The USD tide turns…again

Yesterday, I wrote a whole book about how the tide had turned negative for the USD: post here.

Well, surprise surprise, the damn thing did not break the triangle to the downside (key point needed) and violently broke to the upside today.

It’s one of those weird/cool things. The breakout happened after a release of slightly better CPI and durable goods orders. The numbers itself were not mind-blowing, but it tipped the scale (Euro yields were also sliding as European QE starts next week). The Euro, which had been in a range for a month, slid some 150 pips (wow!). These kinds of moves are not easily reversed, so I think the down trend is set to continue here. If anything, I think a re-test of 1.1250/60 (if it happens) would be a great place to short again.

Another great move today was in the NZD/USD, which briefly traded above the .7600 level. This is a zone that I’ve been talking about for a while as a place where people would look to short. It was a beautiful play if you did as the kiwi is currently trading at .7535. We’re now in a chop zone, so we’ll see how this goes.

Aussie is also back to .7800 after breaking above .7900 (fake breakout I guess?). I think we’ll get buyers here at least until .7856 (the big resistance level). With copper still above the major resistance it recently broke, it could give the AUD (maybe against EUR) some leverage.

Oil is trading at exactly $49 as I type. If this US dollar move breaks it to the downside, #USDCAD will be flying higher too. I’m keeping an eye to see what happens.

Overall, my bias is now to buy more USD dips.

USDX - Breakout

The tide has turned for the USD

I think it’s official: the tide has turned for the USD.

The US dollar index itself is currently near the lower trendline of a triangle on the 4-hour chart. If this breaks (likely), we should be looking for 93.50 to trade.

Here’s what I’m thinking:

The Pound Sterling is looking to close above 1.55, which will pave way for more upside.

The AUD/USD is looking to close above .7856, a HUGE move. Rate cuts nor bad unemployment data could create further downside. We now have some weird double bottom or inverted head and shoulders pattern on the daily. Copper, which tracks the currency closely, has also broken major resistance.

NZD/USD looked good on the daily and now will likely challenge .7606 (as the Aussie shoots for .8000).

The EUR/USD has not done much. However, European data has been getting better and better. With Greece put to the side, the pair could get some upside traction.

USD/CAD feels like a rock. The market was expecting a rate cut in the next meeting and Poloz changed that attitude with yesterday’s speech. With lower highs on the daily (three spikes), 1.2350 could happen very soon. Oh, oil is also putting in an outside day (bullish) after major inventory build ups (it wants upside, period.)

The Swiss Franc is its own thing these days. This is the only guy that could likely stay steady or lose ground (which makes a great counterpart to short)

The key right now is to look for good entry points and keep an eye on the US Dollar Index (unless something drastic happens that changes all of the above).

I almost forgot to mention: Commitment of Traders data has showed people reducing USD longs. I can’t see how this week would be any different.

Trade #54 – Short Loonie at 1.2522

I really like this type of trade. The pair had broken the key level of 1.2622 to the upside (note that this the major 50% fib of the 1.61-.90 run) but then was trying to get below it again (tried for some two hours). The hourly and 4-hour then finally closed below so I went short on a re-test of the level from the bottom (WTI crude oil had also touched $50). My target is above the next consolidation level (circled in the chart below).

Janet Yellen speaks at 10 AM (20 minutes from now) so I hope this makes it way to 1.2500 or something. If it wasn’t for the testimony, I would feel pretty good about this setup.

USDCAD - 4 Hour Chart

USDCAD – 4 Hour Chart

Trades #50-53 – Pre-testimony + Update on #49

Update: Trade #49, long USD/JPY from 118.90, hit the target of 119.25 for + 35 pips.

Trade #50, short EUR/USD from 1.1333, was covered at 1.1302 for + 31 pips. This was a middle of the road entry, but the pair had been rejected at the key level of 1.1362. This pair is a yo-yo from 1.1290/90s to 1.1400 – play it accordingly. As the tweet above shows, I had also entered a short NZD/USD from .7483 last night (after the weak inflation expectation data; Trade #51). It had broken the key support at .7493, so I felt really comfortable with this trade. It hit the target of .7450 for + 33 pips. It was also obvious that a gap close trade would likely take place (gap from Feb 16th).

Long USD/CAD was a great play overnight. As it hit the 1.2640/50s though, I thought we would see a retracement as oil was actually holding steady. We also have strong resistance at 1.2676. This trade was covered at 1.2631 for + 12 pips. The pair hit 1.2522 and started shooting up so I covered early (it did go lower, but oh well).

The beast hit key resistance and I went short- simple and sweet. It already hit the target for + 35 pips.

Trades #45-49 – Not that many pips

The EUR/USD has been in range from 1.1280-1.1420. I bought at the low 1.13s purely on a range play. I closed out at 1.1334/5 for + 30 pips.

USD/JPY has strong support at 118.84. This trade is still outstanding but I thought the pop would have happened already. Weak existing home sales really capped the US dollar upside on Monday. Yields are steady and equities are higher, which still gives it some good potential.

Trade #47 lasted just a few minutes. Cable was at resistance and I thought it was a good place to short if the housing data came out OK. It didn’t, so I took a 10 pip hit.

Trade #48 – Right when it looked like oil was going roll over, the Financial Times dropped some headlines about a Nigerian official discussing the need for an emergency OPEC meeting. It was refuted in about an hour by other OPEC officials, but of course I was already down -25 pips. Bastards. Oil likely goes lower and the Canadian Dollar will follow to 1.2676/1.2800.

Look, Cable was a freight train when I went short here. I knew it was a risk, but took it anyway. Too bad I got top ticked (high was 1.54752) and lost 27 pips. As I type, the pair is at 1.5420s/30s again. Tsk tsk tsk…

Oh, but I did have some trades on the MyFXBook account that made some coin (short Cable from 1.5468 ;) – covered at 1.5434, and short NZD/USD after the inflation expectation report).

Market expectations for US and Europe

Forex Live had some great charts showing how the economic surprise index for the US is underperforming while the European one is outperforming. This means that US data has been missing the consensus forecast while European data has been beating it.

The description of the index is at the end of the post. I think the important thing to note here is the following: The Euro has not benefited from this current trend and the chart shows something that is obvious – It typically trends up and then trends down in a wave pattern. As economists start missing the data points on the downside (under-shooting), they eventually start to overshoot their numbers to the upside and vice-versa.

Also: one could argue that these charts are near your average extremes…

US Economic Surprise Index

US Economic Surprise Index

 

European Economic Surprise Index

European Economic Surprise Index

 

Description of index:

  • The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news.
  • They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median).
  • A positive reading of the Economic Surprise Index suggests that economic releases have on balance [been] beating consensus.
  • The indices are calculated daily in a rolling three-month window.
  • The weights of economic indicators are derived from relative high-frequency spot FX impacts of 1 standard deviation data surprises.
  • The indices also employ a time decay function to replicate the limited memory of markets.

Week of Feb 15th (-133 pips)

Minus -133 pips but still adding +9% (from +40% to +49%) to the account…how? Last week’s posted trades were pretty bad, but I had some non-posted trades on Friday that not only made up for the losses but added some gains.

See the MyFXBook account here.

Here’s the thing: When there is a lot of stuff happening and I can’t write a blog post about a trade, I won’t “post” it on Twitter. However, it may still get traded on the account (which gets updated every 5 minutes). Nevertheless, I’m hoping for a better week :).

Recap of all the posted trades:

Trade #33, Long USD/CAD from 1.2453: -43 pips.

Trade #34, Short #NZDUSD at .7492: -26 pips.

Trade #35, Short USD/JPY from 118.42: -23 pips

Trades #36-38: -35 pips

Trade #39, Long GBP/USD from 1.5355: +75 pips

Trades #40-43: -62 pips

Trade #44, Long USD/CAD from 1.2489: -19 pips