Separating the arts of analysis and trading in the FX market
Another pretty boring session faces us so its probably a good time to re-evaluate trading performance and try to improve. All of the big banks and hedge funds break analysis and trading into two separate departments. Certainly there are some top-class traders who can also be excellent analysts (mainly because of their ability to read market behaviour) but it doesn't work as well the other way around (some excellent analysts are the world's worst traders!).
Unfortunately us mere mortals in the retail space cannot afford the luxury of hiring help so we need to do both our own analysis and our own trading. The biggest mistake most traders make is that they concentrate too much of their efforts on the analysis part when its really the trading part which is most important.
Do your research, market, fundamental and/or technical, and settle on a trade with good risk-reward possibilities. Once done, leave the analysis behind and concentrate on trading.
Now pick your levels, set your stop-loss amount and get busy. Increase and decrease your risk as the market evolves and when you're feeling confident, have a dig. A good trader will make a lot of money by getting 40% of their trades correct. A bad trader will lose all of their money even if they get 70% of their trades correct. That should tell you where to concentrate your efforts.
AUD/USD: Looking to play .9550/.9725 range over coming sessions
- As mentioned below, barrier protection in AUD/JPY ahead of 95.00 is quite large;
- EUR/AUD bids near 1.4120/25 are also proving stubborn;
- Important technical resistance at .9715 in AUD/USD (see chart);
- The USD is still in a strong bear trend imho so buying big dips in AUD/USD is the obvious strategy;
- That said, the same people who were bearish below 90 cents are now turning bullish, usually a sign that the trend is fading;
Momentum and conviction is waning so look for some range trading sessions between .9550/.9725. I still think we are on the cusp of a major USD bear trend so buying deep dips is my medium-term play.
AUD/JPY: Still capped by barrier protection ahead of 95.00
Another very quiet night in the FX markets and we can brace ourselves for similar lack of movement here in Asia. The main interest will revolve around a reportedly big barrier at 95.00 in AUD/JPY but it will be otherwise very quiet.
Long GBP still my preferred play
I see no reason at the moment to get off the GBP bull train and any dips are buying opportunities in my very biased view.
- EUR/GBP: I know this pair is very slow to trade and getting timing right is vital in the short-term but I still think its worth being short for a 10% move lower in the coming months. I can't recommend day-trading this pair as its too slow, but leaving 'sell-rally' orders is a sensible play I think;
- GBP/JPY: This is one pair which has massive topside potential in the longer-run. Sure it could dip 300/500 pips in a couple of sessions and care is especially warranted given how volatile this pair can be but the patient long-term position builder could be in for a big bonanza here;
- Cable: Obviously the easier pair to day-trade and I'd simply adopt a buy-dip strategy, session after session, and I think this will continue to reap rewards;
- GBP/AUD: Might under-perform some of the other crosses in the shortish-term and I'd prefer to look elsewhere for my long GBP vehicle.
Very disappointingly quiet session today in Asia but tomorrow's a new day!
AUD/JPY: Significant defence of 95.00 barrier
One of the bigger Japanese banks has confirmed that a large barrier is in place at 95.00, just as we suspected.
Hard to gain insight from quiet Asian markets
- EUR/AUD short term support held firm at 1.4130 and we saw a brief blip before prices settled again;
- AUD/JPY is testing the 200-DMA at 94.70 and there are large-ish stops reported above 95.00;
Otherwise its been pretty hard to pick any trend or signals from this market. Asia still seems like it wants to buy USD/JPY but momentum is simply lacking in both directions.
AUD crosses sitting right on resistance levels
- AUD/USD technical target looming at .9720 (see chart);
- AUD/JPY has broken above recent highs at 94.40 but is stalling ahead of the 200-dma at 94.70;
- EUR/AUD is sitting right on short-term support levels at 1.4130 (see chart);
- Real-money funds still the main buyers in AUD/USD;
- USD sentiment remains very bearish and risk sentiment is moderately bullish, all good signs for the AUD/USD bulls.
As always, have a read around and see if the same analysts who were bearish on AUD/USD below .90 cents are now turning bullish at .97 cents. This is usually a good indicator of a short-term top. AUD/JPY looks interesting from a risk-reward perspective as long as the 200-DMA continues to cap.
I'm still in the buy-big-dip AUD/USD camp but based on the current set-up, I wouldn't be at all surprised if we get such a dip.
Very low turnover in early Monday morning trade
As you can see from the Reuters heat map, there is diddly-squat happening in the FX market this morning.
EUR/USD: Technical resistance at 1.3710
- Barrier at 1.3700 was breached on Friday;
- Technical resistance at 1.3710 (see chart) is next to watch and a break above will change short-term momentum;
- The medium to long-term outlook is for further range trading inside of a 20/25 big figure range;
- I remain bearish on the EUR crosses in the short-medium term, especially EUR/GBP;
- The bearish USD sentiment is likely to outweigh in the short term but watch for more focus on the EZ banking system as the year draws to a close.
Looks like 1.3655/1.3705 are the short-term levels to watch and a break either side will give this pair its next short-term bias.
USD/JPY: 97.50 looming as next important support point
- Falling US yields will add to the bearish pressure here;
- Reduced possibility of a tapering event by the Fed will improve risk sentiment and should benefit the Yen crosses;
- Long positioning amongst the big macro players remains at high levels;
- Short-term technical picture suggests that a clean break below 97.50 will open the way for a move to 96.50 at least and possibly 95.90 (see chart);
- Very short-term technical levels to watch are at 96.50/90;
- Trade data and a speech by BOJ Kuroda are the main events on the economic calendar.
Major pairs steady in early interbank trade
- Doesn't look like there were any big stop-loss orders close to the market as the majors are trading quietly near their closing levels from Friday;
- There were no big developments over the weekend and we can expect the market to stay in consolidation mode ahead of tomorrows US NFP;
- US yields continue to drift lower in expectation of a delayed or reduced 'taper' after the short government shut-down;
I expect this USD bearish sentiment to prevail in the medium term but we will need to watch the individual markets closely for short-term sentiment. Good luck this week.
EUR/USD: Sellers between 1.3680/1.3700 ahead of option barrier
- Technical resistance above there at 1.3710;
- EUR crosses currently showing mixed signals;
- EUR/GBP struggling to break above .8500, EUR/AUD trying to base near 1.4130 and EUR/JPY threatening to re-test trend highs near 134.95.
RBA Governor on newswires trying to talk down the AUD
Just like we thought he might, but the market doesn't have a lot of interest and the AUD/USD is trading quietly around .9620.
AUD/JPY is still trading just below important technical resistance at 94.45/65.
USD/JPY: Both components looking like funding currencies
- With tapering in the US looking less likely, the market has been ploughing back into 'risk-on' trades like the Yen crosses;
- But USD bearish sentiment after the debt-deal debacle is likely to outweigh Yen bearishness imho;
- One big Japanese bank was selling large amounts of USD every 10/15 pips on the way up towards 99.00;
- Hear-say still suggests that there are some very large macro USD/JPY positions out there which might get scared;
- Overall I prefer to play this pair from the short side but there are easier trades out there.
Cable: More gains look likely
- This is still my preferred vehicle for trading the bearish USD view and until the short-term trend shows signs of weakening, I'd stay firmly in the bull camp;
- EUR/GBP resistance at .8500 continues to hold;
- Real money funds were the main buyers reported overnight in cable;
- Strong base formed now near 1.5915 despite one marginal false break.
AUD/USD: Looking to trade .9550/.9715 in coming sessions
- USD bears in complete control again;
- Risk trades got a boost as 'tapering' liklihood reduced;
- Real money funds driving the USD selling;
- AUD/JPY resistance at 94.45/65 still relevant and increasingly important;
- AUD/NZD support still holding and EUR/AUD still in downtrend, but oversold;
- RBA Governor speaking publicly today and he may use the opportunity to try and talk the AUD down.
Buying dips is the preferred strategy as we aim at a 50% retracement level near .9715.
London get-together November 12th
I'll be over in Europe in early November and am planning to catch up with a few fellow bloggers in London on the evening of Tuesday November 12th.
If you're interested in catching up and putting a face to the words, please let me know in the comments section and I'll be in touch.
Real money sellers still driving USD lower
This move seems to have quite a bit of momentum behind it and it's real money funds who are doing the bulk of the selling, mainly against the GBP, EUR and the JPY.
Cable in particular looks very strong and if you're bearish, take the day off is my advice :)