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Archive for the ‘U.S. dollar’ Category

A lesson on trading with the stochastic indicator on the GBP/JPY by:  James ‘Big Dog’ Boyd.

The stochastic is a great tool to monitor the trade to see how much room we have left to go up or down. The stochastic again tells us the bullish or bearish sentiment in the trade. In this example we look at both bearish and bullish examples on the GBP/JPY.

GBP/JPY Chart #1

Caption #1: 1- GBP/JPY short at a diagonal level of resistance on April 6th. 2 – MACD confirms rollover, stochastics crosses to the downside. 3 – GBP/JPY pair selling off at resistance.  Indicator Settings: MACD Hist setting = 6,13,9 and Slow Stochastics setting = 5,3.

GBP/JPY Chart #2

Caption #2: GBP/JPY confirms a stochastic “pinch” after 5 days (April 13th).  Once the stochastic pinches we have 2 options… 1) Exit the trade.  2) Make sure the stop is appropriate.

When the stochastic is oversold, buyers in this case buy the GBP/JPY.

 ***KEY*** Watch the width between the 2 lines of the stochastic. When the GBP/JPY falls, monitor the trade by looking at the separation between the stochastics (you may have not hit your stop loss at this point). If the 2 lines are still apart they have potentially some room to drop. If they pinch, BULLS are buying the GBP/JPY back. If that’s the case, invoke # 2.

GBP/JPY Chart #3

Caption #3: GBP/JPY confirms that it is going to hold the higher low. Stochastic crosses back up representing that bulls are coming back into the trade.

If the stochastic cross back down, you have a greater chance in getting stopped out.

REMEMBER, when the stochastic pinches like in photo #2, we have 2 options — 1) Exit the trade 2) Make sure the stop is appropriate.

 

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Friday 04/18/08

  • Asia – Look at the inverted head n shoulders on FXI
  • Europe – Great Britain giving out pounds – look for institutional traders to step in
  • US – James look into the Financial futures crystal ball and tell me what you see?
  • James how do I trade the financials and the JPY?
  • $ up and commodities down.why??? – Interest rates may not fall as much as the market had been pricing in?
  • $CRX.X what does that tell us, POT,MON, EOG, PCU, IWM -UYM
  • Look at commodities/ w JPY
  • FX Pup Lesson on Stochastics
  • Have a great weekend

Audio commentary Link

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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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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

Audio Commentary Link

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A slew of information and action happening this week and last, the boys give a good run-down of the action in there Commentaries.

  • Don’t Be fooled by the Commodity Rally….. Watch the price action to confirm a breakout. Is it possible to see the dollar and ‘Stuff’ go up long term?
  • Uptick in Jobles Claims – what is up with that bro?
  • ISM is better than expected but still below 50 – which is bearish
  • Commdity Bull very, very Short term – cautious because $CRX.X, no GLD or SLV or KIWI buyers stepping in because of non-farms
  • Equities Trader are no dummies – Buying commodity stocks as a hedg for tomorrow
  • Timing of trades today seems curious
  • The TAX payer is going to be left holding the bag through inflation – Jimmie what did Countrywide tell you
  • Sara – Get back to SnR – is what you are doing repeatable, maybe it is analysis of entry setup, reuce the pip count and keep practicing, focus on few pairs.
  • George – We didn’t know – near term downtrend, RBA looking to lower rates and commodities cooling off

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293homealone121107.jpgWell, maybe while you were getting ready for bed. The Federal Reserve Bank decided to make an emergency move this evening and cut the bank lending rate to 3.25 percent from the 3.50 percent it was at earlier. This move made by the Fed was meant to “try” and create some stability in the financial markets. Also, at the same time, Bear Stearns (BSC) is being bought out by JP Morgan (JPM) at a steal of a price. This last minute buyout and the move by the Fed (who also approved this buy out by guaranteeing the deal with $30 billion) had an immediate effect on the overseas market and crushed the dollar. The EUR/USD hit a high of 1.5905 and the YEN hit 12 year low against the dollar at 95.74. Gold also was trading (at time of posting) around 1,026 an ounce. (I guess there goes the gold teeth I was considering!)

One way to help you against the falling value of your dollar is to hedge against it with the other currencies like going long the Euro or even long the Yen. Any trading against the dollar seems to be the most logical move. When asked what should be done about the financial crisis in the US, Federal Reserve chairman Ben Bernanke said “I don’t know!” No wonder the dollar is crashing and the basic carry trade is dead.

Well, hedge your bet for now or wait and see if the fed moves some more on Tuesday with another cut of 75 basis point. Bernankes strategy seems to be trying to keep the economy supported and worry about inflation later. We may see on the EUR/USD 1.6000 before Tuesday if the market sees even more weakness. Also, the USD/JPY may see an even lower level below 95.00 as weakness in the dollar continues. Tomorrow is a new day.

~ G

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The Federal Reserve moved today to add liquidity to the markets by announcing a series of actions with other central banks to help improve liquidity and lending for the markets. The Fed are taking this coordinated action without cutting interest rates due in part of rising inflation. US markets showed instant gratification in pre-market trading. and the Dollar rose in strength. The EUR/USD reversed an earlier move 150 pip run up right after the announcement. The USD/JPY ran up 120 pips after the announcements. With all this good news, the bulls may be back for the dollar.

This coordinated effort with the other central banks is being excepted very well with the ECB because it falls in line with what they are trying to achieve. Time will tell if it is a good move for the US markets and other markets around the world.

~G

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eurusd1.jpg EUR/USD continues its bounce, and today the Stochastics crooked up – and out of oversold – on the 3 green arrow (Workshop) study set. If the pair was just above its moving average that would be perfect. But that’s the problem. The pair, technically, is not uptrending. It’s in a bit of a funk, in this triangle pattern. Real aggressive people would buy on this signal. Real aggressive usually = you’ll lose money, unless you’ve developed some edge. At any rate, it’s looking up for the pair.

The best buy signal using this method would be everything you see here AND the pair is making higher highs and higher lows.

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The euro got its bounce

bull24.jpg By the way the euro did get it bounce versus the buck. That means it’s time to buy the EUR/USD if all three of these conditions are met:

1. You consider the pair to be uptrending according to however you’ve decided to define the trend. That could be higher highs/lows, price is above a moving average, a moving average is going up, etc. Pick one and let it be your gauge.

 

eurusd.jpg 2. You got buy signals according to your method. For example, if you are using the Investools workshop study set under Studies, one way of doing this is if the pair is close to getting a green arrow on the MACD and the Stochastics has crooked up.

3. Your posture precludes it. No, I don’t mean you’re slouching in your chair and you can’t reach the mouse! This means you wouldn’t buy the pair if you have a bias against the euro right now for some reason, or are bullish the dollar.

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g7.gif

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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We’ve seen these type of stories before, but here is another from Reuters (click link to read the whole thing):

“Euros Accepted” signs pop up in

New York City

Wed Feb 6, 12:11 PM ET

NEW YORK (Reuters) – In the latest example that the U.S. dollar just ain’t what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise.

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dow.jpg Stocks got a HUGE “denied” today as they failed to overcome former support/now resistance (was the old head and shoulders neckline) and came down forcibly from it. See the green oval on the lefthand chart.

 

 

eurusd-triangle.jpg This is a classic “retest”, having broken out from a technical level. What does it mean for the pairs? In my book it’s a big signal to get frisky again with the yen and franc, and back to be careful/be bearish with the more aggressive currencies such as the euro. Look at how the EUR/USD has come down hard from the resistance we’ve been watching.

This is also a good example of how intermarket analysis can help in currency trading. Disclaimer: if you are starting out, don’t think you have to know all this and do it! You can do fine without. But I’ve found it helpful to me as I’ve adavnced over the years.

dowvolume.jpg Stocks have the bonus of having volume attached to their prices. Rising volume supports price movement, falling volume weakens it. We can put volume on DIA (mirrors the dow, and has volume on it) and see a picture of the bears being strong and the bulls being weak (see chart on left). As we see this unfolding, it helps us feel more bearish and bullish of certain pairs because stocks continue to lead currencies in a lot of ways.

Bottom line: as stocks continue downward, so will most pairs, and the yen and franc will strengthen!

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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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eurusd1.jpg The recent turmoil we’ve seen in stocks, the fears of recession, then the bounce back … they’ve taken their toll on EUR/USD. The euro, riding a wave of optimism over the economic strength of the eurozone, has stalled. It’s seen in the two peaks the pair made in November and this month: instead of being consecutively higher (= uptrend), they are even.

Not only does that give pause to the uptrend, it is a possible double or triple top, meaning price could reverse much lower. It was just a few weeks ago that we talked of this being one of the “darling” pairs, but my hasn’t it changed … there are much better trends to be had out there right now.

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