Commodity currencies slipped lower against the US Dollar as stock European stock markets fell as much as 2% on news that troubled UK financial giant Lloyds Banking Group Plc failed to announce an agreement on a government-backed asset insurance program. Our DailyFX analysts reveal their preferred strategies for the commodity bloc into the end of the trading week including potential breakouts in the New Zealand Dollar and the Canadian Dollar.
My picks: Short CAD/JPY
Expertise: Global Macro
Average Time Frame of Trades: 1 week
Friday, is always an interesting day of the week to trade, since many traders are predisposed to close their open positions ahead of the weekend. In fact, I expect the stock market to sell-off today and I will try to short CAD/JPY with a limit order at 0.78 for 100 pips in profit potential. To protect my account capital and if the limit order gets triggered I'll use a stop-order in a daily close above 0.79. I can't deny that over the past two weeks, higher yielding currencies like the Australian dollar and export-dependent currencies like the Canadian dollar have been outperforming lower yielding safe-haven currencies like the Japanese yen. However, I don't think these exchange rate moves have been driven by genuine economic fundamentals. Instead, after more than 12 months of gains, investors that betted on a global economic slowdown have been taking profits. So, once this wave of profit-taking goes away, the next big move in currencies will probably be driven by more deleveraging in the financial sector and I expect a rally in safe-haven currencies like the Japanese yen.
Senior Currency Strategist
My picks: stay short USDCAD, move risk to 1.2350, target remains above 1.3025
Average Time Frame of Trades:
I've been sitting long the USDCAD for a few weeks now, waiting for the break above 1.3025. Once (if) 1.3025 is broken, the trend is expected to accelerate and potentially test 1.40 within a number of weeks. Risk at this point can be moved to 1.2350 (Monday's low). With the entry from a few weeks ago, the stop on this trade should be close to breakeven. Now, the stand has been taken so let's sit back and see what happens.
long EURUSD: against 1.25, targets 1.33 and 1.37
long USDCAD: against 1.2350, target above 1.3025
My picks: AUDUSD Long
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
There are a lot of opportunities amongst the commodity currencies. Mostly the Aussie, kiwi and loonie dollars are presenting attractive ranges; but this comes hand-in-hand with the potential for broad breakouts (through we would need quite the sweeping catalyst to produce a move across the very different pairings). Last week, my com bloc pick was a play on the gentle, ascending wedge in AUDUSD. With an entry close to the support leg of this formation, it would hit its first target relatively quickly and the second would be cut at break even just this morning with the sharp advance in the US dollar. Taking a critical look at this pair after it has completed a relatively successful outlay, I think it still has some of the greatest technical and fundamental potential across the spectrum. Looking ahead to the potential for next week's scheduled and unscheduled event risk; there is a high probability of volatility - and consequently a considerable change for an unfavorable breakout. However, this is a risk I'm willing to take. This pair has direct ties into risk trends as the Australian dollar supports one of the highest benchmark lending rates amongst the G10 and an economy that has proven to be surprisingly resilient to the global downturn. At the same time, we have seen that the US dollar has shown a distinct correlation to both a rise in risk appetite and risk aversion. This is a stabilizing trait that may be vital next week. From the economic docket, we have two specific indicators to be concened with. A cut from the RBA can once again shift the appeal of the Aussie dollar as a high yield currency and magnate for speculative funds. This is juxtaposed by next US Friday's NFPs. Essentially, these readings could offset each other; but since they come out at opposite ends of the week, they will more likely just stoke volatility.
As for the technicals and position itself, the setup is much the same as it was last week. A gentle rising trend from the Oct 27th swing low is carrying lows higher; and now there is additional support in a horizontal level around 0.6340. With an entry as close to the aforementioned floor as possible, we can set a stop below 0.6240 without prompting too much worry of loss (if that is a teetch grinding level, position size shoudl be reduced). Looking well above, we see a notable double top at 0.7275 where major resistance can be reliably pegged. However, there will no doubt be many lesser levels of resistance along the way should we see a rally. Targets set below the internal 0.6550 and 0.6850 levels of resistance are more reasonable than holding out for a move all the way back to the top of the ascending wedge formation (not to mention that could take considerable time).
My picks: Sell NZD/USD on Break Below 0.5000
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 Day - 1 Week
NZD/USD has thus far managed to be able to hold above key support at 0.5000, which is important not only from a psychological perspective, but there are also historical highs there (6/2002) as well as trendline support connecting the 2000-2001 lows. Where the pair goes will hinge mostly upon risk trends, but also whether or not the US dollar index breaks above its 2008 highs. Overall, I'm looking to sell NZD/USD on a break below 0.5000, but potential entry points should be below the February 2 low of 0.4961. As far as targets go, I'd ultimately look for a drop to 0.4500, as this pair tends to move in 500 pip increments. Stops should be placed according to preferred risk/reward levels.
My picks: Sell rallies in the AUD/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
I believe the Australian Dollar will continue on its overall downward trajectory, but I don't necessarily believe selling is a good idea at the moment. The currency has fallen substantially in the past several days, and though I consider myself a momentum trader, I think selling at this point offers pretty poor risk/reward. As such, I will be looking to sell big rallies in the pair in the weeks ahead. The combination of an outright rout in industrial commodity prices and a clear-as-day bear market in global equities leaves outlook for the risk-sensitive Australian Dollar very bearish. I will be on the lookout for good entry prices through the immediate future.
My picks: Short NZDUSD (pending)
Expertise: Global Macro, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
NZDUSD is wedged between support at 0.5035 near the previous swing low and the upper boundary of a bearish channel that has contained prices since December. A bearish Inverted Hammer candlestick has been followed by a Doji as prices increasingly run out of room to continue moving sideways. A breakout looks imminent, with the convincingly bearish bias of the overall trend favoring a short position. Look for a daily close below 0.5035 on the current candle and position to sell NZDUSD, initially targeting multiyear support/resistance at 0.4790.
My picks:Short USD/CAD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
Last week I was right to be worried about Bollinger band resistance ahead of my long USD/CAD pick s the technical level would send the pair lower to the 20-Day SMA before it ultimately bounced higher. Today we are seeing it approach Bollinger band resistance again at 1.2720. Therefore, I am looking to go short to see if I can catch a retrace after the recent rally. Very weak US GDP numbers has taken the steam out of the dollar and we could see another test of the 20-Day SMA at1.2444.
My picks: Stay Short NZD/USD - Sell Rallies
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2- 10 Days
Deteriorating fundamentals paired with expectations for a 75bp rate cut by the RBNZ continues to favor a bearish forecast for the New Zealand dollar, and as investors continue to curb their appetite for risky assets, I expect the exchange rate to push lower over the near-term. The kiwi-dollar fell to an intraday low of 0.5007 during the overnight session, and I expect the pair to retest the 2/2 low of 0.4961 over the following week as risk trends continue to drive price action in the currency market.
Joel S. Kruger
My picks: Long USD/CAD @1.2620 for Open Objective, Stop @1.2345
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
There has been an ongoing contraction in volatility to the point where we have reached the apex of a very prominent triangle that has defined trade since late October. Falling triangle resistance now comes in the 1.2650 area and we will be looking for a daily close above the latter to confirm a breakout which will trigger a fresh upside extension exposing a direct retest of the 1.3020 October 28 trend highs. Ultimately, the upside break should project gains back towards 1.4005 (2004 Highs) over the coming months (measured move objective based off of widest point of triangle). Broader market price action has been USD supportive into the end of the week and this could help to finally trigger a breakout in the pair. We have established a long position on the break to fresh weekly highs this morning. Stops to be trailed to cost on a break above 1.2675. Position to be closed out at end of day if 1.2675 not broken.
Fundamental Catalyst - Data out of Canada has been coming in on the softer side with the economy still showing signs of significant deterioration in the face of the global meltdown. In recent weeks, we have seen disturbing unemployment numbers, the first trade deficit since 1976, and doubly worse than expected retail sales data showing the biggest monthly decline since 1991, all clearly reflecting the dire state of the domestic economy. As such, the Bank of Canada has been extremely accommodative to offset the cooling within the economy and is expected to continue to do so which should help to narrow yield differentials back in favor of the US. We do not expect this morning's data to offer any reprieve, with the more likely outcome, to open the door for more Cad selling (Usd/Cad buying).
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