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Richard Cox
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Richard Cox is a university teacher in international trade and finance. Lecture halls of 80 to 120 students. Lessons in macroeconomics and price behavior in equity markets. Investing strategies in these articles are based on technical and fundamental analysis of all the major asset classes... More
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  • Investing.co.uk Weekly Report: Yearly Downtrend In EUR/JPY, USD/JPY On Track To Long Term Targets

    The Japanese Yen has a year long downtrend that is starting to re-assert itself. This initially happened as Treasury yields moved higher and the typical USD/JPY rally ensued. Some market analysts were even talking about the US Dollar as a new growth currency (which would mean it would gain during times of economic stability). These trends started to change last spring, however, as the debt crisis in the Eurozone led investors to place the US Dollar back in its position as a safe haven asset. In addition to this, the US Federal Reserve has signaled a potential end to its quantitative easing programs, and this is bringing about round of strength to the US currency (as inflation expectations are reduced).

    In Japan, the opposite scenario is now in place, and this is a heavily bearish scenario for the USD/JPY. Specifically, this means that the country's central bank is enacting measure to weaken the currency (in an effort to provide a supportive environment for technology exporters). These differing central bank approaches is likely to weaken the JPY against most of its major trading counterparts and there is little to suggest that this will change for most of this year.

    USD/JPY Technical Analysis

    The monthly chart in the USD/JPY has shown some interesting volatility and many examples of one way directional movements. The latest of these has been in the upward direction with very little in the way of downside corrections since September of last year. Toward the end of February we did see prices fall to the 23.6% Fib level (measured from the rally from 76.90).

    Prices immediately rallied from this level, however, and we are not seeing a long wick on the monthly candle. This ultimately suggests an imminent break of the previous highs at 94.45. This move will be significant if it occurs, as this levels is also the 38.2% retracement of the decline from 123.60. An event like this creates the next target at 99.50 (which is the 50% Fib retracement just ahead of the 100 psychological level). Overall, traders should be looking for any evidence of weakness in order to get back into long positions and if this is done with higher yielding currencies, interest carry can be generated for the positions as well.

    EUR/JPY Technical Analysis

    In the EUR/JPY, we are seeing similar Fib structures, but prices have experience a more steady rally than what is seen in the USD/JPY. This is not surprising given the relative strength of the Euro and Dollar, but the more steady activity in the EUR/JPY is suggesting of a more valid uptrend. Prices are currently coming into some critical support levels, however, and if we see a clear break of 119.50, we will likely see a test of 114.70 on the longer term. This level is the 38.2% retracement of the rally 93.90.

    AUD/JPY Technical Analysis

    Next we will look at the AUD/JPY, as this pair has a slightly different structure. Specifically, prices are now coming into the 61.8% Fib retracement of the decline from 97.40, which comes in at 95.70. This area is suitable for medium term sell entries, and the likelihood that we will see a drop here will be enhanced if we see a break of 119.50 in the EUR/JPY. If we do see a break of 97.40 in the AUD/JPY, the next upside target can be found above 97, and this is a good long term trade for those looking to gain carry value on the expected broad based weakness in the JPY. For more trading tips, visit www.investing.co.uk.

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

    Mar 12 1:12 AM | Link | Comment!
  • Investing.co.uk Weekly Report: Swiss Franc Still At Risk For Long Term Declines

    The Swiss Franc has been one of the most volatile currencies of the year, and this will be particularly surprising to some technical traders as the pair was essentially flat for the second half of 2012. Most of this price behavior is based on the monetary policy setting that have been enacted by the Swiss National Bank, which elected to implement price control and put in a valuation floor at 1.20 for the EUR/CHF pair.

    Markets held prices very close to this level for most of last year but this changed in January as the EUR/CHF saw massive rallied and touched highs well above the 1.25 level. Profit taking in the pair sent prices back into the low 1.21s but as traders look for prices to re-enter the longer term uptrend, bullishness is coming back into the market. In the USD/CHF, we are now seeing prices trade at the highest levels since November 21.

    On the fundamental side, PMI for the Swiss dropped to 50.8, where 52.2 was the market forecast (and 52.5 was seen previously). The Swiss economy is heavily dependant on exports, so these numbers weighs on the prospects for the currency and this helps the longer term technical picture that, thus far, has been based on the central bank's 1.20 price floor on the EUR/CHF.

    EUR/CHF Technical Analysis

    The EUR/CHF has seen some of the largest moves in the currency markets this year, and prices are now trading back inside the 30-day Bollinger Bands (based on 1.96 standard deviations). This essentially suggests that prices have worked off most of the longer term oversold bias and another run at the highs is possible in the coming months. The longer term base at 1.20 is supportive for longer positions and traders that are operating on very long term time frames are starting to use price targets in the upper 1.20s.

    Currently, prices are dealing with the 38.2% Fib retracement of the decline from this year's highs (at 1.2660), so we could see some stalling here before we are able to see prices trade into the 1.23s. Traders should view any declines as buying opportunities at this stage, as there is little evidence to suggest that the price floor at 1.20 will be breached.

    USD/CHF Technical Analysis

    Even more impressive moves in the CHF can be found in the USD/CHF, as prices are now breaking above this year's highs on widespread Dollar strength. On the weekly charts there is now scope to see prices retrace 50% of the trading range that was developed in 2012, and this level would be seen at the 0.95, which is also psychologically significant. The 0.95 area is also the last major failure in the pair, so we can add historical resistance to the logic for why prices are likely to be attracted to this level, and test the will of market sellers.

    GBP/CHF Technical Analysis

    The GBP/CHF is not matching the strength that has so far been seen in the other pairs here, as broader GBP weakness is falling roughly in line with the broad weakness seen in the CHF. At the moment, we are seeing prices hit the 23.6% Fib retracement of the decline from 1.50, and there has been sideways trading in this area. Given the wider weakness seen in the CHF, expect this area to be breached in the next few weeks, and if this occurs the next target to the upside can be found at 1.4365. For more trading tips, visit www.investing.co.uk.

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

    Mar 12 1:11 AM | Link | Comment!
  • Investing.co.uk Weekly Report: Euro Finally Drops Through Psychological 1.30 Level

    The US Dollar is broadly stronger against most of the majors as both positive and negative data seems to be help push the greenback higher. This essentially means that the risk on, risk off paradigm that largely marks the progress of the US Dollar is starting to break down as all situations seem to be taken as positive for the currency. Most recently, strength was seen after improvements in the ISM manufacturing report (a situations that would normally encourage investors to move into "riskier" currencies).

    Over the last year, the Euro has seen a drop of 2.5% against the US Dollar, and the US Dollar has improved by 16% against the Japanese Yen. How far this rally can extend against the Euro remains to be seen, as some type of correction must be seen at some stage. But now that markets have convincingly pushed through the psychological 1.30 level, momentum selling is unlikely to abate in the near term. So far today, the EUR/USD has dropped by 0.6%.

    EUR/USD Technical Analysis

    When looking at the longer term picture (using daily chart price action), some major technical levels have been broken in the last few sessions. Recent events (and the removal of the psychological barrier at 1.30) suggest that there is little reason to be bullish for at least the near term. Specifically, the damage came when 1.3060 broke to the downside. This area was a historical support level, the 200 day EMA, and the 38.2% Fib retracement of the rally from 1.2030. Because of the long term nature of these support levels, it was not surprising that many traders used these areas for contrarian buy positions and once these areas broker, negative stop loss momentum unfolded.

    In addition to this, indicator reading on the same charts are bearish and have just crossed into negative territory, which suggests that further downside is imminent. For traders looking for areas to buy, there are some clearly defined historical supports that coincide nicely with Fib levels (from the same 1.2030 rally movement). The first of these levels comes in at 1.2780 (50% Fib level), and at 1.2670 (the 61.8% Fib level). 1.2670 is expected to be very strong support, so if markets are unable to hold at this area, we will almost certainly see a negative 2013 for the EUR/USD.

    GBP/USD Technical Analysis

    The GBP/USD has a very high positive correlation with the EUR/USD, so it is not surprising to see Dollar strength in this pair as well. Looking at the longer term charts (daily charts). The weakness in the GBP/USD has been more pronounced, however, as prices have already broken the 61.8% Fib retracement of the rally from 1.4220. This level corresponds to the 1.2670 level in the EUR/USD (which is still some distance away).

    The downside violation of the 61.8% Fib in the GBP/USD is a very bearish event and targets a full retracement back to the 1.42 area. We will likely see some stalling, however, as prices grind through buy orders at 1.50. Short term traders can take buy entries at this level but stops should be kept tight as the broader momentum is clearly bearish and negative momentum is likely to increase dramatically once 1.50 gives way.

    Conclusion: Further Downside Signalled in GBP/USD, EUR/USD Correlations

    When looking at the long term trajectory in both the EUR/USD and the GBP/USD, it is clear that the US Dollar in in control and this is likely to continue for the next few months (at least). GBP/USD is being looked at as a precursor for what is likely to happen in the EUR/USD, as the 61.8% retracement at 1.2670 is now in danger based on both technical and fundamental analysis. For more trading tips, visit www.investing.co.uk.

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

    Mar 12 1:08 AM | Link | Comment!
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