Seeking Alpha

Cliff Wachtel's  Instablog

Cliff Wachtel
  • on Forex
Send Message
Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
My company:
THE SENSIBLE GUIDE TO FOREX
My blog:
THE SENSIBLE GUIDE TO FOREX
My book:
The Sensible Guide To Forex: Safer, Smarter Ways To Survive & Prosper From The Start
  • FOREX OUTLOOK FEBRUARY 21-25: TRADING A DUBIOUS NEAR TERM RALLY 0 comments
    Feb 21, 2011 6:04 AM
     Momentum, Stimulus, Quiet Calendar Suggests Risk Rally Continues

    But Beware Of Potential For Trend Reversals, EU Eruptions

    Here’s a quick review of the major currency pairs for the week

    EURUSDFUNDAMENTAL DRIVERS

    Bullish: some ultra hawkish comments from ECB Bini Smaghi who said that the European Central Bank would be ready to look to raise rates should price pressure mount. We don’t believe him while PIIGS still struggling to avoid default.

    Bearish: Mounting political tensions in North Africa & Mideast. A Saudi prince warned that if Bahrain’s government fell then other wealthy gulf states including his were vulnerable. Libyan leader Gaddifi’s son warned of civil war potential. US House votes to cut spending, & German Chancellor Merkel’s CDU party was badly beaten in Hamburg elections, suggesting German voters oppose further costs to help PIIGS.

    Watch for ECB announcements of last week’s bond purchases, which will not include Friday’s purchases of Portuguese bonds

    Technical Picture For The Coming Days

    Note the daily and hourly EURUSD charts below

    EURUSD DAILY CHART COURTESY OF ANYOPTION.COM  01feb21 10

    Short Term: In the process of seeking out a fresh lower top below 1.3745 ahead of the next downside extension towards a head & shoulders  neckline ~1.3300. We get confirmation of a fresh lower top on a break back below 1.3425. Consider fading the most recent rally above 1.3700, with only a break and close back above 1.3745 negating our belief in a short-term pullback.

    TRADING IMPLICATIONS

    For currency traders or those playing related stocks or ETFs (FXE, EUO, UUP, UDN, SPY, DAX, and FRC): we have a clear daily uptrend and we stay with that despite the EU crisis as a longer term worry. As long as we have rising stocks the EUR is likely to follow, though a normal technical pullback of 5-10% for risk assets could (and should) come soon. Of course, we’ve said that for weeks, so be careful trying to fade this trend, especially forex traders with heavy leverage

    Binary Option Traders: This means those with daily or multi –day positions maintain a bias to calls for the EURUSD, EURJPY and similar pairs that benefit from risk and EUR strength. This means those with daily or multi –day positions maintain a bias to calls for the EURUSD, EURJPY and similar pairs that benefit from risk and EUR strength. Those playing hourly time frames need to be in sync with 30 minute, hourly, and daily trends. Note the below hourly chart and suggested trend thus far.

    EURUSD HOURLY CHART TODAY FEBRUARY 21ST COURTESY OF ANYOPTION.COM TODAY MARKED BY MOUSE POINTER    02FEB21 1038

    USD/JPYFUNDAMENTAL DRIVERS

    A quiet economic calendar means the pair is moving mostly with risk appetite, which, along with rising USD bond rates in past weeks, has favored the USD. Newsletter guru Dennis Gartman has said the JPY has entered a long term down trend (here), based on the changing technical picture of the USDJPY and the well known horrific long term fundamentals of the Japanese economy.

    They include:

    • the world’s highest debt/GDP
    • Here’s the killer: Japan’s rapidly aging population means falling domestic demand for Japanese government bonds. It’s that strong domestic demand from this nation of savers that has kept Japanese bond rates so low and allowed Japan to borrow so heavily at such low cost. The implication is that declining domestic demand for  its bonds means that Japan will eventually be forced to sell more bonds abroad at higher rates, raising Japan’s debt service costs (already over a quarter of its budget). Japan’s 10 year bonds pay around 1%. Just a 1% increase in Japanese bond yields would bring Japan’s debt service to over 50% of its budget.  This past year with the PIIGS we’ve seen how fast bond rates can rise multiple percentage points when bond markets get uneasy.
    • rising commodity prices, which hurt big importers like Japan
    TECHNICAL PICTURE

    As the USDJPY chart shows, the pair has been carving out a bottom and slow uptrend since November 2010

     

    USDJPY DAILY CHART COURTESY OF ANYOPTION.COM   Note rising trend line.  03 feb 21 1055 d

     

    Short Term:  Latest surge back over 83.00 quite bullish, opening the door for a potential break over key resistance of 84.50 in the coming days. Longer-term cyclical studies imply a major bullish reversal; look for a weekly close over 84.50 to help confirm the uptrend. Expect support ~ 82.50, while a close below 82.00 cancels our view.

    TRADING IMPLICATIONS

    For currency traders, or those playing related stocks or ETFs ( ): we have a clear daily uptrend for both the pair and risk in general, and we ride that, though a normal technical pullback of 5-10% for risk assets could (and should) come soon. Of course, we’ve said that for weeks, so be careful trying to fade this trend, especially forex traders with heavy leverage

    Binary Option Traders: This means those with daily or multi –day positions maintain a bias to calls for the USDJPY and similar short- JPY pairs that benefit from risk and/or JPY weakness. Those playing hourly time frames need to be in sync with 30 minute, hourly, and daily trends.

    GBP/USD

     

    FUNDAMENTAL PICTURE

    Growth contracted last quarter, if that repeats the UK is officially ‘double dips’ into recession – politicians hate that happening on their watch. The GBP has nonetheless been rising due to high domestic inflation currently around 4% (double its target rate of 2%), which has fed speculation of an imminent interest rate hike that would be bullish for the Pound. However we suspect rate hike expectations have become overdone because:

    Effects of recently introduced austerity measures are not to be fully felt for another 2 months, the UK will err on the side of caution as politicians will risk inflation over higher unemployment and a new recession

    Both BoE Governor King and the PM oppose rate hikes in the near future. For more on this see:GBP Pounding Higher Why, What Could Keep It Up, And Ways to Play It: February 21-25 Preview

    TECHNICAL PICTURE

    Note the daily chart below shows a very robust uptrend over the past weeks, but a possible bearish double top forming that may reflect suspicions that interest rate expectations have gone too far.

    GBPUSD DAILY CHART COURTESY OF ANYOPTION.COM   04feb21 1211

    Short Term: While the longer term daily chart above shows a clear and established uptrend, in the near term the pair is stuck in some consolidation after stalling out at key resistance of 1.6300 several days back. Currently hard to establish a clear short term directional bias,  and we need to see a sustained break above 1.6300 or back below 1.5960 to confirm a near term trend. Meanwhile, we remain sidelined.

    TRADING IMPLICATIONS

    For currency traders, or those playing related stocks or ETFs ( UUP UDN FXB GBB ): we have a clear daily uptrend for both the pair and risk in general, and we ride that, though a normal technical pullback of 5-10% for risk assets could (and should) come soon, and that would help the USD and pressure this pair.

    Binary Option Traders: This means those with daily or multi –day positions maintain a bias to calls for the GBPUSD, GBPJPY and similar long GBP and long risk pairs that benefit from risk and/or GBP strength. Those playing hourly time frames need to be in sync with 30 minute, hourly, and daily trends.

    USD/CHFFUNDAMENTAL PICTURE

    Moving mostly with USD weakness or strength recently. Longer term the pair has been headed down for years as a result of Switzerland’s much better underlying economic fundamentals.

    TECHNICAL PICTURE

    As the daily chart for the USDCHF below shows, we’ve been in a trading range and may be starting the next leg up for the coming days.

    USDCHF DAILY CHART COURTESY OF ANYOPTION.COM 05FEB21 1221

    Short Term: Retreating after stalling out for the second time this year around key resistance of 0.9785. There appears to be solid support around 0.9425, so we’re inclined to suspect we have a bounce under way, especially if we see more risk aversion flows into the USD. We’re looking for the formation of a fresh higher low ahead of the next major upside extension back through 0.9785 and towards more critical resistance around 1.0070. Only a close below 0.9425 would change our mind.

    Trading Implications: Hard to say, we’ll believe in an uptrend for the coming days when we see a decisive break over 0.9505. If we get it then we may well have a multi day uptrend ahead. If so that means:

    For currency traders or those playing related stocks or ETFs (UUP UDN FXF): Long bias.

    Binary Option Traders: This means those with daily or multi –day positions maintain a bias to calls for the USDCHF. Those playing hourly time frames need to be in sync with 30 minute, hourly, and daily trends.

    Commodity Dollars (AUDUSD, USDCAD, NZDUSD)

    Mostly the same picture so to save us all some time I’ll take them together

    FUNDAMENTAL OUTLOOK

    Benefiting from both rising risk appetite and demand for their related commodities from emerging markets. In the short term USD weakness from receding interest rate hike expectations has helped.

    TECHNICAL OUTLOOK

    Both the AUD and NZD are in near term up-trends vs. the USD, the CAD has been flat.

    TRADING IMPLICATIONS

    For currency traders or those playing related stocks or ETFs (UUP UDN FXA, BNZ FXA): Long bias

    Binary Option Traders: This means those with daily or multi –day positions maintain a bias to calls for the AUDUSD and NZDUSD. Those playing hourly time frames need to be in sync with 30 minute, hourly, and daily trends.

    For more on our weekly outlook see:

    Key Market Drivers for the Coming Week: EU Creditors to Face Irish Day of Rage

    GBP Pounding Higher Why, What Could Keep It Up, And Ways to Play It: February 21-25 Preview

    MARKET DRIVERS PART I: PRIOR WEEK – WHY BULLISH FORCES TRIUMPH, PROFIT LESSONS

    Is a PIIGS Debt Restructuring Coming?

    7 Stages of the EU Panic Cycle: Understanding and Profiting, Part I

    DISCLOSURE & DISCLAIMER: AUTHOR SHORT THE EUR FOR PERSONAL PORTFOLIO. THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER.

    Related posts:

    1. WEEKLY & MONTHLY FOREX TRENDS AND TRADING IMPLICATIONS
    2. EURUSD Weekly Outlook January 31- February 4: Bullish, Bearish Factors, Likely Direction
    3. Key Market Drivers January 17-21, Trading Ramifications, EU Spring Meltdown?
Back To Cliff Wachtel's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.