commodity currencies

Japanese Candles – Our Ol Friend "The Hammer"

Forex Kong 1 Comment

I remain bearish on USD, but as these things rarely move in a straight line (and considering the past 6 straight days moving lower) – I’m expecting a small bounce. Welcome our ol friend “the hammer”.

Definition of ‘Hammer’

A price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price. This pattern forms a hammer-shaped candlestick.

This candlestick pattern is not the “end all be all” of  trend change – but does suggest that buyers have stepped in and “bearish price action” may take a short break. When  looking at this candle formation in light of the current down trend in USD – I would consider a small bounce over the next couple days at best – before the downtrend once again resumes.

 

The Hammer

The Hammer

The past few days trading has been fantastic with the short USD trades, as well ther long JPY’s paying well. I will likely sit a day here and re evaluate but as it stands – USD should continue lower, and the short term bottom in JPY – looks pretty good to me.

Implications of JPY Bounce – Risk Off

Forex Kong 12 Comments

You can’t just “write off” the Japanese Yen based in the recent weakness – and the massive efforts put forth by the Bank Of Japan. No matter how you slice it – the Yen “still represents” a safe haven currency based in fundamentals that will likely persist for many years to come.

When things get “tricky” the Yen is gonna get bought hand over fist – no matter what the BOJ wants.

Now…..in looking to draw some kind of intermarket correlation here…it’s simple – JPY bought = risk off.

As bizarre as this may all appear to newcomers – I am currently positioned “long JPY”…..so……

JPY going up = risk off. You can watch any number of currency pairs as well as the symbol “FXY” for further indication.

Eyes open people!

 

Stay safe for now.

Intermarket Analysis – Questions Answered

Forex Kong 9 Comments

Lets go through these one at a time.

Some time ago I had you take a look at the symbol “TLT”  which tracks the value of the 20 year U.S treasury bond. When we start to see bond prices falling – it’s likely that stocks are not far behind. Keep in mind this is a WEEKLY chart, so the trend demands considerable respect.

Please remember – these “big ships” take weeks to turn – and this kind of macro intermarket analysis does not produce an immediate “buy or sell” signal.

It would be my view that regardless of short-term action/volatility – it would take a “considerable move” to actually reverse the weekly downtrend in TLT. Hence – the required “precursor” to lower stock prices No?

TLT_Forex_Kong_April_20

TLT in Weekly Downtrend

Lets look at the Commodities Index.

We’ve taken a real beating here – but this sets things up quite perfectly for another “intermarket dynamic” we’ve come to learn. When the “price of stuff” starts climbing higher ( or possibly “rockets” higher ) – what direction is USD moving ? (as commodities are priced in USD) You’ve got it – Commods up = USD down.

Commods_Forex_Kong_April_2013

Commodities Set To Rise

Here is a previously posted chart of the SP500 – and the obvious area of resistance. I can’t really add much more in that – I believe the easy gains in U.S equities have now passed and for the most part from here on in – it may trade flat to down, with little chance of doing more for your account than grinding it to pieces.

Stocks will get volatile and create the illusion (many times over) that further gains are in the cards, drawing in as much new money as possible while grinding sideways. Short of being a “master stock picker” like the fellows over at Ibankcoin.com – I can only suggest being cautious…very, very cautious.

Stock_Market_Top

Stock_Market_Top

Finally the U.S Dollar.

DXY_Forex_Kong_April_2013

The U.S Dollar Also Set To Fall

Not much else to add here as the intermarket analysis above pretty much outlines the direction for the U.S Dollar. I feel we will likely see a time very soon, when U.S bonds, U.S stocks as well as the U.S Dollar all fall together.

Ideas on how to play it? Let’s look at those next.

For The Love of Commodities

Forex Kong Got something to say?

I love commodities.

I love commodities for the simple reason that the “fundamentals” present such a simple story, and an excellent backdrop in forming  longer term trading plans. We humans (much like a given species of insect or household pest) are devouring our planet’s resources at breakneck speed and reproducing like flies. We’ve already crunched the numbers on “how much of this is left” and “how much of that”  – fully aware that the numbers don’t look good.

Simply put – as we continue to multiply and continue to consume (at ever higher rates)  we are going to run out of stuff. Then throw in the extreme changes in weather (likely brought on by our own doing) and you’ve got one hell of an equation for supply and demand. The depleting availability of commodities alone is one thing, coupled with massive population growth and you get the picture.

So…..buy commodities and you will be rich. If only it where that easy. Looking at the $CRB (Commodities Index) we can see the turn has more or less just been confirmed.

The $CRB is now clearly making higher highs and higher lows.

The $CRB is now clearly making higher highs and higher lows.

As I trade currency this generally translates into a lower USD (as commods are priced in dollars) and likely advances made in commodity related currencies such as AUD, NZD and CAD. Others may choose to play it through stocks, futures etc

Regardless – looking at this longer term, and considering the fundamentals behind it – its difficult to envision the price of “stuff” to be going anywhere but up. Way up.

 

AUD/USD – A Trade In Gold

Forex Kong 16 Comments

As China’s largest trading partner and the world’s second largest producer of gold – I often look to the Australian Dollar (AUD) movement, as an excellent indication of  “risk behavior” in general. As well (and more broadly speaking) many consider the “aussie” and excellent proxy for gold.

I don’t see the two assets correlation in an absolute “minute to minute” or even “day-to-day” way (as each comes with its own volatility and characteristics) but when looking at the bigger picture – similarities cannot be denied.

A 5 year weekly chart of AUD/USD – an almost mirror image of a similar long term chart of the gold ETF – “GLD”.

The Australian Dollar and its similarities to long term Gold chart.

The Australian Dollar and its similarities to long term Gold chart.

Now taking a closer look at the current price in AUD/USD and keeping in mind our fundamentals (currently suggesting a possible “blow off top” in risk, with continued devaluation of USD) things look very much in line for some additional upswing in AUD/USD.

AUD/USD at near term support and clearly still trending upward.

AUD/USD at near term support and clearly still trending upward.

This is another excellent example of how trades develop when one has the combination of “fundamental analysis” as well  “technical analysis” firing on all cylinders. The opportunities for considerable profit present themselves only when BOTH ARE ALIGNED. 

I see an extremely low risk / high reward set up developing here – if indeed we do get an explosive move upward in risk, as retail investors flock into stocks here near the top. One could certainly keep a relatively tight stop here, as well “buy around the horn” as I’ve suggested earlier – spreading out your risk on entry. There is lots of room to run here – with even 1.08 on a relatively near term horizon.

Monday’s arent the best day for entry as there is alot of jockeying going on. I generally will look to observe price action and see where things end up mid day.

Risk On – How To Trade For Profits

Forex Kong 6 Comments

I am often a day or two early – but rarely RARELY a day or two late.

When assessing “risk behavior” one needs to look across the board at a number of currency pairs, and evaluate which are indeed exhibiting strength – broadly. A “quick jump”  in a single currency pair is absolutely no indication of a change in trend, and a silly little tweet or headline from a newbie blogger – even less.

No single currency trades in a vacuum , and with each and every move in one – there is an equal and opposing move in another. Identifying those currencies associated with “risk” and those associated with “safety” is paramount in formulating  a fundamental trading plan. 

I never trade a commodity related currency against another – and rarely (if ever) trade a safe haven against another. (Although as of late with the “devaluation war” in full effect – I am actively pitting one against the other – yes.)

Simply put – money flows out of risk related currencies and into the safe havens in times of risk aversion…and the opposite (into risk related currencies and out of safe havens) during times where risk is accepted.

This evening I will leave this with you – to  discern which is which, and invite your questions or comments in putting this very important piece of the puzzle in it’s place.

Kong gets loooooong risk.

 

Forex – Trade The Fundamentals First

Forex Kong 4 Comments

The Bank Of Japan is set to release its Monetary Policy Statement here this evening.

It’s among the primary tools the BOJ uses to communicate with investors about monetary policy. It contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it projects the economic outlook and offers clues on the outcome of future rate decisions.

It’s widely expected that the BOJ will announce further easing of monetary policy – the extent of which remains to be seen.

Looking further out  – I see that a fundamental shift in value of the USD/JPY has finally completed its long-term bottoming process and is now decidedly reversed. As both countries now battle in the “race to the bottom” it makes for some interesting debate when one considers “which will go down more”? when  both countries throw everything they’ve got at currency devaluation.

Who’s got the larger printing press?

This is the kind of thing that currency traders must consider when looking out at longer time frames and potential trends. Monetary policy drives currency markets, and sudden changes or surprises (like an interest rate hike for example) can blow a newbies account overnight. I cannot stress enough – the need to be well-informed on fundamental issues surrounding a given currency or pair – in order to effectively trade it. The technicals and charts always come second for me, after I’ve got a firm understanding of the current and “forward moving” fundamentals.

Short term I have sold all of JPY trades as of last night as well most everything else for a 6% return since Sunday night’s  risk on release. Looking at the shorter term charts – I see the Yen /JPY has fallen fast to a well-known area of support and would likely expect a bounce on the release tonight as opposed to further selling.

As well the USD looks to have run its course as expected in falling hard over the past days. I expect a bounce/retracement there as well.

How To Trade A Risk Event – Or Not

Forex Kong 20 Comments

My own definition of a risk event (go figure) –  An event that puts you at risk.

We’ve all got our own tolerance for risk,  as a particular event (such as the FOMC announcements tomorrow) that may be considered a “risk event” by one individual, may have absolutely no significance to another. There are many factors to consider – and it really comes down to the individuals circumstances  and/or evaluation at the time.

I for one  – have an extremely high tolerance for risk.

Almost to a point of fault, I have been known to walk down the odd dark street at night just to “see what’s down there”, or perhaps  hail a cab with no real “company name” visible on the door  – however…..

I do not take undo risk with my investment or trading decisions.

The best suggestion I can make centers on the simple question of “whether or not its worth it” as a risk event approaches – and more often than not the answer comes back the same….absolutely not.

  • Could something occur tomorrow that could potentially jeopardize the profits I am currently seeing on the table?
  • Could I find myself deep underwater tomorrow in the case that something completely unexpected occurs?
  • Am I going to miss “something massive”  if I am not fully invested and exposed to the market?

Questions like these are healthy, and can go a long way in preserving  capital in these volatile times – let alone reduce risk considerably.

Consider your risk tolerance. Ask yourself – Is it really worth it….. for a couple of points or two?

An aside – I have little doubt that tomorrow’s FOMC announcements/outcomes will result in markets moving higher, and the dollar getting sacked. However – it may not play out as “matter of fact”. I have 100% confidence that any trade opportunity that is currently available to me – will equally be available to me tomorrow (and likely the next day for that matter). Do I care?….nope…not really.

Kong banks an additional 2% on the day – and back to the ol favorite – 100% hard cold cash.

Chinese Numbers Continue To Impress

Forex Kong 14 Comments

A quick recap of some numbers out of China this weekend:

  • Factory production climbed 10.1 percent in November from a year earlier – 10.1%!
  • Retail sales growth accelerated to 14.9 percent – 14.9%!
  • The consumer price index rose 2 percent from a year earlier.
  • Fixed asset investment excluding rural households in the first 11 months of the year rose 20.7 percent.
  • Output of rolled steel rose 16.5 percent in November from a year earlier. (That’s a lot of steel).
  • Growth is on track to rebound sharply above 8 percent this quarter.

Wasn’t it just a couple of months ago that the headlines (well….at least those  out of the U.S) where riddled with talk of “China’s fall” “China’s Hard Landing” or “The Chinese Economy Derailed”  – I think not. The growth engine is chugging right along, and I see  absolutely nothing but “sunshine and rainbows” ahead for the Chinese economy.

China is now Australia’s largest export market, with trade worth at least $115 billion a year so continued growth in China should bode well for both Australia and neighboring New Zealand  as well commodity rich Canada moving forward.

Companies supplying construction and mining machinery (such as Caterpillar Inc) should also look to do well.

The continued theme of “staying long the commodity currencies” should prove to be a strong strategy in the months ahead.

AUD/USD – Risk Set To Explode

Forex Kong Got something to say?

Often currency traders will look  at the Australian Dollar as the ultimate “risk related” currency. Not because the currency is in any way “chancy or risky” unto itself  (in fact the complete opposite) – but more so because of its direct correlation to the price of commodities, and its direct exposure to Asia – as Australia is the world’s second largest producer of gold, and a key trade partner of China .

Australia has substantial gold resources which are located in all States and the Northern Territory but predominantly in Western Australia, South Australia and New South Wales. Approximately two-thirds of all production comes from mines in Western Australia. Gold is one of Australia’s top 10 commodity exports and is worth about $14 billion per year.

When the Aussie Dollar moves, you can almost guarantee that “risk itself” is also on the move – as dollars pour out of safe havens (USD and JPY) and into those currencies/economies where a better return may be realized ( NZD and CAD as well).

With even better than expected employment numbers out tonight – and a relatively rock solid banking system – I see the Aussie above 1.05  – looking to move much higher – MUCH HIGHER.

Aussie looking to move much higher

Aussie looking to move much higher

I am already well in profit on trades long the aussie dollar via AUD/USD as well AUD/JPY – and expect these pairs to continue upward as “risk on” soon hits the markets.