Thread: GBP and JPY Pairs H1 2013

Originally Posted by cmellon

Hey guys,

The setup is quite clear to me right now. EUR USD is prime for a breakout very soon!!! I am talking about the next couple of days.

Very bullish!

Happy Trading.

Can I play devil's advocate? Right after G7 meetings USD almost always, invariably, strengthened historically. Further, with the high level of correlation between EUR and CHF, CHF is poised for a weakening (check Jamie Saette's article), which suggests to me EUR is also poised for the same. Other majors like AUD are also considered to have neared their peak.

I agree with GBP's prospects considering the strength of EURGBP, but even there, I am abit skeptical since UK's interest rates are at historic lows. Further, the big movements in the last week were primarily associated with JPY outflows from Japan. No other significant reason has been attributed for the movements.

There are some uncertainties, but your technical highlights should not be ignored.

EUR/USD hit a double top of $1.60 last year, and slowly afterwords reversed as the signs of the "credit crunch" became more and more visible. The collapse of Lehman Brothers brought the pair to $1.23 - April 2006 levels. Surprisingly, the slightest prospect that the Euro Zone might be a hedge against the deteriorating US economy pulled the euro back up to $1.47 almost within a month back in December. However, the continued slide in the S&P/Dow and the overall depression-like status of the world's economy again forced the euro back to $1.2450 - nonetheless, new lows were not made. Some would argue that divergence has presented itself between the dollar/equity markets correlation.

The US dollar is the world's reserve currency, and deleveraging forced investors to move into safer financial assets, notably US treasuries and the greenback. Worldwide fear was the prime move behind the current appreciation of the dollar - the unchallenged safe-haven status. On the other hand, as for the euro, how can it challenge, or even compete as a global reserve currency? In my opinion, the structural problems of the Euro Zone; mainly the ECB being unable to issue euro-dominated treasuries/debt, lack of a real coordinated fiscal policy between individual governments, and the unquestionable inherent economical difference between member nations (PIGS economies vs Germany for example + the prospect of somewhat unstable Eastern European countries joining the euro club in the near future) will prevent the euro from muscling-in on the dollar.

This "depression" is starting to feel more like an old fashioned recession; curtain important economical indicators have been improving; to the surprise of ordinary investors. The loss of jobs has stabilized and 10% unemployment rate looks to be the realistic peak. Real estate market is back at 2003 lows, however, until demand truly outstrips supply it will continue to be an unfriendly shadow over the entire economy.

The United States continues to try to buy its way out of this recession: TARF-TALF-stimulus package-Fed buying US debt/toxic assets + interest rates at a record low. Without going into major details, the US government is simply printing more money, and this will ultimately lead to inflation - thus, the continued depreciation of the greenback. Lets not panic, US will not default on its debt nor a notion of a "global currency" could not be more further the truth.

Yes, we (US) will be the first to come out of this recession (yes, I said recession), mainly due to our aggressive fiscal policy (summarized above) and the fact that we entered it first - followed by China most likely. However, new global growth (leveraging) and in-turn renewed risk appetite and the consequences of issuing more debt/inflation will in my opinion have grave consequences for the dollar.

On the other hand, the refusal of any major stimulus measures by the Europeans at the G20, and the reluctance to lower interest rates (ECB's mandate to fight inflation above all) will place the euro in a stronger position. Let's not forget about the current rate differential: USD-0.00%-.025% vs EUR-1.25%. The Euro Zone will in someways benefit as a "free rider" in regards to other nations stimulus packages, mainly US and China.

In final analysis, if the March rally in equities holds, the sky is the limit for the euro. Possible retracement to $1.28-$1.30 coordinated with equities, might be the last pull back to jump the ship.

Good luck trading!

Recently Swiss National Bank has been threatening to devalue Swiss Franc. What is the effect of any official devaluation on ones holding? Suppose I have 1 lot of USDCHF long at 1.3215. And SNB devalues it to 1.1815. Do I gain 500 pips or any other adjustment factor enters?

Originally Posted by DollarBull

Recently Swiss National Bank has been threatening to devalue Swiss Franc. What is the effect of any official devaluation on ones holding? Suppose I have 1 lot of USDCHF long at 1.3215. And SNB devalues it to 1.1815. Do I gain 500 pips or any other adjustment factor enters?

SNB will have to sell Swiss Franc in the market to devalue its currency. There's no adjustment factor. RBA has also been intervening in the past by buying AUD to prevent further slide and there's no adjustment factor.

If you have 1 lot long 1.3215 and SNB devalues it to 1.1815, you will gain 1400 pips, not 500 pips.

Originally Posted by cmellon

SNB will have to sell Swiss Franc in the market to devalue its currency. There's no adjustment factor. RBA has also been intervening in the past by buying AUD to prevent further slide and there's no adjustment factor.

If you have 1 lot long 1.3215 and SNB devalues it to 1.1815, you will gain 1400 pips, not 500 pips.

Thanks. It was a typo at 1.3215; It should read as 1.1315. Devaluation would increase the USDCHF quote.

Originally Posted by DollarBull

Can I play devil's advocate? Right after G7 meetings USD almost always, invariably, strengthened historically. Further, with the high level of correlation between EUR and CHF, CHF is poised for a weakening (check Jamie Saette's article), which suggests to me EUR is also poised for the same. Other majors like AUD are also considered to have neared their peak.

I agree with GBP's prospects considering the strength of EURGBP, but even there, I am abit skeptical since UK's interest rates are at historic lows. Further, the big movements in the last week were primarily associated with JPY outflows from Japan. No other significant reason has been attributed for the movements.

There are some uncertainties, but your technical highlights should not be ignored.

I am more of a 90% technical trader, so I just look at the chart to see how price is likely to move. I believe that the chart has reflected the market's expectation of fundamental shift / fundamental changes.

So for example although I couldn't really predict that the Fed will buy treasury last time (QE is a big fundamental and important news), from the chart I can see that EUR USD is going to go up. This may in fact be the case that the best and smartest FX traders have already anticipated this news ahead of time and have bought EUR very early, much earlier than average FX retail players. And by looking at the chart, I could see this trend shift (i.e. resistance line is broken, EMA 10 breaks above EMA 20 and EMA 30, etc) although I may not know what big fundamental news is going to happen which causes EUR rally.

Anyway, right now I do think that in the medium time frame, USD is likely to weaken, and perhaps quite substantially. I won't be surprised to see EUR going up to 1.42 in the medium term time frame. I am not ready to declare a new bull market like EUR going to 1.7, but I can see that this uptrend has more legs to it, unlike DailyFX and many analysts who are still bearish. Or put it this way, I heard many calling currencies to drop even lower (like EUR going to 1.1, GBP going to 1.2, etc)... I just don't see it happening. I will go against many DailyFX analysts here who mostly recommend buying USD at this current moment.

I like GBP the best for the best bang for the buck. I am fully invested long since 1.43, anticipating GBP to go to at least 1.56.

I sort of agree with this guy Phil Roberts from Barclay Capital. He has been spot on in calling GBP to drop to 1.35 before. And he has recently called for USD topping out. He uses USD Index monthly chart to state his case. In USD Index monthly chart, we could see a bearish engulfing candle in March and also bearish divergence.

Here's his video: Video - CNBC.com

P.S. SEC is going to meet this Wednesday to review the short selling uptick rule. If they reinstate this rule, look for another furious stock market rally and increase in risk appetite which may further weaken USD, JPY, and CHF.

Originally Posted by cmellon

I am more of a 90% technical trader, so I just look at the chart to see how price is likely to move. I believe that the chart has reflected the market's expectation of fundamental shift / fundamental changes.

Anyway, right now I do think that in the medium time frame, USD is likely to weaken, and perhaps quite substantially.

I sorta agree with the view that interest-rate changes are not the prime driving factors at this time and that QE may play a larger role. A backpedal race to weaken ones currency through quantitative easing... very difficult to defeat USA in that race!

One problem I have is, the recent fx movements came noticeably from JPY outflows and not a broader market readjustments. It may be possible Japan government is trying to weaken JPY. Such attempts usually don't last long. If USDJPY reverses trend we are back to square one. Thus, the main chart to watch this week is USDJPY.

Originally Posted by DollarBull

I sorta agree with the view that interest-rate changes are not the prime driving factors at this time and that QE may play a larger role. A backpedal race to weaken ones currency through quantitative easing... very difficult to defeat USA in that race!

One problem I have is, the recent fx movements came noticeably from JPY outflows and not a broader market readjustments. It may be possible Japan government is trying to weaken JPY. Such attempts usually don't last long. If USDJPY reverses trend we are back to square one. Thus, the main chart to watch this week is USDJPY.

Japanese government has not attempted to weaken their currency, although they have verbally said they may do so if JPY continues to strengthen. This rally in USD JPY is purely due to the market. Usually when government intervenes, the media knows it and tells us. This week there's a good chance for us to see an accelerated rally in USD JPY to 103 / 104. Last Friday we just closed above the neckline of the inverted head and shoulder pattern. If there's any pullback, the neckline at 99.3 will be a strong support going ahead.

I fully expect this 103 / 104 monthly resistance line to be difficult to break. But if risk appetite has changed dramatically and it's broken, this may lead to further accelerated rally against safe haven currencies.

Originally Posted by cmellon

J Last Friday we just closed above the neckline of the inverted head and shoulder pattern. If there's any pullback, the neckline at 99.3 will be a strong support going ahead.

I fully expect this 103 / 104 resistance line to be difficult to break. But if risk appetite has changed dramatically and it's broken, this may lead to further accelerated rally against safe haven currencies.

The final JPY surge past 100 occurred near the closing hours with low volume and liquidity. That is not a healthy push past critical levels. It could as easily fall back to 99 as it went past 100. A strong volume and convincing break are required to keep it above 100. But I understand that a closing price above a psychological barrier is significant.

we saw what happened when that bloomberg article about obama saying he was happy to let the autos go to chap 11 hit gapped down 100 pips in a minute.... true risk aversion will see several points lower in an hour, its not all over we just have a exhuastion rally happining in equities.

Originally Posted by kiwihat

we saw what happened when that bloomberg article about obama saying he was happy to let the autos go to chap 11 hit gapped down 100 pips in a minute.... true risk aversion will see several points lower in an hour, its not all over we just have a exhuastion rally happining in equities.

True, when US automakers went for a bailout, USDJPY dives to 88 from 94. Now they (GM) are openly declaring bankruptcy, why would JPY go in the opposite direction? The equity rally doesn't have strong legs. There was no economic reason (like companies reporting improved earnings) for this rally. Fundamentals and technicals are in opposite direction for JPY and hence I think one needs to be very cautious in trading JPY and its crosses.

Originally Posted by DollarBull

True, when US automakers went for a bailout, USDJPY dives to 88 from 94. Now they (GM) are openly declaring bankruptcy, why would JPY go in the opposite direction? The equity rally doesn't have strong legs. There was no economic reason (like companies reporting improved earnings) for this rally. Fundamentals and technicals are in opposite direction for JPY and hence I think one needs to be very cautious in trading JPY and its crosses.

I do believe technicals reflect fundamental. The best traders / institutional investors with very deep pocketed money and best information usually have already jumped in ahead of many retail players.

As to whether the stock market rally would have leg, we'll see. But if you are looking for possible fundamental reasons for the rally, you can see this video:
http://www.cnbc.com/id/29997232

For technical analysis of stock market, you can watch the video to see what Jeff De Graaf (#1 analysts in Wall Street) and Carter Worth (chief technician in Oppenheimer) says:

Jeff De Graaf
http://www.cnbc.com//id/29619793
Carter Worth
http://www.cnbc.com/id/29495121/

Originally Posted by cmellon

I do believe technicals reflect fundamental. The best traders / institutional investors with very deep pocketed money and best information usually have already jumped in ahead of many retail players.

As to whether the stock market rally would have leg, we'll see. But if you are looking for possible fundamental reasons for the rally, you can see this video:
Mad Money: Bonds: The Big Show - Mad Cap Recap - CNBC.com

For technical analysis of stock market, you can watch the video to see what Jeff De Graaf (#1 analysts in Wall Street) and Carter Worth (chief technician in Oppenheimer) says:

Jeff De Graaf
Chartology ? Is The Bottom In? - Rapid Recap - CNBC.com
Carter Worth
Chartology - Where's The Bottom? - Rapid Recap - CNBC.com

Do people still take anything Cramer says with anything more than a large pinch of salt, particularly after the recent mauling served to him by Jon Stewart.

In this report, I see his usual selective approach to the information he reports, when he describes the current dynamics in the Fixed Income markets.

Originally Posted by DollarBull

True, when US automakers went for a bailout, USDJPY dives to 88 from 94. Now they (GM) are openly declaring bankruptcy, why would JPY go in the opposite direction? The equity rally doesn't have strong legs. There was no economic reason (like companies reporting improved earnings) for this rally. Fundamentals and technicals are in opposite direction for JPY and hence I think one needs to be very cautious in trading JPY and its crosses.

I think to understand what is happening in JPY, we have to look at what is happening in Japan, not in the counter-currency markets. The carry trade doesn't exist and economic stability is gone. So why continue to pretend JPY has no fundamentals of its own. It is just as bad as the US, except for the differences in employment policies. That is why USDJPY is most of the time a grinding range. But overall, money is being pulled/sent out of Japan and so that equates to a selling trend. And there is no export industry repatriation to offset it.

Originally Posted by se1paul

Do people still take anything Cramer says with anything more than a large pinch of salt, particularly after the recent mauling served to him by Jon Stewart.

In this report, I see his usual selective approach to the information he reports, when he describes the current dynamics in the Fixed Income markets.

You are right! I saw that funny session by Jon Stewart. But even the best trader can not always be right, though I am not saying Cramer is the best trader, LOL

The purpose here is just to show a potential reason, but by no means I am saying we have bottomed out. In fact, I do believe there's still risk to the downside. However, as both the technicians in the video link I gave said, there could still be a leg to this rally before reversing down.