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Jay Norris
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Jay Norris is a 20-year CBOT floor veteran, author of the Best Seller "The Secret to Trading Forex, Futures, and ETFs: Risk Tolerance Threshold Theory", "Mastering the Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill,... More
My company:
Trading University
My blog:
Seeking Alpha
My book:
The Secret to Trading Forex, Futures, and ETF's: Risk Tolerance Threshold
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  • Mid-Week Forex Forecast For Thursday 10-4-2012

    Aussie Ills

    Has the Aussie finally lost its luster? I think it's still too early to tell, but we definitely know a currency is in bad shape when it's making the Euro and the U.S. Dollar look good.

    The Australian economy is definitely the big story in the currency markets right now as Wednesday's surprise increase in its trade deficit to over $2 billion hit the market on the heels of an RBA rate cut the day before. Australia continues to face an increase in unemployment which is causing plenty of uncertainty Down-under, and translating into lower currency prices across the board. We were looking at 1.01 to the downside near-term and will now need to adjust that down to .9950 given the current bearish momentum -- see Figure 1. The previous positive correlation between the Aussie and U.S. blue chip stocks has broken down sharply this week, which we need to take more seriously than previous break downs that occurred during lower volume dog-day, or holiday trade.

    While it is still mid-week, the sharp sell-off in the Aussie did not carry over into the other financial markets; in fact the S&P 500 closed higher the last two sessions. Given AUDUSD's prominent position as a carry trade market however, currency traders need to be alert for further weakness in the Aussie pairs.

    (click to enlarge)
    Figure 1. Daily AUDUSD

    Euro Still Holding Plenty of Shorts Captive

    Mario Draghi said it more succinctly than any other central banker in my many years of market watching: "It is pointless to go short on the Euro". And his words are still reverberating through the markets. Draghi's stance highlights Mega-Trend #3 in our book: Central Bank Policies. Don't fade the Fed has been gospel for U.S. traders over the last 30 years, and the same now goes for the European Central Bank, and the Reserve Bank of Australia.

    While European economic numbers have been dismal, the ECB did buy time, and over time, all things being equal, people get back to making the best of it, which begins the path to recovery. We are however a long way from recovery in Europe and we still view the current two month up-move in the Euro as a short covering rally which had the added benefit of lending the ECB even more credence than it enjoyed during the January-February rally, and the 4th quarter 2011 rally before that. Right now though the real deal in the Euro is that there are still plenty of trapped shorts left over from last quarter, and it's hard to put a number on where the margin man will step in and hit the buy button for them. Our guess, just a bit beyond the September high at 1.3170.

    (click to enlarge)
    Figure 2. Daily EURUSD Chart

    To watch Jay Norris highlight trade set-ups and signals in live markets for this Friday's Employment number sign up at Live Market Analysis

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

    Oct 03 7:25 PM | Link | Comment!
  • Mid-Week Forex Forecast For Wednesday, September 26th, 2012

    Fed Renegade Plosser Sparks Asset Class Sell-off

    For all the importance of having a definitive frame work to measure prices progress from, and all the danger of speculating or investing based on feel, or alleged intuition, there does come a time - namely May, and again in September -- where regardless of what the tape is telling us, we just feel the overpowering need to go to the sidelines. Predicting market corrections is harder than letting a profit run, and something we do NOT ever want to think we're are good at. We will take luck though. We did point out on September 17th that there was the possibility of a stock correction based on the Euro's behavior. Admittedly not a lot to hang our hat on, given the usual fact based price occurrences we need to act on. You just can't predict when a Fed Governor's speech which was largely ignored on most calendars is going to spark a stock retreat, as Plosser's words did today. "We are unlikely to see much benefit to growth or to employment from further asset purchases," Plosser insisted, which is as close as we'll ever get to someone in that position saying: "My boss does not know what he is doing, and the economy is %$#@&!".

    AUDUSD

    No matter how you try to cut it, the weakness we saw in the U.S. stock market today will carry through to the Aussie. And recent Australian economic numbers would support a sell-off. While last week's Conference Board Leading Index didn't come in a negative number, as in June, it did flash 0.0 which is bad enough. For its recent upside action in September, Australian data, from the jobs number to the company operating profits figures have been disappointing. We're calling for a test of 1.0325, on the way to 1.01. That would not however preclude us from looking for potential short-term buy set-ups in the 1.0325 area should shorter-term momentum support it.

    (click to enlarge)
    Figure 1. AUDUSD Daily Chart

    EURUSD

    While it took about 45-minutes to set in with Euro traders that a U.S. stock sell-off was also bearish for currencies, it did set in as EURUSD dropped over 40 pips in the U.S. afternoon session. The 1.29 level none the less did hold, and the Euro also held above the day's lows put in during yesterday's Asian session. The Euro has remained stubbornly strong against the other pairs, which tells us there are still plenty of longer-term bears caught short here, and their bidding on down ticks is supportive. We still contend that until the last mamooth slips below the surface of the tar pit for good, that is the larger Wall Street hedge funds capitulate and cover their Euro shorts, that this market will continue to have a hard time resuming its primary bear pattern. For all the sideways price action intraday the Daily Chart in Figure 2 does look decidedly bearish and we see a clear shift in momentum lower.

    (click to enlarge)
    Figure 2. EURUSD Daily Chart

    To see Jay Norris teach the art of discretionary trading go to Trading-U.com. Jay is the best selling author of Mastering the Currency Market

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

    Sep 25 6:59 PM | Link | Comment!
  • Fed Renegade Plosser Sparks Asset Class Sell-off

    For all the importance of having a definitive frame work to measure prices progress from, and all the danger of speculating or investing based on feel, or alleged intuition, there does come a time - namely May, and again in September, where regardless what the tape is telling us, you just feel the overpowering need to go to the sidelines. Predicting market corrections is harder than letting a profit run, and something you do NOT ever want to think you are good at. I will take luck though. You just can't predict when a Fed Governor's speech which was largely ignored on most calendars is going to spark a stock retreat, as Plosser's words did today. "We are unlikely to see much benefit to growth or to employment from further asset purchases," Plosser insisted, which is as close as we'll ever get to seeing someone in that position come out and say: "My boss does not know what he is doing, and the economy is %$#@&!".

    So far the market is down but not out…though a move below 1443 on a closing basis for the S&P 500 futures likely spells further downside and a more open ended sell-off in the EURUSD and AUDUSD.

    Jay Norris is the Director of Education at Trading University. To see Jay host a live webinar tomorrow on Price Pattern and Direction go to FXStreet.com/Norris

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

    Sep 25 3:00 PM | Link | Comment!
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