Analyzing Currencies By Analyzing CurrencyShare's ETFs

 |  Includes: FXA, FXB, FXC, FXCH, FXE, FXF, FXS, FXY
by: Friedrich Research

Recently, I introduced my new SIA-Charts here on Seeking Alpha and the response has been very positive. In the comment section of one of my articles, I was asked if my system could analyze currencies as well as stocks and I am happy to say that they can, by analyzing Currency ETFs. For those new to my work I have recently written an article on Seeking Alpha introducing my discovery and you can read it here.

The purest way, in my opinion, for someone to invest in currencies is by using a very well-organized series of ETFs offered by CurrencyShares. They trade on the New York Stock Exchange and are very liquid, and can be traded just as you do stocks. Here is what our SIA-Charts are telling us about the ten ETFs offered by CurrencyShares.

CurrencyShares Australian Dollar Trust (NYSEARCA:FXA)

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As you can see in the chart above, currency trading is a very volatile business and not for the faint of heart. Around August 2011, you would have seen the price of FXA drop below its 50 and 100 day moving average and that would have been the time to either exit or go short as it signaled that a potential "Death Cross" was coming. That actually happened in September 2011 and would have seen a drop from around $107 to $96. After a 10% correction, the smart move would have been to cover as you know that bargain hunters would come out of the woodwork; a 10% correction in a currency ETF is huge. In my opinion, making 5% either way is time to put in the stop triggers in.

Those bargain hunters would have had a nice trade up, but it would not last as the spread between the 50 and 100 day was too wide and a "Super Cross" was a long way away. But in January 2012, the price of FXA broke above its 50 and 100 day moving averages at $102 and the spreads were tiny, which signaled that a "Super Cross" was coming (usually two weeks away). Anyone buying at $102 would have made 5.8% before the stop losses would have kicked in. Currently, we are setting up for a "Death Cross" as the price has dropped below the 50 and 100 day moving averages. So the charts are currently signaling to stay away from FXA or short it. Again, currency trading is not for the faint of heart, but is for traders.

CurrencyShares British Pound Sterling Trust (NYSEARCA:FXB)

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As is shown in the chart above that just because a "Death Cross" has occurred, an investor might not see positive results right away. But as long as the 50 day stays below the 100 day, the trade is still on despite a sharp run up. Back in June 2011, one could have gone short at $162 and even though the price broke above the 100 and 50 day moving averages in November 2011, the 50 had not broken above the 100 and the spread was very wide. So SIA-Charts signaled further pain coming and the price went all the way down to $152. But in April a "Super Cross" occurred and from weakness we suddenly had a reversal and that trade still looks strong as the spread from the 50 to the 100 moving average is quite wide, which is always a positive sign. But remember "stops" are your friend in currency trading.

CurrencyShares Canadian Dollar Trust (NYSEARCA:FXC)

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In May 2011, the price of FXC fell below its 50 day and 100 day moving averages and though the markets ignored that fact and kept buying, they eventually capitulated and we had a sharp drop occur. Then in late January 2012, the price broke above its 50 and 100 day moving averages and signaled that a "Super Cross" was coming. Once it did that, we now have a strong signal to hold.

CurrencyShares Chinese Renminbi Trust (NYSEARCA:FXCH)

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FXCH has not traded for very long and thus has not established a long enough pattern to really analyze it. But just as we were getting ready to get a "Death Cross", some event triggered a very sharp pop in the price. This shows why currency trading can be very dangerous as all you need is one government intervention and you are toast if you are on the wrong side of the trade. I would say that this sharp spike should keep FXCH's 50 day above its 100 day for some time and thus those long should hold for now with stop losses.

CurrencyShares Euro Trust (NYSEARCA:FXE)

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In late July FXE's price broke below its 50 day and 100 day moving averages and signaled that a "Death Cross" was on its way. This happened in August and then resulted in a 10% correction. Recently we had a "Super Cross" occur but it is very weak as the spread is not very wide and the price has again broken below its 50 day moving average. This is a trade to not make as the SIA-Chart is telling you to sit on the sidelines and watch for a potential "Death Cross" coming. The most important part of this analysis is that a widespread channel be established and currently that is not the case here.

CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)

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The SIA-Chart for FXY would have been your best friend over the last year as you would have been able to make a lot of money going long and then shorting. It was smooth sailing up for the longs until November 2011 when the price of FXY broke below its 50 and 100 day moving averages and signaled that a "Death Cross" was coming. Had you followed that advice and shorted you then would have not had a great run up but would have made a killing going down as well. Your stops would have kicked in around April and you would have gone to the sidelines. Only time will tell what will happen next as the price of FXY is surging now, but with the spread between the 50 and 100 day moving averages so wide and with the 50 day still below the 100 day we could see a new reversal down for FXY.

CurrencyShares Mexican Peso Trust (NYSEARCA:FXM) & CurrencyShares Russian Ruble Trust (NYSEARCA:FXRU)

I am unable to analyze FXM and FXRU as no one year charts are available from my source, which is strange.

CurrencyShares Swedish Krona Trust (NYSEARCA:FXS)

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Back in July 2011, we had a strong signal for a "Death Cross" at around $158. Anyone going short would have eventually seen FXS go down to $144 for close to a 9% gain. Currently we just experienced a "Super Cross"- but then again it is a very weak one as the price is trading within the 50 and 100 day spreads. What is needed is for the price to break above the 50 day moving average in order to inspire confidence.

CurrencyShares Swiss Franc Trust (NYSEARCA:FXF)

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The most profitable trade you could have made using CurrencyShare's ETFs would have been with FXF. Back in July 2010 FXF's price broke above its 50 day and 100 day moving averages and soon after in August of that year it had a "Super Cross". Had you gone long then you would have bought in around $92 and it would have been super smooth sailing until September 2011, when its price broke below its 50 day and 100 day moving average, which soon after created a "Death Cross". Right now, FXF has recently had another "Super Cross" and could be heading higher.

In conclusion currency trading is not for the faint of heart as it can be a serious roller coaster for those knee deep in it, but with SIA-Charts and with the use of ETFs, one can successfully navigate the waters by going long or short.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. The information contained in this article represents the opinions of Peter "Mycroft" Psaras, and should not be construed as personalized investment advice. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.