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  • Currency Positioning and Technical Outlook: How Stretched?

    From marctomarket.com

    There have been some large moves in the foreign exchange market in recent days. The euro posted its largest rally in four months last week. The yen has fallen to its lowest level against the dollar since June 2010 and extended the declining streak to nine consecutive weeks, something not seen since 1989. The Canadian and Australian dollar rose to multi-moth highs, as did the Mexican peso. In last week's technical note, we suggested the key question whether the sharp drop in the major foreign currencies following the avoidance of the full fiscal cliff in the US was trend reversal or overdue correction. We favored the ... (full story)

Currencies can be oversold/bought, over or undervalued for a good period of time without retracing significantly.
Quoting pip_trader
Currencies can be oversold/bought, over or undervalued for a good period of time without retracing significantly.
Spot on.

What do currencies in a bucket share in common? Sterling vs Euro vs Swiss Franc in one bucket? Are they correlated and how? They have different CBs and monetary policies and economies.

Quote: "In the European complex, there are mixed technical readings." Indeed. They are different, and most of the time their technical readings are mixed and should be that way.

Simplify but not simpler said Einstein.
Quoting frx_trader
Spot on.

What do currencies in a bucket share in common? Sterling vs Euro vs Swiss Franc in one bucket? Are they correlated and how? They have different CBs and monetary policies and economies.

Quote: "In the European complex, there are mixed technical readings." Indeed. They are different, and most of the time their technical readings are mixed and should be that way.

Simplify but not simpler said Einstein.
It is what I think makes spot FX a fascinating challenge. There is so much to determine, but I find a lot of traders say its extremely overvalued. Ok, but it still is going up. Now what? Traders just need to realize it doesn't matter if it is or isn't. I have seen the Euro stay above a 90 on an EMA_RSI for days.

I am starting to think the Euro may be becoming the secondary reserve currency with the US debt talks coming up. Either way, strength with the Euro with a declining Dollar.

Personally, I would wait for a real consolidation and some distribution before placing a trade.
depends on the timeframe. the higher the timeframe, the less that is true. i have certain levels i consider ob or os which depend on their timeframe.
Quoting pip_trader
Currencies can be oversold/bought, over or undervalued for a good period of time without retracing significantly.
Quoting pip_trader
It is what I think makes spot FX a fascinating challenge. There is so much to determine, but I find a lot of traders say its extremely overvalued. Ok, but it still is going up. Now what? Traders just need to realize it doesn't matter if it is or isn't. I have seen the Euro stay above a 90 on an EMA_RSI for days.
I agree. It's overvalued for certain conditions. As they change, it can be undervalued. And that's why it's going up and up.
Quoting jaygee
depends on the timeframe. the higher the timeframe, the less that is true. i have certain levels i consider ob or os which depend on their timeframe.
I can understand that, but not many of us non-institutional have the capital to trade weekly, monthly, etc to make it worth while in a given trade; I won't tie up 8,10 lots on a monthly signal alone. however, we can use this in our analysis for trend direction or whatnot. If it is highly overbought in the 1H, Slightly overbought in the 4H, and slightly bullish to neutral in the 1D, chances are it will remain the given course for a little while unless something comes along to change that.

I also believe overvalued and overbought are two very distinct conditions. Traders can over buy a currency regardless of what they value it. I think that is key. The euro can be overbought or whatever but when traders change their valuation is where major trends and direction take place.
I provide a weekly technical analysis write up. My time frame is weekly. Yes, the euro and Swiss franc have different central banks and different monetary policies and yes, their currencies are correlated in their movement against the dollar. Sterling less so, but they do move most often in the same direction against the dollar (at different speeds). Yes the euro has been the second most used reserve currency after the dollar. That is not a prediction or a guess. That comes directly from the most authoritative source, the IMF's COFER data. Yes overbought and oversold conditions can and do persist. Knowing when the rubber band snaps back is an art not a science as far as I can tell. Moreover, I did not talk about over-valued or over-bought in my note. I specifically discussed stretched technical readings and the price action that should, I think, caution, against rushing in and buying some currencies, like the Australian dollar and Mexican peso right out of the gate on Monday. I suggest that despite the euro's large rise, there is little technical evidence of an important top, though the weekly close above the Bollinger band may suggest a near-term pullback. Sterling and the franc have lagged behind the euro and I see not technical sign that they are about to take the lead.
I've found that the "snapping back of the rubber band" you mention to 'normal' correlation is often best illustrated by the dollar index being out of sync, particularly with the spx or djia

Quoting chandlermarc
I provide a weekly technical analysis write up. My time frame is weekly. Yes, the euro and Swiss franc have different central banks and different monetary policies and yes, their currencies are correlated in their movement against the dollar. Sterling less so, but they do move most often in the same direction against the dollar (at different speeds). Yes the euro has been the second most used reserve currency after the dollar. That is not a prediction or a guess. That comes directly from the most authoritative source, the IMF's COFER data....
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  • Posted: Jan 12, 2013 8:46am
  • Submitted by:
     MarcChandler
    Category: Fundamental Analysis
    Comments: 8  /  Views: 3,147