This state of affairs did not last long, however, only until the NFP Report. The Nonfarm Payrolls brought another surprise for the day, showing an increase of 243K jobs in January, handily beating the forecast of 150K. It also bested December’s revised 203K growth and was the strongest job growth in nine months. The increase in hiring pushed the unemployment rate down to 8.3%, the lowest since February 2009. Late in the day, the ISM Non-Manufacturing index delivered yet another surprising result, coming at 56.8. To put in perspective, analysts expected a reading of 53.1 and previous one was at 52.6. The good news proved damaging to the US Dollar, though, as if it was losing its safe haven status when American economy shows signs of improvement. In case of the USD-CAD, it dropped sharply, deep under the parity level, making it one of the most eventful days for this pair in a long time.

The Euro, fighting own problems, did not have such a good day. Initially, it plummeted over 100 pips, although it recovered a good portion of that as the day went on. Clearly, markets are losing patience with what is going on in Greece. As we recall, this country “was on a verge” of reaching an agreement with its creditors two weeks ago. Here we are, in early February, still hearing exactly the same phrase. Obviously, there is no progress and that could be costly for the EUR in days ahead. Have a great weekend!

Mike K.

Many think it is not a temporary situation and Japan will find itself in trade deficit for years to come. With multinationals opening more factories abroad than they are at home, domestic production is not expected to increase either. These are strong fundamentals working against the Yen. There is more – continues account deficit would spell trouble because it would mean the country cannot finance its huge public debt without overseas funds. Currently Japanese investors hold about 95 % of Japan’s government bonds, which lends some stability to an otherwise unsustainable debt burden. Once starts raising money abroad on larger scale, many believe the Yen will suffer.

However, the fundamentals of the Japanese Yen have been weak for a long time now, yet it continues to at least hold its ground. While certainly, they will eventually catch up with this currency, one should be prepared for a prolonged wait before that happens. In order to short the JPY with more confidence we would have to combine fundamental analysis with technicals, and those are simply not showing a reversal yet. Of particular interest should be a long-term chart of the USD-JPY, because we are talking about the main trend.

While the JPY deteriorated recently in relation to some currencies, the main chart on everybody’s list is the USD-JPY. Here we still see the price in a downtrend. It is consolidating now, between 75.50 and 79.50, but this does not mean a reversal. For the price to change direction, it must rise to at least above the latest resistance. With the USD-JPY very close to the all time low, we could easily experience another spike down. Therefore, even though fundamentals are lining up against the Japanese Yen, the technicals will not confirm it unless the price starts to test the 80.00 level.

Mike K.

No official comments yet, but it is hard to imagine this particular proposal to be received friendly in Athens. They already have to contend with another set of demands that must be met before the next installment of bailout is released. They include cuts in healthcare and defense spending, commitment to eliminate another 150K government jobs in three years and scores of other painful steps. All of this is piling up when even talks with creditors on debt swap are not fully concluded. Forcing Greece to accept all of these measures could easily push this country out of the Eurozone and perhaps even EU. Other members could realize they might be next, which would endanger entire structure of the European Union.

With no currencies forming short-term reversal opening set ups (even though the last one did not work out), I will be looking for gaps in early trading. After that, the beast looks interesting. It already dropped to 120.00, but recovered to some degree. General shape of the price suggests more downside, so I will try to go short here. I have two different sell orders, one at 121.00 and the other at 119.90, each seeking 100 pips.

Another currency pair of interest is the EUR-AUD on the 4 H chart. It is slowly building a bottom reversal, which will be complete on a breakout above the last high. Here I want to buy it at 1.2490, targeting 1.2600. Of course, this price action could develop into a flat consolidation, which would be bearish in nature. If the EUR-AUD breaks out like it last time, with immediate rejection, I will most likely close the trade immediately and tale the loss. That would be a good sign that the price is not developing as planned, so hands off. Have a great trading week!

Mike K.

In a typical fashion for Friday, I looked at trading short-term price swings at the start of the London session. The EUR-USD formed a price range in hours leading to European opening, with well-defined support and resistance. Eventually, there was a bullish breakout, which filled a buy order at 1.3120. My objective of 30 pips was met fast, on a nice follow-up by the price.

Another trade involving the Euro was in the EUR-CAD, which I discussed it at the start of this week. It took a while, but the price finally started to move in the desired direction. Friday brought a nice acceleration on Friday, closing at 1.3240. I got out at the end of the day with 85 pips gains. Even though the trend still has some room to go, there are often reversals at the start of the week, so I simply want to avoid it. Other trades covered in the last few days are still valid, at least for now. Have a great weekend!

Mike K.

While many in Switzerland support these meassures, some are warning about unintended consequences, saying that Franc limit against the Euro may cause the country’s economy to overheat if authorities are not vigilant to its effects. For example, property prices have increased in Switzerland, aided by near zero rates and demand from foreigners looking for employment. This could be mitigated to some degree by increasing the benchmark rate in order to prevent a property bubble. However, such move would put upward pressure on the Swiss Franc and jeopardize the 1.20 EUR-CHF limit introduced in September to fight deflation. Clearly, the SNB will have to walk a fine line.

The EUR-CHF is in a precarious position, having just left its prolonged trading range. At present, there is no real support on the daily chart, other than the psychological importance of the 1.20 level, backed up by the SNB’s threat. If the central bank does not act, or only delays its involvement, the price can easily slip to 1.16 in short order. While this is playing out, I will focus on short-term trading on Friday, mostly in the USD pairs at the start on the London session. They show good volatility and could offer decent opportunities.

Mike K.

While it sounds good, to date not one Japanese company took advantage of this source of capital. Interestingly, last year Japanese multinationals went on a largest oversee spending spree in at least 12 years, buying about $90 billion worth of foreign companies. Some analysts say that Japanese businesses simply have surplus of funds and do not need to borrow, while others argue they are simply avoiding cumbersome and time consuming government process. Whatever the reason, this program appears to be a failure. There was talk about expanding it, but since there is no interest, it could expire in eight months or so, leaving Japan with intervention as the most viable way to weaken the Yen.

On Sunday, I discussed a short-term reversal trade in the GBP-USD. I was looking for a bearish reversal candlestick pattern on the hourly chart within first few hours of opening. The price unfolded not exactly the way I wanted, with a bearish sign forming immediately after trading started. Regardless, I sold the GBP-USD at 1.5542, seeking 50 pips. My objective was probably too ambitious, the price only dipped to 1.5516 before turning bullish. Since things were not going my way, the trade was closed at 1.5562 or 20 pips loss.

A week ago, I covered CAD-CHF on these pages, or more to the point, its intermediate term chart. My idea was to go short at 0.9230, with 100 pips objective. The price rallied at first but eventually turned south and triggered my order. I closed it earlier today at 0.9163 or 67 pips profit. It is short of target, however, the price dipped much lower and rebounded, so I thought it prudent to pocket some gains and move on.

With the British Pound very strong today, it will be interesting to see if this continues. Some technical developments suggest it will. On the 4H chart of the GBP-CAD, for example, the price is finding repeated resistance at just above 1.5800. The more often this level is tested, the more likely it is to break with a bullish continuation. I have a buy order at 1.5815 looking for 100 pips. With any luck, it could happen before the end of this week…

Mike K.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

Recently the uptrend in the AUD-CHF has become very choppy, as if ready to reverse. Corrections are bigger, volatility is higher, possibly building a top on the intermediate term chart. I would like to short it if the price dips under the recent low of 0.9695, with entry at 0.9690. This trade, if filled, will attempt to capture 120 pips. Alternatively, if the AUD-CHF continues higher and makes a new high, it is likely to form a divergence with the MACD. In such event, it could offer a decent shorting opportunity.

Another currency pair of interest is the EUR-CAD, also on the 4H chart. Here the price already bounced from the low of 1.2875 to 1.3147, perhaps forming a bottom. I want to go long on a bullish breakout with entry at 1.3155. The target is 1.3300. There is a small complication; I would like to see a little more pullback first. Not necessarily much lower, but I do not want to enter into a trade if the EUR-CAD rises right after the open. Initial opening moves often lead to false breakouts, something I want to avoid. After the first few hours, the order becomes valid.

While waiting for those trades, which could take some time because of relatively large time scale, I will look for shorter-term opportunities. One of them could materialize in the GBP-USD, among others. After a sharp rally on Friday, the cable is likely to go through a correction. Preferably, I would like to see a little continuation, but the signal itself will be a bearish reversal candlestick pattern on the hourly chart. Objective will be 50 pips, although details will have to be worked out once the entry is confirmed. Have a great trading week!

Mike K.

Euro has been rising most of the week, as if market participants expected a solution and some stability in the common currency. Realistically, the EUR was due for a rebound; it had been oversold against most currencies. This run-up was a combination of a technical bounce and the anticipated good news from Greece, and in case of the EUR-USD, it reached 1.2986. It will be interesting to see how the Euro reacts to that, but one should consider the possibility of “buy the rumor sell the fact”. Meaning, the EUR could fall again once the supposedly good news is finalized.

My Friday trading was focused on short-term transactions at the start of the London session. As it turned out, the EUR-USD presented a good opportunity, with nice trading range established just before the session started. The first move of the day was down, triggering a sell order at 1.2951, under the minor support. Turned out to be a good trade but it did not maximize the potential here. Alls said, though, it was a good end to a good week. Have a great weekend!

Mike K.

These talks are not going well. According to some sources, the Greek government has proposed an even larger “haircut” of 68%, meaning a recovery rate of only 32 cents on the Euro. In addition, future interest payments would be lowered, too. There are plenty of conflicting stories, with some suggesting that the original 50% threshold is still valid. We shall see. Whatever it turns out to be, Greece is simply strong-arming, even blackmailing its creditors into taking losses, with only faint hope of actually recovering anything. According to Fitch, Greek default is inevitable and only a matter of time, and any talk to the contrary, including these negotiations is just posturing.

While that farce is playing out, trading goes on no matter what it actually is that drives the markets. In the last post, I discussed a buy in the GBP-JPY. The premise was to go long on a breakout above the latest minor high, with the exact entry at 118.33 and objective of 100 pips. That is what happened, the beast rallied with most of the gains taking place on Thursday. Perhaps this is a start of larger appreciation, but for that one should use the 4H chart, something I will look at later.

Another trade I covered earlier this week was in the EUR-NZD. Here I used the intermediate term chart, which formed a divergence with the MACD. Still needed a bullish candlestick reversal pattern, though, in order to pinpoint the entry. After a considerable wait, an engulfing line developed, providing entry at 1.5927. My objective was 200 pips, which was reached, if just. Later in the day, the EUR-NZD made another run at the high. For Friday, I will focus on short-term at the start of London session, using USD pairs.

Mike K.

Is it turned out, the Standard and Poor’s itself provided a solution, of sorts. On Monday, the rating agency downgraded the EFSF to AA+ from AAA, reflecting its recent cuts to credits of individual countries. This means that Germany no longer will have to come up with a bigger share of fund. From a practical standpoint, this downgrade is more symbolic than real and should seriously raise borrowing cost for the facility. Just look at the USA, which suffered the same fate few months ago, yet still enjoys historically low costs. On balance, this action will most likely not carry any meaningful consequences, but certainly adds to confusion and increased sense of uncertainty.

This week some currencies created opening gaps. While easy to spot, they were very big, but a few of them were still worth the trouble. I focused on the AUD-USD, because it gapped down, and then continued lower. My ideas was to simply follow the latest high with a buy order using 5m chart and try to get in on a reversal. Eventually, my order was filled at 1.0276. After what seemed like a long wait, the AUD-USD finally reached my objective, bringing 30 pips. Not too bad, given limited potential here.

In the last post, I discussed a possible Head and Shoulders on the 4H chart of the CAD-CHF. It is no longer possible; price action did not form the pattern. However, my sell order remains valid, for now at least. At the same time, also as covered before, the CAD-CHF tested the 0.9400 level again and pulled back. Now I am interested in buying it as well on a move above the resistance. I have buy order at 0.9410, and this trade, if it happens, has a 100 pips objective.

After falling to near the all time low, the GBP-JPY is trying to reverse. On a short-term chart, hourly, we can see a possible rounded bottom under construction. The pattern will not be confirmed until the price moves above the latest minor high at 118.25. With this in mind, I placed a buy order at 118.33, target a 100 pips run. This is just a (possible) short-term reversal, not necessarily the bottom for the main trend. In addition, if the GBP-JPY keeps moving sideways for much longer, even a minor reversal will become unlikely. Prolonged consolidation favors resumption of the previous trend, down in this example.

Mike K.