Weekly Outlook – Feb 15th-19th

Great Wednesday Folks! Best Wishes & Sorry too! Best Wishes to all chinese readers who are celebrating their Chinese New Year which was just born 4 days ago. I wish that you have a great year in trading and everything else and that you will make plenty of pips this year!

On the sorry side, i have been guilty of enjoying my time too much during these holidays and have been late in doing my weekly forecast. Well, not that much has happened anyway as market volume has been low due to CNY period with Asian volume lacking any real momentum and Monday was a bank holiday in the US.  Not that i am trying to justify being late to update, just letting you know that we didn’t actually miss too much

Ok, back to the markets. I did make a call before the start of last week that i don’t expect to see much volume last week. They were due to a couple of reasons and you can read more of that here.

So, let us take a look as how the major currencies did against the USD as our benchmark;

1) Eur = -ve 0.19%
Note the overall movement range of about 300 odd pips but only 20 odd pips in actual price change.

2) Gbp = -ve 0.65%

3) Jpy = -ve 0.88%

4) Chf = -ve 0.05%
Overall movement of over 21o pips but actual price change is less than 10 pips!

5) Cad = +ve 1.83%

6) Aud = +ve 2.25%

7) Nzd = +ve 1.23%

8 ) Gold = +ve 2.4%

Except for Com-dollars(commodity driven currencies) and Gold, almost every other currency was flat, if not, offered very little opportunities.

Interestingly, after a very long period, we are seeing some strength against the USD. Now, notice all the bottom listed currencies are com-dollars(reason why i grouped them together) Could this be a potential signal of things to come which might trigger a USD sell off? Now, before we get there, i want to sidetrack a bit with the same com-dollars, but now, against the Yen and not the USD.

What if i traded the crosses instead?

For reasons i stated in my previous article, On StagFlation, i had highlighted that the extra mileage we can get by pairing such com-dollar rise against the yen or the chf. Not wanting to sidetrack too much, let us just compare the movements of these currencies against the Yen Vs Usd.

Aud = 2.25% vs USD or approx 195 pips
3.16% vs JPY or approx 245 pips – 25% more profits!

Nzd = 1.23% vs USD or approx 85 pips
2.10% vs JPY or approx 130 pips – 52% more profits!

Cad = 1.83% vs USD or approx 200 pips
2.73% vs JPY or approx 228 pips – 14% more profits

As you can easily tell, pairing with the right currencies to get the right pair gives you more momentum with your trades. Perhaps you could have taken both positions vs the USD and the JPY? Why not? As long as your risk management allows it!

Now, some of you might think, yeah well, come on, i already know that YEN cross pairs give more movement that USD pairs. I am sure you do! However, did you know why? Read the earlier article on Stagflation to understand the fundamentals behind these relative price possibilities. You can skin the cat many ways, over and over again, if you only knew how. That is exactly what you are learning here, right now. (say thanks to me lah!)

Ok, back to our main topic

So, big question! Are we seeing the start of USD strength decline? I already said Yes to this last week where USD strength is showing signs of stalling and we saw overbought indications with divergence showing that there is a slow down in price change even though there is an increase in actual USD index value.

However, what we don’t know is if the actual weakness of USD has started and if we can start selling it, i.e. buying all majors?

For, that, let us take a look at the USDx

Usd Index Showing Weakness?

As you can see, there is a distinct drop in strength of the USDx and for the first time over 3 weeks, we are seeing it leave the overbought area.

On the chart formations, i don’t see anything fabulous, apart from a double top formation which was formed based on the highs of the 5th and the 15th. It is not a very clear, distinctive formation, so i won’t get too excited by it.

Now, on the fundamental front, we have a major news this week that can potentially shift the whole market mindset on the USD;

Wed -2 pm NYT , Thurs 3am SGT – FOMC Meeting Minutes

The Fed will obviously keep rates unchanged. However, there is an interestingly optimistic view that the economy is recovering(which i strongly disagree with) and the Fed may not want to continue offering the dollar at such low rates. Together with this opinion and further discussions of Bernie’s exit strategy to control monetary surplus at this point in time with “improved economic conditions” will be the highlight that the market wants to know more about. This event, as we all know it, would lay out plans by the Fed and this could potentially change the trend completely on the USD or cement it further and let the USDx strength continue.

My bias is that this event will cause USD to weaken and could potentially cause the selloff in USD with this very news event today itself. As usual, i don’t predict and pick my positions but have a bias and wait for the market to price in what i think before i take a position.

As for other events this week, here are my picks;

Thursday -

CAD – Core CPI
USD – PPI
USD – Unemployment claims

Friday -

GBP – Retail Sales
CAD – Core Retail Sales
USD – Core CPI

As always, have a consistent trading plan, use various tools to skin the market and never ever over expose yourself with too much risk.

Happy Trading,
Seeni

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