Archive for the ‘Australian dollar’ Category

Monday 04/14/08

  • Currency trading end of last week into this week is like the Abbet and Costello “Who is on first and what’s on second” bit, confusing and violent.
  • G7 Language was purposefully vague not referencing China’s currency but general currency fluctuations- market tried to anticipate intervention action which caused more violent price action overnight and through today’s trading sessions.
  • Sunday Asian and European markets took the time to reduce risk led by Fridays’ GE news and US equities had potential and going into today to sell off dramatically – WAMU posts poor earnings prompting dollar selling and JPY holding steady while SKF rises. While US markets holding up steady as well – By commodity stocks and a weak dollar
  • Commodities rally while the currencies struggle??? Re-iterate the strong correlation between $ and Commodities. Highlighted by NY trading session.
  • Promptly discount US retail sales – housing later on this week could be a catalyst
  • UK housing tonight watch for a drag on the good news overnight of PPI input
  • NZD might be showing some weakness on Retail overnight and then CPI tonight may put a drag on the bear flag on the AUD/USD 4 hr chart
  • What are pro CTA’s doing YTD: 2.5% to crack top 10, 27% to be par with #1 ytd leaders managing over a mil and under 10 mil

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confusion3.jpg Here’s an interesting idea for the AUD/CAD – which you’ll notice is in a great uptrend. There’s an opportunity for a bullish breakout soon. But stepping back, to a 5-year chart, notice the story of fibonacci.

What do do??

Let’s consider Fibonacci retracements. Fibonacci lines are drawn from the bottom to the top of a major move – it’s really that simple – and the lines are then possible support and resistance. On a big move like we had several years ago on the pair, you reckon with the “fibs”. We’re right under the most significant one at .9350, and it has at been support/resistance before (see chart below). So how do we participate in such a nice trend with little room to run? By the time it breaks out it will be right under or at resistance…

audcadfibs.jpgSomething you could try is “fading“. I did an article on it in our technical commentary a while back, by the way. Fading is entering right at support – forget the bounce. Or better, you buy when the price is poking a little below the support line. The stop loss is placed just below support. The thought is if you lose you’ll lose very little – as little as 20 pips. If you win, you’ll have so much more to gain – say, 200 pips. There is a high chance the trade won’t work because there’s no bounce yet, but it allows you room to run if you’re running out of room (resistance is close).

audcad1.jpg In the chart on the left, the red oval is an area you could buy if the price falls lower. The green is an example of a stop loss area. If you try fading, understand you’ll have more losing trades the winners, so don’t give up after a few losers. As with everything else, much practice is needed.

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euraud3.jpg Despite my reservations about going short the euro, the EUR/AUD breakout we looked at had legs. A few hundred pips worth of legs. It’s a good reminder of a technical analysis principle some of you may not know. When price is in a channel (support and resistance running parallel) and breaks out – either way – the price will typically go at least as far from the breakout as the channel was wide.
Look at the chart to the left to help illustrate that. I almost said something about this in the original post but didn’t, not wanting it to be too long. You may also notice I changed my original resistance line. I did that a few days ago upon looking at it closer. Always be willing to change those lines!

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audjpy.jpg The hunt for a reversal candle came up empty. Rather, the AUD/JPY broke out to the topside. Wow! Technically this is a power move. But I’m leery of it because of my bearish posture toward global economic fundamentals.




euraud2.jpg The breakout also happens on the EUR/AUD and that looks cool too, but yikes, trading bearish on the strong euro?

There must be something that’s as so scary as taking on the euro …




audusd.jpg Who do we (as FX traders) loooove to beat up? Who’s the little kid with freckles that gets its lunch money taken week in week out? The dollar!!

But yuck check this chart out. I haven’t been following the AUD/USD lately and decided not to try and find a “pattern” or support and resistance – if nothing jumps out at me (like it didn’t) then that tells me something …

Well if you had to wrestle something out of me I’d say the AUD/JPY is the winner, but I’m not too enthusiastic about it …

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bernanke-helicopter.jpg The scoop on the Fed is that they lowered rates 0.50% and said more were to come. Obviously that is bearish for the dollar and can be bullish for carry trades too since it is a balm for economic pain. Were it so simple to “fix” economies. Yesterday afternoon U.S. stocks sunk as bad news came out about some bond insurers – more weakness in the financial sector.

So now the big “event” (Fed) is out of the way and what are we left with? Carry pairs and others which benefit from growth are at resistance. You’d think the Fed could have obliged by being more hawkish to help a pair out!

Case in point, two pairs we’ve looked at lately: AUD/JPY and EUR/USD. My opinion on which way they’ll go? Down, following continuing economic weakness. But, opinions are irrelevant (and often wrong, the world is complex) and we follow that which we see happens.

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candle.jpg Candle hunting sounds like some sort of freaky hobby, when really we’re talking about looking for candle patterns.

The AUD/JPY has had a couple in recent bearish bounces.

First off, to be clear, the trend is down and that’s the mood we want to be in here (… not down, but bearish) Name of the game is to find a bearish signal.

Candles are NOT the entry signals. They do not supersede the studies and are not stronger, technically, than either the studies or support and resistance.

Candles are meant to be little helper bees, confirming other stuff. If you get a signal, it is more powerful accompanied bya candle pattern.

audjpy.jpg Case in point, if using the MACD and Stochastics, they both rounded lower heading for red arrows as the price bounced down from resistance recently. There’s an entry signal. They were accompanied by a beautiful evening star (first green oval on the price) and by a so-so harami (second price oval). I put ovals on the studies showing the entry signals that occurred with them.

audjpysignals.jpgHopefully we will see some another candle pattern with a bounce down in the next day or two. The candle pattern that just happened today? A hammer.

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euraud.jpg Anyone remember how we had looked at some recurring patterns on the CAD/JPY, a few weeks ago? The EUR/AUD is doing it too. Let’s see if we get a repeat performance  – although the CAD/JPY got the smack-down today and that run is over. Unsurprisingly the EUR/AUD’s major tops and bottoms align in the same time period as the CAD/JPY’s, but interestingly the commodities (AUD and CAD) are heading opposite directions. Let’s see if the pair bounces back from today’s fall, after it broke out yesterday.

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