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Archive for the ‘Swiss franc’ Category

eurusdtnx.jpg So the EUR/USD super trend has stalled. Will it regain its pace?

It’s in murky waters. The dollar is, without a doubt, weak. Evidence is seen on $TNX – as it falls, 10 years yields (rates) are falling, which hurts the buck. And the buck is already hurting.

In the chart, notice how as EUR/USD rises (USD is falling) $TNX falls. Falling rates/rate prospects coincide with dollar weakness. In the green bars, the two prices diverge and we expect EUR/USD to correct bullishly according to the still dropping $TNX. In the red bar we’d expect EUR/USD to correct bearishly because $TNX was rising – alas, though, it was counter trend and the $TNX up-blip didn’t stick. Beside, at that point euro bullishness dominated.

With $TNX still heading firmly lower, the dollar still has an anchor tied around its ankle. The question is whether the euro can oblige, or if this stock stuff spooks it too much and economic worries make the pair choppy. It wouldn’t be surprising.

If US stock weakness continues (it could continue for a long while), and if EUR/USD stays in a funk, you could participate in USD weakness via USD/CHF. Again, it goes back to following your rules vis a vis the charts, and this economic/fundamentals thinking helps point you in the right direction so you know which charts to focus on, and to see the chart changes coming.

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stocks.jpg Shocking and unsurprisingly stocks went down in a heavy bone-crunching thud today! Bam! We’ve seen this coming for months, talked about it here, fundamentals have been getting nasty in the US (hi, financials, thanks mortgage/real estate) and it showed up as a long term double top on the US indexes (see S&P500 chart beside this) and now a gigantic break below support today.

Wasn’t this what we were looking out for on Monday? 🙂

istock_000003880585xsmall.jpg This has all sorts of implications for currencies, the least of which are “unwinds” in carry trades involving the yen and franc. So the strategy is real, real simple here: if you haven’t already look for trades involving these as they continue to strengthen. And enjoy raking in the pips.

Once again, stocks lead most currencies (the counterparts of the yen and franc in the carry trades) most of the time except at important turning points like the last couple of days.

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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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    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.

comp2.jpg

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shaysworthy5.jpg Today on InvestoolsFX Audio:

China to allow sovereign investment in Japan, and how will a new political party in Australia affect the Aussie? The JPY and CHF dominate the relative strength charts … what does this mean for you trading? And, a principle that has made me a good currency trader in less time than it takes most.

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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.

week1.jpg

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Well the EUR/CHF we were keeping an eye on turned into a double top indeed. You saw it first here! Three days heads up on this. Quite a pretty one too, very well-formed. Target is now down around 1.6500. Remember, trading price patterns is no excuse to dump your system/studies. You trade your method within the context of price patterns, the same as you usually do with support and resistance … that’s what they are, after all.

Notice how the pair broke down truly according to the doom & gloom scenario, which is simply U.S. stocks falling through the floor. They are officially downtrending, and that major technical breach lower provided the impetus for the break here.

 

eurchfdubtop2.jpg

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