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Mysticforex
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Everything posted by Mysticforex
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The Aussie went on a wild ride in early Asian session trade after RBA Assistant Governor Christopher Kent mentioned the prospect of intervention in a Q&A session after a speech in Sydney. The AUD/USD immediately tumbled more than 60 points as headlines crossed the news wires but the pair quickly stabilized and retraced all of its losses after traders had a chance to fully digest Mr. Kent’s statement. One of the key provisions for such a policy move is that the currency must be at either an extreme over or under valuation. Given the fact that the RBA did not intervene at when AUD/USD was 1.0800 it is unlikely that the central bank would step in at .8800. Thus upon further reflection Mr. Kent’s comments were seen as simply another attempt at jawboning by RBA and Aussie quickly regained its footing.
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GBP/AUD has now made a triple top at the 1.8600 level and the distribution is facing a triple bottom at the 1.8100 level. A break there opens a runt to 1.8000 and only a close above 1.8300 relieves the downside pressure on the pair.
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Taking a look at the weekly chart of GBP/USD, 1.58 is the current support level for the currency pair and if that breaks, the next level to watch is 1.5720, the 61.8% Fibonacci retracement of the July 2013 to July 2014 rally. By the same token, resistance is at 1.60, which is not only a psychologically significant level but also the 50% Fib retracement of the same move. If this level is broken in a meaningful way, it should be a smooth ride towards 1.62.
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EUR/CHF hit a 2 year low today as investors fear that a yes vote on the Swiss gold referendum at the end of the month will force the Swiss National Bank to choose between adhering to the vote or defending the EUR/CHF 1.20 peg. The vote asks whether the SNB should raise the share of gold in its asset to 20% from 8%. The reason why this could affect the currency is because if the referendum passes, it would require the central bank to sell its foreign reserves, much of them in euros to buy gold. This is a dangerous predicament because it would restrict the SNB’s ability to defend its currency. The vote will be a close one that gold bugs and EUR/CHF traders will watch carefully. However while it poses a serious risk to EUR/CHF, the vote is more than 2 weeks away and the SNB could still verbally and possibly even physically intervene in the currency to keep it from breaking the 1.20 peg before that time. In a pair like EUR/CHF that is distorted by central bank intervention, technicals are not very reliable. However as shown in the daily chart, 1.20 is an obvious support level for the currency pair. In the last 2 years, the “low” for EUR/CHF was 1.1996, a level that we believe will hold before November 30th. While there appears to be resistance at 1.21, verbal and/or physical intervention could drive EUR/CHF up 100 to 300 pips in a matter of days depending the strength of the central bank’s actions.
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There had been rumors there would be a public squabble between the ECB and the Bundesbank. This did not happen and the euro weakened on the markets assumption, there will be some additional monetary stimulus in the EU. It is doubtful the size will be as big as the current BOJ action or the recently ended US Fed's QE. A less aggressive European QE may mean the euro is poised for a rally.
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Taking a look at the daily chart of USD/JPY, the correction on Friday was the largest one day decline for the currency pair since mid October. 114 is a near term support level that if broken would pave the way for a decline to 112.30. 112 should hold. If USD/JPY takes out its 6 year high of 115.58, the next stop should be the October 2007 high of 117.95.
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The 1.4000 level is a very strong base level in EUR/CAD representing triple bottom support if it is broken the drop could be precipitous to 1.3800. Meanwhile only a move above 1.4200 alleviates the downside bias.
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Thursday’s European Central Bank Monetary Policy announcement is one of the most highly anticipated event risks this week and the euro is trading soft going into the rate decision. It is no secret that the ECB maintains a dovish monetary policy stance and intends to increase stimulus if the economy weakens further. This stance contrasts sharply with that of the Fed whose rosier outlook for the labor market reset expectations for a mid 2015 rate hike. With tightening expected to be the Fed’s next move and easing to be the ECB’s, its no wonder that EUR/USD is trading near 2 year lows. However the main question is whether these losses will continue on the back of Thursday’s announcement. We do not expect the ECB to follow in the Bank of Japan’s footsteps by increasing stimulus. Yet if they decide to expand purchases to corporate bonds, it would represent an increase in stimulus that would be negative for the euro. If they simply reiterate their plans to raise stimulus but fail to follow through with fresh action, given the overstretched nature of euro short positions, a short squeeze could drive EUR/USD higher.
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Looking at the GBP/CAD technically we see a higher low on the pair and rounded bottom that suggests a potential explosion higher. A break above 1.8300 could open a run towards 1.8500 but the pair would need to collapse below 1.7900 to truly break its support.
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Last week the Fed and the Bank of Japan created the perfect back drop for a continuation in the USD value versus the yen. The Fed did not say they were in a hurry to raise interest rates, but they did say the US economy had made sufficient recovery so QE could end on schedule. The BOJ went the other way. They would increase the stimulus, buying ¥80T a year up from ¥60T during the past year. After close to a 900 pip rally, it is always tempting for the novice trader to sell the market since the rally has already carried "too far." Rarely does this work. Markets have an uncanny way of going too far in either direction.
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Other AUD & NZD Pair Discussions (GBPNZD, EURAUD, AUDCAD Etc.)
Mysticforex replied to TL Staff's topic in Forex
Tonight we have the RBA announcement . Most are expecting a dovish statement. If it is unchanged, we could see some relief for the AUSSIE. Therefore Buy AUD/JPY at 99.65 Stop at 99.05 Close 1/2 at 99.95 Close rest at 10150. -
Taking a look at the monthly chart of AUD/USD, the 4 year low of 0.8643 is looking extremely vulnerable especially after Monday’s big move. However having tested this level on numerous occasions, significantly weaker data or an intensification of concerns about the level of the currency or the global economy could be needed for this level to break in the next 24 hours. Beyond that, the market’s appetite for U.S. and Australian dollars will be key. A break below 0.8643 opens the door for a move down to the 50% Fibonacci retracement of the 2008 to 2011 rally at 0.8550. If this level holds, AUD/USD could trickle back up towards the top of its month long range near 89 cents.
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The remarkable events of Friday with BOJ opening up the floodgates of more QE created a massive rally in yen crosses and that rally may continue into this week especially if US and Chinese data remain supportive. If US data shows that expansion continues at a steady pace the case for policy divergence becomes even stronger and USD/JPY is likely to push higher. In the meantime the Aussie will hold its own especially if Chinese data shows that Asia's biggest economy continues to expand as well. Monday's Chinese Manufacturing PMI data as well Tuesday's RBA rate decision could reinforce the fact that Australian rate will remain steady and that could create fresh flows in AUD/JPY taking the pair to 100.00
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Taking a look at the daily chart of USD/JPY, the 6 year high of 110.09 is the next big resistance level for the currency pair and beyond that 115. On the downside, 108 is support.
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The EUR/USD remains in a long secular downtrend and the latest rally was simply corrective in nature running out of steam at the 1.2800 level. The test to the downside will target the yearly low at 1.2500 and break there would open a run towards 1.2250. Meanwhile only a close above 1.2800 relieves the bearish bias.
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Interesting link from WSJ: Here is how the central banks in four major advanced economies have moved two key levers of monetary policy in recent years, and how two important economic indicators have responded. Select buttons to show or hide central bank data. Figures updated: October 28, 2014. Central Bank Watch - WSJ.com
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Taking a look at the daily chart of USD/CHF, we can see a triangle in formation, which is a classic breakout pattern with 95 and 94 cents being the key levels to watch. If 95 cents is broken, there is no major resistance until the October high of 0.9689. If 94 cents is broken, the next stop should be the 23.6% Fibonacci retracement of the 2011 to 2012 high at 0.93 cents.
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Technically NZD/JPY has set a higher double bottom which is a bullish sign and if the pair can hold above 85.50 then 86.00 would come into view. On the downside support lies at 84.50 with much deeper support at 83.0
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Durable Goods 08:30 USD Consumer Confidence 10:00 It’s been a very subdued session of trade in the currency market with very little newsflow to drive dealing as euro and cable drifted lower while Aussie showed some relative strength.
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The large spec long in the USD remains. In the most recent three weeks, speculators have held long positions in the USD versus every other currency. The biggest short position is in the euro, about 210K contracts of futures and delta adjusted options. Each contract is 125,000 euros, or at 1.27, around $159,000. This position is far from chump change, and it is strange there has been no evidence of a short squeeze. Considering the DI is heavily weighted in the euro, and the CHF is pegged to the euro, the short position is even larger.
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The EUR/JPY has now set a strong triple bottom with a spike low at 135.00 and a move above 137.50 would open a run towards the 139.00 level and establish a strong case for a breakout rally. On the other had a close below 136.00 would point to a possible retest of the lows at 135.00
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Introduce Yourself Here - Don't Be Shy!!
Mysticforex replied to trading4life's topic in Beginners Forum
Hi evan, Welcome to Traderslaboratory ! -
Dovish Bank of England minutes, a surprise decline in retail sales and a larger than anticipated drop in industrial orders should have taken GBP/USD below 1.60 and while the currency pair made a brief foray below this level today to 1.5995, it rebounded to end the day above this key level. Given the softness of retail sales and the deterioration in trade activity, Friday’s third quarter GDP numbers are not expected to be kind to sterling. Nonetheless the currency pair’s resilience should not be underestimated because 1.60 could still hold (after a brief break) if growth falls short of expectations. Not only is the GDP report backwards looking but economists expect a slowdown in growth so a softer number would not be a major shock. At the same time, with 2 members voting in favor of an earlier rate rise, the Bank of England will still be one of the first countries to raise interest rates. I also believe that sterling is receiving some support from euro outflows ahead of the Eurozone’s bank stress test results, which are scheduled for release on Sunday.
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Taking a look at the weekly chart of GBP/USD, 1.60 is not only a psychologically significant level but also the 50% Fibonacci retracement of the 2013 to 2014 rally. Once this level is broken, the next support is the 2014 low of 1.5875. If it holds, meaning GBP/USD does not close below this level then it is likely to retest 1.62.
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The EUR/USD saw a steep selloff today as rumors circulated in the market that at least 11 banks will likely fail the ECB bank stress test results due this Sunday. The pair drifted all the way to 1.2637 by end of day. However, the decline today could pale in comparison to what could could happen tonight. The worries about the financial sector are overblown as the banks in question are small regional players and are unlikely to have much impact on the European banking system. The much more important factor is economic growth and to that point tonight's flash PMI data will provide the most accurate reading of conditions on the ground. If PMI show a steep decline and more importantly if the data shows that Germany has moved into contraction then EUR/USD could retest its lows at 1.2500