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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.

cadjpy2.jpg

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   It’s interesting to note that this pair is sort of doing the same thing it was a few months ago.

  1. It is sort of squirling around right now in a coil. Almost looks like a triangle may be happening. In Aug/Sept it did something pretty dang similar. I can draw lines then and now and they looks like cousins.
  2. I threw a slow stochastics on and ah-ha! For a price moving sidewaysish, the stochastics sure look bullishly frisky.

   Eventually the price broke to the topside a few months ago. Will this happen again? Who knows, I sure don’t! But this is pretty encouraging.

   However, the fall in price in November was very deep. On a long term basis, it made the low we’re at about as low as August. Yuck. And personally I still think we are all still doomed because of the credit mess that happened from the mortgage sector, economic slowdowns and inflation (check out today’s U.S. PPI – ouch). So as hopeful I am about a pop up here, brace yourself for a very possible break down, which would have more legs under it. This goes back to the don’t-know-where-it’s-going-but-I-can-trade-it-either-way! thing. We should see a good move break thru either the support or resistance.

cadjpy.jpg

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    It’s now official, the loonie is in a yucky funk. Old news huh? What to do about the once mighty currency …

    The chart below shows proof of this “yuckiness” – a “V” shape on the USD/CAD. V shapes are horrible and hard to trade. And now you look at the thing and boggle your head: is it uptrending? Down? I’m confused?

    Fibonacci retracements shows us some light as usual.  We are at the 38% retracement; this is possible resistance. There is a bit of long-term falling resistance we are near too … more possible resistance. 1 possible resistance + 1 possible resistance = pretty dang possible resistance, right? So whatever we decide, watch out for going long. But do you really want to sell into this? Despite being down on any long term timescale, trading it short on a 1 year daily chart is hazardous.

yuckyloonie.jpg

    The hourly is interesting as usual, though.  The only thing to do that makes sense here is buy. Uptrend, flag formation. This may be a situation where if you do see a pop from the flag, you delay entry and wait a little longer than usual to buy – after all, there is that fibonacci line lurking around, and the falling resistance, from the daily chart. Fed interest rate news could be a catalyst for this tomorrow.

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    It’s always a good idea to regularly look at the “big picture.” One suggestion is to run a relative strength analysis, which is a common method in technical analysis. Basically, bring up the EUR/USD and then in Chart Settings, type in the other EUR based pairs in Comparison Chart, one by one. This compares everything to the euro, making it easier to see who is “winning” and “losing” since the weakest currencies are going to be the ones where the euro is rising the strongest against, and the strongest will the the lowest line.

    Right now the euro is bringing sexy back since it’s been rising versus every single major currency for weeks. Below is the current relative strength chart, showing the dollar doing worst (EUR/USD top line), followed by the GBP, then at the bottom the loonie is doing best (but still underperforming the euro)

    One of the big points of all of this is to find where to focus your energies. Clearly you’d prefer to trade the pairs at the top of the chart, like the EUR/USD and EUR/GBP, because they are in the strongest trend.

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moneylaundersmall.jpg     You can count on InvestoolsFX to give you the most up-to-date info on currencies as they relate to crime! This come from an interesting conversation among several of us here at Investools.

    Shay Aslett shared this link, which is an article about how criminals are money laundering with euros, and why.

    Shawn Howell shared this link, an article describing how cocaine use is down in the U.S., and up elsewhere because of the falling dollar. Beside being an interesting read, it reinforces the concepts of how currencies interrelate.

    Lastly, David Settle had this to say about all of it:

It’s articles like these that make contrarians start to be very bullish on the dollar. Some evidence: look at what the British pound has done since earlier this month when the Bank of England pretty much said they will start cutting interest rates soon. What is the euro going to do when the ECB follows suit?

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800px-opec_organization_of_the_petroleum_exporting_countries_countries.jpg

In addition to being interesting and informative for trading, the OPEC meeting sure was entertaining! I mean, what do you expect with a couple of freak-shows like Hugo Chavez (Venezuela) and Mahmoud Ahmadinejad (Iran) running around? *note, no offense if you’re a big fan of either, they were just trying to push their own political agenda the whole time rather than deal with oil! The map above is of the world’s OPEC countries, by the way.

I noticed a Christian Science Daily Monitor article by Dan Murphy did an awesome job of recapping a lot of this today. Here’s some of the “best of” brought up by Mr. Murphy (& we’ll talk implications for trading at the end):

 

… the organization that was created in 1960 to stabilize prices, today wields less clout than it once did over the cost of crude. The 13-nation cartel once controlled prices often by just talking about pumping more or less oil. But now its leaders say booming world demand – largely from India and China – and concern over a possible US attack on Iran are driving prices.

OPEC’s biggest producers – Saudi Arabia and its Gulf neighbors – say they’d like prices to be a little lower but are pumping near capacity now. After all, their currencies are pegged to the dollar, so a weak US economy hurts them, too. Analysts say that while Saudi Arabia and others might be able to squeeze out an extra 1 million barrels a day, that’s only 3 percent more than estimated current OPEC production of 31 million barrels a day.

After Mr. Chávez urged OPEC’s leaders to use their oil wealth to become an “active political agent” and warned that oil prices would rise above $200 a barrel if the US takes military action against his ally, Iran, Saudi King Abdullah dismissed his arguments.

“Oil … should not become a tool for conflict and emotions,” he said. “Those who want OPEC to become an organization of monopoly and exploitation ignore the truth.”

The joint OPEC statement released at the end of the summit said that the “stability of the oil market is essential,” which oil analysts said was a repudiation of Venezuela’s and Iran’s aims.

“There are basically two camps, Iran and Venezuela and one led by Saudi Arabia,” says Mr. Alani, the oil analyst. “What happened at this conference was that the leaders of OPEC – Saudi Arabia and the Gulf states – made it clear they oppose the use of oil as a weapon, so the radicals within OPEC were isolated.

“What’s going to happen now is the leaders will do everything they can to maintain supply. But there’s very little they can do if there’s an attack on Iran or something of that nature. In that case, prices will double, perhaps go to $300 a barrel.”

Conclusions? Perhaps it is safe to say that with no rescue from the supply side of the equation, high oil prices could come down from decreased demand – if the global economy really stalls. So a huge heads-up/reminder that if you are interested in trading the loonie, or pound, keep an eye on global economic news especially regarding China, India. You don’t have to be an Indian economist – I’m not – just keep reading the news and have a feel for how trends are going. And stay alert regarding any Iran possible-war news! And you thought the loonie is high now …

 

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    In an effort to help you prep for the week ahead, here’s a quick glance at who did best – and worst – for the week. It’s a good idea to stay on top of this so that you know which currencies to avoid and which to look for opportunities in.

    Notes that these are all compared to the euro. Therefore, the top line was the worst performer, down the the bottom line being the best.

    To see the full-view, please click the chart.

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comebacksoon.jpg     The farthest to rise has been one of the farthest to fall in the last week. So loonie! What is going on??

A couple things:

#1: People are freaking out over how high the Canadian dollar is getting. I would too if 3/4 of my exports went to my neighbors plummenting currency and mine was skyrocketing. Pressure is starting to ratchet up for the loonie to chill the heck out.

#2: Some large banks today said they were having to write-down a billion dollars worth of bad debt related to the financial mess that’s running around giving everyone a cold.

    Jump in and buy the loonie with both hands, right now? Nunt-uh! First off, follow whatever trend you’re looking at, with your rules. But also, Go with the strong winners. Look at how some currencies have compared to the yen over the last week (below best to worst: eur, usd, aud, cad). Among the four, the loonie started out best and ended worst. The euro has stolen the spotlight.

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So it broke to the upside today, now let’s look for this below (a retest and then continuation higher). If you didn’t get in on the break, wait for that retest before considering a buy signal.

audcad2.jpg

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