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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
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Trading University
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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 Oct 11th, 2012

    Currency Market Constriction Continues

    The Australian Dollar and the Euro took turns rolling down, and then rolling up this week with the net effect being little difference in price, and action hungry traders getting squeezed. What made matters more interesting was the timing of the moves. Rather than moving in sync against the Greenback, the two pairs once again moved independent of each other, further eroding previous currency market correlations. If there is one market that has shown consistency this week it is the S&P 500 which has worked its way steadily lower the past several days. And unlike the currencies, where no one pair has proven to be an alpha over time, the S&P 500, which is a proxy for U.S. blue chip stocks, still holds plenty of credibility as a leading indicator market.

    While the trend this year for Aussie economic data has been troublesome, we could see a potential bright spot today with an employment change of +5.1 expected, which would be decidedly better than the last figure of -8.8K. That's the funny thing about a string of bad data, it makes even the slightest improvement look noteworthy. Any kind of a disappointment however could mean an acceleration of the current day to day pattern which is lower. We are calling for still lower prices in the Aussie with a near-term downside target of .9975 - see Figure 1. We see weakness in U.S. stocks over the last couple of days as supportive of lower prices in the Aussie.

    (click to enlarge)
    Figure 1. Daily AUDUSD Chart

    The Run is Done

    We think the bull-run in the Euro that started back in August is over. Previously we were looking for a move just beyond the September high to climax that move, and while that is still a possibility we can't risk missing a resumption of the primary pattern lower. The markets have not been paying much attention to day to day fundamentals, so we don't see anything on the economic front that could put off a turnaround for this pair. Likewise if we do see an October correction for stocks and commodities, i.e.: sharp sell offs in the S&P 500 and gold, it would weigh heavily on the Euro. Call it temporary Dollar strength or just a needed correction, but either way it would spell downside for the Euro.

    (click to enlarge)
    Figure 2. Daily EURUSD Chart

    To see Jay Norris point out trade set-ups and signals in live markets go to: Live Market Analysis. Jay is the best selling author of Mastering the Currency Market

    Trading involves risk of loss and is not suitable for all investors!

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

    Oct 10 9:02 PM | Link | Comment!
  • Weekly Forex Forecast For October 8th, 2012

    While it is quite a surprise that the unemployment rate in the U.S. could possibly drop from 8.2% to 7.8% even as job growth slowed, politics aside, jobs are still a side show to the predominant influence in these markets: central bank policies. The U.S. stock market and the EURUSD are once again higher on the month because of ECB boss Draghi's overall game plan, and Fed Chair Bernanke's widely anticipated QE III. Day to day economic news, even if it is a sharply lower durable goods number, or a flat non-farm payroll figure, just doesn't hold sway like it used to. Stocks and the Euro also benefited from short covering on behalf of smarter than the devil Wall Street hedge fund traders who were caught underfunded in U.S. stocks, and downright short the Euro heading out of the last quarter. The one thing that does remain constant however is that the market will always tell us what is important, or in the words of the prominent energy analyst Cynthia Kase: "the chart tells us everything the market knows about itself". I'm a big fan of Ms. Kase.

    While U.S. stocks and the Euro have been immune to all the bad news on the economic door step lately, AUDUSD has not. Following the increase in bearish momentum from the RBA rate cut and the jump in the Aussie trade deficit last week, AUD pairs have been getting routed, taking away one of the few bright spots for yield seeking institutions and sovereigns. We adjusted our near-term downside target to just below 1.00 last week. Once below .9950 or so it really isn't that far to the 2012 low just below .9600. The Aussie no doubt will continue to be a great trading vehicle because it is an asset class market, and should always be remembered as a possible "buy when there is blood in the streets" in the event of a proper market panic.

    (click to enlarge)
    Figure 1. AUSUSD Daily Chart

    Along with being a poster child for the influence of central banker policies, the Euro is proof that we can see large, sustained price movement for no other reason than the majority of influential traders got it dead wrong the quarter before. The Euro also serves as a reminder of the relative nature of currencies and investment markets. If there is obvious downside risk in one currency, this becomes upside opportunity in other currencies. In other words what's bad for the Aussie is good for the Euro and Pound. And while I still can't quite figure it out, I do know that the whole design of the U.S. Dollar Index is brilliant. Because the Euro comprises 60% of the Dollar Index they both can't go down at the same time! Now that was good thinking.
    Near-term we think the Euro eclipses the September highs at 1.3170 and tops out somewhere closer to 1.33. However, once hedge funds finally do pull the plug on Euro shorts, or more likely when the margin man pulls the plug for them, this market will be hard pressed to find buyers this side of 2013. While it will be easy for economic numbers going forward to look good in comparison to recent numbers, that likely won't be enough to sustain the current upside momentum. Until we see a break in that momentum however, the Euro is a short-term bull.

    (click to enlarge)
    Figure 2. EURUSD Daily Chart

    To see a video re-cap of Jay Norris' Live Market Analysis Session from Friday, 10-5 go to Trading-U Tube

    Jay Norris is the author of the best selling book Mastering the Currency Market, McGraw-Hill, 2009.

    Trading involves risk of loss and is not suitable for all investors.

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

    Oct 05 5:35 PM | Link | Comment!
  • 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!
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