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Revisiting AUDCAD for Another Hedging Setup
Posted on April 30, 2008 in ()Revisiting AUDCAD for Another Hedging Setup
We had previously noted that though AUDCAD offered a rare interest rate arbitrage opportunity with the Bank of Canada following the Fed in cutting borrowing costs and the RBA firmly on hold at 7.25%, conditions had soured as traders begin to entertain the hope that the US has seen the worst of the current housing crisis. Positive sentiment echoed across markets as Canada’s benchmark stock index rose to a monthly high and the yield on the two-year Canadian government bond reached a two-month high as the market re-evaluated the extent of BOC monetary easing.
On April 3rd, the pair broke through this trend line and settled above support at 0.9186, the 38.2% Fibonacci retracement of the 01/30–03/25 ascent. At that time, we suggested a hedge trade as the pair pulled back up towards the trend line prior to further decline. We cautioned that a trend change in AUDCAD is closely contingent on current US sentiment, and should sentiment towards the US sour again the pair may hold more upside potential. To that effect, we noted it would be important to follow price action around upcoming data releases (notably, ISM and NFP that week) to gauge the market’s mood.Our cautionary stance was warranted. As we had expected, AUDCAD was setting up to retrace from Fib support back towards the trend line resistance level. Surprisingly, price action continued higher to close above the previously broken trend line. The NFP report had printed decidedly grim for the US economy, showing job losses of -30k more than expected as well as revising lower the previous month's result. With such a shift in fundamental outlook, we closed the trade at the hedge position’s profit target having neither lost nor gained.
The decision to close out the AUDCAD hedge position proved wise - the pair rallied substantially to close above the triple top resistance that we had been looking at. The hedging approach proved very useful in this case, allowing us to speculate on a potential trend change without significant exposure to market risk. Though the trend change did not materialize, our equity remained largely unscathed and we were left free to look to other trading opportunities.
Revisiting the pair today, AUDCAD has rallied to a high of 0.9500. The pair has not traded here since a year ago, having put in a major top at the same level last April prior to declining by 800 pips in the next 2 months. We expect price action to retrace from this resistance back to the broken triple top level at 0.9370, prior to a resumption of the upward trend in favor of the yield gap.
China yuan ends at 6.9850 to US dollar vs 7.0014 in OTC trade
Posted on April 30, 2008 in ()China yuan ends at 6.9850 to US dollar vs 7.0014 in OTC trade
The yuan finished at 6.9850 against the US dollar on the over-the-counter (OTC) market, up from 7.0014 yesterday.
On the exchange-traded market, the yuan ended at 6.9958, also up from 7.0093 the previous trading day, a Guangzhou-based trader with a foreign bank said.
The yuan traded between 6.9960 and 6.9830 on the OTC market and between 6.9958 and 6.9838 on the exchange-traded market.
The central bank set the yuan central parity rate at 6.9898 to the dollar this morning, compared with 6.9980 in the previous session.
The yuan's daily trading band is currently set at 0.5 pct.An important top for Euro/Usd?
Posted on April 30, 2008 in ()An important top for Euro/Usd?
The Federal Reserve appears to be doing all what it can to take the economy back on track, but it does not have to capacity to solve everything. Market trends must follow their natural course until new opportunities will emerge. The European currency, in the mean time, seems to have reached an important top. As a result, the bearish correction, within a long term bull trend, might continue.
Time for change in the financial markets
On March 18th, the Federal Reserve cut fed funds and the discount rates by 75 basis points to 2.25% and 2.50% respectively. In the final speech, FOMC underlined a weakening economy, a softener consumer spending and a milder labour market. A larger move was in the cards, but the Federal Reserve probably believes that the injection of liquidity of the past weeks could improve the economy over the medium term. Are they right?. Only time will tell. Financial markets are going through an important consolidation and Bear Stearns debacle could be one of the many. In fact, between the 80¡¦s and the 90¡¦s more than 20% of the financial sector companies disappeared in a way or in another. At current prices, the Standard & Poor¡¦s index might try to rise to higher levels, but sells could start again, if the important support line at 1210 is overcome. Another rate cut is possible by mid-year, although some Fed officials are beginning to consider inflation as an increasing menace. The fast decline of crude, gold and other commodities from the highs could also be the consequence of this different prospective, but it should remain a bearish correction within a strong long term bull trend. In reality, inflation will remain with us for a long time. The Producer Price Index (PPI) decreased to 6.4% year over year in February from January¡¦s 7.4%, but core prices increased to 2.4% from 2.3%.Dollar Extends Fall Vs Yen On Weak Stocks, Risk Sentiment
Posted on April 30, 2008 in ()Dollar Extends Fall Vs Yen On Weak Stocks, Risk Sentiment
The dollar recently fell to an intraday low against the yen as lower U.S. stocks knocked down risk sentiment.
The dollar Tuesday morning dropped within an hour from a high of Y103.97 to its lowest level since last Wednesday, Y103.22.
The Dow Jones Industrial Average was recently down by about 65 points.
The dollar typically falls versus the yen when stocks are trading lower, as investors turn toward the safety of the lower-yielding yen on lower risk appetite.
"Equity markets have been selling off since the open," said Adarsh Sinha, foreign exchange analyst at Barclays Capital in London.
"Stop losses are being taken out as well, which is why the move has been so sharp," he added. "Risky assets selling off."
Late morning Tuesday in New York, the euro was at $1.5605 from $1.5640 late Monday, while the dollar was at Y103.35 from Y104.17. The euro was at Y161.26 from Y162.92, according to EBS. The U.K. pound was at $1.9713 from $1.9897 late Monday, and the dollar was at CHF1.0327 from CHF1.0347.
Still, John McCarthy, manager of currency trading at ING in New York, said the dollar's sharp move against the yen is surprising considering that the DJIA hasn't fallen closer to 100 points. The fall so far isn't typically enough to send the dollar down so rapidly against the yen, he said.
Traders are likely "getting out of a lot of yen crosses before the (Federal Open Market Committee meeting) decision," McCarthy said.
"It's a risk reduction trade," he said, echoing Sinha's sentiment.
The FOMC is meeting Tuesday and Wednesday and will decide whether to cut its target interest rate again. It is expected to ease rates by 25 basis points and signal a pause in future rate cuts.
USD/JPY: The Dollar fell against the Yen
Posted on April 30, 2008 in ()USD/JPY: The Dollar fell against the Yen
Furthermore, the ActionForex Technical Team advances: “Note that another rise to 104.96/108.59 resistance zone as long as this channel support holds. However, break will be the first signal that whole corrective rebound from 95.77 has completed and will put focus back to 100.02 support.”