- The biggest news today was RBNZ cut and everything was as expected; they cut to 25bps and signalled further cut to come. However, the tone was not really dovish as they said at least one more cut is necessary VS the rumoured 3 cuts by 2016. Also they think the macro prudential has helped the housing market risk; meaning they introduced the new LTV ratio last month and would reduce the overheated housing market. They also stated that they never really considered a 50 bps cut at all for now. Meanwhile, Fitcher also gave NZD a confirmed AA rating.
The market reacts to it as expected, NZD has large buying power into it prior to the rate decision and now after the rate decision. The reason is as mentioned, even though they cut the rate to 2%, they’re still the highest yield currency and especially in our current yield hunting condition.
Right now all bonds are in low yield and investors are constantly seeking high yield and safe asset = AUD & NZD.
There are really very little risk to invest in these 2 nations; honestly they’re fantastic places to live, to work, far away from all the global crisis and terrorism, big enough to attract foreigners from all over the world but also small enough to stay away from all the troubles; unlike USA.
- AUD had a great run up versus USD all London and NY session and now retrace. It’s the exact same story as NZD and we’re still very bullish in these 2 currencies in a long-term.
- USD has the largest selling and ironically, as a fundamentally bullish currency, it was also the most traded currency so always have to remember that it is highly speculative in our current condition. It is really best to go with the flow if you want to trade dollar, or simply stay out. We’ll expect the negative sentiment in USD to continue until Friday’s resale data to change directions, but any directions will be short-lived unless we hear anything from Yellen to guide the future. And don’t forget the election is also coming which might encourage FED to stay quiet at this turmoil moment. JOLT was good data today and now the job market is indeed solid; however, no impact on the market as mentioned, we need Yellen’s guidance.
- GBP continued to be negative and although picked up a retrace especially versus dollar, it is still a long-term bearish currency and we’re still looking for opportunity to sell it.
- EUR is really quiet at this moment because of the holiday seasons as Europeans treat their holidays very seriously (told by everyone whenever we travelled to Europe). It’s quiet everywhere in ECB and when there is no action, market tends to favour buying EURO. So although fundamentally still a bearish currency, it will be a good currency to buy at the current positive sentiment.
- JPY also has no significant news and same scenario as EUR, when there is no news, generally it’s a positive currency to buy. Today the equity market closed down, the bond market also closed down, and gold is up = a risk off sentiment is here, which will help JPY further.
- CHF is 3rd arrow with EUR & JPY, no news is good news, same scenario, benefited from risk off sentiment. However, we still have our bias to stay out of CHF whenever we can due to their unscheduled intervention and large risk associated with it.
- CAD is another currency that we’re very bearish. Although the oil market picked up a bit from last night, we saw a drop today in WTI. The crude oil inventory was a large built, the news from OPEC is also a continuation of supply in order to get market share. Meaning they want to drive the price down to drive out all other competitors. So now the global demand for oil has already weakened, the oversupply from OPEC is also driving the price down, the non-OPEC nation producer such as Canada will be in very bad position.
On top of that, the real estate sectors are also in a downtrend, and now both external factor and internal factor are worse for Canada, we will expect to see CAD in a negative sentiment.
The largest strength today was NZD > AUD > JPY > CAD > EUR > GBP > CHF > USD
Our previous trade of EUR/USD has been stopped out at our new tightened SL. As mentioned, we should have just gotten out of the trade because we did not have enough conviction at the time, and USD has suffered negative sentiment.
However, i was haunted by my own “hoping it will get back” mood, and as usual, hope is not a strategy for trading.
Our AUD/NZD also got stopped out in profit. This was a very good trade which we built up for almost 5 days. We moved our SL to protect ourselves from large buying power into NZD after the rate decision, and that was exactly what had happened.
We also got in a day trade at USD/CAD today and got stopped out with small losses. It was a speculative trade and i was surprised at the beginning of how strong CAD was when the crude oil inventory was a large built-up. But then the correlation finally came and WTI closed down for the day.
Nevertheless, we should have picked something other than USD as it is now the worst currency to buy. I still need to remind myself of the difference between day trade and swing trade (daily trade).
When day trade (scalping), the fundamental side is really disregarded and sometimes i just got confused or biased when choosing the pair for intraday scalping.
The only pair we’re holding now is GBP/JPY and we’re very happy to keep holding it. GBP has proven to be negative both fundamentally and sentimentally, and we expected to see it keep dropping. Yes it will have short-term reverse uptrend but since this is a swing position, we’re happy to hold through the noises.
JPY on the other hand will be benefited from the global risk off sentiment and as mentioned, as long as we don’t see any new easing measure by BOJ, we’re expected to see JPY continues its strength.
Beside that, currently we’re still looking for opportunity to buy
NZD & AUD
and opportunity to sell GBP & CAD
Let’s take a look at our charts.
EUR/CAD has a daily Kangaroo Tail and we’re right below the 200 EMA now. The upside resistance is at 1.4725 and many more room to go.
GBP/USD has a daily Kangaroo Tail but as mentioned, USD is in a negative sentiment now.
CAD/CHF has a daily kangaroo Tail and is right below the 200 EMA, there are many downside room to go. The only concern is that we’ll be buying CHF which we always try to avoid.
So since we already have GBP/JPY we will not short GBP again.
And we will short CAD but choose either EUR or CHF.
As a rule of thumb, when we can choose something else than CHF, we’ll choose it, so we’ll go with LONG EUR/CAD because it has less risk.
The calendar for the rest of the week is also clear from major CAD OR EUR news.
SL @ 1.4380