NZD – Double Top at .7400?

NZD – Double Top at .7400?

Chart Of The Day

The kiwi has been a stealth rally since the start of the year but it may be finding tough resistance at the .7400 level. Last night the pair was pushed to a high of .7376 on the back of hotter than expected inflation data, but the days’ reversal should make bulls cautious ahead of the RBNZ announcement tomorrow.

The RBNZ is expected to keep rates on hold, but the market will look for any signs the central bank may be willing to cut rates further. Although inflation is picking up, the recent labor data was disappointing with wage growth particularly weak. On the other hand, the latest Dairy auction saw prices rise suggesting that demand for country’s principal export remains strong.

If the RBNZ is relatively sanguine, the kiwi could make another foray to the .7400 figure, but any move above that level would require further weakness in the buck.

Cable Double Top?

Cable Double Top?

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Cable saw a sharp reversal today after BOE Chief Mark Carney stated that the central bank will likely ignore any budding inflation and will keep the policy accomodative for the foreseeable future.

After several weeks of strong performance, cable is showing clear signs of relative weakness as traders are beginning to become concerned that the UK economy may have peaked. Tomorrow’s UK PMI Services will provide a clear clue as to the state of the UK economy. The market is looking for a small dip lower, but if the drop is more severe the pair could easily give up the 1.2500 figure and may even test 1.2400 if US NFPs print above 200K.

Double Bottom for Cable?

Double Bottom for Cable?

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The woes of Brexit are well known. UK is in danger of precipitating a “hard” Brexit which would result in its expulsion from the single European market. Yet despite the fears of experts, the economic knock-on effects have yet to materialize. This week the UK economy showed its resilience by posting better than expected data in all three PMI reports. This suggests that UK economy may be stronger than the market thought and that the latest GDP figures could come in at 17-month highs.

Technically the pair has tested the 1.2200 level twice and today’s move back through the 1.2400 figure indicates that the double bottom is in. With 1.2500 now squarely in-view cable may be ready for a short squeeze as late shorts begin to scramble and cover. Topside the pair has no resistance until 1.2700 so there is plenty of scope for upside

AUD/JPY – Will Double Bottom Hold?

AUD/JPY – Will Double Bottom Hold?

Chart Of The Day

Its been a few weeks since we checked in with AUD/JPY and the pair is once again testing the double bottom at the 78.00 figure. The recent reversal in USD/JPY has really taken the toll on the cross but the failure of Aussie to break out above the .7300 figure has also hurt the longs.

Tomorrow is setting up as a seminal day for the pair with NFP looming large on the market. A weak number would once again put in doubt the prospect of a June or July hike and could send USD/JPY below its range lows at 108.00 which would drag AUD/JPY below 78.00. The Aussie itself is unlikely to rally much under those conditions as weak US data would actually increase the odds of an RBA rate cut before the summer’s end.

Only a very strong NFP data point could reverse the recent flows and create a V-shaped rebound that could take the pair back towards the 80.00 handle. Barring that turn of events the momentum in the pair is clearly down and the prospect of a break below range support remains high.

AUD/JPY – Double Bottom?

AUD/JPY – Double Bottom?

Chart Of The Day

Both Aussie and USD/JPY may have bottomed out for the time being which could set up for a rally in AUD/JPY off its recent test of support at 79.00 level. In Australia the RBA appears to be content with staying stationary after cutting rates 25bp at the last meeting. Most market participants do not anticipate any further rate cuts until August at earliest which should provide support for the pair until then. If tomorrow’s AU employment data proves positive that will only add to the AUD bullish view and should keep the pair well anchored at these levels.

Meanwhile USD/JPY has found clear support at the 108.00 level and with both spending and inflation data in US beating forecasts the buck should get some love in the next few days. Add to that the fact that most of the FOMC members continues to suggest that June will be a live meeting and the prospect of USD/JPY above 110 could be very real.

All of this creates the foundation for a rally in AUD/JPY over the next several days that cpuld take the pair towards 81-82.00 region before finding fresh resistance.

How To Double Your Money with Reasonable Risk

Boris Schlossberg

First things first. If you haven’t been able to make 1% per month for at least 6 months running on no leverage then your prospect of doubling your money is slim to none. In order to really “gun it” in FX you need to have well designed day trading system that has stood the test of time under real market conditions.

But if you can upload your results to myfxbook and can show to yourself that you managed to eke out 1% a month for 6 months or more then you have a chance to take your trading to the next level. But not before you do, you need accept a very important fact. In your quest to double your money you must be fully prepared to lose 50% as part of the process. That’s simply the basic math of trading. The best traders in the world have a runup to drawdown ratio of 2 to 1 so that if you realistically look to make 100% on you money then you have to prepare to lose 50% in the pursuit of that target. In short doubling your money is a strategy to employ only with high risk capital, but since many of us in FX are comfortable with such risks here is a couple of ways to make it happen.

Theoretically it may be possible to achieve these results via swing trading, but since I focus squarely on day trading let’s just use that approach in our discussion. Day trading first, foremost and always means small profits and short stops. It’s all about controlling risk, which is why if you haven’t been able to prove to yourself that you can consistently cut your losses you will never be able to double your money. If you managed to produce 1% per month on a non levered basis (meaning that every trade you make is no greater than the value of your account i.e. a 10,000 unit trade in a 10,000 USD account) then the path towards 100% is relatively straightforward. You simply increase your lever factor to 10:1 and if you can replicate your prior success then you will achieve 10%/month or more 100% per year.

Of course that’s easier said than done. First and foremost such high leverage approach should be done in what I call one shot/one kill manner. Ideally you should trade only one currency pair, no more than two times per day with a single entry/single exit approach. Let’s say you make 20 trades per month and each trade has a -20 pip stop and a +10 pip target and 80% win factor. Basically every time you trade in this manner you risk 2% loss to win 1% and if you are successful 8 out of 10 times at the end of the month you made 8% which will get you very close to doubling your money by the end of the year. If you were even more aggressive you could increase the lever factor to 15:1 risking 3% on each trade with 1.5% payoff on each win for a target of making 12% a month. But that would be the absolute maximum level of prudent leverage. At 3% risk per trade you would be down by 15% after 5 consecutive losers -- something that can easily occur several times a year even in the highest probability strategies.

If you simply can’t trade in the one shot/one kill manner, if you have to approach each trade in a more probabilistic fashion doing multiple entries in order to achieve a better price for an exit (what I facetiously call the “spray and pray” method) then you have to use a very different leverage scheme. Suppose you use a system that averages into a trade a maximum of three times. Under such conditions you really can’t level more than 1:1 on each trade. That’s because your total lever factor on each full position is actually 3:1 and your total risk reward becomes much more negatively skewed. In the same -20 Stop +10 Target structure with a 3 point entry at 5 pip interval your loss is always a max loss of -45 pips while the gains vary between +10 and +15 pips creating a risk reward skew that is 3:1 rather than the 2:1 of the single entry/exit method. Still some traders swear by the “spray and pray” approach, but if they want to use it to double their money they have to be extra vigilant about leverage and stops.

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In the end like all things trading the goal of doubling your money is simple but not easy. First and foremost you need to develop a strategy on low leverage that actually proves its mettle under real market conditions. Then you can ramp up the lever factor in a judicious fashion and make a play for the 100% return but you must always take your stops and be willing to lose 50% of your account in the process.

EURAUD – Double Bottom in Place?

EURAUD – Double Bottom in Place?

Chart Of The Day

For the past few weeks the commodity rally helped to fuel a one way move in Aussie that has taken even the staunchest bulls by surprise. But with oil, gold and iron ore prices starting to peter out the Aussie rally may be finally running out of gas.

As the assent of the pair has slowed it’s gains against other majors have slowed as well. A good case in point is EUR/AUD which looks like its starting to put in a double bottom at the key 1.4500 level. Although there is little on the horizon to propel euro higher, the gains in the cross could come just from the correction on the Aussie itself.

The holiday calendar is barren next week, but if the macro factors continue to dominate trade and unwind some of the recent gains of the past few weeks, EUR/AUD could be well on its way to 1.5000 before the month’s end.

EUR/AUD – Double Top Breakdown

EUR/AUD – Double Top Breakdown

Chart Of The Day

EUR/AUD – Double Top Breakdown

One of the worst performing currencies today was EUR/AUD. Between the decline in the euro and the surge in the Australian dollar, the pair dropped to its lowest level in 2 months. Australian economic data has been very good and the RBA appears unconcerned about the problems in the economy. In contrast, ECB officials have taken every opportunity to signal plans to ease monetary policy. While there are a few more pieces of Australian data scheduled for release this week, we believe that the “next move” for EUR/AUD will be driven by the euro and not the Australian dollar. Either way, EUR/AUD appears prime for a test of 1.4800 and likely a move to 1.4600. More easing by the ECB will only make Australia’s 2% yield more attractive.

Technically today’s move represents a clear break of the double top formation in EUR/AUD. The currency pair has fallen hard in the past 24 hours, breaking below the 200-day SMA. There is no support in the pair until 1.48 and if that is broken then 1.46. A move back above 1.5250 would be needed to negate the downtrend.

USD/JPY – Double Bottom in Place?

USD/JPY – Double Bottom in Place?

Chart Of The Day

USD/JPY has staged a furious rally off yesterday’s lows popping nearly 200 points as it broke the 113.00 barrier in late NY session trade. The return of risk on has helped the pair move higher as it appears to have successfully tested the recent lows and put in a double bottom.

Tomorrow the market will get a slew of US data that could determine if this indeed the near term bottom or simply a pause on the way to a ultimate test of 110.00. With US GDP, PCE and Personal Income and spending data all due at 8:30 NY time the market will get a good idea about the health of the US economy. If growth remains relatively robust sentiment could really start to shift and USD/JPY could push towards key resistance at 114.00

NZD/USD – Double Top or Breakout?

NZD/USD – Double Top or Breakout?

Chart Of The Day

NZD/USD -- Double Top or Breakout?

NZD/USD is at a crossroads today with the latest rally taking the currency pair within 20 pips of its October high. This level is significant not only because the currency pair peaked at that point in October but also because it coincides with the 50% Fibonacci retracement of the 2009 to 2011 rally. While today’s move has taken NZD/USD above its 200-day SMA for the first time since August 2014, it is absolutely essentially that we see the currency pair end a day at least 50 pips above the October high of 0.6897. If that occurs then it will be an easy move to 70 cents followed by a run to 0.7340 if the former level is broken.

With most of the market in holiday mode, today’s move was driven by a recovery in commodity prices and reports that China could increase its budget deficit in the coming year which would mean more stimulus and more support for their economy. We are looking for the New Zealand dollar to outperform in the first few weeks of the New Year which means we are looking for fresh 5 month highs. However the low liquidity break of the 200-day SMA still needs to be proven real

Has EUR/AUD Double Topped?

Has EUR/AUD Double Topped?

Chart Of The Day

In a race to the bottom the Aussie has been leading the euro over the summer as the massive collapse in commodity prices and the slowdown in Chinese economy trumped all the bad news of Greek bailout and the anemic economic growth in the EZ. In others words while the euro slid lower, the Aussie actually collapsed hitting multi year lows as it broke the 7300 level.

The net result is that EUR/AUD actually managed to stage a massive rally as the euro outperformed on a relative basis. Now however the odds may have turned as the Aussie appears to be making a near term bottom despite the trouble in Asia while euro struggles to trade above the 1.1200 level. One reason is that the market is convinced that the RBA will not cut rates any further until possibly 2016. That would preserve the interest rate differential towards the Aussie a provide new buying opportunities for carry traders.

On Monday night the market will get a glimpse of the RBA minutes and if they confirm that the RBA intends to remain stationary for the foreseeable future then the Aussie could rally further and confirm that the 1.5250 area is a double top

EUR/USD Double Top

EUR/USD Double Top

Chart Of The Day

EUR/USD Double Top

We have been trading and writing about the double top in the EUR/USD for days, so here’s an updated chart. In the past month, the currency pair broke above 1.10 on six separate occasions and each time it failed to close above that level. There are now two rounded double tops right above that level. Now that the currency pair is below 1.08, the next near term support is at the March 31st low of 1.0713 and if that level is broken, the next stop should be 1.05.

Fundamentally, the weakness in EUR/USD has been driven primarily by dollar strength but this morning’s Eurozone economic reports also didn’t help. German factory orders missed expectations for the second month in a row, falling -0.9% after dropping -2.6% in February. While this data contradicts with some of the stronger reports released by the region’s largest economy, it also highlights the area’s vulnerability. Business sentiment and activity in Germany is only beginning to turn positive and we firmly believe that as long as the euro remains weak, Quantitative Easing will work its way through the economy and provide the basis for a stronger recovery. However the euro needs to remain weak and QE should do the trick. Eurozone retail sales also turned negative, falling 0.2% in February. This decline should not be a surprise because consumer spending in Germany and France was very weak. German industrial production and trade numbers are scheduled for release tomorrow and given the softer factory orders report, the odds favor a downside surprise. News flow out of the Eurogroup meeting could have a larger impact on the euro than data. So far, EU officials are saying that progress is being made but when it comes to Greece, the talks could go sour at anytime.