Archive for the ‘FOREX’ Category
US Dollar–Head And Shoulders Above the Crowd
The US Dollar Index Futures, a major tool used to estimate the US Dollar’s true worldwide value as it trades against the major currencies of the world, has been quietly making a technical pattern called a “head and shoulders” . If you look at it carefully you will see an image, more or less of a man’s head and shoulders, with the shoulders peaking slightly at their end. This is the classical look of the pattern. Once more, the Index has already broken out from the pattern, i.e. passed the neckline, and is on the way to fullfill its destiny and head to the target I listed on the Chart below, that is, 82.00 points.
Since this pattern is usually associated with major tops and we have no reason to believe that such is not the case here, I do believe we are at the start of a major downwards trend that could last a few months to a year and drag the Dollar down to places it has not seen in a long time. More than 10 years of US Government spending on wars and bailing out financial criminals have flooded the world with its own currency of reference. Now it is time for the Dollar to pay back for the devestation it has wreaked on many innocent people. It will be only a symbolic gesture, and we may well forget it this time next year. Because, you know, this is a world where lies thrive and the Mighty Dollar rules!
This is the way the Chart looks:
The Euro Is Bottoming Out Against the Japanese Yen
If one gives a brief glance at the Charts of major currencies as they are currently being traded against the Euro, there can be observed a certain change, maybe even a trend-reversal in the making. This is especially true when you see the EUR/JPY cross rates in the Chart below:
The June Double Bottom can be clearly seen as a W shaped bottom built in a classically-shaped pattern. What makes the bottom even more commanding is the long and extremely proving negative divergence that I show in blue from the beginning of May to the start of June. The RSI trend, as shown by the blue line below, is in an upwards trend, while the prices are in a definite downwards trend, as shown by the blue line above. This lends credence to my thesis of a W bottom having formed on this Chart.
All of this is good news for the Euro, which had little good news to smile at lately. And, considering the 6-8 possible bottoming patterns I have seen in Charts depicting trading of the major currencies vs. the Euro, this may be indeed the time to invest in what I see is a relatively cheap Euro that in my mind has been bashed enough and is now in turn for better days.
Sterling Is Due For A Pounding
A reality knock is on its way for the pound. For the past week or so, sterling has been gliding higher, boosted by the new coalition government’s fiscal discipline and by talk from one Bank of England monetary policy maker that rates should rise. In a world where austerity is becoming the norm, Chancellor George Osborne’s plans to slash public spending even more than expected removed the risk of a credit downgrade.
For investors who have spent the last few months dodging the debt crisis sweeping through the euro zone, this could only be seen as good news. However, as data on Monday indicated, the economic price for reducing the country’s deficit so fast will be high. The economic recovery that showed signs of taking off in the first half of this year has already started to falter, even before the fiscal measures in the emergency budget late last month have been introduced. Although the manufacturing industry may not have contracted quite as much as many feared last month, the much larger and much more important services sector of the economy has proved a lot less resilient. The latest purchasing managers’ index fell much more than expected with business expectations plunging to a 15-month low.
Coming against a background of increased fears about a double-dip recession not only in the euro zone but in the global economy as a whole, the prospects for the U.K. economy are looking decidedly dim. So, although the economy may have achieved growth of 0.6% in the second quarter, that is the best the country is likely to see for some time. “The survey data have continued to cast doubt on the ability of the private sector to weather the fiscal tightening when it begins in earnest soon,” warned Vicky Redwood, U.K. economist with Capital Economics, an independent research group, in London. By taking its fiscal medicine on the chin, the U.K. economy may yet achieve more sustainable growth sooner than its competitors, paving the way for U.K. interest rates to start rising well before their peers do.
But, there is little sign that higher U.K. rates are needed in the near term. On the contrary, pricing power in the service sector appears fairly limited while input prices are running at the lowest level in six months. Given this, there should hardly be any fresh pressure for the Bank of England to start tightening policy when its policy members hold their next meeting on Thursday. Last week, three other members of the policy committee made it clear that they didn’t support any early move. This should ensure that sterling remains at a disadvantage to high yielders just now and even if general market sentiment improves that the pound loses some of its recent support.
Even though sterling is still trading firmly over $1.5100, technical analysis suggests that its recent rally is more or less over. See how the pound has glided higher against the dollar and seems to be nearing a certain top as it bounces off the historically strong resistance line that is active for over 20 years.
This is the way the Chart looks:
At Den Danske Bank, analysts are putting out a sell recommendation for any rise over $1.5304, warning that there is scope for a return all the way back down to $1.3500.
Early Tuesday, financial markets were having a little bit of relief rally with the Nikkei rising 0.8% and the Shanghai Composite gaining 1.1% after the Reserve Bank of Australia left rates unchanged as predicted but proved much less dovish about global growth prospects than expected. A larger-than-expected increase in Australia’s trade surplus also helped to offset some of the recent negative sentiment that has been dominating global markets.
By 0645 GMT, the pound was up at $1.5192 from $1.5135 late on Monday in North America, according to EBS.
The euro was up at $1.2585 from $1.2541 and rose to Y110.50 from Y110.02. The dollar was essentially flat at Y87.77 compared with Y87.75.
The improvement in sentiment may not last long given that a continued decline in the Baltic Dry Index points to a further reduction in global trade, suggesting lower demand from countries such as China. Also, the latest Institute for Supply Management survey for U.S. non-manufacturing is expected to show another decline, reminding investors that the U.S. recovery is stalling.
European Stock and Currency Summary
The Federal Reserve Bank chairman Ted Bernanke commented Tuesday that the U.S. recovery will remain intact. This continues to lend a prop to risk appetite as did talk that Thursday’s China export data will show a 50% increase. European equity exchanges traded positive throughout the session.
The risk currencies advanced, CDS rates came down and peripheral EuroDollar zone bond rates came down somewhat. EUR/USD nudged 1.20 from a 1.1924 low, GBP/USD recovered from its ratings-worry selloff Tuesday adding one cent to 1.4534, despite a surprise widening in the visible trade balance to GBP7.2B. USD/JPY pivoted around 91.50. The main European indices are up around 0.4%, gold is down $3 at 1234oz after printing a lifetime high Tuesday and oil is up $1 at $73bbl.
Where the turnarounds are happenning are all around strong support/resistance lines all historic in importance. The Dollar Index Futures hit a major resistance line yesterday at an intraday high above 89 points and retreated. This seems to be the end of the monthly upwards trend that started when prices broke the long-term symmetric triangle upwards as I pointed in my previous article. The Futures Index will not, it seems to me, make its intended goal of 92.3 points, but this is true for most pattern breaks. It is hard to say for now what will be with the US Dollar rates around the world, but the upswing seems to be ended when looking at Dollar/World Currency pairs as they end streaks and hit s/r lines in addition to seeing the Dollar Index Futures as is shown on the Chart Below.
This is the way the Chart looks:
Looks Like Trouble for Europe and the World
Even the least among us can, well, cause a mess, we have learned as Greece’s problems roll out around the world. First it was the EuroDollar zone that found Greece’s problems couldn’t be confined to that country’s small economy. Then it was the entire European Union that caught the disease, as the banks in non-EuroDollar countries found themselves holding a lot of sovereign debt that had once seemed risk-free. Even Hungary, which has been working with the IMF since 2008 and is about some 18 months ahead of Greece in getting its house in order finds the cost of insuring its debt rising, and its currency falling, as rumors of default are given credence by nervous markets.
America was next: so exposed are its banks to the problems created by Greece, Spain and other countries struggling to bring spending down to sustainable levels, so spooked are they by the prospect of Lehman Brothers Mark II, that President Barack Obama had to take time off denouncing BP to ring Spain’s prime minister Jose Maria Zapatero and urge him to do what Mr. Obama has failed to do in America: reduce the deficit.
All of which might at least have the virtue of forcing policymakers to follow the advice of Rahm Emanuel, President Obama’s chief of staff. Mr. Emanuel famously said “You never want a serious crisis to go to waste.”
But to waste it will go. The threat to continued economic recovery created by a badly skewed world-trading system won’t be resolved when the G-20 summiteers convene in Toronto later this month, laying the ground for two new crises. China won’t float its currency, and Germany won’t stimulate domestic demand.
So long as America keeps shipping billions of dollars to China to pay for sneakers, T-shirts and (soon) cars, China will use those dollars to buy Treasury IOUs, keeping interest rates low and encouraging asset bubbles in America — bubbles, we now know, that, when pricked, burst with considerable force on economies around the world. We know, too, that so long as Germany lends money to Greece and its other EU partners to pay for Mercedes cars and other German manufactured goods, it will be diluting incentives in countries running persistent trade deficits to become more competitive.
“Imbalance” is the word, and it creates multiple threats to the stability of the world economy. There is little doubt that these “imbalances” were among the topics discussed at the meeting of G-20 finance ministers in Busan, South Korea, concluded this past weekend. And will be among the topics discussed at the G-20 summit in Toronto, once the ritual banker-bashing is concluded, probably at the private break-away meetings that are always the most important part of these gatherings — more important even than the photo-ops that permit the world’s leaders to show solidarity by posing for a group photo, often in the dress of the host country.
It seems that almost every country intends to power its way out of recession by exporting more. Mr. Obama has promised to double U.S. exports in the next five years; Britain is hoping to revive its economy by “making things” and exporting them; the troubled countries of southern Europe are being urged to undertake structural reforms to become more competitive exporters; and the German economy continues to outperform other euro-zone countries in part because a falling euro is driving an increase in exports.
In a period of high unemployment, imports are seen as stealing domestic jobs, especially by politicians more concerned about the next election than the next decade.
The solution, both in the case of the imbalance between China and the U.S., and Germany and the rest of euroland, is for both exporting countries to stimulate demand at home so that they are less reliant on exports to create jobs, and expand markets for goods made in the US and in euroland countries.
Not an easy thing. China has to keep its export industries creating jobs for the millions who are moving from rural areas to its cities, or risk social unrest. Germany would have to adopt policies to discourage saving and encourage spending — a huge cultural change that successive governments have been unwilling to pursue. Which is why U.S. Treasury Secretary Tim Geithner’s call in Busan on Saturday for “stronger domestic demand growth” in surplus countries did not meet with an enthusiastic reception in Beijing and Berlin.
Neither China nor Germany seems prepared to adopt these policies. One new crisis will be created as euroland members, unable to devalue to become more competitive with Germany, will retrench, aborting the area’s nascent recovery. The other is rising protectionism as America’s Democratic politicians, unable to persuade China to let its yuan rise, demand the erection of barriers to the flow of imports.
A crisis wasted, and two new ones created.
G-D Bless America
By this I mean, of course, none other than the US Dollar. Oh Mighty One!! Bestow your blessings on our fluctuating currency, for ’tis to be majestically and majically going up again against all fundamental odds. It’s been very hard to follow, much less to invest by. As these lines are written the US Dollar Index Futures have been going upwards nicely, breaking their previous daily downwards movement which could hardly be called a trend. The strong upward trend is confirmed today with the gap up that was caused by good world-wide news over the weekend. This trend is not expected to end soon. But, as I always have written when addressing the Dollar, any upwards trend is only a correction of the long-term downwards pattern that has plagues the Dollar since the start of this current Depression. Check out the chart to enlighten you to the short-term facts and the strong possibility that this short-term trend pattern will continue for some time to come.
This is the way the Chart looks:
Buying Opportunities for the EuroDollar
Upon observing the European Currency of choice, the EuroDollar, it seems fitting to say that a trend reversal is on its way. The direction has been a long downwards pattern and is now showing signs of shifting to an upwards pattern.
The symmetric triangle it has been in against the Dollar has broken downwards as seen by the monthly chart below. The May candle shows the strong break and other signs such as momentum indicators show the beginning of the end of this monthly triangular resting pattern and the start of a daily downwards trend.
But, the weekly chart at the bottom does indeed show a single candle pattern known as a doji hammer. It indeed looks like a hammer but a lne instead of an anvil, similar to the Christian Cross. It comes usually to signal the end of a ternd, this time a short to medium-term trend. Add to this the support line that is a strong and historic line and you have the makings of a good, solid buying opportunity.
The US Dollar has broken downwards strongly this month. This is especially true because of the problems that the European Union has had with weak Euro Countries, especially Greece. Hungary has had its share of problems, but even as a Union memeber, it still lacks the Euro Currency and that has been to its own and Europe’s benefit. Maybe the problems with Greece and its effect of pulling down all the economies of Europe are only those of the Currency of Choice. When the Greek Currency is changed back to the Drakma, Europe’s situation might change also in addition to lessening the Grecks problems.
This is the way the Monthly Chart looks:
This is the way the Daily Chart looks:
OOOooops!!
I was wrong. The rule “buy at breakout only” slipped right by me this time. No, Technical Analysis is not to blame for MY mistake, only yours truly. Fact is I WAS right about the Dow Fiasco and I did say the S&P 500 was due to make a correction, then recover. Nobody has a monopoly on accuracy and I take full charge for the words I wrote in this page not so long ago.
But, now that there is a breakout, I can say truly that according to Technical Analysis the truly Mighty US Dollar is headed in a new upwards trend that should take it up at least 10% in the next few months or so. Time is hard to judge with Technical Analysis and we only have the time-frame of the broken-out triangle shown below to help us. This is the large, long-termed Monthly time-frame and its symmetric triangle pattern HAS been broken upwards, so be patient in investing on the FOREX Dollar Futures, it’ll get there in time with a target of 92.3 points on the DX Futures. There is no SURE THING!! but here there is about a 70% chance that I am right which is better than the 50-50 of tossing a coin.
This is the way the Chart looks:
Woe Is Me to the Mighty US Dollar!
Yes, I know I’ve said farewell to the Dollar’s Index Futures, the FOREX barometer for the world’s base currency of reference. But my fond farewells were based on the fundamental assumption that this was only a temporary correction until the start of the long term downtrend cycle that awaits it down the road. This is economically speaking, because the world-wide glut of US Dollar Bills that have flooded the entire world in the Bush Administration years; when there was a free for all printing of money to fund wars and bail out financial criminals so they can stay filthy rich and live on an island of their own in the South Pacific instead of doing time in Fort Worth. This has left the US Dollar, as it trades against the world’s currency basket, only a matter of time before all these recovery-hyped upwards trends run dry and the medium range downwards trend resumes. And such may be the case with the latest moves shown on the daily chart below.
The monthly chart, also shown below, shows our extra-long term downtrend as it ends up in a symmetric triangular pattern with a possible break upwards daily, but it looks to me to be only a false break and the montly triangle should continue on it path down soon to meet its upwards sloping lower angle, and then possibly break it.
Update: Please check out my continuation of this article, OOOooops!!, for an in depth look at the actual outcome of the forecasting made here.
This is the way the Monthly Chart looks with its triangular pattern:(may break downwards in the far future)
This is the way the Daily Chart looks showing the possible beginning of the end for the Dollar:
EUR/GBP-EuroDollar vs British Pound
It is just not going well for the Euro lately. It is a period that does not bode well for it. It has lost ground to the Japanese Yen, the Australian Dollar, and as a matter of fact this past two months the leader in the climb on the back of the Euro march is the Royal Great British Pound Sterling, the highest valued currency in FOREX. That is not to take away credit from the EuroDollar, as it is the second in value after the Great Pound.
The Chart shows the downtrend I speak of. It has now come to a support line that may be strong enough to support further deterioration of the Euro’s value. This, as you may see from my previous article in this category, is true of the Euro/Yen pair as well. This, and the fact that there are other Euro pairs that are in a similar position, makes me wonder if the Euro might end the worldwide downswing it was in and change direction. This seems to be the case, at least, concerning the Euro/Yen and Euro/Pound pairs.
In the Euro vs. British Pound pair there exists another interesting phenomenon. The RSI shows a recent uptrend while at the same time prices went down. This is called a negative divergence and it is a good sign that forewarns a turnaround. This may yet be, and it may be sound financial advice to put a little money on the EuroDollar, at least againt the Pound Sterling, or maybe even against the Japanese Yen.
This is the way the Chart looks:
