I thought you might be interested in the latest analysis on the Euro from David Rodriguez, quantitative strategist for DailyFX:
[I]"Retail FX traders are near their most short the Euro versus the US Dollar on record, warning of a potential sentiment extreme and major top.
"It’s always tempting to join the crowd in selling the Euro at major extremes, but the data itself shows the dangers of trying to time a reversal: retail traders have been net-short Euro since it crossed above $1.29 in July.
“Instead we’ll wait for concrete signs of a turn in price and sentiment. For the SSI that means watching the Momentum2 trading system, which is designed to catch big turns in trend. From a price perspective, our Senior Markets Strategist favors the topside as long as EUR/USD remains above $1.3475.”[/I]
Since today’s scheduled release of Non Farm Payrolls has been postponed due to the US government shutdown, I thought it might be a good opportunity to take a look at an emerging markets trade. DailyFX technical strategist Jamie Saettele tweeted this morning about the following setup for the Mexican Peso.
USD/MXN has broken trendline support. If a short position is entered at current levels, then the profit target could be set around the September low of 12.58180. The stop could be set above yesterday’s high of 13.34430. To keep up with all his latest trade ideas, you can follow Jamie Saettele on Twitter.
I checked on this for you. It turns out that while the Chinese Yuan is now available for FXCM UK clients, it is only available on Trading Station accounts, not MT4 accounts. I’ll let you know if that changes in the future.
DailyFX trading instructor Tyler Yell tweeted this morning about how AUD/JPY is a currency pair to watch during the debt ceiling showdown. The idea being that a “risk-on” currency AUD will suffer, while JPY will gain as a “risk-off” currency, if there is no government resolution over the US debt ceiling.
A trade placed in anticipation of no government resolution could have an entry order to go short around 91.000 with profit targets around the 61.8% and 100% Fibonacci retracement levels at 89.522 and 86.460 respectively. A stop could be placed above the October 1st high at 92.388.
USD/JPY touched its 200-day moving average on Tuesday. It is the first time the exchange rate has tested this widely watched support level since November of last year. More importantly it is the first time the rate has tested the 200-day at all since it began its meteoric rise last year.
USD/JPY Daily Chart
Kristian Kerr, senior currency strategist at DailyFX.com believes the odds greatly favor some sort of recovery in the next few days as first time tests of the widely watched moving average after prolonged periods above are usually successful in generating some sort of bounce:
“…a prolonged period above the 200-day moving average suggests a very strong uptrend while the 200-day MA is a finite level that even non-technical traders can sympathize with. Orders thus tend to congregate around it… Be on the lookout for a USD/JPY snapback.”
Zooming in to take a closer look at the daily chart above, an entry order to buy USD/JPY could be placed at 96.75 with a trailing stop set at 95.75.
[B]"…a prolonged period above the 200-day moving average suggests a very strong uptrend while the 200-day MA is a finite level that even non-technical traders can sympathize with. Orders thus tend to congregate around it… Be on the lookout for a USD/JPY snapback."[/B]
Although it’s worth noting that SSI shows retail traders being heavily net long and the 200SMA has already been broken. Definitely decision time on the Yen…
The Momentum2 strategy on DailyFX PLUS is long the US dollar against the Euro, British Pound and Swiss Franc. (It’s flat against Yen and the Aussie).
Momentum2 can be automated on FXCM accounts via the Mirror Trader platform. The same username and password you use to log into Trading Station will allow you to access Mirror Trader.
Retail traders have been net long USD/JPY for quite a long time, so what we watch for are relative changes from being more long to less long. Notice how there are only a few tiny brown bars in the graph below when SSI for the pair was briefly negative.
The ratio of long to short positions in the USDJPY stands at 2.97 as 75% of traders are long. Yesterday the ratio was 3.14; 76% of open positions were long.
Long positions are 3.5% lower than yesterday and 5.5% above levels seen last week. Short positions are 2.1% higher than yesterday and 23.7% above levels seen last week.
On Tuesday, DailyFX senior currency strategist Kristian Kerr said to “be on the lookout for a USD/JPY snapback”, and that’s exactly what has happened.
A long USD/JPY position opened at 96.75 on Tuesday would currently be floating profit of over 125 pips. The catalyst for these gains was commentary emanating from both US and Japanese policy officials that was simultaneously dollar bullish and yen bearish.
[B]USDJPY 1-minute Chart: October 10, 2013[/B]
On the US side, Treasury Secretary Jack Lew was testifying to Congress about the dangers of passing the debt ceiling. Meanwhile, BoJ Governor Haruhiko Kuroda was on newswires trumpeting the success of “Abenomics”. Some profits could be taken on USD/JPY at current levels leaving the rest of the long position open with the same 100-pip trailing stop.
Gold trading was temporarily halted on the CME for 10 seconds this morning at 8:42 AM ET for a “stop logic event,” according to Bloomberg. A big trade knocked $25 off the price of gold in a short, two-minute span, triggering the event. Below is a chart of XAU/USD on Trading Station showing the move.
[B]What does this mean for those of us looking to trade gold at current levels?[/B]
While we may have bled off much of the premium behind a “debt crisis” bid on gold, there may still be enough insurance exposure that can send it the next leg lower on confirmation that the US government will offer a viable resolution. It is worthwhile to wait for further confirmation.
A break below the 76.4% retracement level at 1239.97 could target a further drop to the June 28th low of 1180.15. A stop level for a short position entered on such a break could be set above the 61.8% retracement level at 1,276.97.
US budget talks stalled over the weekend and risk assets around the world took a hit at the weekly open as the seemingly once-dismissed threat of a US default is very much alive – and seen fast approaching this Thursday.
The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) is down 0.24% to start the week as all major currencies are currently up versus the US dollar.
The currency baskets on Mirror Trader can be used to take a position for or against a particular currency. If the US government doesn’t reach an agreement to raise the debt ceiling in time, that could be extremely bearish for the US dollar.
The “USD Basket - Sell” would be one to consider for such a scenario, since it places USD short positions against a basket of major currencies. If you have an FXCM account, then your Trading Station username and password can also be used to log into Mirror Trader for access to these currency baskets.
Retail FX traders are maintaining their AUDUSD shorts and are doing so with greater confidence, data compiled today reveals. The latest Speculative Sentiment Index (SSI) reading for AUD/USD stands at -1.29 meaning 1.29 traders are short for each trader who is long.
Yesterday the ratio was -1.06; 48% of open positions were long. Long positions are 8.2% lower than yesterday and 11.0% below levels seen last week. Short positions are 11.7% higher than yesterday and 33.7% above levels seen last week.
We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the AUD/USD may continue higher. The trading crowd has grown further net-short from yesterday giving a further bullish trading bias.
AUD/USD looks well-positioned for the coming days as retail traders seek to fade any rallies resulting from a US debt deal. A daily close above of 0.9510/30 (38.2% Fib April-August HL, mid-September/post-FOMC swing high) would suggest a greater recovery into 0.9715/20 (50% Fib) over the coming sessions.
[I]Leadership in the US Senate announced early Wednesday afternoon a deal that would raise the US debt limit and reopen the US Federal Government – closed since October 1.[/I]
Avoiding default on the US government’s debt seems like a plus for the US dollar, but the currency’s safe haven status could still lead to a sell off in favor of higher yielding currencies which tend to rise due to the carry trade as risk appetite increases.
One way to reduce the complications of the conflicting fundamental implications is to trade a basket of carry trade exposure. Using the long Dollar-based Carry Trade Basket on the Mirror Trader Platform, we can diversify individual pair risk and look to employ a trade on the benchmark as well.
[B]If you have an FXCM account, then your Trading Station username and password can also be used to log into Mirror Trader for access to currency baskets.[/B]
Whoa! News will be coming out of China Thursday. Economist are expecting a bullish number, around 7.8%. There are too many inaccuracies in the Chinese data. I believe once the data is released tomorrow that the buying we’ve seen will come to a peak and we’ll see an overbought Aussie turn down. Keep in mind that analysts describe rebound of world’s second largest economy, China, as “unhealthy”. Borrowing by all levels of the Chinese government has soared to unprecedented levels and is now one of the highest in the world. This is above levels in the US, and other countries. Data from the International Monetary Fund shows that China’s budget deficit reached 9.7% of gross domestic product last year if regional spending is included and one-off land sales are stripped out. This is higher than previously thought and above levels in the US, India, or Southern Europe’s debt-stricken crisis states.
I show 60% on the long side. I myself will be watching for weakness and a turn to the downside. I have no interest in buying the AUDUSD at this point in time. That’s my 2 pips. Take Care!
The US Dollar has broken substantial lows versus the Euro and is near major price support versus the Japanese Yen and other major currencies.
[B]USD/JPY 5-Minute Chart[/B]
DailyFX quantitative strategist David Rodriguez believes the greenback will break lower:
[B]"Our Retail FX sentiment-based strategies have sold into USD weakness as crowds buy into the breakdown, and indeed broad outlook leaves us in favor of continued weakness.
Weekly Summary of Forex Trader Sentiment and Changes in Positioning
“Given the breakdown and a sharp shift in crowd sentiment, we see little choice but to remain in favor of continued USD weakness.”[/B]
The sentiment-based Breakout2 strategy on DailyFX PLUS is currency giving a signal to short USD/JPY at current levels.
The two-week government shutdown will impact October and November data as those figures will have smaller sample sizes and could therefore will be prone to greater reporting errors as short-term distortions are amplified.
Notably, the September NFP report will be released this Tuesday; and the October NFP report has been pushed back from Friday, November 1, to Friday, November 8.
DailyFX chief currency strategist John Kicklighter had this to say about Tuesday’s employment report:
[B]"[NFPs on a Tuesday] is a rare event that will help amplify the market-moving impact of this already hefty indicator as there is plenty of time to trade through the outcome rather than the market being forced to square for the weekend.
“Furthermore, the delay and economic impact of the shutdown has significantly altered the forecast for the Fed’s eventual Taper.”[/B]
Extremely one-sided crowd sentiment, strong rallies in the US S&P 500 and other global equities, and very low FX market volatility all favor weakness in the safe-haven US currency.
[B]Forex Volatility Prices Continue to Tumble, Favoring Slow-Moving Markets[/B]
[I]Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations[/I]
Quantitative Strategist David Rodriguez’s preference is to use the sentiment-based trading strategies available on DailyFX PLUS to trade the US Dollar lower until further notice.
[B]DailyFX Individual Currency Pair Conditions and Trading Strategy Bias[/B]
For example, the Momentum 2 strategy is currently giving a signal to buy EUR/USD with a trailing stop at 1.3532.
DailyFX PLUS Trading Signals are available as automated strategies on the Mirror Trader platform.
Yesterday, Quantitative Strategist David Rodriguez said that his “preference is to use the sentiment-based trading strategies available on DailyFX PLUS to trade the US Dollar lower until further notice.”
Today’s release of the Non Farm Payrolls data for September has turned out to be a catalyst for driving the US dollar lower and sending EUR/USD to its highest levels since 2011.
[I]Past performance is not necessarily indicative of future results.[/I]
The pair is up over 100 pips since the announcement as are the DailyFX PLUS Momentum2 trading signals from yesterday saying to go long the Euro, the British Pound and the Australian dollar versus the US Dollar.
[I]Past performance is not necessarily indicative of future results.[/I]
Note that the window to enter these trades has already passed as indicated by the “Hold” status in the Action column above. DailyFX PLUS trading signals are available as automated strategies on the Mirror Trader platform.
