forex market analysis

China Tanks – But No Trouble In U.S?

Forex Kong 13 Comments

The biggest story in the financial markets this morning is the weakness in Chinese assets.

The Chinese Yuan sold off aggressively, experiencing one of the largest one-day declines since December.

Chinese stocks were hit hard with the Shanghai Composite dropping more than 2.8%. Although a significantly weaker trade balance triggered the selling, China’s central bank has been actively allowing the Chinese Yuan to weaken.

Chaori Solar Energy was allowed to default on its corporate bonds ( as suggested some days ago ) and is currently in the process of “selling its solar farms” in order to pay up.

Markets “appear” calm here this morning in a general sense but don’t get too comfortable as this has got some pretty far-reaching implications.

Emerging Markets “EEM” continues its downward trajectory, as the Japanese Yen looks to steady / make a move higher.

Shakey ground here “globally”……but of course – no trouble in U.S Equities.

How’s “short AUD” looking now suckas??

Emerging Markets Chart – Update On EEM

Forex Kong 6 Comments

Remember this chart from back in October?

EEM_Emerging_Markets_Oct_2013

EEM_Emerging_Markets_Oct_2013

I had suggested that the emerging markets ETF “EEM” was having trouble breaking out to new highs while the SP 500 was leaving most charts in the dust right?

So……now let’s have a look at it “again” while the SP 500 has “the October highs” way back in the rear view mirror.

In a healthy global economy, shouldn’t those emerging markets be moving higher / breaking out as well?

EEM_Emerging_Markets_March_2014

EEM_Emerging_Markets_March_2014

The “proposed taper” has obviously had an effect on EEM as we’ve discussed here several times before ( U.S dollars pulled out of these emerging economies in preparation for rising rates / economic contraction etc…) so…..the question begs to be asked.

Is the U.S Equities market “literally” the last one to fall?

This very well could be the “elusive blow off top” as not a single data point out of the U.S ( or the planet for that matter ) suggests any kind of meaningful recovery. 

I’m sure I’m guilty (as we all are) in  “seeing what I want to see” but seriously….how far can U.S Equities “diverge” from what’s “really going on”?

Food for thought if nothing else.

My AUD Move Explained – No Big Thing

Forex Kong 15 Comments

With the dollar “finally falling out of bed” I’ve scratched a couple trades for a 2% loss.

USD has given us more than enough chances to “ditch” and in all honest I hung in there with a couple smaller “much longer” than I should have, suggesting some days ago that “I’m not interested in catching a falling knife” not having much conviction in hanging around “long USD”.

And so it goes.

Otherwise, I’m highly suspect of the “sudden surge” in commodity related currencies hence initiating some “short AUD” ideas over the past 48 hours.

It’s not often you’ll “ever” see a currency trade sideways a full month, then drop “lower” and out of the range…..then come screaming back to highs, near or even above the range highs.

A full “rinsing” if you will – and unlikely a sustainable move.

AUD_JPY_200_Forex_Kong_Trading_March

 

As much as the short term action would have one thinking that “AUD is on fire” – it’s really only now bumped into well recognized areas of overhead resistance in a number of pairs.

Seeing something like this “scream 300 pips higher” in a matter of a few short days, generally has it retrace a large portion of the move, coupled with ideas from my previous posts ( suggesting that “short AUD” essentially works as a play on China as well ) I’ll have no trouble holding / adding to these positions as things develop.

I Am Short AUD – No Matter What

Forex Kong 11 Comments

It’s simple.

I’m short the Australian Dollar as a simple “fundamental play” on the looming troubles ahead ( not just for China but…) for global growth in general.

China slow down = Australian blues. This trade has no holes in it…..there is no “what if you’re wrong Kong”. It’s not a hunch. It’s a trade based in a simple and solid understanding of how “one” currency is likely to perform in the face of its largest trade partner slowing down, and buying less stuff.

Consider losing one of your biggest clients, or perhaps that regular customer at your burger joint has now turned vegetarian. Buying less stuff means your business will suffer.

I “could” get into all the small details, charts and graphs, facts and figures, dollars and cents, etc.. but you know me better than that. That stuff is “flat-out boring” and frankly…of no real consequence here.

I don’t need to be an economist ( god help me ) to understand how this sets up. No….I only need to manage my money correctly and let this do exactly what “I know” it’s going to do.

The trade will pay out well – I can assure you of that.

When? I don’t care.

I’ve been building a considerable position short AUD over the past month, and have continued to add at every instance the currency shows strength. These longer term trade ideas take time, patience, conviction as well solid money management as….I will continue to add “no matter what” as the trade continues forward with the ultimate “payout” likely being more than worth the effort.

If markets are just sitting still and grinding you in the short term….see what you can do about formulating some “medium/longer term plans”. Putting these in motion “today” makes for great returns down the road.

 

Day Trading Blues – Look To The Fundamentals

Forex Kong 7 Comments

With all the data flying around each day – it’s near impossible to put everything in neat little compartments, all organized and understood. We see markets rise on “bad news” and sell off with the good, then do the complete opposite only a week later. We’ve got the “fear of war” one day, then the “celebration of peace” the next. The market is a meat grinder, and unfortunately – you are the beef.

So when the short-term / intraday day action isn’t providing much opportunity – what’s a trader to do?

How can you feel that you’re “moving forward” when the day-to-day grind is doing nothing but frustrating you, and possibly grinding your account to dust?

Step back. Re focus, and look for the things that “you can make sense of” – and start working out from there.

A simple example of what “I’m doing” while I sit idle in a number of trades that are essentially “going nowhere fast”. I ask myself…..Kong….what “do” you know? Where can you focus your energy as to keep this thing moving in the right direction.

I immediately turn to the fundamentals.

Do you agree with me ( after everything you may have read / researched as well ) that China is set to slow in the following year / years?

I can’t be bothered to go over this again but encourage you to read this simple breakdown, then get back here.

We’ll outline some trade ideas next.

5 Ways China Slowdown Will Ripple Across Globe.

Forex Trade Indecision- Doji After Doji

Forex Kong 11 Comments

Considering the number of days we’ve sat “patiently waiting” for markets to make a reasonable move in either direction, as well the amount of time that’s passed since “I’ve made a decent move” I thought it might be of interest to give you a visual representation of what “sideways” looks like to me.

I’ve chosen a chart of GBP/JPY ( Great British Pound vs The Japanese Yen ) as the example.

If you’ve been brushing up on your Japanese Candle Sticks ( which I certainly hope you have ) I’m sure you already know our friend “The Doji”.

Doji – Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security’s open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign.

GBP_JPY_Doji_Forex_Kong

GBP_JPY_Doji_Forex_Kong

You can’t trade this. It’s impossible and not even worth considering as…..there “is” no clear sense of direction. Each day has the capacity to wipe out traders on “both sides” with wild swings up and down, only to have price settle back to where it began.

What it also suggests is that markets are clearly at a point of “indecision” as neither bulls or bears are able to run to far with the ball.

Hopefully this may put the “entire month of February” in perspective for you as I’ve been “considerably less active” than usual.

Knowing what you know now……can you blame me?

I know when to put on the brakes, and when to step on the gas……

Do you?

 

 

Hunting Black Swans – The Season Begins

Forex Kong 10 Comments

You’ve likely heard the term “black swan” before….and I’m not talking about the bird.

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.

With all the “bad news” flying about these days, in such dark contrast to the background of eternally higher stock prices, and the never-ending “sunshine” of Central Bank intervention, it may just be time to consider getting out that cammo, shining up those shotguns, and heading out to the fields to do some hunting.

After all…..you can’t honestly expect some kind of “orderly exit” when things finally do start coming down to Earth do you? Do you?

Black swan hunting anyone?

Here’s a couple of things to keep in your sights:

1. The developing story in The Ukraine.

Once again The United States is sticking its nose where it most certainly does not belong, and is again butting up against Russia and our ol friend Putin with respect to this “tug of war” over The Ukraine. The U.S is hell-bent on having the Ukraine “come over” and join the E.U with aims to set up military / larger positions along the Russian border.

You don’t honestly think its humanitarian interests again driving the U.S do you? Do you?

Please. This scenario may not be on your radar “yet” but trust me……it’s should be.

2. China Carry Trade

China is now making some waves in the currency world and appears to be purposely pushing the yuan down in value to give its exports a bit of a lift amid the nation’s decelerating growth.

Sound familiar? So in other words….the Chinese are now doing exactly what the U.S has been doing for a full 5 years, and the media continues to label the Chinese as currency manipulators?? Hilarious.

The effect of a “falling yuan” has the potential to do “sizeable damage” to the CNY carry trade now approaching levels comparable to that of JPY so….a reversal of this trade would have monster global effects, with “unwind” being nothing short of disastrous.

China is “stirring the pot” now in the currency world and in my view is edging closer and closer to having the Yuan recognized as an “international currency”.

Watch for more signs of a “falling yuan” and the impact on global markets.

3. The E.U Zone

As you can get bored out of your mind listening to the day-to-day data out of any number of European countries, there is really only one thing you need to keep in mind.

The E.U Zone is so screwed, so banged up  and so “far beyond” any realistic expectation of recovery that it could seriously be “any day of the week” where news has it that well……lets put it this way – Spain’s unemployment rate is around 25% so…..you let me know when you hear that puzzle has been solved. Gimme a break.

So with all these potential “black swans” flopping about don’t get caught snoozing there in your blind.  You could wind up having a very, very..VERY bad day.

Oh ya…and the U.S unemployment print added another 348,000 to the line up last week so…….sounds like some real improvement there. Not.

4 More Days – USD Toast Or Treasure?

Forex Kong 10 Comments

If you can believe it – the U.S Dollar has spent the entire last week “still hovering” near a well-known area of support, showing absolutely no interest in “getting off its ass” and making a move higher.

As forex markets have a tendency to move sideways for extended periods of time, this should come as no real surprise but in having held a number of small positions ( almost averaged out now ) “long USD” for some time now, I’m only giving it a couple more days before just “going with my gut” and likely pulling a “stop n reverse” – getting back on the short side of this dud.

The overall weakness and lack of any real “life” suggests ( as I’ve now suggested for some days ) that regardless of any “near term pop” – USD looks pretty much set on breaking support and continuing on its merry way – into the basement.

Considering the lack of movement ( in either direction ) scratching a trade that has consumed nearly two full weeks of trading doesn’t put a smile on my face. Not at all. If you consider the time and effort, and in turn the “lack of reward” you can easily see why we call this “work”.

I’ll give this dud a couple more days to “prove itself” but as it stands…..I’m a hair away from flat-out “stop and reverse”, wherein the probability of an actual “waterfall” exists.

It’s make it or break it time for USD. 4 days Max.

Forex_Kong_Face_Book

Forex_Kong_Face_Book

 

All Eyes On Nikkei – A Lower High?

Forex Kong 4 Comments

The new high attained by The SP 500 this morning correlates well with a “lower high” area on the Japanese Nikkei right here around the 15,100 level, as well with the U.S Dollar “again” testing the 80.20 level in $DXY.

As we all watch our own specific indicators / indices to get a better read on “where things are at” in a general sense, it’s my thinking that these things line up quite nicely, suggesting we’ve come into a solid area of resistance/support.

Should the U.S Dollar “finally” make a decent move upward, as well the Nikkei put in a “swing high” here (and create a “lower high”) we’d likely see this move retraced, as well perhaps – find some clarity in the medium term direction.

A move lower in Nikkei would suggest “risk off” as well a higher Yen/JPY and likely ( although these days…you never know for sure ) even a higher U.S Dollar so I’m far more interested in activity “over seas” this evening then I am in today’s “usual wash / rinse / repeat”.

Keep your eyes on Nikkei.

…hey that rhymes.

Forex_Kong_Face_Book

Forex_Kong_Face_Book

 

Forex Markets, Risk In General – Amber Light

Forex Kong 4 Comments

With no “specific driving forces” in markets here this past week ( and “seemingly not” this week as well ) it’s been a relatively tough environment to trade, as well get your head wrapped around in any fundamental capacity.

We get the usual flow of news and data from around the globe, siting an “improvement here”, and then a “disappointment there”, an “uptick in this” and a “downturn in that”, but nothing we can consider “earth shattering” and certainly not “market moving”.

It almost appears that markets are stuck in slow motion, or possibly “waiting for something” in order to make a move. This makes sense considering that “risk” is generally back at the old highs ( via the SP 500 – the riskiest of all ) stalling at these lofty levels while the U.S Dollar “barely” struggles to shows any signs of life.

So what are we waiting for then?

I could bore you to death with a million different “data points” affecting any number of countries specific currencies – but I’ll spare you the details. Looking at U.S equities as well the Japanese Nikkei Index (as well the currency pair USD/JPY) is really about all one needs to do at a time like this as USD/JPY has been stuck in a tiny “half penny” range the entire month of February.

That just about says it all.

You don’t make any bold calls when things continue to grind sideways….you just “get all Zen”, let the market make its own mind up, and be ready to jump on board when she does.

I’m “still” waiting for a larger move up in USD as this grind has been a touch frustrating to say the least. These are times when a trader is best to just “get outside” and not let it get on your nerves. The market is obviously setting up for “some kind of move” but as it stands…..still hasn’t tipped us off.

If I could pick a color to describe it…..I’m staring at an amber light.

Forex_Kong_Face_Book

Forex_Kong_Face_Book