Pips — LaidTrades

EUR/CAD: The Weak Versus Strong – June 2, 2010

Here’s an update of the EURCAD pair that I presented a couple of weeks ago (click here to see my previous post). As you can see, the pair has still been on a downtrend. Though for a time, it appeared that it would break out of its slump as it rose and even moved above the descending channel’s resistance. After marking a new low of 1.26483, the pair surged to a high of 1.34756 before crashing again. That spike in prices happened to just be nothing more than a correction as the sellers once again took control of the driving seat and pushed the euro down as soon as it reached the 1.3400 area against the Canadian dollar. At present, the pair is trading somewhere around 1.2700. In my view, it could move listless for awhile near this level before making its move down south again. In any case, a break of this year’s low could send it at least at 1.2400.

The euro and the Loonie are like the New Jersey Nets and the Los Angeles Lakers in the NBA. For those who are basketball fans, we all know that the Nets are the worse team this season while the Lakers, of course, are the defending champs. In the foreign exchange market, the euro has been hugging the first place position for the worse performing currency of the year. This 2010, though, has been the breakout season for the CAD as it managed to move ahead from its peers. We all know the cause of the euro’s tragic decline – the ongoing debt crisis that started in Greece and spread in the other EU-member nations like Portugal, Spain, and Italy. Canada, on the one side, has been nothing but spectacular as it printed some stellar GDP growth during the first quarter of the year. Its recent retail sales and CPI numbers likewise outperformed the market’s estimates. These eventually led to a recent hike by the Bank of Canada which raised their rates from 0.25% to 0.50%.

Like what I’ve said, Canada’s been doing pretty well as evidenced in its latest CPI and retail sales accounts. The euro zone, on the other hand, is still being hampered by the weak fiscal position of the majority of its members like Greece. With all the ongoing concerns surrounding the region, sentiment remains bearish for the euro. And until the market clearly sees some signs of good things to come, the euro would still slide.

CADJPY’s Symmetrical Triangle – June 2, 2010

The CADJPY currency pair looks to be forming a symmetrical triangle formation in the hourly. If the pair break’s above the triangle’s resistance, its price could reach the next significant level at 88.67. On the other hand, a breakdown from the pattern could send it down to the support at 85.83. Still, the pair has a higher chance of breaking to the upside since the pattern is coming off an uptrend. In any case, to be a little conservative, I would wait for a breakout in either direction before opening a position. A straddle strategy would work better in this kind of situation where I would sell the Japanese yen in exchange of the Canadian dollar if the pair breaks up. Conversely, I would sell Loonie for the JPY if and when the pair breaks down.

Euro Bulls, Watch Out! – June 2, 2010

The EURUSD pair or what is commonly known as the fiber among financial geeks is threatening to dip once again. As you can see in its daily chart, the pair has been consolidating into a descending triangle. This formation has a bearish bias since the sellers are more aggressive in pushing the price down. This scene is actually represented by the triangle’s downward sloping resistance. Eventually, the sellers could overwhelm the buyers which in turn could cause a breakdown in prices. If and when the pair falls below the formation’s support and this year’s low at 1.21113, it’s minimum downside target (gauged by projecting the height of the triangle from the point of breakout) would be somewhere around 1.1650. On the brighter note, the pair could continue just range or even retrace if the triangle’s support holds.

There are several issues going around the globe that are presently weighing down on the euro. For one, concerns regarding the euro zone’s weak fiscal condition remain. In fact, the European Central Bank (ECB) even foresees a wave of new defaults that would hurt the banks in the coming year or so adds to the market’s fear. Then there is the threat of war between the North and South Korea. Risk aversion could also spring from Japan as its present government faces some strong opposition from the Social Democratic Party and majority of its citizens. Earlier today, it was reported that Japan’s prime minister already stepped down from his position. Back stateside, the US is also facing a grave environmental disaster due to a terrible oil spill near the Gulf of Mexico. Given all these problems, risk aversion is surely on track. Such would continue to place a lot of selling pressure on the non-dollar currencies like the EUR.

The Loonie Tunes – June 1, 2010

Here is a daily chart of the USDCAD pair. Notice that it has been on a short term uptrend after it bottomed back in April 21. Though, it appears that it has recently encountered some resistance around the 1.0700 area, causing it to turn and to dip for the last several days. With the stochastics far from the oversold region, the USD/CAD pair still has a lot of room to move lower. In case it does, the 1.0300 and 1.0250 supports including the uptrend line that I drew should prevent it from declining any further. A break of these levels could send the Canadian dollar back to USD-parity. On the flip side, if USD buying continues, it could once again reach 1.0700 or even its 2010 high at 1.08548.

The Loonie has gained some favor during the last several days due to Canada’s robust economic figures like what I mentioned in my latest blog. The country’s annualized 1Q gross domestic product, for one, had exceeded the 5.9% estimate with a 6.1% growth. Both the headline and core CPI of Canada in April came in better than expected at 0.3% Retail sales for March likewise came in strong with the headline figure growing by 2.1% against the 0.2% estimate and the core account also expanding by 1.7% versus the 0.5% forecast. These numbers suggest that the Bank of Canada could indeed raise its interest rate to 0.50% from 0.25% today at 1:00 pm GMT. An interest rate hike would likely send the Loonie higher. A pause, on the other hand, could push the USDCAD back up again.

GBPJPY Breaking Down? – June 1, 2010

The GBPJPY looks to be breaking below (indicated by the red circle) the support line of the uptrend in the 1-hour chart. Though as of now, the uptrend support appears to be keeping the pair from falling further. If the guppy slides below 131.50, the pair could head all the way down to 130.50 which is a previous resistance-turned-support. On the positive side, a bounce from 131.50 could propel the pair up to the triangle resistance just above 132.50. In my view, it has a higher chance of breaking up than breaking down given its present uptrend. If and when it breaks out to the upside, it could aim for 135.00 which its minimum upside judging by the height of the triangle.

The Loonie Has Overtaken the Aussie – June 1, 2010

On today’s canvas is the daily chart of the AUDCAD pair. As you can see, the pair has been on the down trek after breaking the 0.9200 support. It also has just broken a rising wedge formation after it hit some resistance at the 38.2% Fibonacci retracement level of the most recent down wave. Now, if traders continue to buy the Canadian dollar and sell the Australian dollar and the pair falls below 0.8700 and its 2010 low at 0.86512, it could head all the way to 0.8300. Using the Elliot Wave Theory or Analysis (EWT or EWA), wave 3 of the 5-wave cycle could be in the making. Wave 1 would be the pair’s initial descent while wave 2 would be its correction which is represented by the rising wedge formation.

During the past couple of weeks, it is evident that the Loonie has indeed overtaken the Aussie for the Best Performing Currency of 2010. Today’s breakdown in the pair was due to Canada’s stellar first quarter GDP figure. The annualized 1Q gross domestic product of the US’s neighbor up north surpassed the market’s 5.9% forecast with a 6.1% growth, suggesting that the Bank of Canada could once and for all raise its rates from 0.25% to 0.50%. Other data supporting a possible rate hike are the better-than-expected Canadian inflation figures and retail sales. Both the headline and core CPI of Canada came in at 0.3% for the month of April which is a tad higher than the 0.2% consensus. Retail sales for March also overshadowed the market’s estimate. The headline figure has grown by 2.1% against the 0.2% estimate while the core version of the account also has grown by 1.7% versus the 0.5% forecast.

Australia’s present economic situation, on the other hand, does not appear as strong as Canada’s. The country’s retail sales only grew by 0.3% in March which is way below the 0.8% projection. Home loans continued to slide for a sixth straight month in a row with a 3.4% dip in March. Business investments, which are directly linked to the country’s overall GDP, also unexpectedly fell by 0.2% during the first quarter of the year. Remember that the Reserve Bank of Australia (RBA) had been very aggressive in hiking their interest rates during their last monetary decisions. The above data, however, suggests that the central bank could refrain from doing so again to better stimulate and improve the economic activity in the country. A pause in the rate hike, though, could be bearish for the AUD.

What’s Up With the Kiwi These Days? – May 31, 2010

So what’s up with the Kiwi (NZD) nowadays? Well, as you can see from the chart, the New Zealand dollar appears to have been doing well lately. After dipping to a low of 58.674 against the Japanese yen, it has been able to pull itself up and keep its head above water. Presently, the NZDJPY pair is trading just below 62.50. It looks, though, that is already starting to lose some of its upward momentum. It’s also formation what seems to be a rising wedge formation which by the way is a bearish chart pattern. Anyway, a break above 62.50 could send the pair to 64.00 which is exactly where the 50% Fibonacci retracement level is. If the yen continues to weaken and the 50% fib gets broken, the pair could aim for the resistance somewhere around 65.50. On the flip side, a breakdown from the rising wedge formation could nullify its recent gains and send it back down to its previous low at 58.674.

As mentioned in my latest blog, the yen weakened today because of the recent political turmoil in Japan. This morning, Japan’s Social Democratic Party, which is fronted by Mizuho Fukushima, quits its ties with the present government when she got fired after not endorsing the government’s plan to move the US’s base to another island. For the last several months or so, the Japanese yen, together with the dollar, has been the currency of choice whenever there is risk aversion in the market. This recent political disorder in Japan, tough, threatens the currency’s ‘safe haven’ status.

In any, I still think that many investors would still favor then though maybe to a lesser degree against the higher yielding currencies like the NZD if and when fear makes a comeback. Remember that the whole Greek drama is still not over. In the East, the two Korean nations also started with their own telenovela.

The US dollar (USD) Versus the Japanese yen (JPY) – May 31, 2010

Here’s a different look on the gopher (USDJPY). Check out my previous post on the same currency pair here. Anyway, notice that the pair has just broken above its short term uptrend line. Now the pair could continue moving higher, though, it could hit some resistance at the 92.00 level. If it’s able to move past 92.00, it could once more aim for its 2010 high which is just below 95.00. On the other hand, if selling resumes and the pair falls below 91.00, sliding towards the 90.00 would be very likely.

The Japanese yen (JPY) woke up on the wrong side of the bed today as it weakened against most of the other currency majors to start the week. A herd of traders sold off the yen when a survey in Japan showed that majority of its citizens want their present Prime Minister, Yukio Hayotama, to step down from office. The Prime Minister had earlier fired Mizuho Fukushima, leader of the Social democratic Party, when she refused to sign the Prime Minister’s agreement to move the US base to a different location. This prompted the party to sever its ties with the incumbent government. These recent events in the Land of the Rising Sun sparked some speculations that the yen could lose its ‘safe-haven’ nature due to the political turmoil in the country. Of course, no one would want to buy the yen if Japan’s government is unstable.

In my opinion, the present government should at least try to reconcile with Social Democratic Party to prevent the political turmoil from getting worse. This, of course, is easier said than done especially regarding politics. The worse that could happen is that the Prime Minister gets forced to resign. If this happens, the yen would almost certainly get a hit. Though, in my view, the chances of this occurring are minimal. Still, Japan has a lot of things on its hands given its present battle with deflation and now politics.

The British Pound’s Rally – May 28, 2010

The Cable’s recent price action is very much similar to the AUDJPY’s (check it out here). As you can see, the GBPUSD broke out to the upside from a bearish pennant pattern or a symmetrical triangle instead of breaking down. At present, the pair is trading between the triangle’s resistance and the 1.4600 marker. If and when it moves past this level, the pair could spring all the way up until is hits a wall at 1.4800. 1.4800 could now switch its role into a wall as it already acted as a support before. Over the medium term, the pair could still be on its way south since its present downtrend is still intact. The recent rally in the pound could only be just a temporary correction. Until the downtrend gets broken and a reversal pattern shows up, I would still remain bearish on the GBP over the medium to long term.

Like what I’ve said in my last post, the recent rally in the non-dollar currencies was due to China’s ‘vote of confidence’ on the euro when it dismissed the rumors that it was reviewing its holdings of European assets. There was a great deal of risk taking during the US session yesterday which pushed the DJIA to close with a 2.85% gain. The market’s upbeat sentiment also spilled over today’s trading in the Asian and European markets.

Still, Europe’s actual debt situation is not really changed with China’s stance. China merely said indirectly that it was leaving its European portfolio untouched at the moment. That does not make the fiscal situation of Greece and the other EU-member countries any better at all. Given this, we could still see a negative turn in prices once the maturities of the countries’ debt get due. If any country in the EU experiences some difficulty in financing and repaying their debt, this could surely cause another panic in the market which would lead the investors to leave the anti-dollars like the euro and the pound for the safety of the yen and the greenback.

Are the Aussie Bulls Back? – May 28, 2010

Contrary to my initial assessment on the AUD/JPY during one of my previous posts here, the pair, instead of breaking down, has broken up from a bearish pennant or a symmetrical triangle formation. As you can see, the pair already cleared its 38.2% Fibonacci retracement level and at the 77.00 mark. It, however, could still encounter some resistance at the 50% and 61.8% Fib and the 79.00 psychological handle. Should the Aussie buying continues, it could reach for the 85.00 marker against the Japanese yen. On the flip side, if the AUD bears take control, the pair could once again fall back to its previous low of 71.892.

The rally in the higher yielding currencies like the Australian dollar was supported mainly by China’s ‘vote of confidence’ on the euro zone despite the regions ongoing battle with debt. China, in a report yesterday, denied that it was reviewing its positions in European assets. China’s denial sparked some risk taking in the markets which spilled over to the US trading session. The Dow Jones Industrial Average (^DJI) rose and closed with a 2.85% gain. The upbeat tone yesterday likewise continued in today’s trading in the Asia and Europe.

This positive sentiment on the market, however, could just be temporary as the news regarding China’s ‘support’ does not change the fiscal difficulties in the euro zone. Greece, alongside Portugal, Italy, and Spain, still has some debt problems to solve. Given this, it could just be a matter of time where we see another European debt drama episode that could send a lot of investors packing again. If and when this happens, the anti-dollar currencies like the euro and the Aussie could take a huge hit once more.

A Closer Look on the Euro – May 27, 2010

Let’s zoom closer over the 3-hour time frame of the fiber (EURUSD). Notice that the pair was able to rally after dipping to a low of 1.2154 earlier today. Since then, it has traded strong and has even reached a high of 1.23426. Thanks to the previous support around the 1.2150 area and the oversold condition at that time, the pair was able to avoid another slide. At present, the euro could still move higher against the greenback since the stochastics are from the overbought region. It, however, could bump into some resistance at 1.2435 and at the previous 1.2222 low. The next significant level that it could reach in the event that the pair breaches the two mentioned marks is 1.2600. On the other hand, the fiber could just move sideways before declining once more. In case it does, 1.2150 should give it enough lift in the mean time.

Apparently, today’s euro rally was due to China’s hawkish position on the country’s European investments. In a statement made earlier today, Chinese officials said that the rumors that the country is currently evaluating its holdings in Europe are ‘baseless.’ China holds a significant amount of European assets in reserves. Due to the debt crisis in the euro zone, some people are led to suggest that the world’s second biggest economy is considering to liquidate some of their positions. Today’s statement, though, hints that the country will not sell EURs at least in the near term. In the occasion that China sells a big percentage of their position, it would signify a big loss of confidence in the currency which would consequently devaluate it further. Of course, the country does not want the euro to decline some more because such would also decrease the valuations of their assets.

Today, the US’s first quarter GDP growth is expected to be revised upward from 3.2% to 3.5%. The better than projected retail sales figures during the first 3 months of the year proposes the likelihood of an upgrade in expansion. Note that about 70% of the US’s total output is from domestic consumption which is commonly gauged by the retail sales account. If the preliminary GDP comes in at least as expected, investors could find another reason take some more risk by buying up the anti-dollar currencies like the EUR. A weaker number, on the other hand, could cause the euro and the other non-dollar currencies to weaken.

What’s Gold Got to Do With It? – May 27, 2010

Here’s a look on gold’s daily chart. After reaching a new high of $1,249.495 per ounce last May 14, gold’s price suddenly dipped sharply because of the tensions that we saw in the euro zone regarding Greece’s fiscal problem over the past week or so. The price of gold, however, rebounded when it got some support from the previous resistance around $1,164.00. As soon as the buying condition at that time turned oversold, investors and traders soon picked the precious yellow stuff up, bringing its price back to the $1,215.00 area. The presence of a bullish divergence, where the price registered higher highs and the stochastics marked lower lows, also suggested a likely turn around.

Since conditions are far from being overbought, gold still has some room left to move higher. Though, it could encounter some hurdle at 2009’s high at $1,226.525. However, if it successfully moves past this level, it could easily aim for this year’s high again. On the flip side, if sellers take control to push the price down, gold could slip towards $1,164.00 once more. I remain somewhat bullish, though, given its present short term uptrend.

Some of you might be asking, “So what?” Unless you’re a gold trader, why would you even care about the price of gold?

Well, gold has a pretty strong tie with the comdolls (Australian dollar, New Zealand dollar, Canadian dollar, and the Swiss Franc). For one, it has about 80% positive correlation with the Aussie. An 80% correlation means than more often than not, when the price of gold goes up, the AUD likewise rises and when the price of gold sinks, well you guessed it, the AUD slips as well. You see, last week’s slide in gold which is highlighted in blue above coincides with the Aussie’s breakdown against the yen and the greenback. If you wanna see my previous post on the AUD, kindly click here. This week’s rally in gold, on the other hand, helped halt the AUD’s decline despite an array of selling pressure from Europe and Korea. So if the price of gold is to go up in the coming days or so, the Aussie alongside the other commodity currencies could at least put a stop on their present decline.

The price of gold also has a direct link to stocks of the mining companies, particularly to those which produces gold. Of course, the revenues of the gold miners would rise up as a consequence of the increase in the price of gold. Sure, the increase in income would not be reflected in their financial statements right there and then but the change in prices would be priced into their shares as the market anticipates the jump in their bottom line.

The Euro Versus the Aussie Today – May 26, 2010

Above is an update of the EURAUD chart analysis that I presented last May 20, 2010. As you can see, the pair punched through its downtrend line and all the way up until it encountered some resistance at the psychological 1.5400 handle. Notice that 1.5400 was previously a support and as soon as it touched the mentioned mark, it then turned around and fell again. At present, it is hovering just above the downtrend line. Now, this former price fence could switch its role into a support that would give the pair some lift. If it does, it could force the pair to at least move sideways or to even rally again. On the other hand, if the said net does not hold, it could fall straight back down to the 1.3900 territory again. But since there is no apparent sign of reversal yet, I’d say that the pair still has a higher chance of trekking south.

On the fundamental front, the sinking a South Korean naval ship by its northern neighbor has added new fears in the market, causing most of the global stocks and anti-dollar currencies to dip. Between the euro and Australian dollar, it is obvious that the euro is the weaker one. In fact, it is now running as the number one candidate for the Worse Performing Currency Award in 2010 due to the ongoing debt crisis in Europe. Going back, it is likely that South Korea will push for some hard sanctions against President Kim Jong Il and his country. This, however, could drive the north to possibly have some sort of ‘missile testing’ like what they did last year as a sign of threat to the other countries. This then could spark some risk aversion, leading to a sell-off in the markets. North Korea is a considered as a bully in the Eastern block. As much as I want them to make peace and be sorry, it’s very unlikely that they will actually bow down to any other country.

The Greenback Today and Tomorrow – May 26, 2010

Above is a look at the recent movement of the USDJPY pair in its daily time frame. As you can see, the pair has broken its downtrend line which peaked last April 6, 2009. Notice that two or three months prior to breaking above the downtrend resistance, the pair has already been traversing within an ascending channel. At present, it is exchanging between 91.00 and 89.00. If it clears above 90.00 cleanly, it could easily move up until it encounters some selling pressure at 92.00. A break from this mark could send the pair to 94.00. On the flip side, it could slide towards channel’s support or even at 88.00 if it falls below 89.00. However, since the ascending channel is still intact, the pair has a higher chance of rising at least in the short term.

Fundamentally, the US dollar could get another boost if and when the US’s preliminary first quarter GDP (to be reported tomorrow, May 27, at 12:30 pm GMT) prints some strong figure. This extra push will be on top of the currency’s favor over the other currencies due to ongoing crisis in Europe and in Korea. Anyway, the country’s annual growth rate is projected to be positively revised to 3.5% from the advance estimate of 3.2%. A growth of at least 3.5% could spark some speculation of a Federal rate hike sooner than later, enhancing the demand for the mighty dollar and sending the anti-dollars back into the sidelines again and of course the USDJPY up to the higher ranks.

The question is: Does the data from January to March 2010 support the market’s forecast?

The US’s score of the US’s headline retail sales were at 0.5%, 2.1%, and 0.4%, respectively, from January until March. Note that each actual number beat the market’s consensus. And in case you do not, consumption, which can be gauged using the retail sales account, takes up about a whopping 70% of the US’s overall output. Given the better-than-expected results, the country’s 1Q score could indeed be modified upward.

North Korea Torpedoed the EURO – May 25, 2010

Here’s an update of the EURUSD chart that I posted last May 21, 2010 (click here for my previous post). As you can see, the pair indeed met some resistance at the psychological 1.2600 marker which apparently was also the 50% Fibonacci retracement level of the most recent down-wave. After failing to rally above 1.2600, the pair has sunk and is now trading just above the support at 1.2200. With conditions far from being oversold, the pair has still a lot of room to move lower. In the event the fiber falls below last week’s low at 1.21445, it could head all the way down to 1.1800.

Aside from the reasons that I mentioned in one of my latest blogs about the euro, the now infamous anti-dollar has taken another hit today. The EUR slipped again vis-à-vis the greenback and the yen not only because of what is going on in the euro zone but also in the Far East. Tensions are mounting in the Korean peninsula for a possible ‘war’ when North Korea torpedoed a South Korean navy ship, killing 46, last March 26. Reports from South Korea confirmed today that it was indeed its neighbor that sunk the former’s vessel, prompting both sides’ military to be ready for possible combat. This new threat of course sparked some risk aversion from the market, leading the investors away from the ‘riskier’ assets like the euro back to the safe arms of the greenback and JPY.

On top of the North Korean affair, several commercial banks in Spain are also facing some financial difficulties when a bunch of their clients had defaulted. Those banks are now encouraged by Spain’s regulators to merge with some stronger cohorts after the International Monetary Fund (IMF) pushed the country to overhaul its financial system.

Presently, it appears that the EURUSD is bound to open even lower during the US session given today’s 2.3% slide in the S&P 500 futures.

CADJPY Breaking Down – May 25, 2010

The CAD/JPY looks to be breaking below the current support line (red line) in the 3-hour chart. If it does, it could be bound to go even lower. We could expect a bounce at 83.01 (green line) or at 82.14 (blue line) which are the next significant price marks. If these levels don’t hold, we might see the Canadian dollar’s value against the yen decline to the psychological 80.00 support. On the other hand, the pair could also bounce back up towards the 7-day downtrend’s resistance line (yellow) and a breakout from this could lead the price to 85.85 (black line).

The Aussie’s Back on the Bearish Spot – May 25, 2010

The AUDJPY has been consolidating within a symmetrical triangle or a bearish pennant formation for the last several days. Notice also that the pair is already moving very close to the triangle’s apex. This gives me an indication that it is bound to break out either to the upside or downside any time soon. Though, since the price action is coming off a downside, I would say that the pair has a higher chance of breaking down than breaking up. If and when the AUD/JPY pair break’s below the pattern’s support, it could head all the way down to 69.00. I was able to estimate its downside target by projecting the height of the pattern from the likely point of breakout.

Earlier, Asian stocks and currencies like the Aussie dipped again not because of any developments in the euro zone but because of the new threat from North Korea. Last month, North Korea was involved in the sinking of a South Korean navy ship. Last week, North Korean President Kim Jong Il placed its military under red alert following South Korea’s report that it was North Korea which torpedoed the latter’s ship.

The market nowadays is already receiving a lot of selling pressure due to the ongoing debt crisis in Europe. The rising political and military tensions in the Korean peninsula only weigh more on the investors’ bearish sentiment. If South Korea decides to retaliate by any military measure, such could resume the war between the two nations which was ‘temporarily’ halted back in the mid-1940s. If that happens, expect most of the anti-dollar currencies to dip and for the yen and the greenback to surge. This scenario, however, would be the worst case as I believe that South Korea together with its allies and the United Nations would rather push for sanctions rather than wage a war. Still, any further threat from North Korea would negatively affect the Australian dollar.

Short to Medium Term Look on the Euro – May 24, 2010

The euro once again started this week on a very stale note. The EURJPY opened at 113.144 and is now trading lower at the 111.787 area. Similarly, the fiber or the EURUSD commenced today’s exchange at 1.25794. Presently, though, the pair is moving weaker at 1.2378 minutes before the beginning of the US session. With the futures of the S&P 500 still on the red territory, it looks like the EUR is bound for another trek lower against the ‘safer’ greenback and samurai yen at least for today as soon as the bell in Wall Street rings.

Earlier today, the EUR resumed its journey down south on fears that the debt crisis in the euro zone has more bad stories to tell. In fact, just this weekend, the Bank of Spain has placed CajaSur, which is a savings bank that has been whacked by loan defaults, under a close monitor until it is able to solicit a much needed financing of about €99 billion or $123 billion from the government. These recent defaults in Spain, even if it was with the private sector, adds to signs that debt crisis could really be spreading across the entire European Union (EU).

Going back to Greece, some economists and analysts like me still believe that the whole situation in the EU is still far from over. Even if Greece is able to seek some aid from its peers in the region and from the IMF, Greece still needs to pay them back. It’s because what they are doing now is simply borrowing some more in order to pay for their upcoming dues. So the only way for them to repay their new debt is by domestically producing some income. With the proposed spending and budgets cuts, however, and a contracting economy, it would take them a longer time before they are able to do so. Until then, Greece and maybe the entire euro zone will remain in a fragile state.

So what does this mean for the almighty anti-dollar, the euro?

Well, it looks like the greenback and the yen are going to be its daddies for quite some time. Both the EURJPY and EURUSD could gradually head lower until the state in Europe stabilizes. Will the EUR reach parity with the dollar? I don’t know for sure but I tell you this… it’s not too farfetched.

The Aussie Breaks Down! – May 24, 2010

Hiyo my avid readers! I got some bad news to deliver to those who are still long on the Australian dollar. It might be a better idea now if you lighten your positions or to sell them during rallies given the bearish signals that I’m seeing in its daily chart. As you can see, the AUDUSD pair has broken down from a double top formation last week. Judging by the height of the pattern, its minimum downside target would be at 0.7700. At present, the AUD/USD pair is trading just above 0.8200. That means it that the pair could still move down by at least 500 pips. Now, who wants to lose that? Nobody, right? Still, it could consolidate or even retrace for awhile given its oversold conditions. The bias, though, is already bearish since it already reversed and broke its uptrend.

Fundamentally, it looks like the Aussie’s run for the best performing currency in 2010 is already lost. Despite its significant interest rate advantage over the other currency majors, investors still dumped it for the safety of the greenback and the yen due to some major developments that stirred up some fears in the markets. Last week, concerns that the euro zone could be breaking up has caused a massive sell-off among the non-dollar currencies which includes the AUD. Japan’s less-than-stellar first quarter GDP score has also jolted the market’s confidence or the lack of it.

This week, the market will again focus on the developments in the euro zone, particularly in Greece. Signs that Greece’s fiscal crisis is spreading across the region and obstruct growth would surely increase the investors’ bearish sentiment. The UK, which is the euro zone’s major trading partner, is set to release its revised GDP report tomorrow (May 25). UK’s GDP economy is expected to have grown by 0.3% rather than the initial 0.2% count. A weaker than expected result will likely cause another anti-dollar sell-off.

A Correction Seen in the USDCHF – May 21, 2010

The USD/CHF broke out of an inverted head and shoulders formation during the start of May. Since breaking the 1.0900 resistance, the pair has continued its ascent. It seems, though, that the Swiss Franc is bound to rally against the greenback any time soon given the present overbought conditions. Moreover, based on the Elliot Wave Theory (EWT), the pair could be starting to mark its fourth wave. Remember that according to EWT, a wave is composed of 5 smaller waves. In an uptrend, waves 1, 3, and 5 are impulse waves while waves 2 and 4 are corrective. EWT also notes that in a 5-cycle wave, wave 3 is usually the longest. So if that’s the case, wave 4 could indeed be in the making.

Risk aversion from the market due to the ongoing Greek drama has caused investors to leave the anti-dollars like the euro, pound, and Swissy for the safety of the USD. The increase in the demand for the safer currency is very evident in the USDCHF’s rise. Notice that the US dollar has rapidly appreciated after temporarily hitting a low on April 2 (marked as the tip of the right shoulder). However, the rumor that the Swiss National Bank will come in and intervene in the forex market to support the CHF has caused the currencies like the EUR to rebound yesterday. This speculation, though, had a very minimal effect on the Swissy.

Note that the SNB is very notorious in getting involved in the fx market. Hence, there is an outside chance that the central bank could really do so in order to prevent the rapid depreciation of the CHF and to promote price stability. If and when this happens, we could see a correction in USDCHF which would technically mark its wave 4. Still, I think that the general investing community would resume buying the dollar until the euro finds a workable solution to the Greek debt crisis. On the Switzerland’s side, in my opinion, they would gradually let the CHF lose some of its value since such is beneficial to their economy, particularly to their export industry.