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Tuesday, October 6, 2009

FX Daily Update - 10.6.09




Overall I have a general weak dollar thesis in mind. Some SMA action in the GBP questions mid term strength of the GBP direction. Soon I will re-balance my portfolio to incorporate some currency ETF's since I can't move my capital around too much until the beginning of next year.

I will consider trading ULE, YCL (yes I will start tracking the Yen once again!), BNZ (if i can't find a Aussie pair I like). I will have to look around for some GBP and AUD ETFs. For hedges I will consider UUP and UDN. Also, I will try to do some research on RYDEX products. If anyone has an opinion on these products let me know!

-Alex

5 comments:

  1. Another Monday… another U.S. dollar decline.

    Granted, the ISM report showed that the U.S. service sector is “growing.” And yes, Goldman Sachs gave bank stocks a lift. Yet it was further U.S. dollar devaluation that bolstered the extent of the market’s gains of 10/5/2009.

    Simply put, the U.S. dollar’s weakness demonstrates the enormous impact of the carry trade on market direction. By the same token, there is one country's markets which aren’t benefiting from the dollar’s woes… and that’s Japan.

    The Japanese yen is getting stronger… much stronger. On the surface, this helps Japan ETFs on U.S. exchanges, as investors here are picking up currency gains from the foreign stock exposure. However, Japan is entirely dependent on exports; a strong yen all but ensures trouble in selling products to other nations.

    Indeed, the world’s 2nd largest economy exibited far greater contraction in 2009 than any other developed country. Moreover, early projections for Japan GDP in 2010 are less robust than the U.S., Canada, France, Germany or Australia.

    Off the March lows, the yen has gained 10% on the greenback. If funds like CurrencyShares Yen Trust (FXY) continue to chart this path, Japan may find itself in a world of hurt.

    Yen Strength 2009

    One may wonder, is this really hurting Japan ETFs? Aren’t international investments doing well, clear across the board?

    Most of the Japan ETFs are struggling with marginal gains or negative year-to-date returns. You might not find more disheartening results than the negative numbers on iShares MSCI Japan (EWJ) (-0.21%), iShares Japan TOPIX 150 (ITF) (-0.75%), or PowerShares FTSE RAFI Japan (PJO) (-2.14%).

    And the concerns don’t end there. While the price on most ETFs are handily above short-term trendlines (i.e., 50-day moving average), the Japan ETFs mentioned above are all 4% below the line. it follows that if the newly elected government in Japan doesn’t find a way to stimulate export growth and/or lower the value of the yen, Japanese investment market woes may spread like a new strain of flu.

    EWJ Japan 2009

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  2. http://www.fxstreet.com/fundamental/interest-rates-table/

    I was referring to major pairs when I said "across the board"

    ReplyDelete
  3. "Simply put, the U.S. dollar’s weakness demonstrates the enormous impact of the carry trade on market direction." -

    I'm not sure I follow what you mean in the context you are talking about?

    Interest rate differentials are pretty much the same across the board except in AUD and NZD. Carry trade hasn't contributed to market direction in the currency area since pre crisis. Perhaps I misunderstand what you meant

    ReplyDelete
  4. The March Japanese Yen was higher due to short covering overnight as it consolidates some of this month's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near-term. If March extends this month's decline, October's low crossing at .10847 is the next downside target. Multiple closes above the 20-day moving average crossing at .11222 are needed to confirm that a short-term low has been posted. First resistance is the 10-day moving average crossing at .11070. Second resistance is the 20-day moving average crossing at .11222. First support is Wednesday's low crossing at .10888. Second support is October's low crossing at .10847.
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  5. CURRENCIES

    The March Dollar was lower due to profit taking overnight as it consolidates some of this month's rally. Stochastics and the RSI are overbought and are turning bearish hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 76.76 would confirm that a short-term top has been posted. If March extends this month's rally, the 38% retracement level of the 2008-2009-decline crossing at 79.72 is the next upside target. First resistance is Tuesday's high crossing at 78.77. Second resistance is the 38% retracement level of the 2008-
    2009-decline crossing at 79.72. First support is the 10-day moving average crossing at 77.78. Second support is the 20-day moving average crossing at 76.76.
    The March Euro was higher due to short covering overnight as it consolidates some of this month's decline. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short-
    term low might be in or is near. Closes above the 20-day moving average crossing at 146.555 are needed to confirm that a short-term low has been posted. If March extends this month's decline, the 38% retracement level of the 2008-2009-decline crossing at 140.976 is the next downside target. First resistance is the 10-day moving average crossing at 144.233. Second resistance is the 20-day moving average crossing at 146.555. First support is Tuesday's low crossing at 142.150. Second support is the 38% retracement level of the 2008-2009-decline crossing at 140.976.
    The March British Pound was higher due to short covering overnight as it consolidates some of this month's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that additional weakness is possible near-term. If March extends this month's decline, October's low crossing at 1.5718 is the next downside target. Closes above the 20-day moving average crossing at 1.6278 would confirm that a short-term low has been posted. First resistance is the 10-day moving average crossing at 1.6127. Second resistance is the 20-day moving average crossing at 1.6278. First support is Tuesday's low crossing at 1.5912. Second support is October's low crossing at 1.5718.
    The March Swiss Franc was higher overnight and trading above the 10-day moving average crossing at .9617 signaling that a short-term low has likely been posted. Stochastics and the RSI are oversold and are turning neutral to bullish signaling that sideways to higher prices are possible near-term. Closes above the 20-day moving average crossing at .9747 are needed to confirm that a low has been posted. If March extends this month's decline, the 38% retracement level of the 2008-
    2009-decline crossing at .9399 is the next downside target. First resistance is the overnight high crossing at .9679. Second resistance is the 20-day moving average crossing at .9747. First support is last Thursday's low crossing at .9522. Second support is the 38% retracement level of the 2008-
    2009-decline crossing at .9399.
    The March Canadian Dollar was higher due to short covering overnight while extending the trading range of the past eight weeks. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near-term. Closes above the reaction high crossing at 96.08 or below the reaction low crossing at 93.05 are needed to confirm a breakout of the aforementioned trading range. First resistance is the overnight high crossing at 95.70. Second resistance is the reaction high crossing at 96.08. First support is the 20-day moving average crossing at .9459. Second support is the reaction low crossing at 93.03.

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