FX Analysis: Casting A Wide Net

[Aspen Trading Group]

The slow grind in the S&P action continues. The bulls are on the verge of euphoria as a breakout above 1310/18 looms - while the Elliott Wave count we are tracking suggests solid resistance at 1310/18. Add in the Dollar Index (looks bearish to us) and you get a real mixed bag. Consider the following chart:

The one thing that jumps out at us is the lagging price action in risk related currencies like AUD, CAD and NOK. To us, without those currencies confirming the S&P's we remain a bit cautious on getting bullish in here.

Hopefully this type of a posting, while not offering a specific trading recommendation, provides a solid back-drop for scouting out the time when conditions are ideal for a trade - this not being one of them...yet. Remember, chart patterns alone will not provide consistent trading results - only a thorough and comprehensive view (inter-market analysis) will provide the higher probability trading set-ups.

 

[Nigel-P]

Hi Dave, I find your posts very informative and useful. Thanks!

Nigel

 

[Aspen Trading Group]

Hi Dave, I find your posts very informative and useful. Thanks!

Nigel

Thanks Nigel - we appreciate the kind words - glad the content is helpful.

 

[Aspen Trading Group]

Given that the markets are at what we would consider some key technical points here - complacency cannot become part of ones plan right now. So, with that said, I though a comprehensive posting would be in order today:

Good morning traders - I had to hit the side of my monitors this AM to make sure they were still receiving data - once again, little price action overnight to assist us in making the next move:

- Fade this move higher in the S&P's and risk related FX pairs like AUD/USD and USD/NOK?

- Or continue to wait patiently for clearer signals?

Todd and I were having a short discussion on IM while I was laying out the outline for this piece and we were both looking at the really nice wave count/structure of USD/NOK and considering if we should get short into the Fibonacci cluster:

Technically it is a pretty solid set-up, stops are pretty tight at just above the invalidation level at 5.9812, but, this trade requires that the S&P's continue higher. Based on this wave count that seems like a tall order.

That is not to say ultimately the S&P's will not rally - the alternate count certainly needs to be factored in...

...but in the context of today and heading into the weekend - taking trades that demand higher S&P's now does not sit well with us. So once again we are left taking the temeprature of the market in order to determine the next most likely move - at this point we still do not have all the pieces in place - we know the scenarios to look out for - but none have unfolded just yet.

Meanwhile crosses like EUR/GBP and AUD/NZD are trading within solid Elliott Wave counts and are not as sensitive to the indecision in the S&P's and Dollar Index (DXC), so these might be worth considering for clients who are looking to manage their own trades in here.

So - that is where we stand at present, all dressed up but nowhere to go....just yet. As Todd and I made clear to attendees of a webinar we did last night - avoiding being surprised about how a trade unfolds is key. A trader should always factor in the various scenarios that could unfold. This approach allows traders to anticipate markets rather than react to markets.

 

[Aspen Trading Group]

For those that may not know, my biz partner at Aspen Trading is Todd Gordon. Long-time friend and colleague. He also is part of the line-up on CNBC's Money in Motion Show.

The video below takes some of the content from yesterday's show and combines it with some standard Elliott Wave & Fibonacci analysis to give a potential short entry in AUD/CHF. This is a nice combo of technicals and fundamentals.

http://www.screencast.com/t/jzsUwBjtTW

 

[Aspen Trading Group]

Are you long AUD/USD? If so, keep reading.......been beating this drum for a couple of weeks now - the resistance level in the S&P's at 1310/18. Prices are now in that area but have failed to react negatively just yet.

Regardless, after the break higher from a completed triangle in AUD/USD and the S&P's hitting resistance....

....active traders should look to begin booking profits.

 

[Aspen Trading Group]

Updated S&P count:

 

[Aspen Trading Group]

Just a follow-up to yesterday's AUD/USD post/chart (see below) regarding booking profits if you happened to have been long AUD/USD...

Prices topped out at 1.0573 - a touch above our forecast resistance zone, and are now off 120 pips. The overall dynamics of long trades remains intact however. As the chart below shows, we would be considering long entries into this pull-back.

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments. The impact of such events is already factored into market prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Aspen Trading Group that you will profit or that losses can or will be limited in any way. Loss-limiting strategies such as stop loss orders may not be effective because market or technological conditions may make it impossible to execute such orders. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only, was obtained from sources believed to be reliable, but is in no way guaranteed.

 

[Aspen Trading Group]

OK folks, gonna let my biz partner, Todd Gordon, take this posting. He did a great overview of short positions in EUR/NZD on Fast Money on CNBC today. Along the way he ruffled the feathers of one panelist who says he does not use stops - really? Seems foolish to me....and Todd. Enjoy

1.24.12fastmoney - Aspen_Trading's library

 

[Nigel-P]

Do you think any of these guys are really trading? And I mean not on little demo accounts? They just don't come across as very credible to me. I can't imagine that guy who was was saying "only jokin" (yeh right) being humble enough to admit he was wrong. Just a suspicion.

Good idea about Eur/Nzd though Todd. Still think equities have a bit higher to go yet. Price action is painful and volume is very low, but it doesn't change the fact that some big technical levels have been broken.

 

[Aspen Trading Group]

Do you think any of these guys are really trading? And I mean not on little demo accounts? They just don't come across as very credible to me. I can't imagine that guy who was was saying "only jokin" (yeh right) being humble enough to admit he was wrong. Just a suspicion.

Good idea about Eur/Nzd though Todd. Still think equities have a bit higher to go yet. Price action is painful and volume is very low, but it doesn't change the fact that some big technical levels have been broken.

No way to know about what these guys do from a trading perspective - I have my doubts at times. At the end of the day though, we just focus on putting out solid analysis and let all the other stuff fall by the wayside.

Todd's EUR/NZD short idea is a 'risk on' play so would perform well if equities continue higher which at this point appears to be the case - albeit a slow and grinding manner.

 

[Aspen Trading Group]

Will the blow-out earnings from AAPL provide the catalyst to build a stronger bullish conviction? We tend to think so. While we had been tracking a bearish count in the S&P's that indicated the 1310/18 level could cap the rally - the underlying tone to the market has been anything but bearish. The result was our consideration for this bullish count:

One has to think this will now become the primary count unless the FOMC scares the markets tomorrow or the market loses the 'love' for AAPL's earnings both events seem unlikely.

Thus, from an FX perspective, it looks like the usual suspects in the 'risk on' category are the ones to be focusing on:

 

[Aspen Trading Group]

Just following up on the posting from Tuesday afternoon - Jan 24, 2012 5:47pm (see below). The Fed offered the catalyst to finally set in motion a sustained move in the markets.

We went with AUD/USD to express our long bias as seen below and have booked partial profits at 1.0665 this AM and raised the stop-loss. USD/NOK and EUR/USD were also viable pairs for this scenario. To us, this looks like the makings of a sustained move and will be looking to add to or establish other long positions.

Will the blow-out earnings from AAPL provide the catalyst to build a stronger bullish conviction? We tend to think so. While we had been tracking a bearish count in the S&P's that indicated the 1310/18 level could cap the rally - the underlying tone to the market has been anything but bearish. The result was our consideration for this bullish count:

One has to think this will now become the primary count unless the FOMC scares the markets tomorrow or the market loses the 'love' for AAPL's earnings both events seem unlikely.

Thus, from an FX perspective, it looks like the usual suspects in the 'risk on' category are the ones to be focusing on:

 

[Aspen Trading Group]

Good afternoon/evening traders - just wanted to post some analysis on AUD/USD that illustrates how to use simple Fibonacci techniques within wave analysis to project likely price target(s).

Jan 29 AUDUSD Analysis - Aspen_Trading's library

 

[Aspen Trading Group]

A decisive sell-off today in EUR/GBP - right to a Fibonacci projection level - sets the stage for a corrective rally from which to get short.....details in the chart below.

 

[Aspen Trading Group]

We got this question from one of our clients yesterday - I thought it was quite timely given the current price of EUR/CHF.

"Hi guys,

How about going long EURCHF with a stop bid a little ABOVE the current market, in case SNB intervenes?

It is a new month, and 1.2000 is close..."

Thanks for the question, a couple of points from our perspective:

- EUR/CHF is essentially not a free floating currency at this time due to the SNB intervention threat at holding EUR/CHF above 1.2000
- A 'stop bid', as you note, above current levels (buy limit order) would not be the best approach if we were getting long based solely on SNB interention. Your order would be triggered and you would be filled at the next price - presumably 100-200 pips higher.
- For us - the complete lack of wave structure or any component of Inter-Market Analysis within the IPA Pyramid - offers us little to work with.

- Lastly, monetary authorities tend to view markets with a longer term view than market participants who agonize over every small move. Very significant losses can be incurred at a time which central bankers consider relatively stable. A move below 1.2000 for a short period of time may be viewed with indifference by the SNB. Case in point, USD/JPY dropped to 3-month lows last week after a big spike higher earlier in the week - as of now - still no sign of the BoJ - traders who went long USD/JPY expecting the BoJ to ride to the rescue are licking their wounds right now.

So - just my 2 cents. There are many ways to determine logical trade set-ups - however, within our framework of the IPA Pyramid - longs in EUR/CHF do not work for us at present. -DF-

 

[Aspen Trading Group]

Just like the chart of the Dollar Index (DXC)....

....there is some sideways consolidation taking place presently in USD/NOK. This should be expected as generally speaking USD/NOK and DXC move in tandem.

The wave count in USD/NOK suggests that once Wave ii is complete price should push lower towards 5.6000/5.4000.

Given that Inter-Market Analysis is the core of our IPA Trading Pyramid....

....we need to make sure that related markets confirm this wave count. Generally speaking crude oil prices are a solid barometer for USD/NOK given Norway's large oil export market. However, as the overlay chart below shows, oil and USD/NOK have not had a very clear correlation in some time.

So while that inverse relationship may not be strong right now (correlations are always in flux), as long as crude oil prices remain within a trend higher, that should provide enough of a backdrop to support lower levels in USD/NOK. Based on our wave count, crude oil is approaching some key support and should turn higher with the $115/bbl the immediate target.

Certainly other risk related markets like the S&P 500 will be a useful inter-market analysis barometer as well, but for now, there is a somewhat incomplete scenario developing. That is not to say a short in USD/NOK does not make sense, one just needs to be aware that all of the pieces that support the trade are in place.....yet.

 

[Aspen Trading Group]

Referring to the posting above - in terms of crude oil specifically - the chart below illustrates a bullish thrust higher that should underpin the 'risk rally' and sustained lower levels in USD/NOK.

 

[awaw]

does the huge stockpiles of oil not count against your 124/142 wti forecast?

 

[Aspen Trading Group]

does the huge stockpiles of oil not count against your 124/142 wti forecast?

Thanks for the question. It is an interesting point and certainly may be valid. However, in terms of the way we trade, it does not really factor in for us. We rely heavily on technical analysis and inter-market analysis - both of which presently point to higher levels in oil and risk assets in general.

Hope that helps.

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments. The impact of such events is already factored into market prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Aspen Trading Group that you will profit or that losses can or will be limited in any way. Loss-limiting strategies such as stop loss orders may not be effective because market or technological conditions may make it impossible to execute such orders. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only, was obtained from sources believed to be reliable, but is in no way guaranteed.