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Identifying Market Swings - Medium and Long Term Trading

  • #81
  • Jan 31, 2010 12:34pm Jan 31, 2010 12:34pm
RazorJack,
Thank you very much for creating this threat, it is very instructional for new traders.

I'm learning how to trade "conservative" currencies (JPY, USD, and CHF) vs "liberal" currencies AUD (and NZD), CAD, and EUR.
In general they what we call "conservative" currencies, as a whole group gain strenght when the "liberal" currencies loose it, creating cicles with opportunities.
See the attached drawing with the AUD/JPY (most volatile pair) reaction to the debit crisis late 08. Notice at the bottom the relative strenght of each currency.
I'm trying to learn more about your amazing view of the whole picture and apply it. I don't have the knolowdge to do so, so now I'm looking for the books you suggested, but I have questions about them:

 

  1. Fundamentals and Intermarket Analysis: I found two books with the same name, one of them is Louis B. Mendelsohn and the other is Asraf Laidi Which one is the one that you recommend?
  2. Victor Sperandeo has many books published, would you recommend Trader Vic II for Forex applications?

I look for the opportunities in the short term.
Would you cuncurr that in this week what we call "liberal" currencies AUD, NZD, CAD and EUR will get strenght agains the conservative (JPY, USD, CHF) creating opportunities to sell AUD/JPY; AUD/USD; NZD/JPY; NZD/USD; CAD/JPY; CAD/USD etc...?

Once again, thank you for the guidance.

Attached Image (click to enlarge)
Click to Enlarge Name: AUDJPY debit crisis.jpg Size: 138 KB
  • #82
  • Jan 31, 2010 12:41pm Jan 31, 2010 12:41pm
Sorry about my english.

In the last post I meant opportunities to BUY AUDJPY, AUDUSD, AUDCHF, NZDJPY, NZDUSD, CADJPY, etc
Thanks
  • #83
  • Jan 31, 2010 7:18pm Jan 31, 2010 7:18pm
sorry for the late reply.

I also have read Kathy Lien's book .
it is gd for beginner.

i hv a qn.
how to determine the major turning point with precision.
as far i can remember three major events happened in sequence:

1. china increases bank reserve ratio
2. Dubai debt problem
3. Obama proposed financial reform

EUR/USD turned after event 2.

if we short EUR/USD after event 3,
is there a possibility we only can only catch a small part of the big move ?

furthermore, i think the down move is a correction
- may not be the long term trend.


thank you for any feedback or comment.

my motto: only through criticism - one can learn or improve.
  • #84
  • Feb 1, 2010 3:36am Feb 1, 2010 3:36am
Quoting rac
RazorJack,
Thank you very much for creating this threat, it is very instructional for new traders.

I'm learning how to trade "conservative" currencies (JPY, USD, and CHF) vs "liberal" currencies AUD (and NZD), CAD, and EUR.
In general they what we call "conservative" currencies, as a whole group gain strenght when the "liberal" currencies loose it, creating cicles with opportunities.
See the attached drawing with the AUD/JPY (most volatile pair) reaction to the debit crisis late 08. Notice at the bottom the relative strenght of...
Hi Rac,

I'm learning how to trade "conservative" currencies (JPY, USD, and CHF) vs "liberal" currencies AUD (and NZD), CAD, and EUR.
In general they what we call "conservative" currencies, as a whole group gain strenght when the "liberal" currencies loose it, creating cicles with opportunities.

What you call "conservative" is what most people call "safe haven" currencies and "liberal" is referred to as "riskier" currencies. But yes, you have the right idea.


Fundamentals and Intermarket Analysis: I found two books with the same name, one of them is Louis B. Mendelsohn and the other is Asraf Laidi Which one is the one that you recommend?

I have the one by Asraf Laidi and it is EXCELLENT. I haven't read the one by Louis B. Mendelsohn, but I'll look into it.

I look for the opportunities in the short term.
Would you cuncurr that in this week what we call "liberal" currencies AUD, NZD, CAD and EUR will get strenght agains the conservative (JPY, USD, CHF) creating opportunities to sell AUD/JPY; AUD/USD; NZD/JPY; NZD/USD; CAD/JPY; CAD/USD etc...?

Sorry about my english.

In the last post I meant opportunities to BUY AUDJPY, AUDUSD, AUDCHF, NZDJPY, NZDUSD, CADJPY, etc
Thanks

No problem, there is a button where you can edit your posts, just click on the "edit" button at the bottom of the post you want to change.

Ok, now to your question:

There are many trends that are happening right now. I focus on 3 of them, Short Term (Days to weeks), Medium Term (Weeks to months) and Long Term (Months to years).

The Long Term is pointing upwards. The Medium Term is currently down, this is what I would call a correction of the Long Term. Then there is the short term.

The Short Term MIGHT head up for a few days because the current correction will need to take a breather before continuing further.

However, I do not trade the short term, so I'm not making any recommendations.

What I'm looking for is the Medium Term down trend (Long Term correction) to swing back upwards and so I can get in at the start of the 2nd leg of the Long Term. Before this will happen, I'm looking for AUDUSD to get below 0.87 and USDCAD to get above 1.0750. Once these 2 pairs reach these levels then I will look for SIGNS and INDICATIONS of a reversal.

Hope this made sense.
-Razorjack
  • #85
  • Feb 1, 2010 4:14am Feb 1, 2010 4:14am
Quoting peter lee
sorry for the late reply.

I also have read Kathy Lien's book .
it is gd for beginner.

i hv a qn.
how to determine the major turning point with precision.
as far i can remember three major events happened in sequence:

1. china increases bank reserve ratio
2. Dubai debt problem
3. Obama proposed financial reform

EUR/USD turned after event 2.

if we short EUR/USD after event 3,
is there a possibility we only can only catch a small part of the big move ?

furthermore, i think the down move is a correction
- may not be...
how to determine the major turning point with precision.
as far i can remember three major events happened in sequence:

1. china increases bank reserve ratio
2. Dubai debt problem
3. Obama proposed financial reform

Dubai debt crisis started Nov 25, 2009. China increased reserve ratios over the weekend of 23-24 Jan 2010 and Obama proposed financial reform last week.

EUR/USD turned after event 2.

Yes, EUR, AUD, NZD, CAD, etc turned downward after the Dubai crisis not only against the USD but also against JPY.

if we short EUR/USD after event 3,
is there a possibility we only can only catch a small part of the big move ?

The market reaction from this announcement is already over.

It will take several weeks/months before we see what the actual reformations are. How the markets will react to that will depend on the what the reforms look like and the market conditions.

I personally would not look for shorting EURUSD after this event alone. I think there are much better opportunities.

For instance, if I were tell you that after the fall out of China tightening monetary policy and commodity prices fall to a low enough level, then we can expect to see demand for commodities surge again. We're also starting to see the UK and US economy pick up momentum with the US possibly raising interest rates later this year. And we can expect the Japanese economy struggle for a while longer, with very low inflation and thus low interest rates for year to come.

These are the LARGEST market forces out there right now that we can be sure of. What happens after the bank reforms is not certain.

So what does this tell you? What should we be looking for? And which currency pairs should we look at for the best opportunities?

furthermore, i think the down move is a correction
- may not be the long term trend.

Excellent observation!

The way I look at it is, that it is a down trend in the MEDIUM TERM or long term CORRECTION.
-Razorjack
  • #86
  • Feb 1, 2010 4:50pm Feb 1, 2010 4:50pm
sorry. i have the sequence of the 3 events mixed up.

based on your described scenario,

since US economy will pick up, commodities price will go up,
equity will go up too.

this means eur/usd, gbpusd, aud/usd will go up.

with jpy interest rate remains low,
gbp interest rate and US interest rate on up trend

i think it is better to long gbp/jpy on dips,
which is also in line with carry trade.

pse comment the above.
  • #87
  • Feb 1, 2010 7:37pm Feb 1, 2010 7:37pm
Hi Razorjack:

This is an excellent thread. I was looking up for something like this months back and found sliver of next to nothing until I did a search again recently.

Well done mate! Looking forward to learning from you.
  • #88
  • Feb 1, 2010 8:42pm Feb 1, 2010 8:42pm
Quoting Razorjack
Hi Rac,

I'm learning how to trade "conservative" currencies (JPY, USD, and CHF) vs "liberal" currencies AUD (and NZD), CAD, and EUR.
In general they what we call "conservative" currencies, as a whole group gain strenght when the "liberal" currencies loose it, creating cicles with opportunities.

What you call "conservative" is what most people call "safe haven" currencies and "liberal" is referred to as "riskier" currencies. But yes, you have the right idea.


[color=#0000ff][b]Fundamentals...
Hi Razor, Thank you for your kind answer, I already ordered the books, I'm looking forward to read them soon.
It seems that the "riskier" currencies are definetilly gaining strenght against the "safe heaven" currencies. I cannot tell if this is the actual begining of an upward mid term cicle yet, but my indicators show gain.
They might be raising the AUD interest rate today, that will give the AUD even more strenght against JPY, USD and CHF.
Can I ask what kind of technical analysis you use to decide your enter points that show signs of reversal?
  • #89
  • Feb 2, 2010 3:37am Feb 2, 2010 3:37am
Quoting peter lee
sorry. i have the sequence of the 3 events mixed up.

based on your described scenario,

since US economy will pick up, commodities price will go up,
equity will go up too.

this means eur/usd, gbpusd, aud/usd will go up.

with jpy interest rate remains low,
gbp interest rate and US interest rate on up trend

i think it is better to long gbp/jpy on dips,
which is also in line with carry trade.

pse comment the above.
OK, you're getting closer but you're misinterpreting some information. I think you will learn much more if I guide you and you figure out the answers.

So let's try again:

since US economy will pick up, commodities price will go up,
equity will go up too.

Yes, I believe this is true, but your reasoning is a bit off.

Commodities prices will not go up because the US economy is picking up. In my opinion, commodities had a huge uptrend in 2009 because of 2 main reasons:

1. The weak USD. The value of USD is driven by supply and demand just like every thing else. Commodity prices are denominated in USD and a weaker USD means more dollars are required to by the same amount of commodities.

2. China's credit fueled economic boom. China's massive credit expansion has fueled an economic boom that drove up demand for commodities especially metals.

So commodities prices won't go up because the US economy is picking up. Commodities prices will go up again if we see increased demand from US, China, Europe, etc and if we see the USD appreciate at a SLOWER pace than commodities prices.

And if commodities will go up, then which countries will benefit from this?

this means eur/usd, gbpusd, aud/usd will go up.

AUDUSD, yes.

EURUSD will depend upon how well the European economy does while being dragged down by the PIGS (Portugal, Ireland, Greece and Spain).

GBPUSD looks like it's close to the bottom, but it depends on how quickly the UK economy will accelerate in comparison to the US.

But one of the most important things here is that right now the US economy SEEMS to be accelerating faster than the EZ and the UK.

with jpy interest rate remains low,
gbp interest rate and US interest rate on up trend

i think it is better to long gbp/jpy on dips,
which is also in line with carry trade.

Close but not quite.

1. Think about how the carry trade works, what should you be looking for in currency pairs when considering the carry trade? If you don't have this then the carry trade won't be profitable.

2. JP interest rates (0.1%) will be low for quite some time and US interest rates are likely to be raised this year to 0.5%. Based on this, which currency will be used for the carry trade in 2010?

3. Remember that carry trades are not only for currencies, but carry trades can be used for commodities, investments in to developing countries, etc. We saw this with alot cheap USD to fund investments into gold, oil, copper, etc as well as equities in developing countries like Brazil, China, Russia, etc.

OK, now give it another try. Based on all of the above, which currency pairs can we expect to make the biggest gains in 2010?
-Razorjack
  • #90
  • Edited 9:43am Feb 2, 2010 3:57am | Edited 9:43am
Quoting rac
Hi Razor, Thank you for your kind answer, I already ordered the books, I'm looking forward to read them soon.
It seems that the "riskier" currencies are definetilly gaining strenght against the "safe heaven" currencies....
It seems that the "riskier" currencies are definetilly gaining strenght against the "safe heaven" currencies. I cannot tell if this is the actual begining of an upward mid term cicle yet, but my indicators show gain.

Yes, it looks like this but there is a tricky part here. We may see the uptrend sooner in currencies like AUD, NZD and CAD against the JPY before they gain on the USD. I don't trade CHF. The reason is that the US economy is accelerating and I don't think that AUDUSD and USDCAD have completed their corrections yet.

This you can see if you look at USDJPY, if it breaks upward out of the down trend then it's a good sign that the JPY crosses are appreciating.

They might be raising the AUD interest rate today, that will give the AUD even more strenght against JPY, USD and CHF.

Not quite, an RBA interest rate hike was already factored into AUD prices. That's why we saw it drop when the RBA didn't raise rates.

However there are much bigger economic forces than interest rates in Australia. For instance the RBA tightening monetary policy won't impact the global economy as much as China tightening monetary policy.

This means that in the current situation China's monetary policy has a bigger influence on the global economy, including AUD, NZD, etc then Australia's monetary policy. And it looks like investors are interpreting no further monetary tightening in China.

This is why I don't expect the AUD to fall much further, right now the Aussie economy is influenced more by China than what happens in Australia.

Can I ask what kind of technical analysis you use to decide your enter points that show signs of reversal?

Once I have my fundamental views clear then I look at price action around major Support / Resistance levels, long term fib levels, round numbers, "psych" numbers, trend lines and volume. I also compare the latest short, medium and long term swings and compare them to historical swings for getting an idea of price exhaustion.
-Razorjack
  • #91
  • Feb 2, 2010 4:09am Feb 2, 2010 4:09am
I notice you said Aud won't fall much further because of the china monetary tightening. Are you sure that is correct?
  • #92
  • Feb 2, 2010 4:18am Feb 2, 2010 4:18am
It looks like the JPY crosses have reached exhaustion points in the medium term.

There are still uncertainties around China's monetary policies, but it looks like there is accumulation into carry trade positions.

I started building my positions last week and the JPY crosses look like they are about to head up. Even after the "shock" of the RBA not raising rates, I believe that AUD will not go much further than yesterday's low.

Just one word on the RBA not raising interest rates today. You can't trust economists to predict this stuff when half the time they really don't have the entire picture. Many economists predicted the accelerating Aussie economy would be enough to warrant a rate hike. What they may have forgot to take into consideration was what was driving the Aussie economy: China. Without China, the current AU economy would take a serious hit. The RBA would be foolish to raise interest rates if their golden goose (China) is not going to lay as many golden eggs as before (trying to cool economic growth).

Anyways, it wasn't much of a shock to me, as I thought it was more of a 50-50 chance of RBA raising rates with the uncertainty in China.

Ok, back to the topic.

It's hard to tell whether this will be the beginning of the 2nd leg in the long term as we will need to wait for confirmation regarding China's monetary policy. If there is further tightening then I expect another down swing after the medium term upswing. However if there is no further tightening thenI will look to increase my positions.

Of course I could also be completely wrong!

But for now it looks like things are lining up.

Comments? Feedback?
-Razorjack
  • #93
  • Edited 4:44am Feb 2, 2010 4:26am | Edited 4:44am
Quoting dre3029
I notice you said Aud won't fall much further because of the china monetary tightening. Are you sure that is correct?
Hi Dre,

Did I write that? I couldn't find it. Could you please copy and paste the text you're referring to?

I meant the exact opposite.

What I meant was that China's monetary policy will have a much bigger impact on the global economy than Australia's monetary policy, simply because China is a much larger economy which trades with every major economy in the world. That's all. Nothing about how this will impact the AUD.

The point I was trying to make was to look at the BIGGER picture, focus on the engine behind the global economic recovery (China) instead of one of the benefiters (Australia). This will make it easier to see which way the markets will move.

Also the reason why I don't think AUD will fall much further because the JPY crosses look like they have reached short and medium term exhaustion and there are signs of accumulation into carry trade positions. And this could be due to investors believing that we've seen the end of China's monetary tightening for the moment.

Hope this made more sense.
-Razorjack
  • #94
  • Edited 9:21am Feb 2, 2010 8:50am | Edited 9:21am
^^It was in post 93 towards the bottom.



So you're saying that a pair like audjpy will appreciate because of the carry trade and people buying AUD is gonna push the audusd up?

Also, what makes you believe investors think that China's monetary policy is done at the the moment. I'm just trying to find where you got the info to come up with that idea so I can draw my own conclusions in the future?

BTW, thanks! I used to be scared of fundies but now they are really starting to make sense. You're a great tutor/mentor and one day I hope to be able to pay my dues and give back.
  • #95
  • Edited 3:13pm Feb 2, 2010 9:17am | Edited 3:13pm
Quoting dre3029
It was in post 93 towards the bottom.



So you're saying that a pair like audjpy will appreciate because of the carry trade and people buying AUD is gonna push the audusd up?
It was in post 93 towards the bottom.

?????

Post 93 is AFTER your question. It should be a post before your question. Like I wrote, can you quote the text you're referring to, it would make it easier for me to see and explain.

So you're saying that a pair like audjpy will appreciate because of the carry trade

Yes, when the markets move towards risk appetite.

and people buying AUD is gonna push the audusd up?

This depends on how fast the USD strengthens, when we move towards risk appetite. Right now it looks like AUD will strengthen faster than USD in 2010.

However I think the biggest gains will be in the JPY crosses, not in the USD pairs. As the US economy looks like it will recover faster than JP economy. So I am not really even looking at the USD pairs unless there is major risk aversion.

I forgot to mention, that it's not ONLY because of the carry trade, but AUD is a commodities currency. So an uptrend in commodities will push up AUD, NZD and/or CAD, depending on the commodity. So there are several fundamental indicators pointing to AUD, which in my opinion makes it a very good opportunity.
-Razorjack
  • #96
  • Feb 2, 2010 9:28am Feb 2, 2010 9:28am
Quoting Razorjack
It was in post 93 towards the bottom.

?????

Post 93 is AFTER your question. It should be a post before your question. Like I wrote, can you quote the text you're referring to, it would make it easier for me to see and explain.

So you're saying that a pair like audjpy will appreciate because of the carry trade

Yes, when the markets move towards risk appetite.

and people buying AUD is gonna push the audusd up?

This depends on how fast the USD strengthens,...

Sorry!! It was post #90. I looked and the wrong number. But this is what you wrote:


However there are much bigger economic forces than interest rates in Australia. For instance the RBA tightening monetary policy won't impact the global economy as much as China tightening monetary policy.

This is why I don't expect the AUD to fall much further, the Aussie economy is more dependent on China than what happens in Australia.
  • #97
  • Feb 2, 2010 9:30am Feb 2, 2010 9:30am
Quoting Razorjack
It was in post 93 towards the bottom.

?????

Post 93 is AFTER your question. It should be a post before your question. Like I wrote, can you quote the text you're referring to, it would make it easier for me to see and explain.

So you're saying that a pair like audjpy will appreciate because of the carry trade

Yes, when the markets move towards risk appetite.

and people buying AUD is gonna push the audusd up?

This depends on how fast the USD strengthens,...

Ok. For the most part it makes sense and is what I was thinking all along. Thanks !
  • #98
  • Feb 2, 2010 9:41am Feb 2, 2010 9:41am
Quoting dre3029
Sorry!! It was post #90. I looked and the wrong number. But this is what you wrote:


However there are much bigger economic forces than interest rates in Australia. For instance the RBA tightening monetary policy won't impact the global economy as much as China tightening monetary policy.

This is why I don't expect the AUD to fall much further, the Aussie economy is more dependent on China than what happens in Australia.
Ah, I see how this can be misinterpreted. I'll go back and correct this.

It should read like this:

However there are much bigger economic forces than interest rates in Australia. For instance the RBA tightening monetary policy won't impact the global economy as much as China tightening monetary policy.

This means that in the current situation China's monetary policy has a bigger influence on the global economy, including AUD, NZD, etc then Australia's monetary policy. And it looks like investors are interpreting no further monetary tightening in China.

This is why I don't expect the AUD to fall much further, right now the Aussie economy is influenced more by China than what happens in Australia.

Thanks for pointing that out.
-Razorjack
  • #99
  • Feb 2, 2010 10:30am Feb 2, 2010 10:30am
Fundamentals.. woaah.. @_@
I'm totally blind with the fundies..
I hope reading this thread could help me while relating technical to it.
subscribing
  • #100
  • Feb 2, 2010 6:14pm Feb 2, 2010 6:14pm
1. having seen more discussion posted,
i think it is AUD/JPY has potential to outperform other ccys.

2. I have 2 questions;
(i) do market differeniate
inflation-related and growth-related econ data ?

(ii) do you look at the market sentiment?
if yes, how to recognise it?

(iii) lastly, do you incorporate them in trading?

good day
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