The hot trade for the last few months has been short EUR/AUD and it has worked out quite well. A little guy that has gone unnoticed though is the EUR/CAD. It tends to correlate with EUR/AUD, but no one has dared to touch it because USD/CAD was “on its way” to 1.12 and beyond, or so they said.
Well, our good friend EUR/CAD has now closed below the 200 DMA (it’s been a while since this has happened) and is under the May low. We have a minor trendline on the daily chart from the wedge/channel coming from the top. Besides that, it’s pretty much open air until 1.4526.
For now, I would say this is another pair to be put on the sell-the-rallies buckets.
EURCAD Daily 6.11.2014
There could be a million of them, but an obvious factor for the Euro spike after the ECB decision were the additional inflows into European assets. People went bananas for those things as the ECB over-delivered easing into the market. Market positioning on the Euro (“market was too short”) could have played a role too, but I’m not very keen on this one.
Something important that people don’t usually mention though is the following: If you were looking to buy Euros, you went all-in!
I think this is a large factor in how things played out. Think about all the people out there that were looking to sell USD and buy Euro. They scrambled to buy as much as they could. If you think the pair is going down, in this situation, you buy by the boat load!
This kind of action consistently creates price movement that baffles people. You get a certain data point and the pair goes to the “unexpected direction” first before reversing and going the other way. On a daily basis, imagine if you’re a trader and you need to execute X amount that day (maybe it’s for your clients). You take a look at things and strategize the best time to buy or sell so you can get the best price for the trade. If you’re waiting to buy, say, the Australian Dollar and bad Chinese data comes out, you’re definitely going to be buying the Aussie as fast as you can before it possibly tumbles.
So, while you and another trader could have the same belief (say the Euro is going down), you two could be putting massive orders in different directions. The key is not to fooled by the price action created by those running for the exits.
The Canadian Dollar continues to be under appreciated. It’s even hard to come by any suggestions that say you should buy the currency. Since hitting the 1.12 handle, the USD/CAD has been slowly making a grind down yet the major shops continue to call for a retracement back to the highs.
While that could happen, I don’t currently see this downside on CAD happening based on technicals. Additionally, Canadian inflation, economic activity, and employment has been modestly beating expectations week after week.
I like selling the current spot (1.0900) with a 25 pip stop and a 50 pip target (down to those 1.0850s). As long as the pair stays below 1.0940s, I would be selling. Basis for such a trade:
- The pair is in a range between 1.0800 and 1.0940, currently making a move lower from the top of the range
- The 4 Hour chart shows two recent rejections of 1.0940, with the second one showing a lower high.
- The pair has also broken the short-term upward trendline from the 1.0820 low
- Pair is retesting & slightly breaking below lows from Friday and Monday
- Commodity currencies are performing well
- USD/CAD’s upside was capped by the 100 day moving average last Thursday
For USD/CHF, I think the downside is limited assuming the pair can stay above .8850s.The .8850 and .8900 levels have been key levels and the upper trendline of the broken daily wedge and the 100 DMA should act as support. This .8900 level is also the neckline zone of the double bottom we had on the chart. A retracement to .8850 followed by upside is a good possibility to keep in mind.
- Buy at spot .8934, with stop-loss of .8885 and target of .9030 (recent high)
- 2:1 risk-reward ratio
- Note: This means all the post ECB action would be erased…there would be a storyline behind this move
- Buy at .8850s, stop-loss of .8800 and target of .8950-.9000
- Means that we see continued downside on the USD/CHF before seeing a climb higher. As this initial CHF strength would likely correlate with EUR strength, people would continue to be baffled.
Let me say it too: Yes, I’m “surprised” that the EUR/USD ripped to 1.3670s post the ECB decision. The question of whether the market was already “too short” had been making the rounds in the interweb, but I don’t think that was the major factor here.
A liquidity party was definitely going to bring more buyers into European assets, but I guess most people underestimated the power of the inflows that would be generated after the ECB decision. As the European indexes broke major levels, you’re saw more and more people going net-long Europe. It’s already been the trend for quite some time, but we seem to be getting more momentum. Regardless of the speculative market positioning, people were buying European assets en masse and putting upside pressure on the EUro.
Net-net, the EUR/USD left a major reversal candle on the daily chart. This kind of price action after an extended move (i.e downside from 1.39-40) tend to have follow through…so everyone is eagerly watching. Will the pair continue to 1.38 and so on?
The technical analysis bulls are essentially betting on upside based on this price reaction after the central bank action. You’ll also have inflows into Europe supporting the thesis. It sounds pretty OK if you ask me.
However, I’m thinking that any upside will likely be capped at the 1.3700-1.3740s zone. The weight of the new measures, lower rates on the front end of the curve, and positive US data would be the supporting factors for the downside. Key levels to watch is the 200 DMA and the 1.3480-1.3500 price level. Overall, selling rallies seem reasonable.
Which trade arrow will you play? I also admit that the upside play looks “prettier”. The pair broke the wedge with a big reversal candle, retraced to the upper trendline of the wedge ,and then held. All this while the NFP numbers came in line with expectations…
EURUSD Daily – 6.6.2014
Australia’s GDP came in better than expected and yesterday’s RBA statement has kept the buying pressure on. All in all, I’m thinking that the pair re-tests the .9300-20 zone. It’s currently at .9260s. The .9200 level looks pretty well protected on the downside. The factor that could create trouble here is some strong across-the-board USD buying that takes the Aussie out too. If anything, we can use it as an opportunity to buy the AUD against the Euro and Pound.
Talking about these two other guys, the Euro is looking pretty meek. I think net short is still the way to be. Given the worse than expected CPI numbers, the short bet seems worth it as we head into the ECB decision. As for the Pound, yesterday’s post (Pound Breaking Triangle?) highlighted the thought of selling anything up to 1.6780. The pair went 1 or 2 pips higher and is now down again testing the 1.6710s. The 1.6696 should put up a fight and I would cover anything down to the 1.6650s/60s.
Lastly, we ca’t forget about the Dollar Yen, which is currently testing the 102.80 zone. On Monday’s post (Trades on the USD/JPY), I talked about how one could argue for a long to these current levels. All the technicals were pointing to this.
At the time, USD yields had been cracking to the downside and possibly suggesting downside on the pair too. The Japanese data had also been supportive of a stronger Japanese economy. Guess what, technicals won.
USDJPY – Daily – 6.3.2014
The GBP/USD is interesting these days. The UK economy is roaring and UK rate hike expectations have been very high lately. All this bodes well for the Pound. However, recently, the pair has been easing off a little as the timing of the rate hike are getting questioned.
The USD is also getting a little love. It’s hard to say how all this pans out, but short-term, this is what I’m seeing:
On the daily chart, we have some lower lows and lower highs. We would need to see an upside break of 1.6780s on the daily to break this trend. We also have a trendline from the highs that should act as some type of resistance. Until proven otherwise, selling the 1.6780s could be a good trade.
GBPUSD Daily – 6.2.2014
Zooming in on the 4 Hour chart, we also see a little triangle taking shape. If the pair gets above 1.6750 or so, it would seem like an upside break. Downside would mean a break below the 1.6710s, which has some support waiting at 1.6700 too . Right below at 1.6650s we would have another key support and a trendline from the daily chart (can be seen above).
My impression is that we appear to be bear-flagging. Selling anywhere up to the 1.6780s and searching for 1.6700 is something that I’m looking at.
GBPUSD – 4 Hour Chart – 6.2.2014