Commentary Archives - Page 65 of 66

May 27, 2012February 15, 2013

Strong USD, Strong GBP

There is a new theme emerging with the USD BREAKOUT this week. Everything is weak against USD. $GBPUSD has fallen over 650 pips in 4 weeks. It ended last week on a technical break of the 61.8% Fibonacci retracement level of its entire rally off the January 2012 lows. That was the last defense for bulls though their case was lost with price action below 1.60 for 2 weeks now. However bearish cable may be this does not at all roll neatly into a weak sterling story.

On the contrary, sterling is killing almost everything else. GBP is at multi-year highs against the euro. No secret there as to why. But the commodity dollars are also weakening tremendously against sterling on broad-based weakness in commodities. The strong USD combined with slowing Chinese growth is looking to make commodity weakness a new trend in the short-term.

When trading these markets, timing is crucial. The reason for the choppy consolidation around 1.60 in $GBPAUD and $GBPCAD is due to the sterling weakness in $GBPUSD and general GBP strength in $EURGBP and $GBPNZD. The EURGBP close below 0.80 signals more GBP strength; even as the $GBPUSD close below 1.5750 signals more GBP weakness there. The correlation is ironic. But price action is truth. The strong USD — strong GBP theme bears paying attention to as we head into summer trading.

May 17, 2012May 17, 2012

1.60 The Big Figure

The market loves magic numbers. And the one on radar is 1.60. GBP is dealing with 1.60 on 3 currency pairs that I follow. This is quite uncanny and ironic but maybe not so much coincidence. $GBPUSD, $GBPAUD, $GBPCAD is a strong dollar bloc. Their breakouts above 1.60 marked technical reversals across this bloc to new yearly highs. But this week’s breaks below 1.60 looks to undo all of that.

Looking back a year at $GBPUSD reveals that a break below 1.60 after breakout above only points to more weakness. What started as a correction has already turned to a reversal in the $GBPUSD today. @EdMatts did a great video explanation so good it was highlighted twice in the Sterling Digest.

$GBPAUD hasn’t held up in the past when it broke below 1.60 after new highs. Where it has held, price rallied for hundreds of pips before topping out.

So now look at the $GPBCAD. It is still holding up as today’s low at 1.6003 is ahead of the big figure even if only by pips. It then bounced over 120 pips to settle at 1.6100 (as of this writing). A close above 1.60 keeps the pair bolstered for a rally higher. But with lower highs on the daily chart, a rally to met by sellers until buyers can prove themselves with new highs.

Nonetheless suffice it to say that 1.60 is a serious psychological level for sterling at the moment. Trade what you see!

Image credit

May 11, 2012May 11, 2012

Exit The Euro

It has to be a very scary thing when your banks, companies, households and even governments can’t pay down its debt. Can a currency be made worthless based on its debt load in a world where money is electronic and can be minted with a push of a button? We just may soon find out. Exit the euro.

April 25, 2012April 25, 2012

Beware Trade Tips

Especially when it comes from Goldman Sachs:

The mighty Goldman Sachs has apparently recommended selling EUR/GBP at 0.8210/20 with a tight stop of 0.8250 and targeting a move back down to 0.8150/60

Since Goldman Sachs wants to make trade recommendations, why don’t we all make some? Here is mine:

GOLDMAN SACHS IS LONG EUR.

Do what you will.

screen shot of my twitter stream at 2:20ish am pacific time — I LOVE my Twitter stream

Source: Trade Recommendation… (Forex Live)

April 13, 2012April 13, 2012

Enter The Chaos Index

Apparently, there are more riots and protests against the goverment in countries with poor or declining economies. In fact,

The strong link between unrest and austerity suggests that cutting expenditures in times of crisis may be even harder than previously thought…To avoid the spectre of default and a downward spiral of collapsing output, lower tax revenue, and a rising wave of unrest – an austerity trap – governments have to act more cautiously in good times. They need to borrow less and keep taxes high even if public debt is falling in a period of expansion.

This is hardly news. As long as credit rating agencies rule the world, governments are more interested in pleasing them as opposed to its own citizens. Expect more Arab Springs and Occupys as food and energy prices rise with unemployment in countries with strict austerity measures. And the markets won’t be forgiving. Look no further than Europe.

Source: This Chart Predicts Rising Violence And Unrest Around The World (Business Insider)

April 12, 2012

What Do You Do With 18 Billion Euros?

You sell them for other appreciating currencies.

It’s no secret that the SNB has been in the markets buying euros to maintain its 1.20 EUR/CHF currency peg. The euro, however, is a loosing currency to hold as it looses value in the face of its sovereign debt and political crises. To hedge against this loss of euro value and diversify its foreign reserves as it accumulates euros, a pattern, first noted by Credit Writedowns and included in yesterday’s digest, has emerged that the SNB sells its intervention euros for other, more valued currencies. And it looks like one currency of choice may be sterling.

EURCHF DAILY CHART — Euro has drifted higher in the face of intervention

EURGBP DAILY CHART — However, euro sells off versus the sterling post-intervention

Sterling strength has been mysterious to many traders because UK fundamentals are so poor (poor economy and tons of QE). Perhaps the SNB has been big buyer of sterling as it looks to quietly get rid of a devaluing euro that it is forced to buy. Now as $EURCHF is hovering around the 1.20 peg, I have to wonder if we’ll see a drop in $EURGBP when the SNB enters the forex market again. Some argue the SNB is already in the market.

OK, I step off my conspiracy theorist soapbox.

March 27, 2012March 28, 2012

Timing Is The Only Thing

Too many people say “I was too early on that one” to reassure themselves that they were right after all. The bottom line, though, is: if you didn’t make money, you weren’t right. So stop lying to yourself and work on your timing!

Great read over at Richard Todd’s blog on timing. Timing is something I strive to improve upon every time I’m in the market. I realized early in my trading that the entry of a trade is just as important as the exit. I personally feel it is more important. Todd’s post got me thinking about what it is I do to improve the timing in my trading.

Use tighter stops. This is a recent change I made about a year ago. I know it is very counterintuitive and even ill-advised. But tight stops don’t allow you to be lazy when entering markets. There can’t be any “Oh I’ll just get in right here.” There must be a reason for every trade and that reason is your price. A trade is triggered because price has reacted a certain way at a specific chart level. It is at that level where we would love to get in at. It is the level that will maximize our profitability. An early entry is too impatient. Impatience is never a good way to trade. A late entry is a missed entry. Missed trades simply don’t pay which can be okay but refer to the above quote.
Use limit orders. Trading live in the market can be exhilarating and boring. Both environments have positives and negatives but they have one thing in common. They both affect timing. In a volatile market, some traders get an itchy finger pulling triggers as fast as the market can oscillate. In a slow market, impatience rears as a trader enters a trade just to trade. Using orders allows me to time my entries to a certain extent as I let the market come to me. If the market never comes to me, then it’s time for a new setup and a new trade. With capital preserved, I can go into that next trade with a clear head.
Using profit targets. There is aplethora of literature out there about using stops. Far less is dedicated to using limit orders to set profit targets. Many traders will place a stop but never set a profit target. Without a hard profit target set, the trader may be away from the screens when the market finally does move in her direction. Or worse, the trader hesitates, or simply refuses, to take profits off the table. Use hard (tight) stops. And use hard targets.

Todd says timing is everything. I agree, and take it further. Timing is the only thing.

Source: Timing Is Everything (blog.richardtodd.name)

March 22, 2012March 22, 2012

Get Your Mind Right

I had the privilege of meeting @DeniseKShull 2 years ago at the StockTwits Meetup during the NYC Trader Expo. I attended her session the next day and was blown away by her assertion to actually use your emotions in your trading. I followed her on Twitter. She started writing her book not too long after that conference. The rest, as they say, is history. If you haven’t read the book, this interview is a beautiful and illuminating preview. Absolutely blown away by the brilliant insights Matt and Denise discuss. LISTEN TO THIS INTERVIEW. Read the book. Get your mind right. Happy trades.

Market Mind Games with Denise Shull @denisekshull and Matt Davio @misstrade, A Radical Psychology of Investing, Trading, & Risk

March 9, 2012

What To Celebrate

If you started this week with a trading plan on a currency pair, good for you. That’s just the first hump. Get a plan. Write it down. Yes, typing counts. Write down what you see the currency pair doing. Write down the key levels. Write down what you will do if it gets to those key levels. So if you managed to get that done between Saturday and Sunday afternoon, I say KUDOS to you! Celebrate.

The second half of the battle is simply trading the plan. Think about your week. Those of you who had the plan, think about your week trading that currency pair for which the plan was written. Did you trade your plan? Did you understand the plan you didn’t write and trade that plan? Did you have to trade your original plan anyway by the end of the week? Was any that successful? Good for you, fellow traders! Some among us had a flawless week. Most of us had mistakes. And yet we all have something to learn and take with us back into the markets on Monday. Celebrate.

My lesson this week is: Trade your plan because nothing beats experience. When the market is bouncing around, it’s easy to loose your way. Go back to the plan.

Sound simple. It’s not. Sound daunting. It doesn’t have to be. Start with a plan. No new words of wisdom today. Just a real profound feeling of pride one gets when you finish a good week of good trading. When you start to execute on that plan with the confidence of experience, you start to become a different trader. Every single time you execute. Get to that point in your trading. Don’t celebrate the money. But by all mean, celebrate a well-executed plan!

Celebrate by Furryscaly, on Flickr

Image credit

March 6, 2012March 6, 2012

Is There Something to Month End Flows

During the last days of February last week, sterling strengthened across the board. I noticed it because it was very strange to see the $GBPUSD and the $GBPAUD rise together when these GBP pairs usually diverge. $GBPUSD and $AUDUSD typically rise together on risk and a weak USD resulting in a weak $GBPAUD. Looking at the rest of the GBP pairs, sterling was being bought versus all the major currencies. As companies and investors alike exit positions and/or repatriate profits, capital flows can be even more exaggerated at the end of the month. And it seems investors are positioning with sterling.

But why would sterling go up when the United Kingdom is the only G10 country to fall into recession at the end of last year. The BoE has launched QE3 for the UK. Inflation is quite high even if the central bank chooses to ignore it until it comes back down to acceptable levels. An interesting monetary policy angle that is but that’s for another musing.

So why would sterling go up? Because of China? In yesterday’s digest, a very interesting article suggested that sterling is catching bid as a preferred funding currency to unwind long AUD positions. With China’s economy slowing down, analysts believe that Australia’s economy will suffer due to the declining demand from their large trading partner. A slowdown in the economy the main reason why the Reserve Bank of Australia is signaling a more dovish monetary policy. WSJ‘s Kemble-Diaz argues that the undervalued GBP has more value than other major currencies at such low levels.

Another reason may be seasonality.

seasonality in GBPUSD daily chart — March was a good time of year last year

In $GBPUSD this time last year, March 2011 marked the beginning of a push higher after the rally in January 2011. Cable is certainly well-posied for consolidation after its monster rally higher earlier this year. Another push higher is supported technically as long as price remains above 1.55.

Since seasonality is the buzzword on the financial circuit so far this year, let’s take it a little further. The end of the month into the beginning of the next tends to be a good time for cable. The $GBPUSD has rallied higher in the last months during this time period.

seasonality in GBPUSD 8 hour chart — The end/beginning of the month is a good time for cable

No matter how you reason it, sterling continues to confound the bears with its strength. Against the USD, maybe $GBPUSD becomes an easy buy. But when supported with a rise in $GBPCAD, $GBPAUD, and $GBPNZD, one need only concentrates on riding this new trend while the opportunity is here and getting off where appropriate. Trade what you see.