FOMC Day Forex Daily Technicals 08.21.13

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Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
– All of $ that was parked in Switzerland and U.K. for safety and now its coming back
– Strong German data means IMF and others could be underestimating EZ growth
– ECB begins taking back liquidity with LTRO repayments

AUD
– Sharp move lower not warranted
– Chinese data consistently surprising to upside
– RBA will leave rates on hold

I dislike

GBP
– Triple Dip Recession Risks
– Investors and central banks dumping GBP
– Talk of EU Referendum weighing on currency

JPY
– BoJ Easing, need I say more?
– Yen weakness not helping trade much give territorial dispute with China
– Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
– Incoming BoJ Gov in April could speed up open ended asset purchases

FOMC Voters 2013 Dove Hawk Scale

Federal Reserve FOMC FOMC Dove Hawk Scale Kathy Lien

The Federal Reserve’s Open Market Committee changes every year and for 2013 in particular, the new makeup of the FOMC will be extremely important because this group will decide whether asset purchases should end in 2013. Gone are Lacker (the most hawkish member of the FOMC), Pianalto (a dove), Williams and Lockhart. Three doves and one hawk will be replaced with two uber doves (Evans and Rosengren), one moderate hawk (George) and one unknown (Bullard). What this implies is that the new voting members of the FOMC may not be as eager to phase out asset purchases this year as the prior committee.

Here is the updated FOMC Voters Dove Hawk Scale for 2013

These new members will have their first opportunity to vote on monetary policy at the January 25th FOMC meeting and here’s where they stand:

Openly Dovish
Chicago Fed President Charles Evans
Boston Fed President Eric Rosengren
NY Fed President William Dudley
Vice Chair Janet Yellen

Moderately Dovish

Fed Board Member Jeremy Stein
Fed Board Member Sarah Raskin
Fed Board Member Daniel Tarullo

Slight Lean towards Dovishness

Fed Chairman Ben Bernanke
Fed Board Member Elizabeth Duke
Fed Board Member Jerome Powell

Slightly Hawkish
Kansas City Fed President Esther George
St. Louis Fed President Bullard

Details on EURJPY CNBC Trade Call

eurjpy cnbc Kathy Lien

My trade of week on CNBC’s Money in Motion on Friday was to sell EUR/JPY. It was a jam-packed show and my window to talk about the trade was short. Therefore I want to take this opportunity to explain in further detail why I really like this trade, particularly since its finally rebounding and could potentially trigger an entry.

On the show, I said trading EUR weakness through EUR/JPY is the best of both worlds because we can take advantage of

1) Lower EUR for European Weakness
2) Stronger JPY for risk aversion, weaker global growth, and softer Chinese data

The great thing about trading EUR/JPY is that it benefits from a sell-off in the EUR/USD or a sell-off USD/JPY so if this week’s FOMC minutes confirm that QE3 is still on the table, it will also help our trade.

If you know me, then you know that when I identify trades, I always look at it from 3 perspectives:

1. Fundamentals
2. Technicals
3. Sentiment

1. Fundamentals

a. Spanish bond yields back on the rise and I don’t expect much from Monday’s EZ Fin Min meeting, which should be bearish for EUR
b. Renewed expectations for QE3 should weigh on the U.S. dollar with the FOMC minutes as a potential catalyst for driving USD/JPY lower
c. If this week’s Chinese data surprises to the downside it could set off a wave of risk aversion that will drive the JPY higher

2. Technicals

a. EUR/JPY Broke 1 month low which opens the door to a move down to 97 and possibly even a move below 96 (as Todd Gordon pointed out). As you can see in the chart below, EUR/JPY is in a “downtrend” according to my Double Bollinger Bands. While 97 is my target, theres no real support in EUR/JPY until the 11 year low of 95.60.

3. Sentiment

a. Investor sentiment or what I call the “flow” is on our side with the sharp sell-off in EUR/JPY.

EURJPY is the quintessential “risk off” trade, which means that it traditionally underperforms when investors are nervous and given the extreme pessimism of the ECB and other central bank officials, the possibility of weakness could raise the level of anxiety in the market and help my EUR/JPY trade call.

These were the levels that I provided on CNBC

Sell EURJPY at 98.25
Stop at 99.00
Target 97.00

Click on the EURJPY Chart to Expand

————–
Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

Table – EZ Economy and Perf Since Last ECB Mtg

2012 eurusd forecast ECB ecb ltro Kathy Lien

The European Central Bank is gearing up for a monetary policy announcement tomorrow. Based on the following table, which shows broad based weakness in the EZ economy since the May meeting, they need to ease. Whether it happens now or in July is still an open question, but the central bank can’t sit by idly and do nothing for much longer.

RBA Meeting Preview: Changes in Economy

aud/usd Australian Dollar Kathy Lien Reserve Bank of Australia

The Reserve Bank of Australia’s monetary policy announcement is in just a few hours! For the second month in a row, the RBA is expected to ease but economists are divided on a 25 vs. 50bp move. Here’s a table showing how Australian data fared since the last meeting. As you can see, weakness all around particularly in consumer spending, employment and activity – definitely not good news!