISM services number.

The Yen and Yuan are now trading directly to help strengthen financial cooperation between the two countries.

It’s going to be a busy week for central bank activity since this week the ECB, BOE, RBA and BOC all have rate decisions. Here is an article with the BOE possibly introducing more QE. The ECB could also lower rates. The RBA may cut rates even though the market is not expecting it. Although the BOC in expected to keep rates unchanged, the idea of them raising rates in the near future may be questionable.

Also this week AUD will report GDP and employment data early in the week. Federal Reserve Chairman Bernanke will testify on the Economic Outlook and Policy before the Joint Economic Committee on Thursday. CAD jobs report will be on Friday.

A few companies are reporting earning this week. JASO and ULTA report on Tuesday, VRNT on Wednesday, ALTR and CHKE on Thursday (to name a few).

Lastly, most of you know that my team and I broadcast daily from 6AM ET through the NY stock market close. To access our live webinars daily (which are free, and our live in the market analysis has been for nearly 9 years now) just click on this link.  Make sure you follow me on Twitter or Stocktwits @pipczar for my intraday thoughts.

Here are some charts which I think will matter for the markets this week:

Now that the E-mini’s are trading sub 1280 and below the 50% fib level, the 61.8 at 1250 looks achievable this week.

US Dollar index breakout point at 82.00 should be great support as the weekly cup and handle plays out.

As discussed the last couple weeks for Gold, the trend line back test is now complete.

AUD/USD tested a 50% fib level and held.

GBP/USD major trend line is holding, but a break would be devastating for GBP bulls.

EUR/USD survives first test of the 127% extension and the RSI is moving off oversold levels.

USD/JPY survives 78.6% fib level test, and sub 78.00 may be well supported this week