Do The Trading Room

I entered in short dollar positions during Friday's New York session on both eur/usd (2729 @ 1:2) and aud/usd (7577 @ 1:2). I'm calling the last two trading days' dollar rally bs. There was nothing substantial there - Philly Fed, Consumer Sentiment and China's 27bp hike really meant nothing in the end. This backed by extremely low volumes, even for summer.

The market just doesn't seem "right" to me. Something is going on and I think the fundamentals have changed - I just don't know it yet. We've been stuck in a tight range all summer and autumn is likely to bring about the inevitable break-out.

The fact that I'm positioned short dollars has more to do with the fact that I found good entry points - 2800 being a level where good sized bids are placed;

18 Aug 2006 13:03 GMT
BULLET: EURO-DOLLAR: Gets a modest pop to $1.2815 area as by.
EURO-DOLLAR: Gets a modest pop to $1.2815 area as buying by a U.S.
investment name ripples through the market, returning the pair to atop
$1.2800. Offers expected to cap around the area of overnight highs.

Provided by: Market News International

On the aussie; the chart shows that there were stops washed out 7560 and then we got the immediate pop higher. After trading in a 150 pip range for almost a month this might be the stop washout that was needed to let the market move higher. *As a side note these stop washouts tend to precede big moves*

On the aussie; the chart shows that there were stops washed out 7560 and then we got the immediate pop higher. After trading in a 150 pip range for almost a month this might be the stop washout that was needed to let the market move higher. *As a side note, these stop washouts tend to precede big moves*

I've got a limit to sell usd/jpy at 11600 (1:2). I think 11675 will prove to be the top. My order might never get filled but I've already got other dollar shorts on so it's no big deal if I miss out on this one.

One currency that's caught my eye is the loonie. And for all the wrong reasons;

Bearish Sentiment Prevails in Loonie
Friday, 18 August 2006 19:21:35 GMT

Instead, the unexpected 0.6% decline in Statistics Canada’s wholesale sales indicator was driving positioning. The drop was the biggest since February and came largely on the part of a 2.1% drop in auto sales and a 2.3% contraction in the ‘other’ category. Sales on the wholesaler level account for a larger share of the service sector than the retail figure, though the latter will likely garner more market interest. Another interesting facet of the data that was released today was that of the 0.8% rise in inventories. This boosted the often read inventory to sales ratio to 1.23 from 1.21 the month before and puts Canadian businesses in the precarious position of increasing their stockpiles though sales are slowing. This could slow production even further in the coming months, a prospect that is concerning as factories are already struggling with a high currency that is cutting into exports.

Written by John Kicklighter, Junior Currency Analyst
From DailyFx.com

The Loonie was the weakest looking currency near the end of last week and adding to this is the fact that oil prices seem ready for a correction doesn't help much either. Infact the main driver of a future decline in the currency could be the Canadian economy itself. The 2.1% drop in auto sales (a leading indicator of the economy) doesn't bode well for the upcoming week which include two very important data releases.

Retail Sales tomorrow at 12:30 GMT
CPI on Tuesday at 11:00 GMT

A lot of dollar offers out there this morning and my usd/cad limit has been filled (1225 @ 1:2). The usd/cad is looking very weak but I'm willing to hang in there and wait for Retail Sales (exp. 0.2% prev. -0.6%) at 12:30 GMT. I will add to my long (@ 1:2) just before the news comes out as I expect the dollar to make an intraday comeback as the euro stalls at 2900.

[IFR Forex Watch]


[SQUAWK BOX]

[10:12 USD/CAD: Friday"s Gains Erased By Broad Market Trend] London, August 21.Commodity market uncertainty following the Chinese rate move dealt the CAD a blow late last week and USD/CAD took to the higher ground. However, into Monday and fresh broad based US dollar wobbles have triggered a retracement with Friday"s 1.1200 to 1.1275 range wiped out and much of the Thursday rally also negated. Friday"s much weaker than expected Canadian sales data has also been forgotten as moves in USD/JPY, EUR/USD and cable dominate market sentiment. Friday"s soft confidence number from the US plus on-going expectations for a further tightening in ECB money policy has shaped early Monday trade and the Loonie has been one of the main beneficiaries. USD/CAD has fallen from late Asian levels around 1.1240 to a London low of 1.1175. Stops were reportedly tripped on the break under 1.1200 and there are rumours of larger orders lurking under 1.1150. A clear US data diary but Canada has June retail sales. The market is looking for a modest 0.2% rise on the month from May"s 0.6% drop.

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The pair has strong support at 1175, but any lower than 1150 and I'm outta there.


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On the other end I have a new problem and that is how to add to my long eur/usd position. I usually like to add on b/o's but 2900 is an important level and since we're there right now I'll have to wait for either lower or higher prices to add. I've set a limit at 2850 (@ 1:2) and will have to wait and see what happens. There is nothing critical on the calendar this week (although New Home Sales and Durable Goods Orders on Thursday could move the market) and I don't expect EU news to move the market much.

[04:06 GMT August 21st] [EUR/USD] up on flows seen related to Russia"s Paris Club debt repayment today. Offers from 1.2850-80 absorbed in move up. Some light stops above 1.2850 help. Bids moved up to 1.2870 area. Stops eyed above 1.2910 double top.
[07:02 GMT August 21] [EUR/USD] Offers trail from 1.2890 back to 1.2900. Stops above 1.2910.
[08:20 GMT August 21st] [EUR/USD] Talk of official flows into the 1.29 handle to help stem further aggressive buying.

08/21/2006 03:59:25 AM
AUSSIE: Opened in Asia at $0.7585 and moved up through $0.7600 as rate tracked euro-dollar strength. Decent sized stops now being tested at $0.7615/20 with a break higher seeing small offers layered from $0.7640 to $0.7670. Large option barrier at $0.7725 rolls off this Thursday. On the downside a large barrier at $0.7550 likely to find defensive bids ahead with large stops building below.
Source :MNI

[09:54 AUD/USD: Healthy Recovery Following Friday 0.7565 Spike Low] London, August 21. An impressive Aussie recovery following Friday"s slump to 0.7565 but the rally to 0.7633 has much to do with a broad based US dollar fall than any outright AUD strength. This said there has been a fair amount of AUD/NZD profit taking, which has added to the feel of the rebound.Sentiment towards the AUD turned negative last week resulting in the AUD being the worst performing currency for the week besides the ZAR. The sliding gold price and relentless unwinding of long-term long AUD/NZD positions weighed as did the slight dovish shift in RBA expectations after Macfarlane spoke on Friday. The market is still looking for a 25 BP hike by year-end, but according to the futures market the odds are closer to 70% from 90% before the RBA governor spoke. Traders feel that the AUD might rebound a bit this week after the heavy unwinding of longs and stops are now starting to build above 0.7620. Key support this week is found at the double-bottom formed at 0.7560/65.

I think aud/usd is looking well placed to move higher in the long term. I've got a bid at 7600 (@ 1:2) and will consider any break below 7550 as a sign to get out.

The main principle here is to add to your winners and while I'm giving the usd/cad long a bit of room, even adding to it, (I have a catalyst to trade against) getting out of your losers quickly is just as vital.

A quick update. Just entered a bid on usd/cad (1175 @ 1:2). Will check back just before Retail Sales come out.

My bid was missed by just a handfull of pips, the low (ask) being 1177 on Oanda (the order is cancelled now that the news has come and gone). I think this will be the bottom and will look to start adding once we get above 1300. I've put in stops at 1170/60 because if we get any lower than 1170 it will mean the news spike has reversed and usd/cad is heading down for the longer term.

[12:43 USD/CAD: Rallies Back Above 1.1200 As Retail Sales Disappoints] San Francisco, August 21. Canadian retail sales have disappointed with sales declining -0.2% in June against expectations of a +0.3% rise with a revision to -0.5% in May (prev. -0.6%). Resistance is
tipped at 1.1220 and higher at 1.1275/80 and the highs from Friday. Gains on EUR/USD this morning could serve to temper the CAD weakness however, with EUR/USD shooting above 1.2900.

The Euro is in critical territory at the moment with a lot of option barriers and stops located just above 2900. I might just yet see my 2850 bid being filled.

[12:35 EUR/USD: Stop-Driven Run Takes Euro To New Highs] New York August 21. After faltering ahead of 1.2905 for several hours, and early US buying surge took the EUR through stops at 1.2910 to propel the pair to new highs for the month of 1.2947. The IMM were quite active buyers on the break, taking in approximately 90 mln EUR. Rumours of 1.2950 barriers being defended, although we have not been able to verify this.
Source: [IFR Forex Watch]
[SQUAWK BOX]

08/21/2006 08:14:32
EURO-DOLLAR: Slowly grinding its way higher, the rate breaking above European morning highs around $1.2905 as it gets dragged higher by euro-yen (this latter pair was the main driver in overnight Asian trade). Earlier reports suggest that Asian offers (Chinese and Korean) were placed up to $1.2925 a break above to open a move on toward $1.2950. Option barriers at $1.3000 and in euro-yen at Y150.00 appear to be moving into view one trader has commented.
Source: MNI

I've moved my bids on eur/usd and aud/usd up to 2880 (1:2) and 7620 (1:2).

The drop in usd/cad after the poor Retail Sales has made me think twice and after being stopped out on the first half of my position at 1170 I've reversed my postion and shorted at 1180 (@ 1:2). I think we're due to see a pretty straight drop down do about 1.1000 so I've put in a stop sell order down at 1155.

I'm keeping my eye on eur/jpy. I think it's due for a correction lower but there's no way I'll go short - it might still spike into 15000. I'll wait for 14900-ish before looking to buy.

My bids on both aud/usd and eur/usd were filled overnight. Here are the charts.

The eur/usd isn't looking as strong as the aud/usd but I think it has more to do with eur/jpy sales than anything.

I've put in a bid on eur/jpy at 14915 (@ 1:2). I think we've got a long way to go yet.

The short usd/cad trade hasn't done much with the mixed usd strength in the other pairs. My sell stop at 1155 still hasn't been filled. I've put in a stop above yesterday's Retail Sales high at 1220. CPI comes out 1 hour from now so I'll just sit tight.

My usd/jpy offer was also hit overnight at 11600 (@ 1:2). If we get above 11650 I start thinking about getting out.

[12:28 EUR/USD: Soft New York Opening Has US Traders Re-evaluating] New York August 22. Softer than expected Eurozone data was the backdrop for the NY open, with most of the damage done already. The pair is trading in a tentative 1.2805-15 range as spot traders try to re-arrange their thought processes. Yesterday the US market came in with the Euro roaring like a bull, making new highs for the month, and even at the close the pair was still clinging to the vestiges of a potential overnight bull run. Weak ZEW (act. 1.3 exp. 15.0, prev. 18.1) , and weak EUR industrial orders has knocked the stuffing out of the pair, but traders are reluctant to sell here.The Chicago futures market has dumped about 50 mln EUR or so, and futures traders are poring over their IMM charts to determine just how weak this sell off has made EUR/USD look.
Source: [IFR Forex Watch]

I'm actually going to hang in here. aud/usd is still looking strong, and the eu/usd is holding above Friday's low. usd/jpy is still holding onto 116.50 but if I have to start covering my usd shorts it will be the first to go. usd/cad is actually weaker and my sell stop was hit so now I'm I've doubled my usd/cad short to 1:4 with an ave. price of 1167. I'm also looking into cad/jpy now that's approaching the critical 105.00 area.

Here's the chart of my entry on the eur/jpy (149.15 @1:2).

Nowadays I think prognostication is 5% and execution 95%. It's all about execution and that's why trading off long term fundamentals is so hard - you may be right in the end but your pay-off might not be that great. You can still be wrong and make money. Short term fundamentals (read market mechanics) need to be part of the trading plan, 'cause, like I said, it's all about execution.

I'm still holding onto all my positions and have just had another offer in usd/jpy filled at 11661 (1:10) with a tight stop at 11687. I think we're overstretched and with the stops at 11685 having just been washed out a reversal is likely. Infact, I've been expecting the usd/jpy to tumble really hard soon - this could be the top.

I've decided usdcad is way overextended and have taken my profits at 1064.

The audusd buy stop got filled at 7645. and I'm holding at 1:6 leverage.

I've put in stops on the eur/usd at 2780/2770

In line with me closing my short usd/cad I've also gone short cad/jpy at 105.13 (1:4).