The idea of a Euroless world didn’t seem to register with him. He has trouble imagining the possibility, but he fails to see what I do: That we have a very young currency that was built on a bed of false premises and lies. Yes Matilda, there was a time when the Dutch had the Guilder, and the French had the Franc. It amazes me that so many people seem to forget that just a little over a decade ago the Euro was still just a dream.
The idea that we couldn’t go back to the pre-Euro days seems to be one that I hear the most, normally by novice traders. The fact is that the Euro was built upon a lot of basic ground rules, almost none of which have been followed or even though through. For starters, the amount of debt that each country had has been lied about. What a great way to get around any “tough” guidelines for entry. For this creative accounting, most companies would be in serious trouble. However, if you are a country, there are no such repercussions.

The whole idea of the Euro was stupid at best. The thought that the Germans and Greeks would have the same monetary needs and should follow the same basic economic policies was a stupid idea. I can think of many great German companies that produce goods that Americans and others are more than willing to shell out hard cash for. I can’t think of much when it comes to Greece other than feta cheese. Seriously. However, Greece is a great vacation destination. The tourism industry is very important, and by adopting the Euro, they make is much more expensive to go there for the rest of the world. Germany gains a consumer, but that’s about it.

The French are the same situation as far as I can tell, although they aren’t the economic powerhouse the Germans are. However, having said that, there are a lot of great French exports that we love over here. I can’t say the same thing about Estonia. In fact, I have no idea what Estonia exports, if anything.

The whole concept didn’t make sense. I could understand it if there was more cohesion between the members. For example, it makes sense for the Germans, Danes, and Dutch to be in a union, but not at all when you throw Estonia, Greece, and Spain into the mix. It seems to me that the whole union was built upon deception.

The Germans and stronger nations saw a built in export market. After all, the Portuguese could suddenly have a currency that is equal in value to by all of those BMWs that Germany wanted to send out to its neighbors. This was going to open a lot of markets to the Germans, and they would become even more powerful economically. On the flip side, I believe the weaker nations saw the possibility of having the Germans and Dutch pay for their lifestyles. The idea of a nice wealth transfer probably sounded like a good idea. It was in this scenario that everyone lied about not only their intentions, but also their balance sheets. Europe got what it deserved in the end.

The idea was to be an economic rival to the Americans. After all, it wasn’t fair that the US was a stronger economic force than Europe, and a bit of national pride could have played a part in this as well. After all, Europe was historically the center of the financial universe, and the elites of the continent couldn’t bear the idea of “falling behind to America.” Unfortunately, it won’t be the elites that bear the brunt of the pain, it is the common people of these historic and great nations. This is what the situation in Greece is telling us.

I must have missed the memo that Europe was falling apart in the 90s. None the less, the logical conclusion is starting to play out – the Euro is falling apart, and I believe we are seeing the start of this now. Because of this, I can’t think of a reason to buy it. Yes, it will bounce from time to time, but in the end – it isn’t going to exist in the current form some day. I think the northern countries may stay in a union, but the stragglers will be left behind.

Cheers,

Chris

 
The NOK/JPY pair is one that many of you will have absolutely zero experience trading, assuming that you have a broker that offers it. The Norwegian Krone is a nice play on the oil markets because of the two facts: The Norwegians are very active in drilling offshore in the North Sea, and it is a fairly minor currency. The fact that it is minor means that it tends to have a monochromatic flavor to it – most currency traders can’t tell you anything about the currency other than it is oil related. This means that unlike the Canadian dollar, the markets will focus on one thing typically. (There are times when it isn’t oil but a specific issue with Norway, but this is very rare.) The Canadian dollar is a larger currency, and is also highly correlated with the employment situation and general economic health of America as it sends over 80% of its exports to the Americans. Again, because of this it is much easier to play oil with the NOK.

 
On the other side of the trade, you have the Japanese Yen. Long held as a safety trade to buy the Yen, this makes sense as much of the world funds its trading in Yen, and it is a much larger currency than the Krone. In times of uncertainty, traders like the bigger currencies over the smaller ones because of general liquidity and safety. Needless to say, when there is a significant amount of uncertainty and fear out there, this pair should fall. In this way, it acts much like a GBP/JPY, EUR/JPY, or CAD/JPY pair.
Also, you should be aware of the fact that Japan imports 100% of its oil. Because of this, the Yen is especially sensitive to oil shocks. As the oil markets are currently getting beat up, it would make sense that the NOK should fall, and the Yen should benefit because of the fear. Because of this, you have a bit of a “perfect storm.” In this environment, I see fear, and I see falling oil prices – a perfect situation to short the NOK/JPY pair.

 
There is a lot of talk about the Bank of Japan working against the value of the Yen and possible intervention. I can assure you that the BoJ has no concerns about the exchange rate of this pair. In fact, unlike most of the other pairs – the Japanese actually benefit from a strengthening Yen in this market as it drives down the price of oil for them. As you can see from this weekly chart, we are coming very close to breaking this pair down at the moment.

NOK/JPY

The elections last weekend seemed to have rattled the markets, but I have no idea why. The Greeks certainly are tired of austerity, which they see as nothing more than an attack on their sovereignty. And to be honest – exactly WHO thought the Greeks are going to be happy with 20 to 25% unemployment? The bankers are some of the dumbest people on the planet at times, and this reaction shows it. To think they would be okay with being in a heavy recession/borderline depression for the fifth year in a row is idiocy. At best, I think they were simply hoping that the Greeks wouldn’t mind keeping them solvent.

The Europeans have a serious problem on their hands. In my opinion, the Euro is doomed. It is a stupid idea to begin with, and to think that all of these countries having the same currency and monetary policy is a farce. For example, can anyone here honestly suggest to me that the United States sharing a currency with Honduras is a good idea? How about Nicaragua? This is essentially how the Europeans are thinking, and as a result they are failing beautifully. Not a surprise.

The video attached is a look at the EUR/USD and AUD/USD pairs, as I see them as two of the more interesting pairs at the moment. The Aussie should continue to struggle although the Chinese have cut the so-called “triple R’s” in order to keep more liquidity in the banking system there. I have this sneaking suspicion that the perma-bulls will like this, but truthfully its a bad sign that they feel the need to do it, and this will dawn on a lot of traders in the next couple of days…..Of course, the video is shot in HD, so feel free to watch it in full screen mode.

Cheers,

Chris

The EUR/USD finally broke down below the magical figure of 1.30 as well. This is a very bearish sign as the level was obviously a spot from which large money was manipulating the market. The rumor out there is that it is Asian central banks that are guilty, as they have a lot of Euro-denominated holdings after diversifying away from the Dollar. It doesn’t really matter, but the story makes sense I suppose. There was a descending triangle, but that’s now broken, and it looks as if 1.26 is in our near future.

The AUD/USD pair is sitting on parity, and looks ripe for a fall from here. The daily chart shows a bearish flag that was being supported by the 1.02 level, and now that it has given way – the move suggested is to the 0.96 level. Chinese economic numbers have been a bit cool lately, and it seems as if a slowdown could be in the works. This will drive down demand for Aussie goods, namely the minerals that the country mines.
The oil markets are sitting on the $95 level, and the breaking of this would be massively bearish. (The Light Sweet Crude markets) The breaking down of this market would push the USD/CAD pair higher as people run to the US dollar. The parity level is the start of the resistance that has kept this pair down. The 1.01 is the top of that area, and until we are above that on a daily close, I am hesitant to buy this pair, although the bullish pressure is building from what I see.

Simply put, the Dollar should have a good week from the look of the charts…

Cheers,

Chris

However, one would have to think that the bar for quantitative easing is pretty high. The FMOC has a couple of members that are outright against it, and several that think it isn’t necessary at the moment. The employment situation will continue to be one of the most important indicators because of this. After all, if the employment situation in the United States continues to add jobs, this will make the prospect of easing even less likely. Of course, if the numbers are weak, this will raise expectations of QE3.

The Bank of Japan on the other hand is already expanding its asset purchase program by ten trillion Yen. This should in essence be the same as “printing Yen” as they are buying bonds, REITS, and ETFs with newly created currency. The laws of supply and demand should come into play, and therefore weaken the Yen. At least that is what the BoJ is hoping. However, we have two central banks that are in a race to the bottom, and nobody can flame their own currency like the Americans. I suspect that behind the scenes, there are central bankers in Tokyo that are rooting the NFP numbers on.

The market may be shocked back into reality if the numbers are decent. After all, if the employment numbers continue to grow, this should allow the Federal Reserve to essentially do nothing. If this is the case, there is no real fundamental reason this pair shouldn’t go up in value.

Looking at the charts, we have the 50% Fibonacci retrace level in the neighborhood of the 80 handle. Speaking of the 80 handle, it was the site of a massive breakout in late January/early February that caught a lot of the market by surprise. The 200 day exponential moving average is just below, and we have seen a reaction so far to the level. In this area, it looks as if the market is trying to figure out where it wants to go. Yep, Friday is going to be important.

The USD/JPY pair is one of the most interesting ones to me at the moment. The Bank of Japan is continuing to expand its ways to devalue the Yen, and this week could see an expansion of the asset buying by that central bank, which is akin to printing Yen. This of course will drive the value of the Yen down over time, and as a result I am bearish of the Yen in general.

The Federal Reserve ends a two day meeting on Wednesday, and a news conference is to follow. This is where I think the breakthrough could come. For example, if the Federal Reserve makes no real mention of quantitative easing – this could drive flows into the US dollar. If so, combined with the Bank of Japan’s plans, and this should push this pair higher.

Of course, the Fed doesn’t have to do this, and could even mention possible easing. However, on a technical analysis point of view – the breaking of the top of the downtrend channel is a bullish sign in and of itself. There is a real chance that a lot of traders agree with me as the Tuesday candle is a hammer right on the 81 handle. I am currently long of this pair, and will be adding on a break above the channel top.

The cable pair has been one that only the true believers have made money on lately. I mean, there have been plenty of chances to get spooked out of your position if you were long, and if you were short – well… life’s pretty ugly at this point. Because of this, I have to admit upfront that I have been flat of this pair for quite some time. However, this is about to change I believe.

Looking at the charts, the obvious areas were 1.58 and 1.60 not too long ago. We broke out above the 1.60 level once, but were turned back around. This leaves the market with a thicker “zone” at 1.60, which of course isn’t that far out of the norm at the big levels. The breaking out above that high was going to be necessary for me to “believe” in this pair going forward. We got this move on Thursday.

With this being said, I am now sure of one thing right off of the bat: I sure as hell don’t want to short this pair. So, that being said I know what direction I don’t want to trade in, and that’s the start of any trading thesis, or at least it should be. With this pair though, you have to think about the two dynamic forces involved – namely monetary policies of the two countries.

As for the Pound, the Bank of England is now actually concerned about inflation for the first time in ages. While the rest of the world was looking for the possibility of further easing out of the central bank, the members themselves evidently were looking at the economy through a different perspective. With this being said, there is now an actual threat of higher rates in the UK, and this will push the value of the Pound higher. Even if they aren’t going to raise rates soon, they certainly aren’t easing.

Contrast this with the Federal Reserve. The Fed hasn’t ruled out quantitative easing for a third time, although they haven’t exactly expressed interest in it either. The closest thing we have had to an announcement of intention is some members saying that low rates are going to be needed for a long time. None the less, the contrast between the two situations shows that rates will rise in the United Kingdom before the United States, and this cuts to the most fundamental question when it comes to currency pairs: Who is raising rates, and who is cutting them or at least staying flat. If you know this information, you know a huge percentage of what truly matters over time.

Looking at the chart, I know there is a bit of “noise” in the levels above current prices. Having said this, the BoE changing their tone and the 1.650 level giving way truly does matter. I now think this pair is one that should be bought on dips – unless we move back down below the 1.59 level. Until then, buying is the only direction I will trade it unless I am flat.

On the chart below, I have the 200 day EMA to show where the trend traders are looking. As long as we are above it, they will be long. I also have the 1.60 level posted on the chart for reference. As I said before, if the market can stay above the 1.59 level – I am bullish. I think the move higher will be a grind, so patience will be needed. The good news is that you will get paid positive swap for holding onto a long position. As for entries, I am looking for signs of support on a pullback – or would even be relatively comfortable buying at this point. My target is 1.65, but I am sure that will take a while.

By stepping back, you can look at the “big picture”, which hopefully I have done. There are many reasons to think the Yen will lose value over time, and at the point I think that the 85 level is potentially as important as the obvious 80 level.

Please feel free to watch this video in full screen mode – it’s in HD.

Trade never fired off as we were sub-82 @ Asia close. Will post another trade idea shortly.

In the first of my trade ideas, I am looking at the NZD in general, but specifically at the NZD/USD. The pair has recently formed a symmetrical triangle as denoted on the chart, and broke out a couple of sessions ago. The premise is that the former resistance should be supportive. None the less, I prefer the long side of this trade anyhow, as the 200 day EMA is just below the recent action, as is the 38.2% Fibonacci retrace level.

The beauty of this triangle is that if you measure the height of it to get a potential target, you see we end up at the recent highs again. A very believable move to say the least. The Iranians agreed to “keep talking” (read: stall for more time to build nukes while the West sits around in a naive belief this is going to end without Iranian nuclear warheads being produced.) and this means that there may be a bit of a “risk on” move in the markets, which always benefits the Kiwi dollar in general.

However, as the close for the session on Friday was so bearish, I am a bit concerned. This is the downside to this trade. The 82 level is just below, and that is where I draw my line in the sand. I need to see the pair hold over that level. If we get into the European session and are still over the 82 level – I would be long at that point, and aiming to take profit at 84 – either partial with a move to break even on the rest of the position, or completely exiting altogether. As for a stop, I would be out if we broke below the 81 level – however, I still wouldn’t be selling at that point.

Recently, I did a review of a signals service. This isn’t the first time that I have ever done one, but what struck me as odd is that the signals were especially risky. The main way that signals operators tend to operate is to aim for many little gains, and having wide stops. For example, the average signal provider will send you a message like “Sell EUR/USD @ 1.3000. T/P @ 1.2950, S/L @ 1.3200.” You can see that the math doesn’t add up if you think about it. Simply put, you are going to have to make 4 wins per loss to simply break even. The service that I mentioned earlier was offer signals that were more like “gain 15 pips, lose 100!”

As a result, I mentioned to my contact with this site that I thought the signals were horrible. (In fact, over the course of the two weeks I reviewed them, they lost 120 pips or so.) They would sell right into obvious support, and very obviously had no real idea of even the most basic concepts when it came to technical analysis. I highly doubt they were using fundamental analysis either. She then said something that I didn’t think that much about in the past, “If you think you can do better – you should start your own signal service.” I had to think about it, and I even threw it out on the forex factory  thread to get a feel for what people thought about the idea.

The response has been positive, and as a result I think I am going to go ahead and do this. I am not going to “hard sell” it, and to be honest won’t even be offering the service anytime soon on this site. In fact, I am not even going to mention the site I am working for that is willing to promote the idea. I haven’t even worked out the idea of what I am going to charge, as this is just in it’s infancy on my end. Also, the delivery method is something I am working on. (I am thinking SMS at this point, although there are other options.) Plus, I am not sure how many signals I am going to put  out on average as I am not a scalper (anymore) and don’t recommend that for anyone.

In the meantime, I am going to start including “trade ideas” at the bottom of this page, (To work out any reservations I have in this new venture.) and will update it every time I see a decent set up. I think that one of the ways I may differentiate my service form others is that I may make it education as well. Obviously, this lends for the average subscription to be shorter than usual as they may actually learn from it and be able to go on their own, but I think I can live with that.

Look for the new section to appear at the bottom of the front page next week.
Chris