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(Disclosure: The trade ideas presented on this site are for educational and informational purposes only. No idea is an offer or solicitation to buy or sell any security or financial advice.)

                                                                                                                                Lamarcus R. Coleman, MBA

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October 18, 2012 · 9:39 pm

USD/CAD Long Bias, 8:1 Risk/Reward

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Buying EUR/CAD, 2 Week Time-frame, 5:1 Reward/Risk

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September 18, 2014 · 11:49 pm

NZD/CAD..247 pip drop…Now What?

As of late, the Kiwi has been the weakest currency against the majors. The Kiwi rallied last year as it led the way for interest rate expectations. As we all know, the RBNZ is pretty straight forward about its intentions. The RBNZ, this week, raised its OCR by another 25bps to 3.5%. Yet, the Kiwi got hammered against currencies like the Aussie and CAD. This is most likely because the market had already priced in the rate hikes. Ergo, no surprise data, no continuation for the Kiwi.

In a prior post, I showed a short entry in the Kiwi vs the Loonie. I got short on last Tuesday at .94344 going into CAD event risk. Since, then the NZD/CAD has broken down (fell 247 pips from entry) but is now nearing another key support level. I attribute the move to the CAD CPI figures in conjunction with Aussie CPI, and better than expected PMI data out of China. The Aussie has been the strongest currency this week. It also strengthened 228 pips vs the Kiwi  this week . This is followed by Euro which strengthened 221 pips, the Greenback which strengthened 167 pips, CAD which strengthened 154 pips, and the Yen strengthened 130 pips this week against the Kiwi. The Pound was the leader of the majors against the Kiwi and strengthen by 270 pips. It has since then traded slightly lower, but is still near the week’s highs.  I would venture to say that the strength of the Aussie on CPI and China data exacerbated the decline in the NZD/CAD coupled with the overall weakness of the Kiwi. The fact that the only CAD data we received this week was retail sales on Wednesday, during which time the CAD traded within a 26 pip range  strengthens this claim. Also, note how 92% of the 248 pip move lower occurred this week. Notice that the only currency in which the CAD gained more against the Kiwi was the Yen. My initial observation was that if the pair could close below the .93270 area, I wanted to be short. We fell into this area earlier this week, but the Kiwi retraced and closed higher Wednesday after CAD data.

NZDCAD...Short Entry 7/15

Short Entry on Tuesday, 7/15 at .9344

Thursday we gaped down. I’m now giving the pair time to show short term upward momentum. Over the coming days, if we fail to break resistance of the gap bar, I’ll be targeting the .89600 area. A break and close below the .9164 area is another way to enter or add to the trade.

 

NZDCAD Breakout of Rising Wedge

Kiwi weakened 247 pips from entry led post CAD CPI last Friday, and the RBNZ rate hike this week.

 

The Kiwi rallied some 1500 pips against the CAD from the beginning of last year until April of this year, thus there’s a bit of room for a retracement. I think the CAD has the potential to strengthen to within the .8820 area. The U.S. is on pace to rap up QE ahead of schedule, and the economy is strengthening. This bodes well for the CAD. If the risk theme shifts, this could potentially accelerate the Kiwi’s decline.

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Risk Theme: Aussie & Yen Crosses

The Aussie has been really buoyant as of late. I thought that AUD/NZD could possibly test the 1.0900 area but was expecting failure around this level which would have confirmed the H&S pattern that was developing. The fact that the pair extended I think is a testament to the market’s current view of risk. The S&P 500 has consistently moved higher which is a great gauge of risk themes. This bodes well for “risk on” currencies like the Aussie.

Another view of the market’s risk theme can be seen in the Yen crosses. Right now a number of the yen crosses are trading withing bearish wedges, flags etc, yet I believe the yen won’t gain strength until the market’s risk theme changes from risk on to risk off. The better than expected PMI figures out of China should provide continuation of the market’s current theme.This is probably why pairs like the USD/JPY, CAD/JPY, AUD/JPY, have been consolidating. USD/JPY has broken slightly out of the bearish wedge formation but has struggled for follow through. The EUR/JPY is at a pivotal support level in the 136.330 area and may be the first of the Yen crosses to show some follow through due to the fundamental backdrop of the EU. The AUD/JPY is a direct gauge of risk trends in the FX market. The AUD/JPY is near the highs around the 96.479. If we break this level to the upside, I think we could test the 98.304 level. However, the pair has consolidated within a bearish formation. Until risk themes change, any breakouts lower in these pairs may come with little if any continuation.

The EUR/AUD has been a good pair to short over the past couple of months. The pair broke out at the 1.5052 area in early April and has since continued lower (850 pips). There’s significant downside potential if we break these levels. I think we could test the 1.36108 area if we break and close below the 1.41330 area.

The Aussie in the short term is showing a lot of strength against pairs like the Kiwi. However, if we look back to the beginning of 2013, even at current levels the pair is down 1700 pips. This means that AUD/NZD could continue to run as it is relatively still at the lows and just gaining traction after bottoming out at the 1.05387 level. Also the fact that we gapped up tells me that a lot of traders went in heavy on the short side and the Aussie CPI figures along with China PMI figures not only brought in more buyers but also triggered the shorts stops, hence a gap up. From a technical standpoint, the pattern almost couldn’t been better which is what led to a lot of traders probably entering prematurely. Once the Aussie broke the 1.0900 area, which where a lot of stops should’ve been, then we were off to the races. Over time, we could very well test the 1.16086-1.1840 area as long as the market’s current theme remains in place.

 

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Aussie Kiwi Short Potential

The Aussie rallied 40+ pips yesterday on inline CPI figures. Later today we’ll get the rate decision from the RBNZ. I’ve been eyeing the AUD/NZD. From a techincal standpoint we appear to be rounding out the top of the 2nd shoulder in a head and shoulders pattern. Earlier in late May early June, we completed a break out of a rising wedge formation which was the precursor to the head and shoulders.

Fundamentally, the RBA still feels as though the Aussie is high by historic means. In contrast, the RBNZ has been the only major central bank to raise rates, and to do so consecutively.

I would look to get short around the 1.0900 area which is prior resistance of the 1st shoulder, or catch a breakout below the 1.08500 area. The 1.06330 area or neckline is a good place to either take profits or cut half of the position. Ultimately, over the coming months, I would target the 1.0860 area.

AUD/NZD H&S FORMING

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Watching NZD/CAD Going Into Kiwi CPI, CAD Rate Decision & CPI

I’ll be watching how the NZD/CAD responds to this week’s event risk. KIiwi CPI is on tap Tuesday. The RBNZ has raised interest rates three times, more than any other major central bank. The RBNZ stated in its last policy statement that the Kiwi has yet to adjust to the decline in commodity prices but is expected to do so. The bank also stated that the Kiwi is not sustainable at current levels. Upward momentum has been slowing in the Kiwi versus other majors as of late.

The Bank of Canada will make its monetary policy decision on Wednesday and we will receive CPI figures on Friday. The Bank stated in its latest policy report that it continues to see strength in the country’s fundamental drivers. Its view is highly contingent upon continued growth in exports and investment. With the U.S. continuing to expand and on pace to end QE earlier than expected, the Loonie should benefit.

From a technical aspect, multiple Kiwi pairs (USD,JPY,CAD) are trading within rising wedges. Momentum is slowing in the Kiwi. In order to get the proper follow through, technicals must align with the fundamental drivers. I feel that NZD/CAD could possibly see the biggest move of the NZD/USD, NZD/JPY, and NZD/CAD this week based on this week’s event risk.

 

NZDCAD

NZD/CAD DAILY CHART RISING WEDGE

 

If the Kiwi does rally, I would be looking to get short around the .96403 area in anticipation of failure at resistance and a breakout to the downside. My profit target would be in the .89607 area. The Kiwi could possibly pullback going into CAD event risk after CPI figures on Tuesday. One could wait for a break of the .93275 area to get short in anticipation of follow through to the downside. If the NZD/CAD doesn’t hold the .94252 area, I will be looking for a short entry. With an initial target at the break point of .93275 and my stop at the .94850 area. If this area holds I will cut half of my position and move my stop to break-even on the second half with the .89607 area in view. If we break the .93275 area, I’d be looking to hold and move my stop just above the .93275 area to eliminate my risk on the trade. Risk on this trade is 60 pips. Reward is 465 pips for a 7.8:1 reward to risk ratio.

 

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Pre-Market Wrap 1/14/14

Stocks finished yesterday in the red being led lower by the Nasdaq which was down by -1.47%. The S&P futures are trading higher after piercing the 1813 handle but holding resistance near 1814. The CBOE Volatility Index finished the day in the green by 9.4%.

In overnight trading, European indices were mostly in the red with the FTSE being the sole index in the green, up by 15bps.

Asian stocks were broadly lower being led down by the Nikkei which was down 3%. The Shanghai Composite was the only bright spot in the session and finished up 86bps

Global yields were mixed with the US 10 year up @ 2.85%, the German 10 year down @ 1.82%, the Japanese 10 year down @ .662%, the U.K. 10 year up @ 2.84% and the Spanish and Italian 10 years down @ 3.82% and 3.88% respectively.

In early trading, commodities are mostly in the red with Silver, Gold, and Corn all down 39bps, 23 bps, and 60 bps respectively. Brent is also in the red down 16bps. WTI and Nat Gas are in the green, up by 41bps and 1.18% respectively.

Markets traded higher as retail sales came in better than expected. The USD strengthened against the majors and the S&P Futures coninted to move higher before meeting resistance. These numbers bring some relief to the markets folowing the disappointing employment figures from last week.

In overnight trading, Euro Industrial Production numbers came in better than expected. UK. inflation, PPI, and retail price index data was mostly in line with expectations.

The Euro strengthened overnight after finding support at the 1.3650 area. Resistance is near the 1.3700 area. Since, the Euro has remained within a range of 1.4660 qand 1.3685. The Euro pierced the 1.3655 area but could not overcome buying pressure.

The USD/JPY traded higher overnight finding resistnace near the 103.70 area. The 103.550 area has served as support since the overnight session. A break below this area could see a test of the 103.35 and 103.25 areas. The USD/JPY pierced the 103.750 area on the back of positive retail sales data but couldn’t hold.

The Aussie traded lower overnight but has since found support in the .8990 area. The .90150 area should serve as key resistance.

The Sterling strengthened in overnight trading, meeting resistance in the 1.6445 area. Later, the Cable, after finding support at the 1.6400 area, retested the 1.6445 area and has since traded in a narrow range.

The USD/CAD moved higher overnight but has traded choppy. The pair pierced the 1.0910 area but couldn’t overcome selling pressure. The CAD pierced the 1.0885 area but buying interest moved the pair higher within its overnight support area of 1.08914. The 1.0897 area is the next resistance level.

 

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Market Wrap 12/30/13

Mid-day stocks are basically flat with the S&P 500 and Nasdaq hovering around a 9bps decline and the Russell and Dow hovering around a 3-4bps increase. Crocs has been an outperformer on the day on the back of a key investment from Blackstone. Mid-Day the stock is up 20%.

In the American session, Canada’s TSX is trading slightly higher posting a 2bps increase. The Bovespa is also in the green by 84bps.

European stocks finished the day mostly in the red with the Stoxx down 17bps, CAC down 5bps, Dax down 39bps and FTSE down 29bps. A bright spot in the area was the FTSE MIB and IBEX which finished near flat up 6bps and 2bps respectively. In the Asian session, stocks were mostly in the green. The ASX, Hang Seng, and Nikkei all closed higher posting gains of 61bps, 1bps, and 69bps respectively. The Shanghai Composite and Sensex finished the session down 18bps and 24bps respectively.

The CBOE Volatility Index is trading higher today up 6.5%. The index is in the red over the past 5 days, down approximately 3%.

Commodities are lower on the day with WTI and Brent both in the red by 1%, Gold posting a decline of 83bps, and Silver down by 2.17%. Corn and Gasoline are trading lower posting a decline of 93bps and 63bps respectively. The bright spot continues to be Nat. Gas which has been the best performing commodity this year up 1.13%.

In today’s session, yields have come down slightly with the US 10year yield now at 2.97%, German 10 year at 1.94%, Italian 10 year at 4.11%, U.K. 10 year at 3.03%, Spanish 10 year at 4.18% and Japan 10 year at .732%.

US pending home sales numbers were slightly worse than expected. Pending home sales rose MoM by 2bps lower than the 1% expectation. Yet, the numbers were better than the prior revised numbers at which sales posted a 1.2% decline. On a YoY basis, pending home sales remained steady with prior numbers posting a 1.6% decline YoY. The Dallas Fed Manufacturing numbers were also released intraday and came in better than expected posting an increase of 3.1. This beat the consensus of 2.0 and also the prior number of 1.9. In overnight trading, Hong Kong’s balance of trade deficit widened to -44.6B. This number was worse than expectations. The consensus was for a -39.9B which is a greater deficit than the prior trade balance of -38.1B.

The Greenback weakened against the majors. The Euro strengthened in overnight trading and is trading in the 1.3800 area. In prior sessions, the Euro pierced the 1.3900 area but was unable to hold. This pierce was a great short entry point based on my prior analysis. The Euro continues to trade in a rising wedge pattern. The US data has outperformed that of the Eurozone’s in recent times. This was the bias I held in making a December Taper prediction. The retrace back to the 1.3800 should serve as another entry to the short side. I would look to hold the short position to the 1.3100 area, taking profits and tighten my stops in the 1.3500 and 1.3300 areas.

The Aussie strengthen against the Dollar in overnight trading. After the 1st Taper, the Aussie broke the key support area of .8900 but has since retraced and is trading just above that support area. From a technical perspective, I would be looking to go long the Aussie. If we don’t hold the .8900 area, we have a ways to fall to the next support area of .8200.

The Pound strengthened overnight and during intraday trading. In the prior session, the pound came very close to piercing the 1.6600 area. The next resistance area is around 1.6560. The 1.6440 area should serve as short term support. If this area is broken, the next support level should fall within the 1.6320 area.

Dollar Yen weakened in overnight trading but has since found support within the 105.000 area. In Friday’s session, USD/JPY strengthened and continued its upward trajectory in trading on Sunday, later to find resistance at the 105.40 area.

USD/CAD experienced a selloff that started late Sunday. The pair found support near the 1.0700 area early in overnight trading, but moved lower once this area was cracked around 9am EST and found support at 1.0640 area. This area is the 76.4% retracement of the prior move up that began on Friday. If this support area is broken, the pair could test the 1.0615 area, and later test the 1.0580 area. If we hold this support level, the pair could trade back up to the 1.0735 area.

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Market Wrap 12/20/13

As expected, we got our first Taper out of the way on Wednesday. The Fed decided to cut asset purchases by 10 billion. Further deceleration will be predicated on the continued expansion of the economy.

In recent times, stocks have began to trade higher after selling off some on Thursday. Today the Dow, Nasdaq, and S&P 500 are all in the green posting gains of .51%, 1.01%, and .60% respectively. Indices in Asia closed mixed with the ASX, Sensex, and Nikkei all in the green with 1.21%, 1.79%, and 7bps respectively. On the flip side, the Shanghai Composite and Hang Seng both finished the session down 2.02% and .33% respectively. Canada’s TSX is currently trading higher in the session. European indices are in the green across the board with the Stoxx posting a 56bp gain, CAC 51bps, DAX 69bps, and FTSE with a 32bps gain.

10 year yields have fallen some on the day in the U.S., Germany and U.K. posting 2.9%, 1,87%, and 2.94 respectively. In contrast, yields Italy, Spain, and Japan have risen to 4.12%, 4.13%, and .68% respectively.

Overnight the BoJ left interest rates steady. The U.K. also posted GFK confidence numbers that were slightly worse than expected.

The Euro, after bottoming out in the 1.3626 area, traded higher in the overnight session. The Euro tested the 1.3700 area in early trading today but was quickly rejected. I still maintain a short bias on the EUR/USD.

USD/JPY rallied on the back of the first taper on Wednesday but since then has slightly tapered off. The USD/JPY traded higher in the overnight session but has seen some profit taken in early trading.

The GBP/USD is traded within a range of 1.6369 and 1.6334 in overnight and early trading, rejecting breaks of both resistance and support.

USD/CAD rallied on Tapering on Wednesday, but later sold off on Thursday. In overnight trading, after finding a bottom on Thursday in the 1.06 area, USD/CAD trade in a tight range before breaking out to the upside in early trading Friday. Since then, USD/CAD has retraced its move higher and is trading near the 61.8% retracement area of the prior move.

After breaking the key support level of .8900 on Wednesday, the Aussie has since traded higher just above this level.

Commodities are broadly trading higher as the Dollar takes a breather. Brent crude is 1.01% to the upside, Nat. Gas 25bps, Gold, 96bps, Silver 1.53%,  and Corn is 11bps to the upside. WTI is the exception trading slightly in the red, down 14bps.

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Pre-Market Wrap 12/18/13

It’s Fed day and it seems as though the markets are preparing for a possible Taper. The markets have a risk on sentiment with equity futures pointing higher, treasuries trading lower, the Aussie trading higher and Franc and Yen lower.

Overnight, the Greenback, which fell after the close yesterday, managed to rally against the majors. The Euro which finished the day barely in the green yesterday gave up 30+ pips overnight. German IFO figures came in mostly in line with estimates. The Euro is currently under heavy selling pressure going into the Fed Announcement.

US stocks finished the day down, but not by as much as you would expect given the probability of Tapering. Futures are in the green, pointing to a possible higher open in the equity markets. The US 10 year is giving back its gains as yields rise on the possibility of less demand from the Fed. The US 10 year is at 2.87% in early trading. German 10 year yields are also rising and are 1.84%, followed by UK, Italian, and Spanish Yields which are all higher at 2.09%, 4.08, and 4.15% respectively.

Despite USD strength, commodities are slightly higher. WTI +13bps, Gold +15bps, Silver, +48bps. Nat. Gas is also trading higher. Corn and Brent Crude are both in the red.

Asian stocks finished the session mixed with the ASX and Shanghai Composite both in the red, -14bps and -13bps respectively, but seeing the Hang Seng and Nikkei in the green, +32bps and 2.02% respectively. In Europe, stocks are green across the board being led higher by the FTSE MIB at 1.12% and DAX at 1.08%. The CAC, FTSE, and Stoxx are all higher posting +.83bps, +28bps and +.91bps respectively.

There wasn’t a heavy flow of economic data overnight. However, the U.K. did release labor data which beat expectations. The unemployment rate fell more than expected, falling to 7.4% vs 7.6%Claimant counts also beat falling by 37k vs 35k. The BoE also released its MPC minutes in overnight trading. The Pound is trading higher on the back of this news.

The USD/JPY strengthened in overnight trading which correlates with the Nikkei gaining more than all other indices in Asia trading. USD/JPY pierced the 103.20 area but couldn’t hold and later found support in the 103.02 area. 103.100 is short term resistance followed by the 103.426 area. The 102.00 area is key support. If we break below this area, I would target the 100.20 as the next level of support.

The Aussie is still holding key support of .8900. A break below this level would open up the prior low of .8200 from July 2011. The AUD/USD recently completed a H&S pattern and should be a good long play should the Fed surprise the market with no tapering. The .9200 area serves near term resistance.

The Loonie continued to weaken against the Greenback in overnight trading. Canada’s wholesale sales numbers did come in higher than expected. USD/CAD is trading near a key resistance zone. A break out above this area could see a re-test of the 1.07 area. 1.06 area remains as key support.

FedEx(FDX), General Mills (GIS), Oracle (ORCL), Paychex (PAYX), and Lennar (LEN) all report earnings today.

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