About Blake Morrow

Blake Morrow is the Chief Currency Strategist for Wizetrade. Blake has over 15 years of trading experience and has been a co- owner of a Dallas based brokerage firm and LiquidTrader Technologies. Currently, Blake does analysis daily for thousands on individual traders, also has appeared as a regular analyst on WizetradeTV, Traders Television and MBT Vision. Blake has also managed 6 figure trading accounts and is a seasoned individual investor in equities and FOREX.

Bitcoin Pyramid

I never (nor would ever) claim to be a “Bitcoin” expert. I can tell you this however, there is probably less than a .01% chance I would ever buy one (or heaven forbid more than 1). Here are the definitions of “Pyramid Scheme” via Wikipedia and Investopedia:

Pyramid Scheme via Wikipedia:

A pyramid scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.

(oh yeah, this is a good one. Let’s mine Bitcoins from home now!)

Pyramid Scheme via Investopedia:

A pyramid scheme is initiated by an individual (who is Satoshi anyhow??) or a company that starts recruiting investors with an offer of guaranteed high returns. As the scheme begins, the earliest investors do receive a high rate of return (early miners I suppose), but these gains are paid for by new recruits (hello $BTC) and are not a return on any real investment (but…Bitcoin is virtual…and limited in production like a Babe Ruth Baseball card!!!).

From the day the scam is initiated (apparently 2009 for Bitcoin), a pyramid scheme’s liabilities exceed its assets (Um…hello??). The only way it can generate wealth is by promising extraordinary returns to new recruits (Um…hello people on financial TV!!); the only way these returns can be paid is by getting additional investors (Again, hello “Bitcoin experts on Financial TV). Invariably these schemes lose steam and the pyramid collapses.

 

Bitcoin. My definition (since other definitions are too lengthy and really don’t tell me a whole lot):

If I had to define a “Bitcoin” it would be this (again, I am not an expert and very uneducated in the subject):

A “Digital Currency” that is not backed by anything, “supposedly” limited (Um…who’s to say there isn’t going to be more anyway by some crazy virus or something, or you accidentally delete your Bitcoin because you had a crash or something. Do they have a 800-recoverBTC number?), can’t touch it, can’t see it, and stored in this virtual wallet that you can’t put in your purse or pants.

I am sorry…call me skeptical. Call me ignorant. Call me whatever you want. But this whole idea seems very “Pyramid Scheme circa 1980′s” And this seems to be a global scheme that has brought out some of the craziest of the crazies.

I now know I have a whole new level of haters.

I guess I will stick to buying USD’s and EUR’s and all the other world currencies that have some sort of GDP. People living in respective regions. Oh, agriculture and natural resources. Oh, innovative people who live locally and are growing globally. Oh and…

 

Blake Morrow

Chief Currency Strategies, Wizetrade

 

Disclaimer: I own and never plan on owning Bitcoin. I need to ask someone if I can short this thing? You think that’s possible??

 

I am buying JPY

Whenever we trade, it really boils down to two questions: Where is my risk? What is my reward?

Okay, well obviously there are more questions you will ask when placing a trade. However, in the title of this blog I simply state “I am buying JPY.” Pretty simple, correct? I am, indeed, buying JPY and have been for a few days. Let me show you one chart that really puts risk/reward into perspective:

1-7-14FXcafeJPY

Now that you have seen the weekly chart about 20 years of data, you can see that my risk for my short is somewhere over 106.00, and my take profit is somewhere down below 100.00.

As you know, when we trade we don’t just ask “what is my risk vs. reward?” but also look at probabilities. So, with this trade I want to show you a couple more charts that enhance my probabilities of this trade working in my favor.

1-7-14FXcafeSPX

SPX futures are at 127% extension of pre crisis to post crisis levels. Is the great bull market over? I doubt it, but is it time for a pause and correction? Perhaps. (the USD/JPY and SPX tend to move together, or parallel, and correlate strongly)

1-7-14FXcafeZB

False breakdown of the 30 year? I am not sure, however the USD/JPY and yields tend to move in a “parallel” relationship (so, it would be opposite this chart movement).

1-7-14FXcafeNKD

Nikkei futures sitting on critical support here. I am sure with the divergent RSI, some bulls maybe a little nervous here. (USD/JPY and Nikkei futures “enjoy” a very strong parallel relationship currently)

1-7-14FXcafeNKD-ZB-JPY

When they all move, they tend to move together. (This could pose a trade for you even if you do not trade the FX market. Candle chart – Nikkei, Yellow Line Chart – USD/JPY, Blue Line Chart – ZB continuous)

Some correlations have been off this last year, but I think 2014 a lot will “re-correlate” quite nicely.

Tune into my daily broadcasts at 7AM ET on the Morning EDGE, link located here.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

Disclaimer: I am long JPY via USD/JPY and a few other cross rates. I plan on staying that way for a few weeks unless the USD/JPY rallies above 106.50 on a weekly closing basis.

Is the Great “Carry Trade” Unwind Coming?

Many of you that listen to my daily broadcast know I love to trade the EUR/AUD currency pair. And if you read my blog back in May of this year, we ended up playing a much longer term squeeze in this pair from below 1.3000. Over the summer the EUR/AUD completed and inverted H&S pattern (as seen below) and has spent the majority of the summer bouncing back and fourth from the 1.4000-1.5000 range.

9-24-13EURAUD

I suspect in the coming week(s), the pair is due for one of the largest “unwinding” of the mother of all carry trades.

One of my big clues to trading this currency is following the correlation of the EUR/AUD and the US Equity markets. As you can see below, longer term, the EUR/AUD and equities are almost a “mirror’ image. There are a few uncorrelated times, but over the last few years it was mostly “Euro crisis” centric when the correlations broke. For the most part, the correlation is well behaved.

9-24-13EURAUDES

The natural trade since the financial crisis was simple. Just think, a year or two ago, Europe and the Eurozone that we know it was “supposed” to come apart at the seems. Also, China was on track for global domination. Fast forward to “today” and we are far from that. With Angela Merkel at the helm of Germany for the next few years, she alone maybe the glue that keeps the EZ together. For the next 12 months, we could quite possibly see China GDP sub 7% growth. Short Europe (EUR) and long China (AUD as proxy) was the place to be! Plus, the nice carry trade combined with such a great fundamental story? Hell, what could go wrong? Nothing did, and this was the beauty of the fall of the EUR/AUD. However, I would say the layup trade of the last 5 years looks nothing like it had a year or two ago.

The Fed induced rally was meant to re-inflate the global economy and assets. Obviously, over the last 5 years the nice folks at the FOMC sure delivered on the rise of the equity markets. However, in recent months (and as early as last week) you can see how the market is becoming less enchanted of unlimited QE and also understand the current monetary policy era may be coming to an end and indeed may not be “unlimited.”

Considering that the equity markets are near the upper end of the up sloping channel developed since the start of QE, to me, there looks like there could be some near term downside as the market prepares for a shift in monetary policy. If this is the case, I can also build the case for a stronger EUR/AUD. Can’t you? Being short the EUR and long the AUD was the FX trade of the decade (in my view) and one that if unraveled, may not be a pretty site for shorts.

Blake Morrow

Chief Currency Strategist

Wizetrade.com

Disclaimer: I have been long the EUR/AUD since last Thursday and do plan on adding to my core long position soon. 72 hours? Maybe less, maybe more…have not decided.

Follow me @pipczar on @StockTwits or @Twitter

 

The Problem with a “One Way Market”

Well, you know the problem right? When it stops going one way…

8-7-13fxcafeJPY

(USD/JPY up until May 2013)

This maybe the case for the beloved USD/JPY. As you all know, the USD/JPY has been the “go to” trade in the FX market. Burn some JPY and you will make some money! It’s easy, even Marketwatch told us on Monday how easy it is!

Fact of the matter, is when the market is too lopsided in a trade, things tend to go wrong. As you can see below, the night before a BOJ meeting the USD/JPY is now threatening a big breakdown (or long breakout for the JPY).

8-7-13fxcafeJPY2

(USD/JPY today with possible close below daily trend line)

As a FX trader, there are a ton of repercussions. Unfortunately, the USD/JPY rally has fueled a huge debate on how bullish the USD is. And, I hate to say it but a lot of the USD rally against most major currencies have been as a result of the massive move in the USD/JPY. I can give you several (but not all arguing points):

  1. We are going to “Taper”
  2. FIFO – We were first  to QE, first one out
  3. EUR area unemployment is high, productivity still low, retail sales, PMI’s, etc.
  4. US will be energy independent!
  5. US economy is resilient, more than anyone else!
  6. PM Abe and the BOJ has employed a massive amount of monetary easy squeezy!
  7. yadda yadda yadda…

The list goes on an on, and frankly I am on board with all the arguments. The problem is the market is broadly on board too and has bought into many (if not all) of those arguing points, and unfortunately the USD is not “participating.” And now the USD is in a very precarious position where we could realistically see a massive USD liquidation just on a pure positioning standpoint. Not a lot of traders think the EUR/USD can go higher, or will go higher. But most of you know that the market likes to “impose as much damage as possible on as many participants as possible.”

8-7-13fxcafeJPYEURUUP

(EUR/USD closes in on breakout point, so where does it leave the USD – UUP?)

So, what does that mean for equities? Well, here is the other issue: Stocks have risen partly due to the unprecedented easy money policy in Japan. You can argue with me on that if you wish, but I attribute a lot of the last 4-6 months of the current US equity market rally due to monetary policies of Japan. What happens if the market loses faith in the BOJ and PM Abe’s policies? I’m not sure, but the USD/JPY seems like it is showing us it may have.

8-7-13fxcafeJPYSPYUUP

(Equties, USD and USD/JPY up until May 2013)

My fear is at this point is tonight, the BOJ once again underwhelms the market, the JPY strengthens and the Nikkei, US equity markets AND the USD falls.

8-7-13JPYSPY

(USD/JPY and SPY correlation)

Traders have been saying that the USD and equity markets are correlated. However, I think the JPY and equities are inversely correlated, and the USD is just an innocent bystander of a “one way market.”

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Follow me on Twitter or StockTwits @pipczar

Disclaimer: I started entering USD short positions today, and in the next 24 hours will make a decision to exit or add. Market will decide, not me.

Keeping my eye on the Doctor

Back in 2008 when I started to get long equities a few months before the “generational” lows in 2009, there was one thing that that really got me long equities at that point: The AUD/USD decisively hit a low. Back in 2008, there were reports that the RBA was buying Australian dollars somewhere near the .6100 or .6200 levels. I was convinced at that point that the lows were in. Obviously, I was a few months off and then stocks finally started the (current) miraculous bounce off the infamous “666” level in the SPX. But at that point, in the words of one of my colleagues, I kept hearing “commodities (and commodity currencies) tend to lead the market.” I kept the faith, and even though I bought about 10% before we hit the lows, I still ended up doing really well with some long term investments back then. Also, the good news was that many of our Wizetrade traders and customers also did very well in the process.

7-30-13AUDJJCSPY1   (AUD/USD bottomed nearly 5 months before the SPX did in 2008-9)

Fast forward to today….I was noticing a few things that got me thinking about this blog post. Copper is very close to breaking some major levels ($3). And, as many of you well know, the AUD/USD is also close to breaking below the .9000 level for the first time since mid 2010. Then, I was noticing the “lack of follow through” the markets have had since the recent new highs.

7-30-13HG (Copper near term looking to test $3)

7-30-13JJC1   (JJC- copper ETF triangle and ridiculous H&S pattern setup)

Then, I started to look at the timeline. Back in 2008, the AUD/USD bottomed about 5 months (give or take) ahead of the equity markets. Sure, it was RBA driven, but it “did” happen. Today, the most recent “trend” highs in the AUD/USD was made about 5 month ago as well. If you know copper, and you know how the AUD/USD responds to moves in copper, you know a break below $3 could be devastating to the single currency.

7-30-13AUDJJCSPY2 (Current divergence of JJC, AUD and SPY. Notice the AUD peaked recent trend highs about 5 months ago)

So, I guess what I am trying to say is if copper breaks down, the AUD/USD should break down as well, and frankly…equities may follow after challenging weekly channel resistance.

7-30-13SPY   (Weekly channel resistance on the SPY)

I am very worried about equities at this point. Stocks continuously move higher with complete disregard to any and all fundamental data. The entire market is in the belief that “stocks do not fall and only go up” (which in itself is one of the scariest markets to be in) and that the Fed will always be there to backstop any move lower. I am not going to be like the guy who was on CNBC yesterday saying the DOW will hit 5000. Unfortunately, that type of fortune telling is way beyond my pay grade to figure out. However, I will tell you I see signs of a possibly pullback, and one that could be fairly uncomfortable.

For that reason, we should keep an eye on the “Good Doctor Copper.”

Blake Morrow

Chief Currency Strategist, Wizetrade

Disclaimer: I am short the AUD on many cross rates

Follow me at @pipczar on Twitter or Stock Twits

What will get me long the USD again?

I believe there are many reasons to be long the USD and personally I have been riding the USD wild bull ride for the last couple months. Yesterday, I closed my remaining USD longs as we were trading at a new 2013 high. Many of you may wonder “why” I closed my longs, and frankly, positioning in the USD seems pretty stretched as the entire market is finally becoming USD bullish, which could bring on some near term weakness. I will state that I am still very bullish the USD, and I do think (and have thought for the last 2 years) that the USD is in the process of making a very large bottom (technically) and reversing this very bearish course of the last 20+ years. But I will also explain what I will want to see in the coming days/weeks to start building a core USD long position again.

First, let me share with you some arguing points for a stronger USD of many in the market which I share:

  1. Energy Independence – One of the biggest swoons for the US economy (and the USD) would be us becoming energy independent. There is a lot of debate to whether or not this could happen, but just the mere thought of it has brought money back to US shores that have been overseas invested into BRIC countries.
  2. Interest Rates – Keep in mind that the Federal Reserve was the first central bank to ease rates post financial crisis and other central banks have been or are currently lowering rates. There has been much talk of possible “tapering” of QE in the coming months. Regardless if you feel this is even possible, the fact of the matter is most other central banks are still lowering rates or firmly entrenched in their own “QE” programs. This “interest rate differential” as investors price higher rates here, but lower elsewhere should keep upside pressure on the USD. In addition, the upward trajectory of treasury yields is another sign of USD strength as the economy here improves.
  3. Disinflationary Pressures – We are not seeing “deflation” at this point, but disinflation is real as inflationary pressures ease. Heaven forbid we actually see “deflation” because if you want to see how a G7 currency acts during deflation, just go see the JPY performance the last 30 years. I have long thought that the FOMC is more worried about deflationary pressures, and one of the main reasons for QE over the years was not only to promote liquidity and growth, but was also to ward of deflation. Don’t forget Ben Bernanke is a study of the Great Depression and the life-long effects of deflation and its impact on peoples lives.
  4. PPP – Other major currencies are still overvalued on a “purchasing power parity” basis. Commodity currencies remain some of the most overvalued currencies to the USD on a PPP basis.
  5. Commodity Super Cycle End – As austerity grips hold globally, we may be in for years of an “unwind” in commodity prices which will only continue to boost the USD.
  6. The US Economy vs. the ROW (rest of the world) – In terms of the global economy, it sure does seem that the US economy is a beacon of hope and light. As long as the economy here in the states continues to show signs of resilience compared to Europe, China and other emerging markets it should keep money coming back into USD’s.

With all these arguing points, one must wonder why I took profits on long standing USD long positions. In recent days, I have said that in the near term for the USD to continue its recent breakout higher we will need some risk aversion to kick start a more sustained USD bull run. Looking at equities, it’s hard to imagine at this point that the market will even pullback. But, this chart I posted a couple of days ago via @StockTwits you can see we are pulling away about the maximum distance from the 200DMA that we have the entire time post financial crisis. This does not mean the bull market will end here, but the risk of a pullback from current levels are rising daily.

5-16-13ES

Also, with gold approaching its recent support near 1300, and the direct inverse relationship of gold vs. the USD, one would imagine a breakdown in Gold would prompt further USD strength.

5-18-13UUPGLD

So, to sum it up, I am looking for US equities to pullback, and gold to drop below 1300 to confirm a core USD holding for myself. And to be clear, I will be nibbling long USD positions moving forward, but what I stated above will help me feel me more confident about establishing those.

One last thing I wanted to mention. It’s obvious that the USD and US equities have been moving higher in tandem. When the equity markets start a pullback, the knee jerk reaction will be to sell the USD since it has been moving higher in recent weeks with stocks. However, I do expect this dynamic to be short lived as the once hailed JPY and CHF safe havens have been taken away from us by their respective central banks (SNB and BOJ intervention). Therefore, the USD may fall initially, but I would not expect that dynamic to last. The USD still is and now may be the only option for a “safe haven” play. More than likely, that will be the USD pullback I will be looking for to establish my long positions.

5-18-13SPYUUP

5-18-13DX

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have no long USD positions, but that may change within the next 72 hours of trading.

 

Follow me on Twitter or StockTwits @pipczar

Sunday Weekly EDGE 5-12-2013

First of all, Happy Mother’s Day to all the mom’s out there. Without you, none of this would be possible.

I am going to make this quick since we have some Mother’s Day festivities around the Morrow house today. So here are a couple quick links and some USD charts in particular you have to watch since the USD is hitting key levels on many pairs.

G7 communiqué has been released, and it looks like Japanese officials have convinced the world they are applying the right monetary policy and not purposely weakening the JPY, so look for continued JPY weakness, or at least for it to be sold on short covering rallies.

The Telegraph also has an article over the weekend talking about the possibility of USD strength.

Australian Treasurer Swan also reiterates that the strong AUD will give an “unprecedented whack” to tax revenue and make it difficult to return to surplus.

Some of the key events this week will be Monday Retail Sales in the US and New Zealand. Tuesday we get German ZEW Economic Sentiment. Wednesday we will get the BOE Inflation report and also the PPI in the US. Thursday we will have CPI, Building Permits, Unemployment Claims and Philly Fed in the US. Friday Canada will have CPI and we will get Consumer Sentiment in the US. Next Saturday Fed Chairman Bernanke will have the opening remarks at Bard College.

Lastly, most of you know that my team and I broadcast daily from 7AM 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 10 years now) just click on this link. Also, for those of you who trade during the European hours, join @casaro3 from 2:30-4:30 AM daily for the “London Calling” webinar. Just use the same link!

Here are some charts and notes on what I am seeing currently (currency pair edition this week):

5-12-13AUDUSD

Remember the “Trap Door” trade from last week? The symmetrical trend line support comes in around .9920

5-12-13EURUSD

EUR/USD major supports at 1.2950 and trend line support at 1.2850. The multiple rejections at 1.3230′s puts a possible triple top in play in the coming weeks.

5-12-13GBPUSD

GBP/USD is very self explanatory. We are on channel support and a break below puts sub 1.5000 back into view.

5-12-13NZDUSD

NZD/USD closed below trend line support but closed on the 200 day SMA at the .8280. It will be an interesting open for the Kiwi.

5-12-13USDCHF

USD/CHF break out of the triangle has two possible targets. You can click the image above to take a closer look.

5-12-13USDJPY

You can see we are trading at a 38.2% Fibonacci retracement level of the 1998 drop to 2011′s lows. The 101.50-103.00 levels should be some major resistance for bulls this week.

You can follow me on Twitter or Stocktwits @pipczar

AUD/NZD Set to Reverse?

The AUD/NZD has been in a severe downtrend since March of this year, but today it is showing signs of reversal. There are a few key components I look for in big reversals. Technically, I try to find at least three lined up. Today, I have them:

  1. Fibonacci retracement or extension pivot
  2. New trend lows or highs and then reversal
  3. Channel Support or Resistance test

There are other “not so obvious” things I can look for, but looking at the daily chart below we have all three that I have listed above:

5-7-13AUDNZD

You can see the 127% extension was hit today at 1.2000. Also, we hit a new trend low and are setting up a nice reversal (hammer) candle. Also, the 6+ month channel support lower support has been tested.

What I am now looking for is a sustained break above the steep trend line seen on the 4 hour chart below. That price is about 1.2060.

5-7-13AUDNZD1

Fundamentally, the RBA cut rates overnight to a historic low. This maybe bearish for the AUD moving forward. However, if you consider the overheated housing market in New Zealand, the already priced in rebuilding of Christchurch, and an economy that is heavily depended on Australia and Asia and an overly strong currency (which is not welcomed by the RBNZ) a rate cut for New Zealand may be around the corner as well.

 

Disclaimer: I do have a long in the AUD/NZD currency pair and I am looking to add to the position.

 

You can follow me on Twitter or StockTwits @pipczar

Sunday Weekly EDGE 5-5-2013

Over the weekend, there has been some interesting reading and developments worth noting. First off, Israeli officials have confirmed that they have conducted an airstrike in Syria. I doubt the markets will be too affected at the open, but if the situation heats up we must all take notice.

The Australian PM, Julia Gillard, said “There are plenty of pressures on because our currency has appreciated, grown in value by around 50 percent” and this is causing many concerns ranging from tax revenue to trade exposed business says Bloomberg.

Norway is to raise taxes on oil companies, says Reuters. Down below, I will take a look at the USD/NOK.

Deutsche Bank is bullish on the USD, and I must admit, I share their bullishness.

Last but not least…if you thought you have had enough of “bitcoins,” think again…the WSJ has a nice little article named “Bitcoin vs. Ben Bernanke.”

Some of the key events this week will be tonight with Australia retail sales. Monday Canada has building permits and IVEY PMI. Tuesday evening Australia will have their highly anticipated rate decision. Wednesday both Australia and New Zealand will have employment change. Thursday the BOE will announce any chances to monetary policy, and the RBA will have monetary policy minutes later that evening.  Friday we have G7 meetings and Canada will have their employment report.

Lastly, most of you know that my team and I broadcast daily from 7AM 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 10 years now) just click on this link. Also, for those of you who trade during the European hours, join @casaro3 from 2:30-4:30 AM daily for the “London Calling” webinar. Just use the same link!

Here are some charts and notes on what I am seeing currently:

5-5-13ES

Here is the e-mini 4 hour chart that displays 2 different channels. Keep in mind the RSI is nearing OB, but frankly as long as the market is above 1593 breakout point we should refrain from looking at the downside here.

5-5-13HG

Copper bounce was all the rave on Friday, but keep in mind when in a downtrend, short covering rallies are usually quite violent. As long as copper stays below the $3.40 (ish) level, a break of $3.00 does seem likely.

5-5-13EURUSD

The EUR/USD is confined to a tight range from 1.3000-1.3200 roughly, and I suspect the move out of this range will dictate the trend in the coming weeks.

5-5-13AUDUSD

The AUD/USD has a nice trap door set below the weekly trend line at 1.0220, which if closed below on a daily basis points to sub parity at the lower yellow trend line of the symmetrical triangle.

5-5-13USDNOK

The weekly chart of the USD/NOK shows two distinct inverted head and shoulder’s patterns. Norway’s move over the weekend could spell troubles for the NOK moving forward so this chart must be monitored carefully.

 

You can follow me on Twitter or Stocktwits @pipczar

AUD traders thinking “Hey, haven’t we seen this before in the GBP?”

If you were long the GBP/USD at 1.6300 you probably (vividly) remember this false breakout:

4-18-13GBPUSD

Yeah, that stunk. So, AUD/USD traders are probably looking at this chart:

4-18-13AUDUSD

The problem is, false breakouts (especially daily or weekly triangles) lead to this:

4-18-13GBPAUDcombo

So with the precious metals complex breaking down, you have to ask yourself “could this really happen to the AUD/USD?”

I think the probabilities are high, and increasing daily.

Blake Morrow

follow me on Twitter and StockTwits @pipczar

Disclaimer: I am long the USD against the AUD and a basket of other currencies, and have been for the last couple weeks.