One of the main markets I look at besides commodities is currencies. It’s a tough one for me though, as it can be a fickle friend.
These markets like to trend massively in one direction, often whipsawing traders out of both sides when not trending heavily. As a mid to long term guy I like to get in on swings within those whipsawing ranges, if the trend continues to the side of my swing then I’ll raise stops, let it run and honour my stop. If it goes the other way, I’ll keep my risk to a minimum. Sometimes stops are visual, sometimes they’re calculated with ticks and pips. Either way, small losses-big wins.
I’d say (without any mathematical backup) 90% of my foreign exchange trades end up closing at break even or a loss. The other 10% gets closed out above purchase price, usually by stop loss or that other fickle friend; emotions.
Some people might find this incredibly reckless. But it works. The key is appropriate risk management coupled with some quick wit and a beady eye.
Quite recently, as volatility has began to creep back into markets and commodities are throwing people around, I’ve been digging deep on the foreign exchange markets. This was unintentional, and my reasoning behind favouritism to foreign exchange markets and lack of interest in equities (US or other) was due to my thinking that equities were stretched, liquidity low in terms of pull backs, plus some other personal reasons such as not wanting to actually buy all time highs – all the time. (Which now may change)
To the meat of it.
As many of you know I’ve been aggressively bullish the British pound since late 2016; if you had followed the media narrative you’d have missed out on a very orderly trend. It’s not my place to say who is buying up sterling and why, quite frankly I don’t care. Just look at this trend from that “fat finger” low in October 2016.
As can be seen in the chart above my long targets from the dates mentioned prior have pretty much been hit, we can’t be too picky with currency markets so it’s good to know your targets might be some pips out of measured moves (goes for any market really)
I still think there is room to move higher in Sterling and I am watching for the 1.618 extension of around 1.47 to be met. That being said, I shan’t hold my breath on it and have risk managed well.
Above are some daily levels that I have my eye on for now, currently holding a long trade at 1.3881 and a stop loss at 1.3923. With a bullish price objective of 1.43
For those of you who like to play the CurrencyShares trusts – Here is a weekly chart of FXB, The British Pound Sterling Trust. Currently targeting a Head and Shoulders reversal objective of ~149.50
Next up is a trade I actually owe to Mike Bozzello, the community manager over at StockTwits.com While I have been bullish Swiss Francs for a while now, it was his analysis that led me to dip my toe in some Euro shorts vs Swiss Francs. You can see his take on it over in his stream, but here is mine.
We can see that after a pretty textbook Falling Wedge Breakout, prices reached their measured move targets of ~1.83 – Also very close to the point at which the SNB sacked off its Euro ceiling and pulled the peg. What got me most was the very tight Rising Wedge from Jan-2017 to present. I am currently short Euros and long Swiss Francs via this set-up from 1.1789 and a stop loss set at 1.162. I am targeting the 1.10 area which lines up to a few technical points which are marked on the chart above.
The same pairing but in daily terms with some levels I have my eye on. Which are all visual.
The case for a bullish Swiss Franc is also a good oppurtunity to talk about Gold briefly, as I know some folks like to hedge their currency positions in gold.
Here is a chart of CME Swiss Franc Futures, a continuous contract. Some may know I was looking for a breakout of the 1.06 area, and we got it in big league style with a retest to boot.
It is pretty clear to see from the chart above that a breakout over 1.10 would be, in my eyes anyway, pretty bullish for the Swiss Franc.
Below is a chart of CME Gold (continuous contract) priced in Swiss Francs. While this only shows a big basing pattern since 2013 (probably even longer if you disregard the top in 2011) It still gives us a good idea on why the two are worth looking at together, much like Gold/Yen, they move almost in tandem.
This can be seen more clearly when the two are separated and a number of different Correlation Coefficient(R) indicators are applied.
We can see that the short term R is choppy, natrually, but when we look at the longer, 20 Week rolling R that it could be safe to go long Gold on this pretty convincing breakout in Swiss Francs.
It would be incredily remiss to not mention the almighty Dollar so I will touch on it briefly, because as a technician it is clear as day the trend is down, and I will continue to have a bearish bias towards Dollars until I think that has changed.
Here is a daily chart of ICE Dollar Futures, the March-18 contract. Some levels to watch for and note.
While I do notice candlestick patterns, I see no reason to be overly long from on Friday Bullish Engulfing. I need consistent higher lows and conviction in the moves higher. My upside for the Dollar is 90. Over that and I’ll consider some scaling in of other positions. Still need 95 to be completely obliterated for any real long term upside potential to appear in the Dollar.
To re-cap, I am Bullish Sterling with caution, tight stops and the understanding I may need to nibble a lot longer for bigger upside.
Long Swiss Francs and that won’t change until I see us back in a 1.06-0.99 range.
Long Gold on the Dollar weakness and positive correlation to the Swiss Franc
Short Dollars because it’s in a downtrend, and I don’t buy downtrends.
Have a good week and as always do not hesitate to reach out with any questions or differing opinions. After all, that is what makes a market.
Stay tuned for a post coming up on what I am learning about the credit markets. We’re going to talk about yield curves, credit spreads and bond prices and what effect they have on commodities.
As with any site like this, please do not seek to make any returns from any ideas or commentary herein. It is for documentation purposes only.