NZD/CAD to Break 95 Cents

NZD/CAD to Break 95 Cents

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NZD/CAD to Break 95 Cents

NZD/CAD collapsed today after OPEC announced its first production cut in 8 years. According to OPEC sources, output will be reduced by 750k barrels to 32.5 million barrels a day. The cut won’t take place until November and a committee will be set up to determine the level of reduction for each member. Oil prices jumped more than 4.5% in response and the highly correlated Canadian dollar soared as a result. While we wouldn’t be surprised by some back peddling between now and November, this is a historic moment and one that should have a lasting impact on the Canadian dollar. We expect USD/CAD to drop to 1.3000 and even greater losses for NZD/CAD thanks to the RBNZ’s dovish bias.

The currency pair has broken below the 20-day SMA and the next stop should be 95 cents. We don’t see any significant support for the currency pair until the 50-day SMA at 0.9450. Any retracements should be limited to 96 cents and probably even capped at the 20-SMA at 0.9570

How Yogi Berra Taught Me to Win 95% of the Time

Boris Schlossberg

In my day trading room we try to hit 95% of our trades. We do this because I am firm believer in the insurance model of day trading (lots of small wins with a few large losses) rather than the lottery model of day trading (a few large wins and many small losses). Lotteries are for suckers while insurance companies are some of the best businesses in the world. I have discussed this subject many times in prior columns, but today I can across another reason why my model is working our chat room.

I was reading a summary of Brett Steenbarger book on Trading Psychology on Ivanhoff’s Capital webpage when I came across this tidbit

“A small win is a small mirror. It reflects a winning image to us. Accumulate enough small wins and that winning image starts to become familiar. We internalize that which we experience repeatedly. That’s one of the reasons positive emotional experience is important….People I’ve known who are particularly adaptive have made small wins a habit pattern. They undertake many new challenges and regularly define meaningful, doable goals. They set themselves up for success. Positivity becomes a habit, a lifestyle, making the whole issue of discipline moot.”

Without really appreciating its power, I hadn’t realized just how valuable the idea of frequent wins is to overall success of the trader. I have seen with my own eyes as more and more traders in my room start to put together profitable runs of days, weeks and even months. In the world of retail trading this an exceedingly rare occurrence and I don’t think it’s due only to efficacy of my strategy but rather to the fact that positive experience creates good habits that leads to better performance.

Which brings me to Yogi Berra. He died this week and it is true testament to the kind of man he was that his death managed to stand toe to toe in headlines with Pope Francis’s visit President Xi’s White House arrival. Berra was not just a great athlete but a great philosopher. His sometimes unintended witticisms are far more quotable than anything uttered by Jean Paul Sartre (and I would argue more insightful as well).

Berra is famous for saying, “You can observe a lot just by watching.” Which is a lesson that I live by every day. Whenever people ask me why I don’t back test my strategies I always think about that Yogi Berra quote and laugh. Markets like any man made social constructs are fluid and ever changing. Back testing data is like trying to figure out social habits of Millennials by studying the Victorians. It’s why every perfectly backtested system, whether it be done on your MT4 package or by Andrew Lo of MIT, always fails. Its why if want to succeed in day trading you watch what is happening now. As Mr. Berra used to say, “In theory there is no difference between theory and practice. In practice there is.”

Upon his death many analysts have re-examined Berra astounding athletic achievements. And as fivethirtyeight has pointed out what’s absolutely remarkable about Berra is that no one with his slugging percentage has struck out less. Berra only struck out 5% of the time and he was notorious for being a bad ball hitter. That means that instead of waiting for a perfect pitch he took what the pitchers threw and tried to make contact. And any time you make contact in baseball you have a chance to score.

This is perhaps Berra greatest legacy and his most valuable lesson to us as traders. Instead of looking for the perfect set up or the absolute best execution, we should try to figure out how to turn every trade into whatever win, scratch or small loss that we can. Berra collected 10 World Series titles by never trying to be perfect but by winning by any means necessary.

CAD/JPY – Return to 95

CAD/JPY – Return to 95

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CAD/JPY – Return to 95

We are looking for CAD/JPY to make a U-turn back to 95. There are 2 major events affecting the currency pair this week which Yellen’s testimony on the economy and monetary policy and the Bank of Canada rate decision. While the U.S. dollar traded higher after Yellen’s view that rates will rise in 2015, we believe that she will sound more noncommittal this week, downplaying the need for a September rate hike. If we are right, it should take the steam out of USD/JPY’s rally. At the same time, the recent decline in oil prices poses a risk for Canada’s economy and could even push the BoC to lower rates this week. Even if they forgo raising rates, they will most likely be bearish. There could also be a historic Iranian nuclear deal that would be bearish for the loonie because the deal would loosen the sanctions on Iranian oil production and exports in exchange for curbs on the nuclear program. As a result, we believe that CAD/JPY should be trading lower.

Technically, 97 is an important resistance level for CAD/JPY as it is the 50% Fibonacci retracement of the 2007 to 2008 decline. The currency pair is hovering not far from that level. If it breaks, there is still resistance at 98. On the downside, a move below 96 would take CAD/JPY back to 95.

NZD/CAD to 95 Cents

NZD/CAD to 95 Cents

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NZD/CAD to 95 Cents

NZD/CAD soared today after the Bank of Canada surprised the market with a 25bp rate cut that sent the Canadian dollar sharply lower. With oil prices falling another 30% since the December meeting, the central bank felt that they could no longer sit on the sidelines and hope that U.S. growth would pick up the slack. According to the BoC, “the magnitude of oil shock creates exceptional uncertainty” and in response, they lowered their 2015 and 2016 growth and inflation forecasts. Their decision to cut rates was a “one-time move” designed to “provide insurance” against lower growth but “if the world changes again, the Bank could take out more insurance.” The prospect of weaker economic reports and their dovish bias should translate into further weakness for the CAD. Meanwhile the fear that the Reserve Bank of New Zealand could respond in a similar way drove NZD sharply lower. However New Zealand does not share the same sensitivities to oil as Canada. Instead, dairy prices are on the rise, which will bode well for New Zealand’s economy. The sharp rise in the business PMI index reinforces our more positive outlook on New Zealand versus Canada and our bullish bias for NZD/CAD.

Technically, NZD/CAD pulled back from its highs and we think this is a great value level for the currency pair. There is support at 92 cents and no major resistance until the June and July highs near 0.9450/0.9475.

Will NZD/JPY Hit 95?

Will NZD/JPY Hit 95?

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Fundamentals

Thanks to the spectacular rally in USD/JPY and the market’s demand for carry, NZD/JPY rose to its strongest level since 2007. Over the past 2 weeks, the currency pair soared approximately 700 pips from below 85 to above 92. While part of the move was driven by the market’s demand for U.S. dollars, a larger part of the gains were fueled by JPY weakness. The Bank of Japan’s surprise decision to ease monetary policy earlier this month kicked off the selling that was later exacerbated by the Global Pension Investment Fund’s diversification out of JGBs and talk of a delaying the next sales tax hike. Whether or not Prime Minister Abe will postpone the rise in taxes hinges on Sunday’s Q3 GDP report. If growth falls short of expectations, it will certainly fuel expectations for a later hike, driving stronger gains in the Nikkei and in turn NZD/JPY. The New Zealand dollar will also be impacted by the upcoming PMI services and Q3 retail sales report scheduled for release on the same day. Given the improvement in manufacturing activity and rise in confidence, we are looking at the possibility of an upward surprise. If both reports, come out as we expect, NZD/JPY could be on its way to 95.

Technicals

Taking a look at the monthly chart of NZD/JPY, there is no major resistance in the currency pair until 95. However if currency pair drops below 90, the losses could accelerate towards 88.

AUD/JPY Recovery Limited to 95?

AUD/JPY Recovery Limited to 95?

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Fundamentals

For the past 5 trading days, AUD/JPY has been slowly creeping higher but if gold prices, which declined 2% today continue to fall, it may be difficult for the currency pair to sustain its gains. In fact, the recovery in AUD/JPY could be limited to 95 if gold prices do not rebound. Over the past month, we have seen signs of new strains on Australia’s economy and based on the trend of recent economic reports the odds favor a decline in leading indicators for the month of April. Don’t expect the currency pair to receive much support from USD/JPY. The recent price action of currencies, equities and Treasuries suggests that investors appear to be betting that the Federal Reserve will be wrong in that interest rates will not rise as quickly as they anticipate. While the central bank has not specified exactly when the first rate hike will be, according to their official forecasts, the main interest rate is expected to reach 1% by the end of 2015. In no way is this an aggressive forecast but investors believe the central bank will be even more cautious as Quantitative Easing draws to close. The market is pricing in only about 50bp of tightening by the end of next year, which explains why even with today’s mild dollar rally, the greenback’s gains have been limited. In fact, bond investors were not impressed by the surprise increase in durable goods, rise in house prices, acceleration in service sector activity or the improvement in consumer confidence as prices increased and yields continued to fall. A lot of U.S. data was released today and their positive reads were encouraging but ultimately, the impact of the markets will be limited because they won’t make the central bank any more eager to increase interest rates.

Technicals

Taking a look at the daily chart of AUD/JPY, the currency pair has risen out of the sell zone according to our Double Bollinger Bands. While this signals a potential turn in the currency pair, there is stiff resistance below 95.25. If AUD/JPY drops back below 94, the currency pair could take a stab at its 1 month low near 93.

AUD/JPY Breaks 95, Moves into Downtrend

AUD/JPY Breaks 95, Moves into Downtrend

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Fundamentals

Between the sell-off in the Australian dollar this week and the rally in the Japanese Yen, AUD/JPY has broken below 95, a key support level for the pair. AUD took hit from lower consumer prices will the JPY benefitted from risk aversion and weakness in the U.S. dollar. It is no secret that the Yen crosses oftentimes take their cue from the majors and in the case of AUD/JPY the slide in U.S. Treasury yields drove USD/JPY and hence AUD/JPY lower. The dollar is in play in the week ahead with first quarter GDP numbers, a FOMC rate decision and non-farm payrolls scheduled for release. However no surprises are expected and there’s very little reason for the central bank to accelerate or slow the unwinding of Quantitative Easing meaning that the chance of a surprise is slim. As a result, Treasury yields could continue their downward course even if the central bank reduces monthly bond buying, which would add pressure on AUD/JPY. At the same time, if Russia decides to embark on a full military invasion of Eastern Ukraine, we could see a deep sell-off in all the Yen crosses. We don’t expect much upside momentum in the Australian dollar with only manufacturing PMI and producer prices scheduled for release.

Technicals

On a technical basis, the break below 95 has taken AUD/JPY into the sell zone according to our Double Bollinger Bands. This has been a key support level for the currency pair for the past month and now that it is broken, there’s no support until 94.00. Near term resistance is at 95.33. If AUD/JPY breaks above this level, then there is a chance for the currency pair to rise back to its April high of 96.50.

Will AUD/JPY Break 95?

Will AUD/JPY Break 95?

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Fundamentals

Tonight is a big night for the Australian dollar and by extension AUD/JPY. USD/JPY has been under significant selling pressure this week but the strength of the Australian dollar prevented a deep slide in the AUD/JPY cross. That could change tonight if Australia’s employment report surprises to the downside. Economists are looking for a significant slowdown in job growth after February’s strong release and based on the drop in employment component of the PMI reports, we agree that the labor market weakened in the month of March. Chinese trade numbers are also scheduled for release and a significant improvement is expected in trade activity but if China fails to deliver it could also accelerate the losses in AUD/JPY and take the currency pair comfortably below 95. Of course, should the data surprise to the upside, AUD would extend its gains, leaving 95 as a near term bottom for the pair.

Technicals

Taking a look at the daily chart of AUD/JPY, 95 is clearly a significant short term support level for the pair. However if this level is broken, 94.25 becomes the more significant level because this was a former resistance point. Resistance on the other hand is at the April high of 96.50.