And that’s a lot of resistance hits – asset? Your choice.

Wow, that holiday rally was quite robust on Friday. It hit all of my PTs (gold, pound, but I’ve also closed my Bund trade), but more importantly, almost all risk assets have come up to major resistances. That confluence of resistances, especially amplified through so many assets, is what our PFTQ tech trader running the high Sharpe RSI 2 package.

The indicator package still shows holding short, as it hasn’t rallied back to major MAs.

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The best way to structure this would be through: Ichimoku hits, trendline hits, fib hits and finally candlestick patterns. Confidence decreases in this order too, so it’s more or less simple arithmetic to find the best asset to trade this decline.

Ichimoku hits:

Gold, the big one. Actually had my long position from 1710 limited out with that last spike up to 1753. Wiped candle at the end of the day doesn’t do good with momentum either. Additionally, all tests of a blue cloud from underneath has ended (hit, not close above) with the Span A (top line) providing a reversal point, regardless of other indicators. Price target of this one would be first the span B again at 1690, with an even lower one at 1660 (but run a probability analyzer on that).

A large cloud in this case, courtesy of QE3 speculation also gives enough room for scalping. Unless gold closes above 1753, the immediate bias will be negative.

Also look how similar to the DAX30 the technical positioning looks. More importantly if we have a reversal here, both gold and indices will have put in a local top.

 

The other big daddy: EURUSD. Looking for a capitulation on EURUSD, permabears? This might be your opportunity (well, the first relatively confident one so far). That Span A hit has been a powerful line of resistance, as no upward test has broken it within a week’s trading (as in, the reversal isn’t that fast), in 4/5 times this has happened (the only time it didn’t was in mid-September 2010). However, do please use stops at breakeven, or set very near price targets.

 

EURSEK: Don’t have much to say on this support hit, though a break of the Span A has been rejected before (remember not to confuse low liquidity gaps with actual breaks today!). Also, USDSEK has broken below that thin cloud and will likely target 6.5000 (technically). Small position? Why not.

 

Trendline hits:

The Nikkei 225, which has been following that channel since forever. Can’t say I’ve gotten into too many of these even though the lines have been drawn since the 2nd peak. Yes, the top line has been broken, but the fib provides quite robust resistance, especially since it was a very substantial support during April and May of this year. Plus, the bottoms haven’t picked up enough to show a true reversal, so trading this channel is still quite safe by my standards.

Also, this last run was completely caused by USDJPY. The US economy is improving, but treasury yields have exploded these past months, which naturally brings in more FOMC trading, and – not to forget – possible risk aversion due to a lame duck congress (what great timing!). Even though apparently this last drop in bond prices have been caused by foreign dumping, all sources of possible risk (remember that Greece still hasn’t received its bailout tranche even though its “rolled-over” bonds from November 16th will have to be paid on Dec 7th and 14th.)

This, along with a short USDJPY (yes, redundant and a bit dangerous) are my current trades.

 

AUDUSD: a bit dangerous but including it in this section as well. This pair is being wedged in, but close enough to the top line that would make a trade have slightly over 1. I still wouldn’t trade it as the range has been oddly thin over the last months, and for a similar long-dollar trade, there’s a few that give much better positioning (as in, why not EURUSD at around 1.3150?)

Fib hits:

Bunds, which I closed out after this post as momentum just died. This has stopped at a fib range rather than an actual line in the sand, as previous trading shows the actual resistance has actually been around 142.10 and 141.85. Will actually wait for a conclusive break of that range to re-target 140.40 or so (the Span A cloud bottom).

EURJPY: which has led a coordinated recovery (the Euro and the yen) back to hit the 76.4% reversal line. RSI has reached overbought area, and the HA candles are flattening. Confident? I think so.

Candlestick patterns:

Well, just the one really on USDJPY. RSI, HA and CMF (accumulation or deaccumulation) are showing weakness in the upwards run, and the last few candles (and if today’s is included), should restart the reversal pattern back to the low 79s. Hence, this is the reason for my Nikkei 225 trade, as the timing does match with the Nikkei’s channels. We do have the election coming up, but based on history (as Prime Ministers come and go), there isn’t expected to be a large change. Looks like there’s going to be something troubling in Greece again.

To the best of good buys.

 

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ECB Meeting… technicals say risk-positive, but from a rate cut?

So… it is currently 0600 or so GMT, more than a few hours away from the ECB rate decision at 1145GMT that’s supposed to bring in the new coming of unlimited bond purchases, some new flavor of SMP and additional commentary about easing. However, positioning of EUR crosses have stopped at an interesting junction – technicals of EUR-safe pairs show EUR upside, but EUR-carry have all stopped at important resistances. An OMR cut generally means lower EUR across the board, but other risk-positive decisions mean outperformance of major regional carry counterparts. Thus from EUR-safe/EUR-carry positioning, I think there’s a low chance of a rate cut, but something will give a risk a final run before what happens in Germany as September chugs along. 

Including the fact that German inflation data has been stable and the deterioration of peripheral sovereigns have paused over the summer months (along with a rise in Bund prices), an actual ECB cut seems unlikely. Rate cutting is one of the remaining monetary policy tools that doesn’t anger the Germans that much on the scale of what Draghi can do to piss in their coffee, but there is a zero-bound. And the problem isn’t really deflation (at least in the majority of countries) but borrowing costs faced by the governments of the peripherals. What Draghi is doing, is using a scalpel to attempt to remove the tumor, rather than a pistol. At least he has the right tool.

An ECB cut will most likely mean lower EURUSD and EURJPY. However non-cut, new SMP is risk-on. As both EURUSD and EURJPY has crossed into no-man’s land with upwards momentum, it is most likely that the trend will continue to the next major fib (a wick is enough). However for the more fun EUR crosses, extinguished candles at resistances point to generally a risk-on reaction, ie downward EURxxx.

Or I could be wrong and they clear the cloud in one stodgy go.

Selling 10 USDCHF to cover my exposure especially for 25 EURCAD short and a bit of EURHUF. Stopping USDCHF at .9600. But I shall be scalping… including XAUUSD.

So no rate cut? … surely there’s a way to trade this with Bund, BTP or Oblo calls, right? …

To the best of good buys.

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EURUSD and EURJPY – targets of 1.2720 and 100.50~. Not as good as Stolper’s target but still offers a few hundred pips. Also note the 1:1 positioning for EURUSD. Higher upper reward for EURJPY… but that might be due to yen effects.

EURSEK… of course there are questions of why there’s been a massive run up (look at SE yields, definitely seems to be some Riksbank purchasing here), but it has hit the bottom of a thin cloud. A 1.2% move upwards could take it out. After that, it’s back to the old ranges.

EURPLN… a bit more dangerous as it wicked up to the fib and now sitting at the bottom of the cloud. Expectations for NBP cuts (also today) may be driving this more than the ECB.

EURHUF… I still like this one… it’s sitting at a fib (the first resistance) as well as the bottom of a cloud. Major event risk for Hungary ain’t for a couple of weeks.

EURCAD… the pair that I’m using as an alternative for EURUSD. This has become my LT EUR carry as EURPLN clarity isn’t that good yet.

These positions are still a bit NG for my taste… but they’ve all gotten to a point where I’m absolutely comfortable selling them…

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Don’t touch these just yet

USDJPY and USDSEK, both looking for a potential short on stimulus bets/US dollar correction. However, I’d only pick one of these and given the overall broad sentiment looking at S&P500 futures, either or.

That sentence did not make sense, but it’s better to be right and lose a few pips.

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USDJPY – Need tomorrow’s candle downwards and crossing the channel for further downward pressures. Otherwise target remains at the 79.800/80.000 former light congestion.

USDSEK – same story, looking that break although this pair seems more likely. My dear, Draghi didn’t offer us anything important except that these temporary loans/refinancing/recapitalization are still on the table.

Want to sell something? Why not USDCAD or AUDNZD?

To the best of good buys.

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Another Chart to Reconsider ECB Dovishness

Of course, assuming that the ECB is dovish. A marathon is still made of small steps.

But in light of that, and contrary to the post a few hours ago, EURSEK may not be optimal considering that it has stopped at the resistance and the top of a former channel. Indicating a bullish ECB? Possibly, but at least there are 2 positions to see out what the ECB does.

Here seems to be a better one: EURNZD, though only for a short term hold such as this one. (This is also considering where EURCAD is at the end of the day – anywhere in the 1.2970+ zone and that’ll be a better position). Entry at 1.6500-1.6550 seems safe, with the next resistance on this rising channel at 1.6610 and change. Placing an order at 2 days’ high of 1.6530 and watching.

Mind you that the RBNZ rate decision is out June 14, so depending on how bearish, there could be a test of mid-channel.

Of course, considering that it is a dovish ECB. Wonder what Draghi’s thinking right now…

To the best of good buys.

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Central Bank Lookout for June

Because just to make low rates and Spanish fire more interesting, there is a June docket full of central bank events. While the focus is on the Fed on the 20th, it starts with the RBA in 6 hours. There’s also the ECB on the 6th, BoE on the 7th and then the RBNZ on the 14th.

As an aside, there’s an excellent piece on the RBNZ site about the Kiwi over the past 30 years of free market exchange. It also has excellent insights to what else drives the Kiwi, even against the Aussie! Quite interesting!

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What can the Fed do right now? There’s increasing expectations for more LSAPs after May’s NFPs and today’s New York ISMs and factory orders, with services ISMs treading at 53.5, which will be updated later tomorrow. Mind you that while “QE” seems to be the blanket publically-aware term, the biggest of them and one still in everyone’s minds, QE2, was to buy more LT weighted treasuries, resulting in open-market low rates. (QE1 was buying distressed assets including MBS and other primarily real estate backed assets, so arguers will have a point)

Anyone still at a terminal can look up FARBAST right now, and see the effects of Fed purchases on a 3 year scale. On a shorter 1Y/6M chart, Fed holdings of these assets (mostly treasuries) are actually declining. More room to buy? Possibly.

Additional fed purchases of US government debt seems unlikely at this point, with the market already doing the dual job, keeping rates low and supporting treasury issuance and interest payments. However, remember that this current central bank administration has been exceptionally dovish with good reason, trying to jump start growth at every opportunity and labeling almost all inflation as “transitory.”

If Bernanke’s disapproval of the BoJ’s inaction is anything to go on, the next step may be once again one to outdo the Japanese. The facilities of QE1 and QE2 mirror what the Bank of Japan has tried to do, first with property purchases (however late it was) and then JGB purchases for the last good decade and a bit. The Bank of Japan has also done direct securities purchases before (not sure if they are still doing it after Sendai) while moving away from JGBs, with Governor Shirakawa citing the need for more central bank independence.

And so this results in the possibilities that the Federal Reserve may very well start propping up securities prices. Although this immediate flies in the face of government, moral hazard and the new set of risk clauses after the financial crisis, I would certainly not mark it off if I was an independent central bank. Plus, with treasury prices so high, doesn’t it seem tempting to sell some treasuries and go for some high yielders?

Of course, that’s the same thought that builds up every bubble. Still, very interesting to see what the Fed will do on the 20th. If it’s anything like moving towards Fed purchases of (hopefully) low-risk securities, I’m going to buy a few lottery tickets with the trading money.

Now how to trade this? The dollar is due for a correction lower before moving higher again, as the channel set since January of this year has been dollar positive for many high-yielding pairs. This pattern isn’t that evident in low yielders like the Euro and sterling, since the differentials are so low that the effects of a rising US yield doesn’t fully replicate its effects in the pairs.

However, these next few suggestions are based on a technical recovery and the tradition of selling every time Uncle Ben opens his mouth.

USDSEK is a lot safer than other risk pairs at this point, with China taking out the Oceanics, US taking out Canada and Norway having its own real estate bubble. On a longer term, the target may very well be 6.7000, but I’m taking very short one-sided only trades on this because of the current congestion from 7.1000 to 7.2500. Until the lower support breaks, I’ll only be shorting once the pair gets to around 7.2500/7.3000. Plus, Riksbank isn’t for another month and that’s a bank that focuses on price stability.

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USDJPY – the pair I will be focusing on for work this summer. Very very nice channel has been established since the recent top. Anyone with a terminal should see whether this is correlating more with 2, 5 or 10 year yields spreads, just to see what has been driving this pair. Also do a few gold/silver correlations to filter out dollar expectations pulling this pair around. But, that channel does offer very good entries. Eyeballing the chart, there seems to be a good short entry again at 79.000 or so.

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With the Fed out of the way, the RBA and ECB are now on tap. I haven’t been watching data from those two countries that much over the past weeks, so I can’t really make a fundamental judgement. However, these two charts are setting up for a sell. EURSEK needs to break that top support before a good entry

For tonight,the focus is on AUDNZD. I have a substantial lot here, so I will wait for the dust to settle. Manual stops are placed at 1.28750, while new entries will be at 1.2910. Let’s see if the RBA messes up everyone again with a decision to hold. Unless you’re Glenn Stevens, everyone’s guesses are as good as everyone else’s. Like playing on dealer’s side on roulette on this one.

Fun days ahead…

To the best of good buys.

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Pairs to Trade the Decline In US Yields

We start with the below post here and this picture. Replace the 30 with 10 and it’s still pretty much the same thing..

 

… and a return to the thesis that the Fed (especially with its current board and situation) is a growth-fostering, not a price stability central bank. This, and the fact that recent manufacturing and consumer confidence data have been dampened by the increase in energy prices further the possibility that instead of keeping prices under control, will further try to ease or in our case, talk down rates. This provides us with a perfect opportunity to trade what the fed is seeing (the recent jump in yields ripe for a reversal). We just have to pick the optimal pair.

Also, if history teaches us anything about the (independent-HAHA) central bank, it will try to keep yields low to not bankrupt the treasury. Not a strong point, but nevertheless a thought…

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Because our pair finding ultimately comes down to the performance of each country’s yields and spreads against the expected lower US yields, let’s start with a simple correlation of selected pairs first. Note EURUSD is out of the mix because the European debt market is very interesting… and quite crowded…

oooh let’s clean that up a bit…

So with monthly correlations since mid-Jan (the start of the shift from risk to rates), we see that AUDUSD, USDSEK, and the very well-expected USDJPY making the short list.

For the sake of efficiency, simplicity and time, we will focus on these three pairs. Fundamentally, these pairs represent the overall FX market quite well, with AUDUSD a leveraged proxy of Chinese economic growth, USDSEK for European commerce, and USDJPY the raw play on just US yields. Also, none of these have negative intervention risks… yet…

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Here’s a better view of the spreads so far and FX.

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So what will be the best pair to carry this order? Because the current err… bias is for US rates to come down this week, the most opportune pair will have best rate growth (for various reasons) expectations. Luckily, there is Credit Suisse’s Central Bank rate hike index/CSSTs based on overnight swaps (OIS). This index is awesome.

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arrrrgh can’t finish this… must sleep…. Here’s what I have of the charts so far, and I’ll finish the rest tomorrow. I wouldn’t buy any higher yielders against yen. That’s all, really, and keep watching dips to buy risk against dollars. TreasYields

To the best of good buys.

 

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That… is the chart of fear

3 hours into trading, and here’s what this morning’s movements look like. Haven’t seen this many grey squares in quite long.

For this week: lots of bank rates, GDP, and labor. However aren’t PSIs supposed to be done some time this week?

Shifting more to EURGBP, and have a small TRYJPY open for you know… interest. Watching for any possible moves by the Norges Bank, and thus I have a long EURNOK and USDNOK. Don’t trade on expectations, but just keep watching…

To the best of good buys.

 

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And the Euro Carry is Upon Us

LTRO2 was tapped by ~800 banks, totaling EUR 529.5 billion.

Even though Dutch, Swedish and some other AAA country banks didn’t tap the facility, I’d just like to welcome the impending carry trade of the Euro against many regional yields. This is basically, if history does repeat itself, what happened to the dollar against everything when the discount window was opened in ~~2008, 2009 may very well start now in the Euro.

Although the method, agreeably (QE for MBS and treas to target rates vs direct loans) is different, the ECB’s scale of EUR 1.1 trillion to the Fed’s USD 1.5-1.7 trillion compared to the size of the economies, is comparable. However, even with many banks refusing LTROs, that money is going directly into the hands of the banks, who don’t always have the most accurate positions. But the money’s still out in the markets… all EUR 1 trillion of them.

With the ball in the Fed’s court after LTRO2, Ctrl-P Ben actually downplayed however much he can his dovish rhetoric. And USDJPY is now above 81. Despite that, expectations are shifting towards US easing. Action in the form of asset may be unlikely, but commentary will be sure to follow if any gears slip again.

And that gear? Well, seeing what happens with Greek deliberations, may very well be Portugal.

Anyways, trading EUR carries right now against the volatile ones PLN and TRY. Not so bullish on Nordies, since we are getting some commentary of bank intervention. Plus, the eastern European currencies still offer higher yields, with the rate no where near the historical lows.

And I quite like EURGBP with its positive overnight rolls. Safety and yields… mmm…

And hey, at least Poland, Turkey and those exotic ones aren’t printing. They have an inflation problem to say the least.

And for EURUSD? Let’s hold off until SSI turns… or Stolper sings.

To the best of good buys.

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EURGBP

EURNOK (I’m long this one on err… hope………..)

EURSEK (Exited today for a short term scalp – too congested)

EURPLN

EURTRY

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… and the bulls have it…for the weekend…

Sure, this is a sign for new entries, but for me, with only around 20% margin left, I’m just going to be moving my stops up…

All charts. Please enjoy, jagshemash (note, newest candle is today’s live one for Feb 24th; yesterday’s has passed resistance on almost all dollar crosses)

Below are 5 charts which I think are the best to play this (possibly very short) trend out. Waiting to EURUSD 1.35000 to carefully monitor again, or when Stolper gives the call.

To the best of good buys.

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USDSEK fib break, target 6.5000

USDZAR – congestion break, target likely 7.5000

EURUSD – cloud break, targeting most likely 1.35000 (wick up, I think)…

EURCAD – whoa is there a better slightly risk-positive/lesser vol base pair than this? Though… maybe it’s still better with just EURUSD…

EURGBP – Waiting if this is a start of a true pivot. Will be watching rates closely for this, as pressure is definitely on the BoE’s side of things…

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Continuing to monitor the EURSEK

We have seen two days so far of technical buying, though the overall magnitude is not strong enough. My fundamental view on this pair is the same, although we are reaching a midline formed by last week’s attempt at a bottom. I am considering taking off a few lots at around 8.8000, freeing capital and seeing where AUDCAD goes pending the CPI in a few hours.

Meanwhile, Van Rompuy has commented that the Greek PSIs are a special case as Portuguese CDSs hit a new high.

To the best of good buys.

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