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Posts Tagged ‘AUDCHF’

I didn’t seem to miss much on Friday; so it was good that my positions were trimmed well ahead of the weekend. Diving into the new trading week, things are already off to a slow start. There seems to be no clear direction and a lack of momentum for equities and risk appetite in general; so taking a new swing or position trade is inviting excess risk. What’s more, with poorly defined ranges and channels, there is limited potential for short-term setups. Therefore, it pays to be especially selective and patient so that good trade opportunities come to me rather than try to force a bad situation into a failed trade.

For my book, I’m carrying over my two existing positions from last week. The remaining half of my short AUDCHF continues to eat away the profit won with the massive break through the turn of the month. I still have a ways to go before this hits breakeven and I’m knocked out. My other existing position is the long USDJPY. Now in the money on the bigger position, I’ll hold off on taking half profit. The ultimate purpose here is to wait for a bigger reversal and hold for a long term on small size. I can certainly take half profit to lower my risk over time though. A new addition to my active list is a short GBPUSD. Having broken 1.0585, I have take a short on a retest of this former support and will see what we can achieve. A stop above the range of highs this past week and first target of 1.4750 seems reasonable.

As for my potential setups, I am still waiting for AUDCAD to get a better price to short and AUDNZD to finally mark a meaningful, bearish trend reversal. A new one to keep an eye on is the NZDUSD congestion of the past few active trading sessions. A short-term chart shows the potential for a sharp break from congestion.

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We had a tremendous burst of volatility this morning that has shaken many of my pairs to life; and cut me out of a few others. This increase in activity, however, has not clarified the sense of direction. In fact, equities (as a simple benchmark for risk) suggest the rally in sentiment has stalled and is jeopardy of reversing course. At the same time, some FX pairs have rallied on risk-related paths and others tumbled as if fear is prevalent. I think the underlying position of the markets is chop and uncertainty; and a few key fundamental updates have sparked unusual price action for specific currencies. Top among these headlines is the news that the IMF has increased its growth forecast for the world; but there have been damaging comments made against the future of the dollar, euro and pound. This creates an unusual mix of price action where the general pace of congestion over the past week is fortified. It just happens then that I am better positioning myself for being absent for the final 24 hours of this trading week.

For my active positions, I have seen another pound trade stopped out. GBPNZD extended its reversal last week and has undermined the bullish breakout opportunity that we had on a long-term trendline break. I still like this pair fundamentally; but I’ll have to wait until something better develops for price. Since I hadn’t reached my first target, this is a complete loss. At the same time, I have decided to cut my GBPUSD. Having already taken the first half of this position off at a profit, I decided to take a modest profit on the second half and consider jumping back in on a clear breakout from recent 1.5225 and 1.5075 congestion. I would rather it be a bearing breach because it would open the door to retracing the bullish trend of the past month. As for my AUDCHF short, the floating profit in the remaining half of my exposure is being eaten away after the strong Aussie employment reading. My stop is set at breakout; but I am still happy with the profit taken on the first half if that happens to be the net take. Finally, my USDJPY is putting up big numbers. An unusual outcome given the reserve price action elsewhere, but the technical implications are encouraging.

As for potential trades, CADJPY and CHFJPY have already move sharply to the upside. I am waiting for a negative break on the former and the latter is already stretched then; so I will take these off the list for the time being. As for AUDNZD, a temporary bullish break from the descending wedge was won; but no follow through would come of it. I still like a medium-term bearing break below 1.2150; and I will wait for it. AUDCAD is a new one. Having an awkward rally today; we are closing in on the former major support at 0.92. I may build up a small short should we get there and add to it should it start to reverse.

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The return of US liquidity wouldn’t disappoint Tuesday morning. With the promise of US capital once again flowing through the system, traders would take the opportunity to bolster their risk taking well before the official US open. In fact, the European benchmark equity indexes would rally nearly three percent across the board. Clearly, there was sense of risk appetite that would boarder greed. I would attribute much of this strength to the few signs of progress in European finances. The ECB was able to more than cover its one week facility to sop up the liquidity from government bond purchases and Spain was able to auction off six billion euros in debt. Is this a sign that things are definitively turning around for Europe? Not likely. This is more than likely a lull in fear where policy officials are smartly accessing the markets to fortify the perception of demand and stability. However, the reality of the Euro-area’s position cannot be ignored for long; and a rebound will not find much excess premium to work off. We have certainly seen that sentiment has already tempered. Shortly after US markets opened and rallied, they would reverse course and trade in the red briefly in the afternoon hours of the New York session.

For my positions, the impact of a rise in risk appetite had its impact. The biggest change was the fact that my EURGBP short would be knocked out at 0.810 with the break of a descending trend channel in the vicinity. The trailed stop and my higher entry on the first half of the position made it an overall profitable stop out. As for AUDCHF, my short has cooled. There is clearly short-term congestion developing; but my entry is good enough that I can wait out a possible revival on a bearish trade. For my risk positive positions, my long GBPUSD hasn’t offered much in the way of progress. Best to keep the stop on my second half nearby at 1.5135. Interestingly, USDJPY has declined today even though the dollar is typically treated as the ‘risk’ favorable currency between USDJPY when it comes to it. This says something about the absolute nature of the dollar in reflection of this shift in risk. And, finally, GBPNZD has reversed all the way back to its breakout point on its long-term descending trendline. A hold here is important to securing hope of a follow through.

As for those pairs with potential, there are a lot of possible short-term breakouts out there. However, I’m going to stay away from them considering how choppy and divergent things are between different asset classes. The pairs that still interest me are AUDNZD, CADJPY and CHFJPY. AUDNZD has shown a strong bounce on its long-term rising trendline (neckline) and has forestalled a breakout – which I’m still interested in. CADJPY has shown a similar reversal to prevent a major shift in its technical bearings around 81.50/75. As for CHFJPY, the break of the ascending triangle formation with resistance at 82.20 has proven lackluster. I may will now only trade this should we get a good bearish reversal below 82 and with momentum.

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Well, Friday’s price action was certainly disappointing for traders; but it wasn’t unexpected. Sure we had significantly volatility and remarkable price developments heading into the session; but the approach of an extended holiday for American traders was a natural drain on volatility. Furthermore, the presence of Friday’s NFPs curbed activity before the actual release; while the data itself was not particularly surprising. Now we are left with time to reflect on how the markets will perform next week and how we should position for that activity. My focus is on the meaningful bearish break down for US equities and the contradictory rally from EURUSD. This is very unusual and one will have to inevitably correct to the other. I am of the mind that it will be the single currency pair that adjusts to the general theme; but it is important to keep an open mind to different possibilities.

Taking inventory of my current positions, I still like EURGBP and AUDCHF to the downside. The former has stalled at the top of a descending trend channel and it is net in the money between the two entries; but I have placed a stop at 0.8310. For AUDCHF, we have come upon the first notable support at its 38.2 percent Fib at 0.8920. We’ll see what kind of follow through we can get. For my dollar exposure, I’m still not interested EURUSD; but I still like my GBPUSD long. It pushed above 1.5125, but we may also stall at the top of an ascending trend channel. The trailed stop is at 1.5025. As for my USDJPY, good thing I’m in a smaller position size. A short-term descending trendline has showed up on the 60-minute chart, perhaps a good short-term long to add to Monday if we get a break. Then there is GBPNZD. After breaking its long-term descending trend channel, a pull back offered entry at 2.1850; and we will look for follow through considering how fundamentals develop.

As for potential trades, caution has kept me out of AUDNZD for now. An early morning plunge today was quickly reversed. A close below support will encourage me to get a short. CHFJPY has also seemed to offer a bullish breakout on an ascending triangle pattern; but I am approaching with caution and waiting until next week before I make a decision. CADJPY has slipped below 82.50; but it has chopped this level for two days. I need to see some sign of momentum; and that will confirm should the S&P 500 and other equity benchmarks show conviction in selling pressure.

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What an unusual day. Risk appetite was under clear pressure Thursday morning; and the capital markets were responding in kind. The Dow and S&P 500 furthered significant medium-term bearish breakouts, commodities were tumbling and bond yields fell off. And yet, EURUSD rallied on the day. In fact, the euro advanced across the board and the US dollar would stumble against most of its crosses. This is an unusual development given the greenback is the undisputed safe haven currency while the euro is heavily dependent on general investor confidence as it is suffering from a financial seizure that threatens a full-blown financial crisis. This divergence comes on part of the euro itself. The currency responded this morning to Spain’s ‘successful’ bond auction whereby the government sale of 3.5 billion euros worth of five year notes received a 1.7 bid-to-cover. This helped stabilize confidence; but in reality, demand was rather weak; and there are bigger problems than just Spain. Another issue to arise during the day was a six-day lending facility, used to fill in the liquidity gap with the 12-month unlimited facilities expiry. This short-term liquidity infusion amounted to 112 billion euros. This is a sizable sum and add significantly to yesterday’s 132 billion euro draw for three-month coverage. Overall, conditions are still poor for the region. And, given the euro’s temporary strength, the primary exchange rate (EURUSD) would lead to a wide selling of dollars. This situation won’t last for long as tomorrow’s NFPs could set both currencies back in the risk appetite track.

As for my positions, today’s volatility certainly changed things around. My EURGBP short was pressured and we are above my second entry level. Having added at 0.82, that half of the position is in the red; but my initial holding is still well in the money. If I am stopped out at trailing stop level, I’ll still end with a net profit. With risk aversion, my AUDCHF continues its decline and so does USDCHF. With the latter pair, I have decided to take profit at the combination of a 200-day SMA and 61.8 percent Fib. One true underperformer is USDJPY. This has dropped below a range support level; but given my small position size, I will stick with it and add as it continues lower because I like the long-term outlook.

For potential trades, both GBPNZD and EURCAD have broken their long-term descending trendlines. The former is far more attractive from a fundamental perspective; but I need a pull back for a better price. EURCAD is more questionable for fundamentals; so I have to approach it with a smaller position size and with good management. For pure breakout opportunity, CADJPY is still looking good. If I want a breakout with better follow through though, it is AUDNZD that draws my attention.

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We passed a major fundamental hurdle today in the auction of the ECB’s three-month lending facility. Why was this so important? It represents a clear gauge of how much capital European banks need as the Long-Term Refinancing Operation (12-month facility) expires tomorrow and 442 billion euros is expected to be drained from the market. The 132 billion euros drawn was surprisingly low and gives us the initial suggestion that the region’s financial institutions are in much better shape than we had expected. Under the assumption that this was a major bearish concern for the global market, we would expect risk appetite to rebound sharply on this news. In fact there was an immediate bounce and a particularly strong performance from the euro; but sentiment has not charged ahead. Skepticism around this particular event remains (are banks not drawing more because they are afraid of the stigma), the Euro region’s troubles are far more expansive than just this issue, the EU bank stress tests represent another tangible concern and Friday’s NFP a completely unique concern that can act as an anchor on price risk appetite.

For my positioning, the bounce in risk appetite has leaned on a few of my positions. The most meaningful response came from EURGBP which has bounced back up to test its former support at 0.82 and has put the recent addition to my short interest around breakeven (the second half is still well in the money). Another disappointing reaction was for my GBPUSD long which was stopped out. The setup failed not because of the fundamentals but because of my positioning. I had set my stop tight at 1.4980 with the expectation that we would see immediate follow through on upside momentum – but that was a risky bet given the level of event risk we had. For my other two risk averse pairs (short USDCHF and AUDCHF); today’s events would not put me off pace. In fact, AUDCHF is extended its massive break from yesterday and USDCHF is slipping below a medium-term trendline and 50 percent Fib at 1.08. Back in USDJPY in a smaller size from 88. 35, we have not seen much progress in either direction.

For potential trades, I am watching many of the same from yesterday. GBPJPY has dropped off my list given the lack of conviction in sentiment and the pair has trickled below 133. Similarly, GBPCHF is off as it has breached support and I’m not interested in the short side. Still interesting though is GBPNZD. Having stalled below its long-term trendline, we have a good opportunity to consider a breakout or reversal scenario. I’ll await a clear bearing on risk for this assessment. CADJPY is coming down quickly to potentially complete a very large head-and-shoulders pattern while CHFJPY is near a termination level for an ascending triangle pattern. I am still waiting for AUDNZD to come to a resolution on its congestion pattern. A new one to watch is EURCAD. If sentiment truly does improve for the euro (I will still not like the fundamentals for the medium-term), this severely depressed pair has already broken a clear descending trendline and could give way to a meaningful correction. Always have options.

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