As you all know I tend to be a little early with some of my market observations / calls.
After studying these charts for as many hours / days / years as I – you start to see things a bit differently. As many of you are likely “just now” getting familiar with commonly occurring patterns and price levels, and starting to fit some larger “macro analysis” into your daily trading, I tend to see things the same things playing out – over and over again.
We’ve hit the “resistance zone” I suggested yesterday in the Nikkei, as well I see a “swing forming” around 1680 on the SP 500 futures, coupled with a tad bit of Yen strength and a continued weak USD.
Let’s throw in a generally weak AUD as well NZD ( the New Zealand Dollar) and what have we got? Just another “up/down churn day” or perhaps the start of something more?
I’d considered some time ago that any strength in AUD would be short-lived, and I now see that this could be about it – or at least a reasonable level to look for a trade.
Keep an eye on AUD through today and tomorrow for further signs of risk coming off.
Reading the Risk-Off Tea Leaves: What These Currency Moves Really Mean
The AUD Weakness Signal Everyone’s Missing
When I mention watching AUD for signs of risk coming off, I’m not talking about some casual observation here. The Australian Dollar has been one of my most reliable barometers for global risk appetite over the years, and right now it’s flashing warning signals that most traders are completely ignoring. Look at AUD/USD – we’re seeing textbook rejection at key resistance levels, and more importantly, AUD/JPY is starting to roll over in a way that tells me institutional money is quietly rotating out of risk assets. This isn’t some minor pullback we’re dealing with. When AUD starts losing steam against both the Dollar and the Yen simultaneously, you know something bigger is brewing beneath the surface. The commodity complex that typically supports the Aussie is showing cracks, and China’s ongoing economic uncertainties aren’t doing AUD any favors either.
Why the Yen Strength Play is Just Getting Started
That “tad bit of Yen strength” I mentioned? Don’t let the casual phrasing fool you – this is where the real money is going to be made over the coming weeks. JPY has been coiled like a spring for months now, and we’re finally seeing the early stages of what could be a significant unwinding of carry trades. USD/JPY is showing classic signs of topping action around these levels, and when you combine that with the equity market hesitation we’re seeing in the SP 500 futures, it paints a pretty clear picture. Smart money knows that when global markets get nervous, the Yen becomes the go-to safe haven. I’ve been positioning for this move for weeks, and now we’re starting to see the technical setup align with the fundamental backdrop. Watch for JPY strength to accelerate if we get any serious risk-off momentum in global equities.
The New Zealand Dollar Double Whammy
NZD is getting hit from multiple angles right now, and it’s creating some excellent trading opportunities for those paying attention. First, you’ve got the general risk-off sentiment that’s weighing on all the commodity currencies. But beyond that, New Zealand’s domestic situation is providing its own headwinds. The RBNZ’s dovish stance is finally starting to bite, and NZD/USD is looking increasingly vulnerable below key support levels. What’s really interesting is how NZD/JPY is behaving – this cross has been one of my favorite risk barometers, and it’s telling a story of risk aversion that’s only just beginning. When both AUD and NZD start weakening simultaneously, especially against the Yen, it’s usually a precursor to broader market volatility. The correlation between NZD weakness and equity market uncertainty has been remarkably consistent, and right now all the pieces are falling into place for a more significant move lower.
Connecting the Macro Dots: What Happens Next
Here’s where years of watching these patterns play out gives you a real edge. We’re not looking at isolated currency movements here – this is part of a larger macro shift that’s been building for months. The combination of Nikkei resistance, SP 500 futures showing signs of exhaustion around 1680, continued USD weakness, and now this coordinated selling in the commodity currencies is painting a picture that experienced traders should recognize. This setup reminds me of several previous risk-off episodes where the initial signs were subtle but the eventual moves were anything but. The key is recognizing that we’re likely in the early stages of a broader risk reassessment. When you see JPY strength coinciding with weakness in AUD and NZD, while equity indices struggle at key technical levels, history suggests this isn’t just another “churn day.” The smart play here is positioning for the acceleration phase that typically follows these initial warning signals. I’m watching for any break below key support levels in the risk currencies to confirm that we’re transitioning from this current consolidation phase into something more directional. The markets are giving us plenty of clues – the question is whether traders are experienced enough to read them correctly.
Go insanity trade! I’ve got breakout(down) orders on aud/USD and nzd/USD. Already started a small Eur/aud long and will add on strength.
Thanks so much for the increase in posts Kong!
Hell ya Insanity trade!
Thanks Warren – I’m crankin at it these days.
Feel free to run some radio spots / paint some park benches in your area! he he he…..
Jaja, pues las advertencias necesitan a ser en espanol porque vivo en Chile. Puedo ver una plancha con un gorila muy enojado y grande!! LOL
Super divertido Warren!
puedo ver ahora….un gorila en Chile! Que bien!
Hey There, any thoughts on gbpusd pair, going non stop seems like on steroids
Not much a guy can say here……big time GBP buying coupled with weakness in USD = BOOM!
GBP strong across the board. I’ve no positions.
It’s obviously way overbought here “technically” and likely to take a breather. I wouldn’t be chasing it here. We’re on a big turn, and Forex flows are all over the place. Depending on the pair you could do well. As per a fellow reader looking at GBP/AUD for example.
If you’re already caught short GBP/USD well…….that’s another story.
In reference to GBP strength: Aside from the positive news coming out of the UK, I think some of the strength could be due to the Vodaphone deal. Supposedly, it’s worth USD 130 bln and has likely been having a positive impact on the Pound. I think the Pound will retrace soon and I like the GBP/JPY short the most right here. I’m also long GBP/AUD (more for AUD weakness than GBP strength, as this cross is mostly affected by AUD moves anyway).
Great insight David – thanks for the post here.
You bet. She’s a touch extended here for sure….whata goliath of a pair that GBP/JPY.
Thanks K.
I admit I’m still perplexed about the impact of macro fundies on intraday trading. Swings and Longer Term are very often “fundie based”, even I can see that.
The intraday action almost always appears to be smart money pushing around small, dumb money, like me. I learned to beat that but I paid dearly for the education.
I think Taylor, Wychoff, Edwards & McGee, et al really nailed it and that goes back to when JC was in diapers.
Thanks all for the great comments and info I always find here.
If it’s any help – I find that the long term “macro fundies” do for my trading one important thing that no technical indicator can.
They instill confidence in my positions. Confidence in not getting “pushed around” by a couple pips here and there knowing full well it’s just intraday short term noise.
Great example – the last few “weeks” being short USD/CAD. If we get back to my original entry date / price….it took 12 days for price to move more than 150 pips in my direction. Did I get churned? Did I flip out with 50 pips against me? Did I “sell” with profits of only 25 pips?
Nope. I added. I built on it.
Fundies baby…..I had several other pairs to pull profits day to day, some immediately , others taking weeks….but with no firm grip on fundamental drivers etc – a guy could have easily been wiped on any number of trades just lookin at the day to day stuff.
Thats me anyway. I don’t see intra day moves as anything other than snow on a TV screen with no cable.
Watching the Nikkei…AGAIN! Haha. Tonight is the night. I feel it in me bones
Yes well…….here we are again eh?
Tomorrow being Thursday and for the most part another entire week gone by with little to nothing happening ( short of some nice wins short USD ) until then. Frankly, with the massive liquidity pump still in full effect – this has gone past “ridiculous”.
Fed “taper bullshit” still a full week out so……this could just as easily hang here til then. Groan.
NZDJPY has probably hit a pretty decent spot for a short just now. Or a small add
News out of NZ has really given it a push, wow…….I’ll fade this given a touch more evidence. I’d like to see Nikkei “swing high” here on the daily.
Excellent Kong!
That puts it perfectly in perspective. It reinforces the need to manage $ and size to not be shaken out of a winner.
I shoulda asked soon.
Thanks.
With this in mind, perhaps you can further appreciate the strategy of placing “smaller orders over time” – as these things take weeks to play out.
All the while, tiny mice chasing crumbs – getting caught in traps.
Happy to see a decent fade of the news pop on nzdjpy.