Archive for the ‘Canadian dollar’ Category

Tuesday 04/15/08

  • To quote from Andrew Busch, currency strategist for BMO Capital Markets: Happy Tax Day! Most likely, this will be the lowest tax rate you will be paying for the rest of your life…….
  • AUD rally then retracement overnight on rumors and then spends the rest of the nigh selling off
  • $CRX.X, GLD, SLV, OIL make the commodity picture increasingly more bullish based off of demand – $ gets whacked
  • UK housing meets up with Browns Approval ratings and gets sold
  • EUR rallies on Poor German News?
  • SKF – Up but CHF and JPY still not selling off??
  • US PPI and what that means for CPI tomorrow? Want to see commodities follow through to get long Commodity equities and currencies
  • FX pups postponed, James Boyd is MIA

Audio Commentary Link

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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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The Group of Seven (G7) nations – France, Germany, Italy, Canada, Japan, United Kingdom, United States of America – met this weekend. The finance ministers of these countries meet a few times a year to discuss their own, and the global, economy.

Sometimes this is a bigger event than other times. For example, many months ago when the carry trade was out of control the G7 meeting was watched with baited breath, because if the G7 focused on the carry trade it could spoil everyone’s fun (if they hint at intervening and messing with the currencies involved in the carry trade, then many traders would exit these trades causing prices to fall).

Not much happened Saturday. But this is interesting from a “big picture” fundamentals perspective. The nuts and bolts:


  • About the U.S.: In the United States, output and employment growth have slowed considerably and risks have become more skewed to the downside, but long-term fundamentals remain sound and we expect growth to continue in 2008. We note that downside risks still persist, which include further deterioration of the U.S. residential housing markets; tighter credit conditions from prolonged difficulties in the financial markets; high oil and commodity prices; and heightened inflation expectations in some countries.
  • Outside the meeting, the ECB said that lowering rates is not on the agenda – good for the euro.
  • Outside the meeting, the BoC said that lowering rates is on the agenda – bad for the loonie.
  • Downside to the global economy is continuing to “slow somewhat in the short-term” – bad for most currencies except the yen and franc.

Their statement is here. Takes about 5 minutes to read, if you’re into economics. Keeping up on things like this can help you have a “posture” regarding a currency beyond what the charts show, and give you a bit of an edge. Just keep reading things like this and it gradually sinks in …

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Well, here’s to a new week! An excellent way to start out is spending a moment on the “big picture.”

comp.jpg Technically the euro remains strong, the pound and loonie weak, and the yen has been gaining strength. The comparison chart on the left illustrates this nicely.

Fundamentally nothing has changed – there is trouble, and trouble isn’t swept away under the rung from the Fed popping up one day and slashing rates. A great article by George Soros on the trouble we’re talking about is right here.

stocks1.jpg US stocks, which continue to influence currencies, aren’t looking any rosier. Perhaps the best things to do is to be prepared for volatility while the markets sort themselves out. Trade a little less, trade smaller positions, maybe a bit shorter term. And remember that if we get choppy, that often the market gets like that – the amazing trends we’ve seen across the board lately have been exceptional!

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cadjpy1.jpg It’s not hard to look half-way smart when you talk about something (CAD/JPY) for weeks and then it happens, gloriously … when it’s a red-hot currency or currency pair. But let the real lesson not be lost: the lesson about picking battles and going for the best bets.

To be super annoying, let me quote myself (really, so I can just copy and paste and not re-type it):

Why not look for the obvious trade? A definite resistance break, a definite bounce off support in a great trend, etc.? After all, we can only manage a handful of trades at a time, so let them be the best.

The loonie just broke 400 pips higher against the yen. Depending on where you got in, you’d be up at least 300 pips by now. this also shows limitations of oscillators identifying overbought/oversold: for something super-hot, they scream wolf too much. Go here for an article discussing when to heed this and when not to, select the 11/09 archived article. Breakout situations like we just witnessed with this pair are often exceptions many traders make to “don’t buy when overbought/sell when oversold”.

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yearendcomp.jpg Here is the year in review as a comparison chart (left, click to enlarge) comparing the major currencies, in this case versus the euro. The worst performing currencies, the USD and GBP, were down about 9% vs. the euro. The best, the loonie, was up about 9%%.

What happened this year?

The year had a lot of positives for most currencies: the global economy was booming, and so commodity currencies economies sold lots of stuff!

But this always only goes so far. Inflation ramped up, and central banks began lowering interest rates.

Then came the U.S. real estate mess.  Interest rates were higher than they were a few years ago, and lots of folks got hit hard as their short-term get-me-in mortgages forced them to refi at a higher rate. Many defaulted. Supply started flooding thet market and things slowed way, way down in real estate, didn’t they?

Not only that but bond portfolios related to all of this started going bad. Lots of funds with exposure to real estate and mortgages got hit hard. Banks started trusting each other less, making it harder yet to access cheap loans. Fear entered the market and the Fed lowered rates more, the dollar tanked, governments started diversifying out of dollars and into things like euros, economies started showing signs of flagging … ah, ’07!

180px-john_william_waterhouse_-_the_crystal_ball.jpg Looking forward:

Commodities still look strong. The dollar still looks weak, the euro strong. The carry trade – shorting low interest paying currencies such as the JPY and CHF – may only be just getting started in its unwind. As economies around he world slow, people start peeling their bets back, and many of the bets were paid in yen or francs, so that increases their value as they are bought back up. A little bit of discussion regarding the fundamentals can sure help shed some light on interpreting this comp chart. Remember, though, at the end of the day it simply comes down to following a good trend (ahem, looking for opportunities to buy euros) and using a simple method to time your entry into that.

 ( “The Crystal Ball” by John William Waterhouse: scrying in crystal)

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   Just following up something we talked about last week. The pair is looking bullishly frisky, trying to pop to the topside. It’d be nice to see more follow through though, considering the pair is at some resistance.

   For comparison, consider trades like we saw in it several months ago – I highlighted some possible entry points in green ovals. Why not look for the obvious trade? A definite resistance break, a definite bounce off support in a great trend, etc.? After all, we can only manage a handful of trades at a time, so let them be the best.


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