FXCM/DailyFX Signals and Strategies

USD/JPY Hits Four and a Half Year Highs as Bernanke Hints of "Taper"

Federal Reserve Chairman Ben Bernanke took to the hill today to respond to questions in front of a congressional testimony. His prepared statement was quite dovish. On the labor market specifically, he said:

"Despite this improvement, the job market remains weak overall: The unemployment rate is still well above its longer- run normal level, rates of long-term unemployment are historically high, and the labor force participation rate has continued to move down."

However, during the Q&A portion, Chairman Bernanke said that the pace of QE3 could be slowed over the course of the "next few meetings", sending equity markets into a tailspin, and the US Dollar surging across the board. The USDOLLAR rallied from a low of 10759 to as high as 10852, as the USD/JPY hit a four and a half year high above 103.60.

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The Tidal Shift Strategy has since given a signal to buy USD/JPY. The system recommends entering this trade at any price between 103.272 and 103.748. The 14-period Average True Range on a daily chart is 0.19, so the trailing stop loss has been set at 102.559.

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Tidal Shift is a trend trading strategy that aims to catch shifts in trend using trader sentiment as an indicator. The strategy looks to buy when the Speculative Sentiment Index reaches its lowest value for the past 145 trading hours, and looks to short when it reaches its highest value for the past 145 trading hours. The system is available for automation for all FXCM Trading Station accounts via the Mirror Trader platform.

SSI Warns of Further USD, JPY Strength, S&P Losses

The latest weekly readings from our Speculative Sentiment Index (SSI) suggest that this is only the beginning of USD and JPY strength.

Weekly Summary of Forex Trader Sentiment and Changes in Positioning

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Furthermore, volatility is once again exploding higher off of an intermediate low.

Dow Jones FXCM Dollar Index (USDOLLAR) Versus Volatility Prices on 1-Month FX Options

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USD-long positions are especially attractive in currencies with higher volatility prices.

Trading Signal Preferences Broken Down by Volatility Prices and Currency Trends

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DailyFX trading signals are available as automated strategies at FXCMapps.com

SSI: Shift in USD/JPY Sentiment Favors Further Downside

We use our Speculative Sentiment Index (SSI) as a contrarian indicator to price action, and the fact that the majority of traders are long USD/JPY gives signal that the pair may continue lower.

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The ratio of long to short positions in the USDJPY stands at 1.45 as 59% of traders are long. Yesterday the ratio was 1.22; 55% of open positions were long.

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Long positions are 11.0% higher than yesterday and 30.5% above levels seen last week. Short positions are 6.8% lower than yesterday and 24.7% below levels seen last week.

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The trading crowd has grown further net-long from yesterday but unchanged since last week. The combination of current sentiment and recent changes gives a further bearish trading bias.

Euro Remains Poised for Further Losses on ECB Policy

The Euro regained its footing today, with EUR/USD bouncing back from an overnight low of 1.2882, but the single currency may struggle to hold its ground ahead of the next European Central Bank (ECB) interest rate decision on June 6 as the Governing Council maintains a dovish tone for monetary policy.

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As the ECB continues to push into uncharted territory, the policy outlook is likely to produce further declines in the EURUSD, and the head-and-shoulders formation may continue to take shape in the days ahead as it retains the range-bound price action carried over from the previous week.

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As the pair appears to be carving a lower top just below the 1.3000 handle, we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and we may see the bearish setup play out in the month ahead as the interest rate outlook deteriorates.

Possible trend shift in EUR/USD – going long

The Tidal Shift Strategy on DailyFXplus.com has just given a signal to buy EUR/USD. The system recommends entering this trade at any price between 1.29437 and 1.29887, with a trailing stop at 1.28763.

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The signal was issued because our Speculative Sentiment Index (SSI) has hit its most extreme negative level for the past 145 trading hours at -1.2423, which suggests that the EUR/USD could be trending upwards.

This strategy can be automated on all live FXCM Trading Station accounts via the Mirror Trader platform.

Trading the Anticipated Turn in AUD/USD

AUD/USD has been under steady pressure for the last month and traded to its lowest level in over a year and a half on Wednesday. This decline has been very impressive in terms of its veracity and scope, but a confluence of factors suggests the current decline may soon be reaching a turning point.

AUD/USD Daily Chart: May 30, 2013

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Extreme sentiment is a particular concern given surveys like the DSI (Daily Sentiment Index) show just 17% bulls in the currency amongst short-term futures traders. Historically, whenever the Aussie has neared such levels of negative sentiment it has been a good contrarian and leading indicator of a turn.

Event Risk Over Coming Sessions

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Source: DailyFX Calendar

The exchange rate is nearing critical price levels like the .9570 50% retracement of the 2010 to 2011 advance. As such, I like the risk to reward of positioning on the long side over the next few days.

Crude Oil, Gold Sink as Risk Aversion Returns at Month-End

Cycle-sensitive crude oil and copper prices are following stocks lower while the US Dollar is reclaiming its safe-haven credentials, pushing higher and applying de-facto selling pressure to gold and silver.

Crude Oil Technical Analysis (WTI)

Prices appear to be forming a Head and Shoulders top chart formation. Confirmation requires a close below the pattern’s neckline (now at 92.78), initially exposing the May 1 low at 90.09 and a measured downside objective at 88.58.

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Near-term resistance is at 95.89, the May 28 high, with a push beyond that eyeing a falling trend line at 96.82.

Gold Technical Analysis (Spot)

Prices moved higher as expected after completing a Bullish Engulfing candlestick pattern, taking out the 38.2% Fibonacci expansion at 1401.63.

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Buyers now stand to challenge the 50% mark at 1421.26, with a push above that eyeing the 61.8% Fib at 1440.90. The 1401.63 mark has been recast as near-term support.

More technical analysis on commodities including copper and silver is available at DailyFX.com

Japanese Yen on the Verge of Something Huge

It 'feels' like markets have been volatile, and they have been, but a simple look at volatility prices (chart below) suggests this could be only the beginning for major forex market moves.

Forex Options Market Volatility Prices Across Major Pairs

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There is material risk of a major Japanese Yen reversal. This could make the USD/JPY in particular one of the most attractive trades through the foreseeable future. In terms of our sentiment-based trading signals, we’ll look to the volatility-friendly Breakout2 trading system with focus on the USD/JPY and other JPY pairs.

DailyFX Individual Currency Pair Conditions and Trading Signal Bias

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DailyFX trading signals are available as automated strategies at FXCMapps.com

Forex/S&P 500 Correlations Say the Japanese Yen Might Surge

It could be a huge week across financial markets as early signs of a market panic forced the S&P 500 lower, Treasury Bond Yields higher, and the Australian Dollar surging versus the USD. Why are correlations so broken?

Australian Dollar Plotted Against Relative Moves in S&P 500, Gold

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Data source: Bloomberg, Chart source: R

In a recent DailyFX article, we explained why an S&P 500 sell-off might actually make the Dollar weaken as traders exit super-crowded S&P, USD, and Bond market longs. That's because deleveraging would put all three at risk and helps explain the clear breakdown in correlations.

Japanese Yen Positioning Remains Extremely One-Sided, Warning of USD/JPY Declines

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Data source: CFTC Commitment of Traders Report, Bloomberg OTC Options

If our hypothesis is correct and there is a dramatic deleveraging across financial markets, it makes sense to look at currencies/stocks/bonds in which positioning is at its most one-sided. In the forex market, that would be the Japanese Yen.

Retail Forex Speculators Grow Extremely Long USD/JPY

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Data source: FXCM Execution Desk, Weekly Speculative Sentiment Index (SSI)

Retail speculators have grown extremely net-long the US Dollar against the Japanese Yen as it falls sharply off of recent peaks. We most often use our proprietary Speculative Sentiment Index data as a contrarian indicator to price action.

Summary of Positions in DailyFX PLUS Trading Signals

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Source: DailyFX PLUS Classic Trading Signals

If everyone’s buying we want to sell and vice versa. It’s no surprise to note that our sentiment-based trading signsl are short USDJPY and more broadly short the US Dollar. These trading signals are available as automated strategies at FXCMapps.com

EUR/USD Head-and-Shoulders Taking Shape

As the Eurozone faces a prolonged recession, the ECB remains poised to lower its outlook for growth and inflation, and we may see a greater discuss to implement a negative interest rate policy (NIRP) across the region as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support.

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As the EUR/USD continues to carve a lower top below the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, a dovish ECB may serve as the fundamental catalyst to put the head-and-shoulders formation into motion, and we will continue to look for a move back towards the 23.6% retracement around 1.2640-50 as the dismal developments coming out of the euro-area dampen the appeal of the single currency.

Euro Climbs After ECB Shies Away Negative Rates

The European Central Bank kept its key interest rate on hold at its all-time low of 0.50%, while leaving its main deposit rate on hold at 0.00%, but the big news was that it shied away from implementing negative rates or any other measures that would result in a theoretically expanded ECB balance sheet.

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This set the stage for a Euro rally as EUR/USD surged over 100 pips from a low of 1.3088 up to where it's currently trading around 1.3190. The latest readings from the Speculative Sentiment Index (SSI) indicate that the pair could be poised for further gains as retail traders continue to sell rallies.

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The ratio of long to short positions in the EUR/USD stands at -1.75 as 36% of traders are long. The trading crowd has grown further net-short from yesterday and last week. The combination of current sentiment and recent changes gives a further bullish trading bias.

US Dollar Reinvigorated by Slight Beat on May NFPs; USD/JPY Above ¥96

The much-ballyhooed May US labor market report came right in the “Goldilocks” zone for market participants: good enough to reignite modest optimism about the US economy; but not good enough to provoke a major drawdown in the Federal Reserve’s QE3 program.

The important numbers:

1. Change in Nonfarm Payrolls: +175K versus +163K expected, from +149K (revised lower from +165K)
2. Change in Private Payrolls: +178K versus +175K expected, from +157K (revised lower from +176K)
3. Unemployment Rate (U3): 7.6% versus 7.5%, from 7.5%
4. Underemployment Rate (U6): 13.8% from 13.9%
5. Participation Rate: 63.4% from 63.3%

Yesterday, it seemed that traders were positioning themselves for a poor print: weaker USDJPY, stronger US equities, lower US Treasuries yields. Today, equities are up, the US Dollar is gaining, and US Treasuries yields are higher. This looks like a repositioning for renewed speculation of the QE3 taper – certainly, the data doesn’t lean that heavily in either direction.

USD/JPY 1-minute Chart: June 6, 2013

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Following the release, the USD/JPY gyrated violently, trading from ¥95.75 to as high as 96.38, before plummeting to 94.38. But within 15-minutes, the USD/JPY had surged back to 96.12, at the time this report was written. US Dollar strength was observed across the board, with the EUR/USD falling to $1.3205, and the AUD/USD plunging back to the weekly lows near $0.9440.

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It's worth noting that overall, traders are still long US dollar, which means today's boost after NFP could be short lived. The one major pair where the Speculative Sentiment Index (SSI) supports this mornings tendency of US dollar strength is AUD/USD. The trading crowd has grown further net-long the Aussie from yesterday and last week. The combination of current sentiment and recent changes gives a further bearish trading bias.

Australian Dollar Record COT Figures Warn of Reversal

The Commitments of Traders (COT) Index is the difference between net speculative positioning and net commercial positioning measured. Non commercials tend to be on the wrong side at the turn and commercials the correct side.

Latest CFTC Release

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Record short positions for speculators and record long positions for commercials indicate a possible reversal for the Australian Dollar. The COT MT4 indicator pulls data directly from the CFTC website and plots it directly below an MT4 chart in an easy to read format and is available at FXCMapps.com

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A light blue colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bullish) with speculators selling and commercials buying. A light red colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bearish) with speculators buying and commercials selling. Crosses above and below 0 are in bold.

USD Continues to Carve Higher Low

The greenback may regain its footing ahead of the next FOMC interest rate decision on June 19 as tapering the asset purchase program becomes a growing discussion at the central bank.

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Indeed, the Dow Jones-FXCM Dollar Index (ticker: USDOLLAR) may continue to build a short-term base in June, and the greenback looks poised to make another run at the 10,900 handle as the FOMC faces limited scope to further embark on its easing cycle.

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With the new currency baskets on the Mirror Trader platform, FXCM clients can now also take a bullish or bearish position on a single currency such as the US Dollar instead of having to choose a specific currency pair to trade.

Video: Trading the Potentially Significant Australian Dollar Reversal

Yesterday, DailyFX analyst David Rodriguez mentioned that the Australian Dollar likely set a substantial low. In his video today, he updates those views with a concrete look at trade setups.



He also discusses his latest DailyFX trading signal biases as shown below.

Strategy Preferences Broken Down by Volatility Prices and Currency Trends
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These DailyFX trading signals are available as automated strategies at FXCMapps.com

DailyFX Trading Signal: Possible trend shift in AUD/USD – going long

In the video I posted yesterday DailyFX analyst David Rodriguez shared his view that the Aussie recently set a substantial low. Today the Tidal Shift Strategy on DailyFXplus.com added further confirmation to this idea by generating the following buy signal for AUD/USD.

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The system recommends entering this trade at any price between 0.95322 and 0.96124. The 14-period Average True Range on a daily chart is 0.00321, so the stop loss has been set at 0.94118. This stop loss order is a trailing stop that will move up as the market moves up.

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The signal was issued because our Speculative Sentiment Index (SSI) has hit its most extreme negative level for the past 145 trading hours at 3.001, which suggests that the AUD/USD could be trending upwards. All FXCM Trading Station clients can the Tidal Shift Strategy by using the same account login on the Mirror Trader platform.

EUR/USD About to Break? The forex market is intently focused on the US FOMC rate announcement on Wednesday followed by Fed Chairman Bernanke's press conference. DailyFX Analyst John Kicklighter posted a very interesting EUR/USD chart to his Twitter account a few hours ago which could indicate an impending breakout just in time for the Fed decision.

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Which way will it break? The trend has been up which would signal a bullish break if the argument is that a flag is followed by continuation of the trend. Second, SSI positioning remains net short which would indicates a contrarian signal for more gains. EUR/USD positioning is currently giving a reading of -2.03 which tells us there are 2.03 short positions for every position long.

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SSI can be found updated twice per day in DailyFX PLUS.

Dollar Traders Eye FOMC Meeting

Despite the mixed batch of data coming out of the world’s largest economy, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading 0.22 percent higher from the open.

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The greenback may appreciate further over the next 24-hours of trading should the Federal Reserve show a greater willingness to taper its asset purchase program in the second half of the year.

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The dollar looks poised to breakout to the upside as it carves out a higher low in June.

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In turn, we should see the dollar resume the upward trend from earlier this year, and the bullish sentiment surrounding the greenback may gather pace over the near to medium-term amid the shift in the policy outlook.

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The USD Basket and baskets for other major currencies are available on the Mirror Trader platform. FXCM Trading Station account holders can use the same username and password to log into Mirror Trader.

USDOLLAR to Benefit from Fed Exit Strategy- Higher High on Tap

Although the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is trading 0.19 percent lower from the open, the Federal Open Market Committee (FOMC) interest rate decision could be the game-changer for the greenback should the central bank look to taper its asset-purchase program.

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As the reserve currency carves a higher low in June, a less-dovish Fed may prompt the USDOLLAR to breakout of the downward trend carried over from the previous month, and we may see the index resume the upward trend from earlier this year as the central bank appears to be moving away from its easing cycle.

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In turn, we may see the rebound in the USDOLLAR turn into a more meaningful rally in the coming days, and we will look for a higher high in the index as the bullish trend continues to take shape.

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The USD Basket and baskets for other major currencies are available on the Mirror Trader platform. FXCM Trading Station account holders can use the same username and password to log into Mirror Trader.

GBP/JPY bounces off 100-day SMA

This morning the instructors at DailyFX.com tweeted about a recent bullish signal they spotted for GBP/JPY. The pair bounced off the 100-day SMA in the direction of the long term uptrend. Playing this bounce, they are looking to go long at current levels.

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Their profit target is set at 162.50 towards the top of the bullish channel that has formed. Their stop is set at 146.50 below the 100-day SMA line. To get their latest trade ideas you can follow the DailyFX instructors on Twitter.