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Eric Kelly
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Trader and money manager, graduate of the University of Michigan with dual degrees in Finance and Accounting. I have with interest in all global markets, assets, and trading styles. The analysis and opinions conveyed in my articles are my own, not that of my employer.
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  • Forex Market Analysis: EUR/USD and AUD/USD
     HedgeFundLIVE.com -- The trading correllation between the EUR/USD and the S&P held firmly today, showing consistent price action. As I am writing this, the EUR/USD pair is slightly up and slightly above support. The support is at $1.42 which coincides with the fib retracement level of 23.6 (based on low 6-7-10, high on 5-4-11). The candle is moderate to bullish, and seems to be holding above support after breaking through it in early morning trading. I expect tomorrow to have bullish action, but with the support zone already broken the new downtrend is still in tact.
    euro, aussie, currency, trading, markets, stocks, bonds, hedgefundlive, trader, technical analysis, hedge fund, oil, commodity

    EUR/USD respected support at 1.42.

    The Aussie showed similar price action to the EUR/USD today. Fundamentally the currency is one of the best in the world right now. However, the Australian government has released weaker than expected data this week regarding employment. The problem I see with the Aussie is that Oil could not fight and maintain a position above $100 per barrel today, signaling that the Aussie may be weakening as well.
    euro, aussie, currency, trading, markets, stocks, bonds, hedgefundlive, trader, technical analysis, hedge fund, oil, commodity

    AUD/USD price action 5-12-11

    On the charts provided: red line on the AUD/USD signifies the $1.02, turquoise line is parity. red line on Oil is $91.50 (my expected low) and turquoise is $100 per barrel.

    euro, aussie, currency, trading, markets, stocks, bonds, hedgefundlive, trader, technical analysis, hedge fund, oil, commodity

    OIL 5-12-11

    I wrote a more in depth blog yesterday on Currency and Commodity markets.

    Tags: FXE, FXC, FXA, USO
    May 12 7:28 PM | Link | Comment!
  • Forex Market Commentary: Currencies and Commodity Driven Global Markets

    It has become obvious that equity markets are being driven by the commodity and currency markets. We have watched breaks in Silver, Gold, Oil, the EUR/USD and the AUD/USD create strong enough effects to whip around strong/weak stocks. Gold which has shown more resilience than Silver lately, should no longer be thought of as the force driving taking the market higher. The divergence in the price action of Gold against Silver, Oil, and equities should be noted. It is now a  separate asset class being used to hedge against inflation, for personal savings, and by countries as a stable store of value and wealth (reserve currency). Markets can no longer be exclusively traded based on specific asset analysis, particularly in the long-term.

    Some basics on the following: Oil/commodity prices are crucial in consumer/business spending; consumer spending effects businesses; businesses make up economies; economies are traded through currencies; currencies are susceptible to all global effects (economic, political, natural disasters, etc.). However, there is no ONE top market that dictates to the rest, they are an interconnected web. When one strand is disturbed, the entire web will shake. Obviously the list of relationships above is incomplete and meant to be so for the sake of this article.

    In the graphs below, please notice the same broken trend line throughout the different markets which lasted from mid March to the beginning of April. Very simple technical analysis, but it shows systemic weakness.

    Oil recently pulled back, falling from highs near $112 per barrel. At the same time, the AUD/USD fell. The AUD/USD is a commodity currency, with a lot of value based on Australia's coal, oil, and mining exports. The AUD/USD also took a hit from the decline in Gold, Silver, and other mined commodities. The currency fell from 1.10 and the next major support will be at 1.02. If the AUD continues to 1.02, it will decline roughly another 6%, the decline in Oil will correlate to this area with a 7.3% decline.

    AUD/USD daily chart 5-17-11




     

    The red line on the AUD chart and the Oil chart marks this support area. The red line on Oil is at $91.50, but it may get sucked below to $90 as markets tend to favor round numbers. These two are highly correlated, but it should also be noted that the FXA (AUD/USD ETF)correlates with the SPY 75.76% of the time (remember the web). The green horizontal lines indicate key levels: AUD/USD at parity and Oil at $100 per barrel. On a fundamental note, Australia released trade deficit data earlier this week and beat estimates by over 300% (1.74 billion vs. 0.49 billion). The AUD/USD barely moved higher after the data, which shows weakness.

    Oil 5-17-11

    The EUR/USD which has broken the medium trend line along with the rest also has some interesting factors to mention. The equities markets have shown a high intra-day correlation recently to the price action in this currency pair. Mainly, the USD is the driving force of this pair. The Fibonacci levels on the chart are based on the lows from 6-7-10 and highs from 5-4-11. Notice the price stopped on the 23.6 retracement level today (5-11-11). Also notice the red line, it is the 50.0% retracement at $1.34, and on a % base correlates to a 6-7% decline with the AUD and Oil; there is some price support data here.

    EUR/USD daily chart 5-17-11

    The equities markets, depending on which one you look at, have not broken the medium-term trend line. But I believe them to be weak and that it is only a matter of time until they are drawn down by commodities and currencies. It would be no stretch to see the global markets decline another 6% in the near -term. Among other factors, the VIX is historically undervalued. Data suggests the VIX tends to average 18.5, so there may be a rise coming (from the decline in equities). The USD/CAD also fits with the above analysis, though it hasn't broken the same trend line. A 6-7% increase in the pair would lift it to parity (I wrote a blog a few ago stating that I believe the USD/CAD to be parity reverting). Another reason I believe the break in the currencies is real, both the AUD and EUR pairs retested the trend line from the downside and failed; this typically signals weakness. Overall I am bearish for the next month. I do not see any reason the markets will drive higher before finding solid support (6-7% decline).

    In conclusion, I believe if markets continue to decline the support levels for AUD/USD at 1.02, Oil at 91.50, and EUR/USD at 1.34 are crucial.

    Remember it is a web, anything can happen.

     


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: FXE, FXA, USO, VIXY, SPY, GLD
    May 11 9:43 PM | Link | Comment!
  • Silver Flashcrash: Beginning of the Pullback or End of the Run

    Silver futures fell roughly 12% in under 10 minutes on earlier today (the Monday open in Asia). The price fell from a high of $48.15 per ounce to a low of $42.21, before recovering. The sudden drop was similar to the US Equities market Flashcrash, when liquidity evaporated and prices crashed on May 6, 2010. The cause is not immediately known, but with liquidity in the futures markets already low without American and European traders, its likely the root will be discovered quickly. Gold followed suit with the decline, but did not move nearly as far down.

    Silver has had an almost epic run over the last few years, especially in recent months. I've personally read more than a few articles lately about how Silver prices will continue to grow. The general thesis of most investors seems to be that Silver prices can sustain long-term growth because there is no foreseeable problem with the supply side. In a scan done this week to find overbought securities, SLV (the Silver ETF) came up as a perfect target. The ETF had huge volume last week and seemed to show weakness on Friday, when Silver price action diverged from Gold price action on an intra-day level.

    The question for investors will be whether this contained flash crash is the beginning of the end of Silver's rapid rise, or simply a pullback. My thought is this will present a nice entry point to buy. The scan that produced SLV as a sell definitely worked well, but it is only good for a short-term trading, not long-term trends. The fundamentals on Silver are still intact and very healthy according to most.

    Tags: SLV, VIXY, GLD
    May 01 10:03 PM | Link | Comment!
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