Aspenalysis: Simple To Follow FX Trade Ideas

As forex traders, it is not enough to forecast the correct direction of prices, you also need to know which pairs will offer the best forex signals.

While no approach is ever fool-proof, I have found this simple technique invaluable.

By simply comparing the forex pairs I am tracking relative to the Dollar Index (DXC) in terms of performance from a specific starting point, traders can quickly determine which forex pair is likely to give them the most bang for the buck.

Take the current situation:

1. I am bullish on the Dollar Index (DXC)
2. I believe the Dec 27th low marks the start of a sustained move higher
3. Which FX pairs since Dec 27th are the best candidates to trade?

As you can see on the chart below:

1. DXC is up 1.03% since the Dec 27th low
2. USD/CHF is up over 2%
3. EUR/USD is off over 1.5%

Thus, the best trades are in the pairs that are outperforming (long USD/CHF) and underperforming (short EUR/USD) the move in DXC. Pairs like USD/JPY and USD/CAD would not be good candidates to trade from the long side as they are underperforming by a very large degree.

Dollar Index vs. Major Forex Pairs

http://my.aspentrading.com/Nov_1/11_...3.14dxcIMA.png

Bartender, Another Round Please

While the Federal Reserve has begun a modest tapering of their massive QE program, the same is not true for the Bank of Japan (BoJ). The trading and investment implications are mouth watering.

I estimate that the BoJ will add another ¥700 trillion of QE in 2014.

Using the prior 12-months of QE and subsequent price action, each ¥100 trillion of BoJ QE pushed USD/JPY higher by 300 pips. Thus, with another ¥700 trillion expansion, my USD/JPY forecast is for 122-125.

Attention Equity Investors

A ¥700 trillion expansion in the monetary base should then push the Nikkei to 22,000 from today’s 16,000 level or a 37% return after turning in a blistering 55% return in 2013, in local currency.

http://my.aspentrading.com/Nov_1/11_.../USDJPY122.png

The Technical and Fundamental Analyst Have Dinner

One evening a technical analyst and fundamental analyst are out having a nice dinner discussing the recent action in the markets. During the whole dinner discussion, the fundamental analyst keeps nudging his steak knife closer to the edge of the table. The technical analyst does not see this happening.
Finally, with the knife right on the edge of the table, the fundamental analyst pushes it off the edge.
The knife tumbles lower, gaining speed along the way, before it impales itself right into the foot of the technical analyst.
The fundamental analyst looks on in horror and asks the technical analyst:
“Why didn’t you move your foot out of the way?”
The technical analyst replies:
“Because I thought it would go back up.”
While technical analysis is a valuable tool it is often used incorrectly. Support (and resistance) levels are merely numbers and lines on a chart – unless there is some valid reason for prices to bounce – they won’t.
Bottom line: technical analysis requires the incorporation of other analysis techniques in order to offer a more robust outcome. Inter-market analysis, correlation studies and yes even fundamental analysis play a big part in gauging market position and turning points. For me, I also rely heavily on Elliott Wave Analysis. It allows me to isolate support areas that have a far higher probability of holding and thus making profitable trades.
Dave

http://my.aspentrading.com/Nov_1/11_...ngdayahead.png
Note: the Intra-Day FX Forecast highlights price direction and likely price targets/stops designed for traders looking at trading opportunities over the next several hours.
Here is the short-term outlook for FX - with more detailed updates (as needed) for FX Insight and FX Alerts clients as the day unfolds.
The Short-Term Outlook:

1. DXC (Dollar Index ): Neutral the move lower off the Jan 9th highs is likely just a correction in Wave (ii). Expecting the 80.43/80.25 support levels to hold and push prices higher.
2. EUR/USD: Neutral to Bullish the move higher off the Jan 8th low is simply a correction. Regardless, there is still some further upside before Wave ii is complete. A move back above 1.3680 pushed prices towards 1.3725/60
3. USD/CHF: Neutral to Bearish a break below .9012 could allow prices to move towards .8985/65
4. GBP/USD: Neutral to Bearish there may still be a bit more upside in this move off the Jan 6th lows. But as long as prices remain below 1.6602, the next leg appears to be down. Below 1.6420 points towards 1.6345 in the short-term
5. USD/NOK: Neutral there might br a bit more downside left but I am looking for the 6.1215/6.0950 support level to hold and allow prices to start moving higher.
6. AUD/USD: Neutral expecting a pretty sideways and choppy move within Wave (iv) - nothing to work with here....for now.
7. USD/CAD: Bearish USD/CAD has come a long ways in a brief period, looking for a pull-back of some degree in here. A move below 1.0889 should allow prices to move towards 1.0830 and lower

Dave

Survey Says....

Technical set-ups are not enough to make good trades - a robust forex trading signal requires knowing which forex pairs are best suited for large moves.

Using the Forex Strength Meter below - we can get a very clear idea which pairs are most likely to outperform moving forward.

Using yesterday's low (Wave ii?) in the Dollar Index (DXC) as the reference point, it looks like USD/CHF (long) and EUR/USD (short) are the pairs best suited to trading using DXC as the benchmark.

http://my.aspentrading.com/Nov_1/2_2...engthmeter.png

Not So Fast - That Is Only Part of The Story

Now we need to understand how the technical set-up is evolving and the key technical levels that are key.

Traders, heading into the weekend it 'feels' like the dollar bulls will make a run towards the finish line. Thus, traders with both longer-term and short-term term preferences should find today's action suited to making trades.

Note: the forecasts highlight price direction and likely price targets/stops designed for traders looking at trading opportunities over the next several hours. These are not official trade recommendations, merely guidelines and forecasts

North American Short-Term Outlook:

1. Dollar Index (DXC): Bullish from yesterday: assuming that prices remain above 84.14 the next stop is towards 85.00 Well prices did remain above that key support level and assuming 84.22-83.94 hold the next stop(s) are seen at 84.90 & 85.48 for the near-term
2. EUR/USD: Bearish from yesterday: assuming prices remain below 1.2941 the next leg is lower towards 1.2808 Well, they did, next stop 1.2828
3. USD/CHF: Bullish yesterday's pull-back was a bit deeper than I was expecting and while I needed to make a minor adjustment to the wave count, the bullish forecast remains intact. Near-term targets seen at .9425 & .9500
4. USD/SGD: Bullish near-term target seen at 1.2698-1.2714

Dave

No Shortage of Clues

Traders, while prices in the S&P's have broken above the 2000 level, they are not gaining any meaningful traction higher. As we all know, this rally is very deliberate and lethargic and there are certainly some warning flags. However, despite this, it is tough to build a bearish case absent some meaningful pull-back.
Some of the most recent chatter for the bears revolves around the Russell 2000/IWM and how recent weakness suggests underlying weakness for markets in general.

S&P 500 vs. Russell 2000
http://my.aspentrading.com/Nov_1/2_2....14spVSiwm.png

Chasing Tops - A Colossal Waste of Time

History however does not offer too much conviction in trading off these divergences. In fact only about 50% of divergences result in any meaningful market top.

Divergences & Market Tops
http://my.aspentrading.com/Nov_1/2_2...sp50DIVERG.png

I am not saying there are not risks out there to the market, however I have lived through similar phases before in my 20-years as a trader. Trying to pick the top is a colossal waste of time. Being a passive bull makes far more sense while making sure that I constantly take the pulse of the market so that when prices to begin to deteriorate, appropriate actions can be taken.

Think In Terms of Months Not Minutes

Markets can offer up contradicting signals at times, but bear this in mind: USD/JPY will continue higher.

Breaking well worn correlations can leave traders flat footed. USD/JPY is the poster child for this presently.

First, let's revisit my initial reasons for being bullish on USD/JPY at the beginning of 2014. While it took some time for the market to 'agree' with my assessment - patience is paying off.

Originally posted on January 5, 2014
http://my.aspentrading.com/Nov_1/11_.../USDJPY122.png

Be Open Minded

Anyone who has traded forex markets for any period of time knows that there is a pretty solid relationship between USD/JPY and the S&P 500.
S&P's go down; USD/JPY goes down and vice versa.

That is not happening right now. Why?

I suspect 2 primary reasons:

1. U.S. rate expectations. While 10-year rates remain low, technically they are poised to trade higher in the months ahead. And yes, higher U.S. rates drives USD/JPY higher historically speaking.
2. Japanese Exports. Despite being a critical component of the Japanese economy, exports are largely unchanged since October 2011 - all while the Yen has declined by 44% relative to the US dollar.

In fairness, there has been a pick-up in exports since 2012 when Yen began another leg lower.

My takeaway is simple: the BoJ, facing poor demographic prospects and high tax rates, will use a weak Yen as a major policy tool to keep the export sector humming along.

That makes it clear that USD/JPY will continue chugging along towards 122-125

February 15, 2017

Note: the Technical Trade Set-Ups highlight price direction and likely price targets/stops designed for traders looking at trading opportunities over the next several hours. These are not official trade recommendations, merely guidelines and forecasts, which are pretty darn useful each trading day.

Pay close attention to the blue text in these posts (when applicable) as it will refer back to previous comments/forecasts.
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Perhaps the move off the Feb 2nd lows is now complete in the Dollar Index (DXC)?

It looks to be a leading diagonal - best way to count it - and if so, a deep correction lower is in the cards. Additionally, as noted in the charts below, some bullish candles in EUR/USD and AUD/USD.

These are simply clues, not a definitive sign that DXC is ready to offer up solid short trades.

Regardless, markets always move in ebbs and flows, so at minimum a correction lower in DXC is in the cards.



Dave
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1. AUD/NZD: Bearish to Bullish still looking/waiting for that elusive correction lower. Adjusted buy limit order is in at 1.0635

AUD/NZD: micro-term short set-up?

1. NZD/CAD: Bullish to Bearish starting to see a nice move higher off the lows. Looking at .9420-.9500 as an area to build short positions.

1. EUR/GBP: Bearish looks like 1 more leg higher to complete Wave ii. From there I think I will be looking for short positions,