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Archive for the ‘New Zealand dollar’ Category

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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    Remember how we looked at this pair’s double top? (which portends a downward movement)  I chickened out on the thing and never liked the set-up. Well, it completed it’s double top target yesterday (!@#$%& it anyway, it’s made a few hundred pips since we’ve been talking about it). It goes to show that despite bullish divergences, being oversold, and 200 day moving averages, price will do what it wants and true blue trend-followers often get their way. That doesn’t mean I dump how I see things though and change my own trade methods …

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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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Last seen this pair was busting down from a double top. I think it makes a fine example of how price patterns aren’t magical and, like everything else, should be taken with a grain of salt.

    Granted, when you see one it is a little exciting, in a sense.  But price patterns work out maybe 60% of the time. That means we need to be careful and scrutinize them, doesn’t it? I don’t want to be in the 40% camp.

    The tough thing with this one was the 200 day moving average (MA) was right below the area where you’d feel like it broke out. So when you think of getting in, you’ve suddenly got possible support staring at you. The pair got beyond the MA now, but my beef with the set-up is the fact that the oscillators haven’t reset. Ideally, when the pair was hesitating at the 200 MA it would have coiled there a while, allowing the oscillators to not be so darned oversold. They also are forming a bullish divergence.

    For me, this is too much, on a trade that would already be half thru it’s move so you’d be getting in on late anyway.

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    Sometimes it gets ridiculous how many lines you draw on a chart. My colleague Blake Young, for example, likes to draw so many lines on his charts that he’s sure to always be right about support and resistance!

    So it goes with me for the kiwi right now. I couldn’t resist drawing lines everywhere. In fact, I even just removed some because I had too many.

    The pair is scrunching into a tight corner where lines meet. The interesting thing is, it also looks like it could be heads-and-shoulders’ish with the neckline at the 50% Fibonacci level. That’s all Greek for “it could really go down”. We’ve talked about this on the GBP/JPY for a while. The consolidation according to the lines favors an upward move, but it looks so wimpy (I don’t see a great triangle, for example). If it turns into a head and shoulders, well, there is a wonderful pattern! And it would break thru these resistance lines, too.

    For now I just have to shrug my shoulders. We react to the market; I’m not going to predict it too much. But those are my lines as drawn on the battlefield…

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The pair definitively jabbed thru its double top support a few days ago. Yes its a double top, be ye not fooled by its hunchbackedness. The question is whether to get in short now (if you didn’t already).

It feels like it’s gone a bit far for a retest of old support, but then, it does make long moves without pausing. I think it may try. That means I would be inclined to wait to get in until it’s caught its breath and get in as it bounces lower.  I’m leery about it continuing down at present because 1) it’s super oversold on the studies 2) it’s at the 200 day MA (light, thick red line where the price is now).

Don’t go running off and using the 200 day MA on everything if you already have a system you’re trying, remember these are examples of how to trade and use things. The 200 day is watched by lots of folks. It’s technically significant and is almost always a big support/resistance. So let’s watch and see if the price rebounds up now, bounces down and a breach in the 200 MA with less oversoldness comes along. Still plenty of room to run downward (to at least the red oval) – the aussie was not helped by a lower high on GLD a couple days ago.

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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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