Trading Week Analysis for 9/4/2012

Note: I have posted 2 reviews today, Saturday 7/4/12; My Indices Review and my Trading Week Analysis.  Only one e-mail alert will be sent though most likely.  Please make sure that you read the Indices Review so that you understand my perspective for the week.

Also: there may be significant price gaps at market open given the Easter holiday break.

•  E/U: I have re-drawn trend lines for this pair. 

The monthly chart shows two descending wedge patterns, similar to the EURX.  It also looks like an inverse Head and Shoulder pattern could be trying to form.

The daily chart: I have drawn in two extra horizontal lower support levels on this chart. There seems to be clear support at the psychological and whole number level of 1.3.

I will look to SHORT the E/U on a clear TS signal and if price breaks, closes and holds below the 1.3 level.

I will look to LONG the E/U on a clear TS signal and if ‘risk on’ sentiment returns.

• E/J: There was mention over recent days about the BoJ intervening to prevent the Yen appreciating too much.  I will, thus, be wary again with shorting this pair and, for that matter, all Yen pairs.

The daily chart shows how price finished the week at the daily 200 EMA but it does look bearish.

I will look to SHORT the E/J on a clear TS signal and if price breaks, closes and holds below the 106.8 daily 200 EMA  level.

I will look to LONG the E/U on a clear TS signal and if ‘risk on’ sentiment returns.

• A/U: There has been talk about support for the AUD and this did seem to help to hold price up last week.  See my notes on this pair below.

The weekly chart show how this pair looks to be quite bearish; with a clear break down out of a symmetrical triangle.

The daily chart shows this break down as well but notice the indecision spinning top candle of last Thursday.

The 4 hr chart shows how this pair has ranged sideways over recent sessions.

I will look to SHORT the A/U on a clear TS signal but I will be wary with this pair!

I will look to LONG the A/U on a clear TS signal and if ‘risk on’ sentiment returns.

• A/J: This pair is quite messy at the moment. I would only trade this pair 'long' if there was a clear TS signal on the 4 hr chart.

The monthly chart shows how price has fallen to back within the triangle formation but the candle has some time before it closes though.

The 4 hr chart: The ADX shows how messy this pair is trading at the moment.  Both DMI lines rarely make it above the 20 level!

• G/U: I don’t usually trade this pair.

The weekly chart: shows how price broke out of the triangle and has fallen back down to re-test this level.

The 4 hr chart: shows how the daily and 4hr 200 EMA have held price up over recent sessions.

I will look to SHORT the G/U on a clear TS signal and if price breaks, closes and holds below the 1.58 level.

I will look to LONG the G/U on a clear TS signal and if ‘risk on’ sentiment returns and price can break above the upper trend line and weekly pivot area.

• USD/SGD

The daily chart shows how price is trading within a symmetrical triangle.

The 4hr chart shows how price is almost breaking out from this triangle pattern.

I will look to SHORT the USD/SGD on a clear TS signal, if ‘risk on’ returns and if price fails to breaks, close and holds out of the triangle pattern.

I will look to LONG the USD/SGD on a clear TS signal, if ‘risk off’’ sentiment continues and if price can break, close and hold out of the triangle pattern.  

•     Swissie: I’m not trading this pair but it, too, is trading within a symmetrical triangle pattern.

• U/J: I’m wary with this Yen pair too.  It has fallen whilst the USD has been rising.  I would only trade this LONG on a TS signal if the USD keeps rallying and this pair broke out and up from the flag pattern.

• Loonie: I don’t trade this pair but it is becoming more interesting as it trades closer into the apex of the weekly symmetrical triangle.

• Gold: there was already a 300 pip break down on this pair last week but the weekly chart shows how another breach of a second trend line could be possible again soon if this price keeps falling!

Some extra notes: Thoughts and ramblings about the AUD:

Last week was frustrating for me as I chose to short the A/U after giving it a wide berth the week before.  I had avoided it the week before out of concern that it would keep strength, even against a falling Euro.   I was wrong.  So, I traded what I saw this week, I saw a TS short signal on the A/U and took it.  It did yield some pips but, then, processes I expected the week before did indeed kick in and the AUD held up relative to the Euro.

I have mentioned here before how I think the AUD should be stronger against other currencies, such as the Euro and USD.  I base this on the relative strength of our economy and the potential demand for Australian products and service from countries such as India and China. Until this week there has been a high correlation between movement of the Euro and the AUD.  The AUD would suffer each time there was a Euro zone drama in a kind of vortex style effect or, similar to a tablecloth-pulling moment; they suffer so, in turn, we suffer. This correlation seems to have been suspended a bit though this week as the Euro suffered quite substantial falls against the USD and JPY yet the AUD held fairly strongly. There was even mention on FX Live of asset managers looking to buy Asian currencies, such as the AUD, given the plight of the Euro.

There is another force at work here though which I think might continue to help boost the AUD relative to other currencies and, that is, the growing strength of the emerging economies of the BRICS (Brazil, Russia, India, China and South America).  These countries are the world’s fastest rising powers and make up almost half of the global population.  I am not the only one to believe that there is sufficient demand from just these countries, with their growing middle class, to keep the Australian economy moving, even in the midst of a Euro zone decline. You might recall here about the article I posted last week discussing the first Chinese Import Expo that was held recently . This adds further support to this observation.

I believe we are headed toward a new global period where there will not be such a Euro-centric focus anymore.  Sadly, I see an analogy for this situation as a bit like a hurdles race where the Euro zone has stumbled and fallen.  Previously, the race would be stopped whilst everyone (read here: all  countries) paused, waited for the Euro zone to get back up and then they all retreated back to the starting line.  Now, though, the race is being run quite differently. Most of the other competitors (read here: BRICs especially) are just going to jump right over the fallen Euro zone and, then, keep on running and.......running very fast!  There was a news article last week supporting this growing BRICs strength with an announcement that these countries are looking to set up their own development bank.  Read more at http://www.cnbc.com/id/46889540.

The net result of this for FX trading is that usual patterns of correlation for the AUD and EUR may become disrupted.  There was talk last week on CNBC of the US decoupling from the Euro zone; as the US seems to be showing relatively more signs of economic recovery.   The same de-coupling just might eventuate for the Australian economy too.