EurAnalysis

I've got a few AUD, NZD, and GBP shorts as Price Action told me to sell on 12/19 at major resistance zones.

However, I'm also looking to add to my ***/JPY longs if/when we get a retrace and form some new higher lows. Especially with AUD/JPY. I don't normally trade for SWAP so that is never really a concern when longing or shorting a pair. You earn it and pay it depending on what trade setup presents itself.

AUD/JPY just happens to be my favorite pair to trade along with EUR/AUD

Agreed! Follow the money...

This is the exact reason I haven't traded any other pairs than yen crosses for almost the last 2 months.

Nice! Yes I made a killing in December when I closed out all of my E/J and A/J longs!

This is the key question for the markets in 2013. Never mind the fiscal cliff, or whether the new Japanese government want a "strong" or "weak" JPY, the fact is that institutional investors and governments rushed to the 'safety' of bonds at the outset of the crisis in 2008 and withdrew trillions of dollars from stock markets in a state of crowd mentality. When broken down, the markets do not work logically - they are driven by human emotion; that is, the desire to avoid losses and to minimise risk. Despite their attempts to appear otherwise, Governments and major institutional investors are no different to John Doe and the vast majority of retail investors.

At the outset of the crisis, fund managers and governments did what was safe - they ran for cover. And they did it en masse; hence the dramatic and powerful downturn as funds were pulled out of stocks. Logic would have said they should have stayed in stocks as the long term historical returns for stocks are significantly better than bonds (stocks have returned almost 6 per cent per year over the past 7 decades, adjusted for inflation). Bonds, on the other hand, offer nothing approaching that, but they do offer 'certainty'. However, there are signs now that fund managers are starting to think the crisis may soon be ending. So the big boys are now emerging from cover and are searching for the higher yields that stocks typically offer.

Those trillions of dollars that have been withdrawn from stock markets which are currently in bonds must return at some time. And crowd mentality (the natural state of markets that are run by human emotion) says that those trillions will be moved in the same direction - back in to stocks.

So what should we retail traders do? If you're a trend trader, this is a good time to be trading - simply follow the trend. Stick to your trading plan, manage your risk and take your profits when they come. Enjoy the ride!

In Currency Market, What's Old Is New Again

By IRA IOSEBASHVILI

In 2013, the U.S. dollar has been behaving like its old self.

Ever since the financial crisis, the dollar has been treated as a haven, rising when investors are feeling fearful and falling when they are feeling brave, a marketwide pattern that came to be known as "risk-on, risk-off" trading.

But this year, the dollar has forged a different path.

It has risen on positive news, gaining against the euro on Jan. 2 after lawmakers in Washington reached a budget accord, potentially averting a U.S. recession. Just days later, when the government released disappointing jobs numbers, the dollar fell.

It is a throwback to precrisis times that has caused a stir among currency investors and strategists. They wonder whether the moves are a sign of a bigger change in trading patterns to come. Some even speculate that the risk-on, risk-off trade may be fading.

http://si.wsj.net/public/resources/i...0108181430.jpg
Some currency investors see a return to trading on fundamentals, not buying and selling on global macroeconomic worries.

That would signal that investors are returning to look more closely at the fundamentals of various countries, buying and selling depending on the health of the economies and outlook for rates rather than based on global macroeconomic worries.

Some of that already can be seen in the dollar's performance this year. Instead of rising and falling against most currencies simultaneously, the greenback has had a decidedly mixed year.

The dollar has risen 0.9% against the euro. At the same time, it has gained against the yen, the South African rand and the Indian rupee. On the flip side, it has fallen against the Mexican peso and Australian dollar.

"It's unlikely that we will go back to the times when the dollar broadly strengthened or weakened against everything," said James Kwok, who runs €12 billion ($16 billion) in currency funds for Amundi London. "Now, the case for dollar strength or weakness becomes more complicated."

Mr. Kwok is reducing the size of what had been his main trade over the past two years, the euro's value against the dollar. The currency pair has long been one of the most popular ways to play off the dollar's role as a haven: Investors embraced the safety of the dollar whenever Europe's debt problems deepened or bought the euro in calmer times.

http://si.wsj.net/public/resources/i...0108183610.jpg

If Europe's crisis continues to ease, the U.S. economy muddles along and China manages its slowdown, there may be fewer reasons to flee to havens, some investors said.

Mr. Kwok said if the U.S. economy continues to improve, the dollar could benefit. He is betting on the greenback against the yen. He also cited the Japanese government's push to weaken the yen as another factor for the trade. Meanwhile, Mr. Kwok is buying other currencies that should gain if global growth picks up, such as the Mexican peso and Canadian dollar, betting they will rise against the euro.

"For the last few years, we've been in an environment where global shocks in the U.S. and Europe drove everything," said Jens Nordvig, chief currency strategist at Nomura in New York. "Now, traders are starting to think more normally about monetary policy and fundamentals."

The trading shift was cemented on Jan. 3, when minutes from the Federal Reserve's December meeting showed several board members advocating an early end to the central bank's bond buying, which had churned cash into financial markets and weakened the greenback. Investors in the past have equated monetary easing with a weaker currency, in part because lower rates make a currency less attractive to hold.

The dollar shot to a three-week high against the euro, and its moves since then haven't followed the old pattern. Traders particularly noted the dollar's moves after the U.S. jobs data on Friday. The report was disappointing to some investors, something that would normally drive them into the dollar. Instead, the currency dropped against the Australian dollar and other "risk" currencies.

Jon Jonsson, who manages about $95 million for J.P. Morgan's JPM +0.20% Ex-G4 fund, which usually buys currencies other than the dollar, euro, yen and British pound, increased his bets on the Mexican peso, which he sees gaining as much as 7% against the dollar this year if the country keeps inflation under control and continues to see strong employment growth.

Like Mr. Kwok, he intends to increase his exposure to emerging markets while limiting his bets on the euro against the dollar.

As the U.S. economic recovery gains traction, investors also are trying to factor in an eventual end to the Fed's fiscal stimulus. For the past four years, the Fed has pumped money into the economy and kept rates low, pushing investors to search for yield outside U.S. government bonds. Any signs that the end of Fed support is closer are likely to bring yield seekers into the greenback, driving it higher.

"If the automatic relationship between U.S. yields and economic data is restored, the risk-on-risk-off regime will come to an end," said Kit Juckes, a strategist with Société Générale GLE.FR +3.17% in London, in a note to clients. "This is going to happen at some point this year."

Still, the dollar could quickly snap back to its trading pattern of the past few years if last year's crises re-emerge. Japan's government is set on weakening the yen, the greenback's major rival as a haven. And large investors like the dollar in times of turmoil because it is one of the easiest currencies to buy and sell against most other currencies.

"The dollar is king right now…due to a lack of other alternatives you can deploy to in size," said Eric Upin, chief investment officer for Makena Capital Management, which manages more than $16 billion on behalf of large institutional investors.

Others think the dollar will come out the winner, no matter what.

While any eruption of political wrangling over the coming round of fiscal talks would likely send safety-seeking investors to the dollar, the greenback can also benefit from the relatively strong U.S. economy, said Samarjit Shankar, managing director of global strategy at BNY Mellon in Boston.

"Improving risk appetite is not necessarily bad for the dollar, while risk aversion is still good for the dollar," Mr. Shankar said.

Excellent post PrimeStop! Thanks for sharing your perspective.

morning..

few s @1.3092

school, back before NY

Please could I ask a chart pattern question, is it possible for a bear flag pattern to appear on the 1 hour chart? I wondered if the hourly chart would be considered too large a timeframe for this pattern? thank you kindly for your help

Trading on Hourly chart, potential opportunity lasts for the very next hour, If you are not able to lock your profit in the hour, better close and try re-entering with the next set up.

Bear flags (or bull flags) appear on all time frames... even monthly.
In fact all chart patterns are valid on all time frames.
The higher the time frame, the more significant they will be.

...and yes, I see a nice bear flag on H1/H4

I would add, that from my point of view - there is no point of determining bearish or bullish the consolidation range is, because really - within first breakout signs it will reveal quite clearly what it is. Just no need to hasistate to participate in such breakouts If fake-out happens and price comes backs inside tthe range then its even stronger indication of its intentions to move in oposite direction.

agree fully...

EU CRISIS ROAD MAP: Key Milestones Ahead

The euro-debt crisis has calmed down somewhat, helped by the European Central Bank's untapped bond-buying plan which has helped to drive down the borrowing costs of the bloc's most indebted member states, but fresh challenges still loom with Italy facing elections and recession gripping the wider euro zone economy.

German Chancellor Angela Merkel reportedly said Tuesday that the biggest period of hardship from budgetary consolidation was now over, while a survey by Dow Jones Newswires shows a clear majority of economists expect the ECB to leave interest rates on hold for a sixth straight month when it meets Thursday.

However, more than a third of the respondents said they did expect monetary easing by the end of March after a rate cut was discussed at the ECB's December meeting, sharpening the spotlight on the next stream of euro-zone economic data.

It also remains unclear what will replace Mario Monti's technocrat government, whether Italy's outgoing prime minister can return as the head of a new coalition government or the center-left Democratic Party can gain an outright majority.

The fiscally frail Spanish government, meanwhile, is still trying to go it alone without the help from the ECB, having said Tuesday that its net financing needs in 2013 will be 71 billion euros ($92.74 billion) compared with the EUR96.6 billion raised in 2012.

http://geodagher.com/wp-content/uplo...is-roadmap.jpg

This is the known worry list:

--Wednesday, Jan. 9: German November industrial production. German bond auction.

--Thursday, Jan. 10: French November industrial production. Spanish and Italian bond auctions. ECB interest-rate decision and press conference.

--Friday, Jan. 11: Italian bond auction.

--Monday, Jan. 14-Friday, Jan. 18: Bond sale by European Financial Stability Facility due this week.

--Tuesday, Jan. 15: Spanish and Greek T-bill auctions.

--Wednesday, Jan. 16: German bond auction

--Thursday, Jan. 17: Spanish and French bond auctions.

--Monday, Jan. 21: Euro-zone finance ministers meeting.

--Tuesday, Jan. 22: German ZEW January economic sentiment indicator. Spanish T-bill auction. European Union finance ministers meeting.

--Wednesday, Jan. 23: German Ifo January business climate index.

--Thursday, Jan 24: Flash euro-zone January PMI data.

--Monday, Jan. 28: Euro-zone December M3. Italian bond auction.

--Tuesday, Jan. 29: Italian T-bill auction.

--Wednesday, Jan. 30: Italian and German bond auctions. First date for possible early repayment of ECB's three-year long-term refinancing operations.

--Thursday, Jan. 31: Expiry of short-selling bans on Greek and Spanish shares.

--Friday, Feb. 1: Final euro-zone January manufacturing PMI data.

--Tuesday, Feb. 5: Final euro-zone January services PMI data.

--Wednesday, Feb. 6: German December manufacturing orders. German bond auction.

--Thursday, Feb 7: ECB interest rate decision and press conference. Spanish and French bond auctions.

--Thursday, Feb 7-Friday, Feb. 8: European Council meeting.

--Monday, Feb. 11: French December industrial production. Euro-zone finance ministers meeting.

--Tuesday, Feb. 12: Spanish and Italian T-bill auctions. Greek T-bill auction (to be confirmed). European Union finance ministers meeting.

--Wednesday, Feb. 13: Italian and German bond auctions.

--Thursday, Feb. 14: Euro-zone preliminary 4Q gross domestic product data.

--Sunday, Feb. 17: Cypriot presidential election.

--Tuesday, Feb. 19: German ZEW February economic sentiment indicator. Spanish T-bill auction. Greek T-bill auction (to be confirmed).

--Wednesday, Feb. 20: Flash euro-zone February PMI data. German bond auction.

--Thursday, Feb. 21: Spanish and French bond auctions.

--Friday, Feb. 22: German Ifo February business climate index.

--Sunday, Feb. 24-Monday, Feb. 25: Italian general elections.

--Monday, Feb. 25: Italian bond auction.

--Tuesday, Feb. 26: Italian T-bill auction. Spanish 2012 budget deficit data (to be confirmed).

--Wednesday, Feb. 27: Euro-zone November M3. Italian bond auction.

--Thursday, Feb. 28: Final Spain 4Q GDP data. German February labor data.

Thank you guys for your comments on the bear flag chart pattern and the higher time frames that helps me a lot

A break of 65 within the hour should get us inside of 29xx today...

German Industrial Production m/m could be interesting at 11am

Cyprus Bailout Could Fail in German Parliament

The urgently needed bailout of the Cypriot banking industry is in danger of being vetoed by the German parliament. The opposition Social Democrats say they are leaning towards voting no, according to a media report. With Chancellor Merkel unable to rely on her own majority, that could be bad news for Cyprus and for the euro.

http://www.spiegel.de/international/...-a-876498.html

Hi Connected.
I would rather name your bearish flag an "indecission zone"
Price needs now to decide which "red block" has to be kissed first.
We'll see in couple of hours which scenario prevail.
I still don't know whether I am bull or bear this morning, though bearish seems to be more likely.