FXCM/DailyFX Signals and Strategies

Investors Shun US on Fiscal Cliff, Euro could revisit September Highs

Jim O'Neill, Chairman of Goldman Sachs Asset Management made the following comment on CNBC's Squawk Box this morning.

"More and more longer-term investors are being influenced by [the fiscal cliff impasse] and are starting to think Europe has dealt with some of its long-term issues, even though the economies are weak. I detect the first signs of people shifting more towards Europe from the U.S."

The latest Speculative Sentiment Index (SSI) readings from DailyFX PLUS support this bullish view on the Euro. The ratio of long to short positions in the EURUSD stands at -2.39 as approximately 29% of traders are long.

https://media.dailyfx.com/illustrati..._Picture_2.png

We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the EURUSD may continue higher. Current SSI is lower than yesterday and lower from last week. The combination of current sentiment and recent changes gives a further bullish trading bias.

http://img856.imageshack.us/img856/7...ichi200sma.png

Tyler Yell, DailyFX Trading Instructor shared the chart above which shows the Ichimoku Cloud. The EUR/USD price is currently trading above the Kumo (cloud) which is a buy signal for that indicator.

Pricing Channels Signal Possible Drop in Oil Prices

UKOil (Brent) has been moving lower in a pricing channel on the daily chart since it created a high at 117.92 on September 14th. Resistance has been formed by connecting a series of highs from the 14th including yesterday’s move to a lower high at 112.30.

http://img849.imageshack.us/img849/6282/ukoildaily.png
(Created by DailyFX.com Trading Instructor Walker England using FXCM’s Marketscope 2.0 charts)

As price turns from this resistance point, channel traders will look for a longer term move back to its daily line of support shown above. We can get an indication for a possible entry point to go short by looking at the 2-hour chart below. It shows that UKOIL beginning to test a short term support line.

http://img19.imageshack.us/img19/5312/ukoil2hour.png
(Created by DailyFX.com Trading Instructor Walker England using FXCM’s Marketscope 2.0 charts)

Price has been steadily increasing along this point since the creation of the standing low at 104.74. Now that price has moved off of daily resistance line mentioned in our previous chart, channel traders can look for a break of this short term level of support for new trade entries.

NZD/USD - Trading the Reserve Bank of New Zealand Rate Decision

The Reserve Bank of New Zealand is widely expected to keep the benchmark interest rate at 2.50% in December, but the statement accompanying the rate decision may increase the appeal of the high-yielding currency should the central bank drop its dovish tone for monetary policy.

Time of release:12/05/2012 20:00 GMT, 15:00 EST
Primary Pair Impact: NZDUSD
Expected: 2.50%
Previous: 2.50%
DailyFX Forecast: 2.50%

Currency Analyst David Song highlighted his approach for trading this announcement in an article today on DailyFX.com:

"...the policy statement may instill a bullish outlook for the New Zealand dollar should the central bank drop its dovish tone for monetary policy. Therefore, if Governor Wheeler talks down expectations for a rate cut, we will need to see a green, five-minute candle following the announcement to establish a buy entry on two-lots of NZDUSD.

http://media.dailyfx.com/illustratio...eenShot107.png

"Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our first objective. The second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its mark in order to preserve our profits."

Possible trend shift in EURAUD – going short

The Tidal Shift Strategy on DailyFXplus.com has just sold EURAUD at 1.23632. Tidal Shift is a trend trading strategy that aims to catch shifts in trend using trader sentiment as an indicator.

Time Issued: Thursday, 06 December 2012 16:01:16 GMT
Status: open
Entry: 1.2342 - 1.23844
Limit: N/A
Trailing Stop: 1.24479

The system recommends entering this trade at any price between 1.2342 and 1.23844. The signal was issued because our Speculative Sentiment Index has hit its most extreme positive level for the past 145 trading hours at 1.94496, which suggests that the EURAUD could be trending downwards.

http://img14.imageshack.us/img14/734...december06.png

The 14-period Average True Range on a daily chart is 0.00169, so the stop loss has been set at 1.24479. This stop loss order is a trailing stop that will move down as the market moves down. There is no profit target for this strategy, since the idea is for it to be closed by the trailing stop.

US Dollar Outlook Propped Up By NFPs - All Eyes On FOMC

The 146K rise in U.S. Non-Farm Payrolls increased the appeal of the US Dollar ahead of the Federal Open Market Committee (FOMC) interest rate decision, and the meeting may prop up the reserve currency in the week ahead should the central bank carry its wait-and-see approach into the following year.

http://media.dailyfx.com/illustratio...eenShot118.png

The Dow Jones-FXCM US Dollar Index (Ticker: USDOLLAR) remains 0.08 percent higher from the open after moving 104 percent of its average true range, and the rebound from 9,917 may get carried into the following week as the fundamental outlook for the world’s largest economy improves.

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As the 30-minute relative strength index appears to be carving an upward trend, we may see former trendline resistance act as new support, and the dollar may continue to retrace the decline from the previous month amid the more broad-based recovery in the world’s largest economy.

Crude Oil, Gold Vulnerable as "Fiscal Cliff" Fears Return

Republicans and Democrats have been at loggerheads on a compromise plan to avoid the "fiscal cliff" and more of the same is likely to weigh on risk appetite. Such an outcome is likely to produce losses for risk-linked crude oil while gold sees de-facto pressure amid returning haven demand for the US Dollar.

WTI Crude Oil (NY Close): $85.93 // -0.33 // -0.38%
http://media.dailyfx.com/illustratio..._Picture_4.png
Daily Chart - Created Using FXCM Marketscope 2.0

Oil prices moved lower as expected after putting in a Shooting Star candlestick. A bearish continuation Flag chart pattern now appears to be in the works, with a break of support at 85.76 confirming the setup and initially exposing the 38.2% Fibonacci expansion at 84.04. Near-term, resistance is at 89.19. A push above that aims for the Flag top at 90.76.

Spot Gold (NY Close): $1704.05 // +4.15 // +0.24%
http://media.dailyfx.com/illustratio..._Picture_3.png
Daily Chart - Created Using FXCM Marketscope 2.0

Gold prices broke lower after putting in a Bearish Engulfing candlestick pattern, taking out support at a rising trend line set from late June. Sellers now aim to challenge the November 5 low at 1672.50. The trend line (now at 1711.06) has been recast as resistance, with a push back above that aiming to challenge 1752.55.

Strategists and Sentiment Point to Further Euro Gains

Strategists are looking to invest in Europe instead of the US as the better investment at least in the early part of 2013. The number one reason: the US Fiscal Cliff. Below is a quote from Garry Evans, Global Head of Equity Strategy at HSBC from an article today on CNBC.

"The 'fiscal cliff' in the U.S. is a worry, and that's one of the reasons that I'm underweight the U.S. and I prefer Europe - it's a bit of an unusual place to be."

http://img441.imageshack.us/img441/7...december11.png

If big financial institutions shift more of their portfolios from the US to Europe, you can expect EUR/USD to rise above 1.3000. The latest readings from the Speculative Sentiment Index (SSI) on DailyFXplus.com give further support to this bullish outlook on the Euro in the near term.

http://img268.imageshack.us/img268/9...kingoutofm.png

The ratio of long to short positions in the EURUSD stands at -1.89 as approximately 35% of traders are long. Yesterday the ratio was -1.34; 43% of open positions were long. In detail, long positions are 14.2% lower than yesterday and 23.5% above levels seen last week.

http://img854.imageshack.us/img854/9...kingoutofm.png

Short positions are 21.4% higher than yesterday and 21.3% below levels seen last week. Open interest is 6.2% higher than yesterday and 2.4% below its monthly average. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the EURUSD may continue higher.

SSI: EUR/USD Rally May Have Legs into 1.3100

With the Fed meeting in focus, the shift away from the US Dollar has begun. The EURUSD has cleared 1.3010/30 resistance and has retraced nearly all of its losses since Thursday. The latest readings from the Speculative Sentiment Index (SSI) on DailyFXplus.com suggest that this rally has the potential to take the single currency to 1.3100 and beyond.

http://img826.imageshack.us/img826/5...december12.png

The ratio of long to short positions in the EURUSD stands at -2.21 as approximately 31% of traders are long. Yesterday the ratio was -1.90; 35% of open positions were long. In detail, long positions are 7.2% lower than yesterday and 12.8% above levels seen last week.

https://media.dailyfx.com/illustrati..._Picture_5.png

Short positions are 7.8% higher than yesterday and 5.7% below levels seen last week. Open interest is 2.6% higher than yesterday and 1.6% above its monthly average. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the EURUSD may continue higher.

Australian Dollar Sentiment Warns of Extremes

http://img838.imageshack.us/img838/3...00112012de.png

According to the latest SSI readings, retail trading crowds are their most aggressively short the Australian Dollar against the US Dollar (ticker: USDOLLAR) since it traded above $1.08 in February, and a contrarian view calls for continued strength.

http://media.dailyfx.com/illustratio...Picture_12.png

It is critical to note that such one-sided sentiment often coincides with major tops and bottoms, and recent CFTC Commitment of Traders data shows that large speculators are their most net-long AUDUSD in history.

US Dollar Targets Losses

A fresh wave of Quantitative Easing from the US Federal Reserve was enough to push the US Dollar (ticker: USDOLLAR) lower cross the board, and current price momentum leaves short-term trading outlook in favor of Greenback losses.

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The final revision to Third Quarter US GDP growth could force some sharp short-term swings in the US currency, while late-week Personal Income and Spending as well as PCE Deflator results may affect inflation and employment expectations.

USD/JPY Pullback Underway Towards Former Resistance

The USD/JPY gapped sharply higher at the open of the trading week after Shinzo Abe reclaimed the position of prime minister as his LDP party put in a commanding at the weekend’s general election. Some pullback to former resistance levels is now expected.

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DailyFX Senior Technical Strategist Jamie Saettele says "Nimble short term traders may wish to trade from the short side towards 8283 USDJPY (resistance is now 8391). I’ll be looking for USDJPY longs below 8283."

http://media.dailyfx.com/illustratio...ody_usdjpy.png

The ratio of long to short positions in the USDJPY stands at 1.43 as approximately 59% of traders are long. Yesterday the ratio was 1.30; 57% of open positions were long.

http://img138.imageshack.us/img138/3...december17.png

We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the USDJPY may continue lower.

GBP/USD- Trading the Bank of England (BoE) Minutes

Time of release: 12/19/2012 9:30 GMT, 4:30 EST
Primary Pair Impact: GBP/USD

The Bank of England (BoE) Minutes to be released Wednesday morning may reinforce a bullish outlook for the British Pound as the central bank softens its dovish tone for monetary policy, and the fresh batch of central bank rhetoric may trigger a short-term rally in the GBPUSD as market participants scale back bet for more quantitative easing.


Potential Price Targets For The Policy Statement

The BoE Minutes may spark a run at the September high (1.6308) should the central bank talk down speculation for more QE, and we may see the GBPUSD trade a fresh yearly highs ahead of the New Year as interest rate expectations pick up.

http://media.dailyfx.com/illustratio...eenShot129.png

However, the pound-dollar may struggle to hold above the 23.6% Fibonacci retracement from the 2009 low to high around 1.6200 if we see the central bank show a greater willingness to expand its balance sheet further, and the GBPUSD may face a sharp reversal as it remains capped around the 1.6300 figure.

Trading the Bank of Japan Rate Decision

The Bank of Japan's last monetary policy announcement of the year coming out tonight (Thursday in Japan) takes on greater importance because of the recent election of Shinzo Abe as Prime Minister. The new premier is expected to pressure the BoJ to implement an unlimited asset purchase program to stimulate the economy.

http://media.dailyfx.com/illustratio..._Picture_1.png
Daily Chart - Created Using FXCM Marketscope 2.0

This would have the effect of decreasing the value of the yen relative to other currencies including the US Dollar. Currently, USD/JPY prices are testing resistance at 84.54, the 50% Fibonacci expansion, with a confirmed break higher exposing the 61.8% level at 85.14. Near-term support is at 83.83, the 38.2% expansion. A drop below that targets the 23.6% Fib at 83.01.

SSI: Noteworthy Shift in NZDUSD Positioning as Pair Pulls Back

There's more to the Speculative Sentiment Index (SSI) than simply the bullish or bearish signal it gives based on whether traders are net short or net long. You can also get a signal from the relative change in the positioning of traders. Short term traders can use this info to take positions fading the long term trend. Long term traders can look to these inflection points to take some profits or potentially add to their position on a retracement.

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For example, traders have been net short NZD/USD since November 18th. You can see from the chart above that this has coincided with the gains in the pair over the past 30 days confirming SSI's usefulness as a contrarian indicator. However as you can see from the information below, there has been a significant change in the percentage of short positions over the last 24 hours.

https://media.dailyfx.com/illustrati..._Picture_5.png

The ratio of long to short positions in the NZDUSD stands at -3.49 as approximately 22% of traders are long. Yesterday the ratio was -5.29; 16% of open positions were long. In detail, long positions are 18.5% higher than yesterday and 20.0% above levels seen last week. Short positions are 21.9% lower than yesterday and 34.4% below levels seen last week. Open interest is 15.5% lower than yesterday and 0.0% above its monthly average.

https://media.dailyfx.com/illustrati..._Picture_6.png

We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the NZDUSD may continue higher, however, since SSI is not as negative as it used to be, this could indicate that in the short term there may be some consolidation or retracement before the long term trend resumes.

Jason, can you comment on spike on spx500, please? I see this si not broker specific as Oanda has the same price move...Why did this move occur? Thanks!!

Hi IP,

Sorry for not replying sooner, but I was out of the office for the holidays. I just checked with our trading desk, and they confirmed that the price action came from the underlying futures due to a political news. That is why you saw the same spike with other brokers. If you have any other questions about this, feel free to ask me in our main discussion thread.

Happy New Year

Jason

As we begin the new year, there are some signs that USD/JPY could sell off.

USD/JPY Weekly
http://media.dailyfx.com/illustratio...ody_usdjpy.png

The pair is currently testing resistance from late 2008 / early 2009 lows.

USD/JPY Daily
http://media.dailyfx.com/illustratio...y_usdjpy_1.png

There is also a sharp channel resistance on the daily chart.

http://media.dailyfx.com/illustratio..._Picture_8.png

USD/JPY is also approaching 87.56, which is the 61.8% retracement level of a multi-year decline.

https://media.dailyfx.com/illustrati..._Picture_5.png

It is worth noting that SSI is bullish at -1.07 if only slightly.

SSI: Australian Dollar Forecast Turns Bullish

The latest readings from the Speculative Sentiment Index (SSI) show that traders have flipped from being long AUD/USD to being short the pair. Since SSI is a contrarian indicator, this change is a bullish signal for the Australian Dollar going into tomorrow's key Non-Farm Payrolls report.

https://media.dailyfx.com/illustrati..._Picture_7.png

The ratio of long to short positions in the AUDUSD stands at -1.34 as 43% of traders are long. Yesterday the ratio was -1.06; 49% of open positions were long.

https://media.dailyfx.com/illustrati..._Picture_5.png

Short positions are 30.1% higher than yesterday and 42.7% above levels seen last week. Open interest is 16.8% higher than yesterday and 24.7% below its monthly average.

https://media.dailyfx.com/illustrati..._Picture_6.png

Japanese Yen Falls Sharply, but is Reversal Near?

SSI's usefulness as a contrarian indicator has been confirmed once again by the recent gains in USD/JPY. This has coincided with the recent period in which traders have been net short the pair. However, a key divergence in the latest SSI readings warns that an important turning point is could be near.

http://media.dailyfx.com/illustratio..._Picture_5.png

The pair has hit fresh highs but total retail short positions have actually fallen.

http://media.dailyfx.com/illustratio..._Picture_6.png

When the price rises and traders cut back on short positions, this can often mean the price is near an important reversal.

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Combined with potential sentiment extremes seen through Forex Futures and Options markets, the risk of market turnaround is quite high.

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According to the CFTC Commitment of Traders report, large speculative futures traders are now their most net-short the Japanese Yen (long USDJPY) since the pair traded near key long-term peaks in 2007.

SSI: Traders Once Again Net-Short GBPUSD

https://www.tradingcentral.com/chart...0131802523.GIF

The latest readings from the Speculative Sentiment Index (SSI) on DailyFXplus.com indicate that traders are once again net short GBP/USD. Since SSI is a contrarian indicator, this change could indicate that the pair could continue higher.

https://media.dailyfx.com/illustrati..._Picture_7.png

The ratio of long to short positions in the GBPUSD stands at -1.13 as 47% of traders are long. Yesterday the ratio was 1.10; 52% of open positions were long. Long positions are 12.1% lower than yesterday and 119.1% above levels seen last week.

https://media.dailyfx.com/illustrati..._Picture_5.png

Short positions are 9.9% higher than yesterday and 29.3% below levels seen last week. Open interest is 1.6% lower than yesterday and 7.9% below its monthly average.

https://media.dailyfx.com/illustrati..._Picture_6.png