USDJPY – 113.00 is Key Support

USDJPY – 113.00 is Key Support

Chart Of The Day

USDJPY has been under pressure for the past several weeks, having failed to take out the 115.00 figure on multiple occasions. Furthermore, the pair is failing at its key correlation with 10-year bonds not rallying when yields go up and falling when they decline. That’s a warning light for dollar bulls as a breakdown in correlation often presages a decline in price.

Tommorrow the market will get a look at two key data points -- CPI and US Retail Sales. Both numbers are expected to be worse than the month prior. However, if they actually miss their forecast and turn negative, USDJPY will likely test the key support at the 113.00 level and a break there could lead to a much sharper selloff towards 110.00 as investors will begin to fear that US growth may have peaked.

For now, USDJPY remains in a tenuous uptrend, but it must hold the 113.00 level otherwise it will have formed a very ugly quadruple top and may drift all the way to 110.00 by year-end.

The Hidden Trade that is the Key To Long Term Success

Boris Schlossberg

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Ask most traders what are the possible outcomes of a trade and they will inevitably give you a binary answer.

You either win or lose.

But if we think about it for a second, there is actually a third choice. You can neither win nor lose. In short, you can basically not lose and close the trade out for even. If we go over our many trades, there are countless examples of trades that may have started out badly only to rally to breakeven and then ultimately fall apart.

The art of NOT losing is perhaps the most underappreciated skill in day trading. It is, in fact, the foundational strategy of high probability businesses like insurance and casinos. Insurance companies are of course notorious for eliminating any possibility of large payouts. They are in the business of collecting premiums but the moment a client presents any type of collectible risk they move swiftly to cancel the policy. The insurance companies much like casinos will make sure to rig the rules so that customer has virtually no chance at collecting a payout.

So in Las Vegas, they will stop you from counting cards in blackjack and in Hartford they will make sure to exclude all coverage of any malady you may already have. Indeed, the current debate on pre-existing conditions in Trump-care is simply an attempt by insurance companies to collect as much premium as possible while providing the absolute minimum coverage necessary to satisfy the contract. Indeed, as my wife just pointed out to me under Trump-care pregnancy will be considered a pre-existing condition and could cost insurance buyers as much as $17,000 in out of pocket expenses even if the woman has full coverage.

Now we can all lament the evils of the insurance business, but it has a lot to teach us about trading. The more I trade the more I realize that there are really only two viable models of making money. The low frequency, high-profit model where your wins are very few but are massively larger than your losses and the high-frequency high probability model where the losses are very rare.

We are all familiar with the fact that throughout the whole history of the stock market all of the gains have come from only 20% of all publicly traded companies. Fully 80% of stocks are long term losers. And even amongst the 20% of winners, it is only a handful of equities that are responsible for almost all the stock market returns.

That’s why index investing is so hard to beat. When you buy the index you are essentially buying the whole lottery pot and betting that you will capture the few jackpots that will pay for all the losing tickets. Little wonder then that the hedge funds have been getting killed looking for the diamonds in the ruff amidst a pile of garbage.

But there are other actors in the market that actually play a very different game. HFT (High-Frequency Trading) funds have gotten a bad rap for being nothing more that digital “front runners”, but in reality, they employ a wide array of strategies almost all of them focused on mitigating risk. In fact, HFTs are the kings of the “not lose” trade as they break even on as much as 50% of their positions per day and yet make money almost every single day. Big firms like Virtu have lost money only on one day in six years.

If we are day-trading, the insurance model is the way to go and the “not lose” trade should be studied much more seriously. It is the hidden key to long-term trading success.

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USDJPY – 115.00 Still Key

USDJPY – 115.00 Still Key

Chart Of The Day

The Trump Trade in the dollar rests on the action on USDJPY and for that pair the 115.00 barrier is absolutely key. Although equities and yields have continued to rise the dollar has not kept up pace. In fact, the buck made it’s highs mid December and has been giving back gains ever since.

For the dollar rally to continue USD/JPY need to definitively break above the 115.00 figure and so far it has failed to do so on many occasions suggesting that the dollar rally may be carving out a massive top. Tomorrow’s US GDP data could either make or break the pair depending on how it prints. The market is expecting a steep decline to 2.1% from the 3.5% pace the quarter prior, but if the data surprises to the upside, the stubborn 115.00 ceiling c.ould crack and USD/JPY may be on its way to resuming its rally

GBPJPY – Nearing Key Resistance

GBPJPY – Nearing Key Resistance

Chart Of The Day

Over the past few week yen and yen crosses have been in a one-way move to the upside, culminating in today’s blow off rally that took USDJPY to 113.00. One of the key crosses to get the biggest benefit for the move has been GBPJPY which has rallied relentlessly for nearly 15 days straight.

But now that the pair is nearing the key 140.00 figure the upside momentum is likely to slow. The drop will probably come from the yen part of the cross as cable has shown good relative strength lately and with today’s announcement of large stimulus package in 2017 should continue to see UK economy grow at a healthy pace.

A pullback to first line of support at the 136.00 level may be possible, but that would just offer the bulls in the pair better value to enter the trade for ultimate push toward the 150.00 figure.

EUR/USD to Break on ECB, Key Levels to Watch

EUR/USD to Break on ECB, Key Levels to Watch

Chart Of The Day

EUR/USD to Break on ECB, Key Levels to Watch

The European Central Bank’s monetary policy announcement is the most important event risk on the calendar next week. While no immediate changes in monetary policy is expected, ECB President Draghi is expected to remind investors that inflation is low, the economy is weak and easier monetary policy may be needed. Consumer spending has been particularly soft, manufacturing and trade activity took a hit after Brexit and most importantly, inflation remains well below target with year over year core CPI growth slipping to 0.8% from 0.9% in August. Aside from the decision on rates and Draghi’s press conference, the central bank will also release its economic projections and if changes are made, they will likely be euro negative given the deterioration in manufacturing and inflation data over the past week.

Like many of the major currency pairs, EUR/USD went on a rollercoaster ride post NFPs but the currency pair ended the week below the 100 and 20-day moving averages which puts it on track for a move down to 1.1125, where we have the 50 and 200-day SMAs. If this support is broken and EUR/USD also breaches 1.11, 1.1050 will be next. If 1.1125 holds, EUR/USD could drift up to 1.1215 with the “breakout” of these moving averages determined the level of ECB dovishness.

CADJPY – Challenging Key Resistance Levels

CADJPY – Challenging Key Resistance Levels

Chart Of The Day

CADJPY – Challenging Key Resistance Levels

After last week’s strong gains, Yen pairs are due for a correction. They have run up too far too fast and with no major U.S. economic reports on the calendar, a correction is likely. We’ve decided to buy the Yen against the Canadian dollar because the overall strength of the U.S. dollar should keep oil prices under pressure. There are also no major Canadian economic reports until the end of the week.

Technically, there’s significant resistance above current levels. The 50-day SMA sits right above 82.00 and that coincides with the 23.6% Fibonacci retracement of the 2007 to 2009 decline. Beyond that is 61.8% Fib retracement of the 2009 to 2014 rally at 82.55. Support is at 80.

AUD/USD Failing at Key Technical Levels

AUD/USD Failing at Key Technical Levels

Chart Of The Day

AUD/USD Failing at Key Technical Levels

Beware of renewed losses in AUD/USD. The Australian dollar off this weekend’s softer industrial production and retail sales reports but it may not be able to ignore tonight’s dovish RBA minutes. When the Reserve Bank last met this month, they surprised the market with a quarter point rate cut that sent AUD to its lowest level in 5 weeks. The central bank’s frustration with the low level of inflation and subdued labor cost growth should make an appearance in the minutes but investors will be combing the report for hints on additional easing. However considering that the rate cut was not discounted by the market a generally dovish tone could be enough to drive AUD back to the day’s lows.

Technically, there’s major resistance above current levels -- the 50% Fib of this year’s rally sits at 0.7350, where we also have the 100-day SMA. The 50-week SMA is at 0.7300 and the 20-week SMA at 0.7330. If resistance at 0.7330 holds, we expect AUD/USD to make a run for support at today’s low of 0.7240, right under the 200-day SMA.

Key Levels in EURO

Key Levels in EURO

Chart Of The Day

Key Levels in EURO

Global equities sold off hard today with Europe leading the losses. The German DAX was down 3.3% while the Spanish IBEX fell 4.4%. Major losses were also seen in U.S. stocks with the S&P 500 falling more than 2%. While there was no specific catalyst for today’s moves, the bond markets tell an interesting story. According to the sharp rise in European peripheral yields and steep decline in Treasury rates, investors are extremely worried about the effectiveness of central bank policies. Ten year Treasury yields fell approximately 8bp while Spanish and Italian yields rose more than 10bp. But the big moves were in Portuguese and Greek yields which jumped 25bp and 61bp respectively. Greek stocks also dropped to their lowest level since 1990 on reports that the Greece bailout review stalled. This is the 5th year in a row that Greece is in the headlines and today’s focus on the debt-laden nation serves as a harsh reminder of Europe’s credit problems. If Greece fails to secure additional funding, investors can expect another round of headaches for the euro. Voter fatigue is becoming a serious problem and there may not be enough political will to provide additional support to Greece. In the near term however, we don’t think the ECB will be pleased with the spike in peripheral yields and the more than 5-cent rise in EUR/USD since their easing in December. The euro is only rallying because it is a deeply sold funding currency and we think it won’t be long before we hear renewed concerns from the central bank and talk of more easing.

After breaking out of a 7+ week long consolidation below 1.1050, EUR/USD has largely held onto its gains. However 1.1260, the 61.8% Fibonacci retracement of the October to December decline is a very important level that technical traders respected last week and we think it should hold. If it does, a move back to the 200-day SMA at 1.1050 is likely. If it doesn’t the next level o resistance is right above 1.1300.

EUR/USD – The 1.08 Level is Key

EUR/USD – The 1.08 Level is Key

Chart Of The Day

EUR/USD – The 1.08 Level is Key

Nearly all of the major currencies are trading lower versus the U.S. dollar today including the euro but an upward revision to Eurozone PMIs helped euro stave off deeper losses. EUR/USD traded as low as 1.0781 but bounced back above 1.08, an important support level as the selling eased. Tomorrow’s labor market report from Germany should also help the currency because according to the PMIs there was strong job growth in the manufacturing and service sectors. While fundamental forces still point to a weaker euro, strong U.S. data or weak Eurozone data is needed to push the pair significantly lower. On a day when AUD/USD is down 1.3%, EUR/USD is down a mere 0.25% and this goes to show how sensitive the market is to data. Monetary divergence signals a lower EUR/USD but unless data supports the move, investors will be skeptical of adding to this crowded trade.

Technically, we don’t think it’s a coincidence that EUR/USD is unable to break 1.08. This level has been support for the past month and today’s attempt to break below it backfired. Whats more important however is that EUR/USD is also above the 50-day SMA. We’ve been watching the pair trade between the 100/200-day SMA cross and the 50-day SMA for a few weeks now and we need to see a convincing close below today’s low for the EUR/USD to make a run for its December lows. Until then, a ounce back above 1.09 appears more likely.

EUR/CAD Key Levels

EUR/CAD Key Levels

Chart Of The Day

EUR/CAD Key Levels

This morning we issued a sell recommendation on EUR/CAD, providing only the fundamental basis for the trade. Technically however, the currency pair is trapped between its 100 and 200-day SMA. There’s a significant amount of resistance above last week’s high near 1.44, 1.45 and the 100-day SMA at 1.4540 capping gains. On the downside, this month’s decline stopped around the 38.2% Fibonacci retracement of the 2008 to 2012 decline at 1.4200. This means we will be looking to take profit above 1.4200 and reload again later to take advantage of the 1.44 and 1.42 range. If 1.42 is broken, EUR/CAD still has support near 1.4115, the 200-day SMA.

The Paris bombings are a terrible tragedy for France, Europe and humanity as a whole. Even prior to these attacks, the Eurozone was on shaky footing and given that France is the world’s #1 tourist destination, the impact on the economy will be significant. France could maintain a state of emergency for 3 months, discouraging travel and economic activity and tighter borders across the region could also affect how the rest of the Eurozone performs as well. As a result, these attacks increase the pressure on the ECB to ease, which should lead to further weakness in the euro. At the same time, the uncertainty and geopolitical risks is positive for oil and if some analysts are right in predicting that this will discourage the Fed from acting next month, oil should trade higher. These are the justifications for our short EUR/CAD trade.