This Tuesday, higher yielding currencies, stocks and commodities have been well bid after being heavily sold during the last few weeks. Apparently, investors decided to increase their holding in higher yielding riskier assets after news emerged the European Union may find a solution for Greece’s debt problems. However, even though I believe that Greece will eventually correct its government expenses, financial markets look way too optimistic. Greece has deep structural problems and the country will not be able to solve them in a matter of days. It will take many years, if not a full decade. Under those circumstances I favor safe-haven assets and lower yielding currencies going forward. In particular, I remain long USD/JPY, short EUR/USD and short AUD/USD. Please make an intelligent use of leverage and always use stop-loss orders to protect your capital.

Subscribe to This Analyst

The EURUSD has reached and dropped below the 100% extension of 15144-14216 (13650) but the larger trend remains extremely bearish against 14030, as a 3rd of a 3rd wave is considered underway from there.  An objective is 13081 (161.8% extension).  Any rallies should prove corrective.  13800-50 is resistance.  I like scaling into long term shorts from current levels up to 13850.  Stops should be above 14030 and I am targeting 13100.

Subscribe to This Analyst

Last night I got stopped out of the second half of my long-standing NZD short position at a respectable profit, and I will be on the lookout for more 'risk' shorting opportunities in the days ahead. One of my primary targets will be the EURUSD, which has bounced considerably from recent 1.3600 lows. Ideally I will wait until a test of 1.4000 to go short, but if the bearish scenario plays out I'm not sure we'll see a test of said level. Keep track of the forex stream for more up-to-the-minute analysis.

Subscribe to This Analyst

More often than not, it is risk appetite that defines the focus on a currency's fundamental backdrop; but for the euro, the deficit troubles in Greece and other EU member economies is actually the impetus for the underlying deterioration in investor sentiment. Today, the steady inflation of default premiums retraced modestly; and market commentators are quick to attribute the bounce to speculation that the Union will step in to bailout Greece. No doubt, speculation is the source of most market trends and volatility; but an immediate change in the outlook for this financial threat is unlikely. Realistically, we have not seen any tangible deterioration in Greece's finances nor any definable shocks to the global credit market for some time. Add to that the ground that has already been covered over the past few weeks for building up default premiums; and the market is looking at a natural bounce. This does not fundamentally alter the European Union and euro's troubles however. Greece is just one country among many who are struggling. Allowing the countries to struggle on opens the doors to a potential default. Bailing out one would turn into a sticky situation where officials and market participants will expect every nation in trouble to recieve a bail out.

As for positioning for the currency, I remain a medium-term bull. In the immediate future, the currency could find repreive from settled risk trends; but the fundamentals behind the euro continue to deteriorate from overvalued levels. The euro is not the idealic counterpart to the dollar. Little more than 10-years old, we are now seeing the shortfalls with a shared currency across many economies. For this reason, I am sticking with my EURGBP short though it bounced back up to retest the former support pivot level and 200-day SMA at 0.8835. Considering the position was initially taken just below this level, I can maintain the short with a decent stop above the pivot. As for risk trends, trends are often riddled with temporary reversals and stalls. I believe this is what we are seeing now. For that  reason, I will keep my EURJPY short with a tentative objective around 116/117. Adding to the mix, I'm also looking at the long-term descending trendline for EURAUD and the short-term wedge a recent path of higher lows is creating. I will look for a breakout of this pattern before making a move. The trend that ultimately emerges from predicament will tell us whether European fundamentals or risk concerns are more influential.

Subscribe to This Analyst

I initially sold EURUSD at 1.4881. Prices have now tested below my third revised target at 1.3740 but I will err on the side of caution and wait for a meaninful push below 1.3660 before advancing the objective lower. I will trail the stop-loss further downward, however, booking the trade on a daily close above 1.4251.

Subscribe to This Analyst

A break below 1.3802-50.0% Fibo of 1.2444-1.5149 led me t take fresh short EUR/USD positions last week. I have moved up my stops to break even, which are being threatened by today’s bullish reversal. Speculation that Greece will receive a bailout has ease concerns and generated broader risk appetite. However, we have already seen ECB member Nowotny make statements that the country remain on its own to solve its problems as it isn’t the central bank’s  role to interfere. Risk appetite appears to be here to stay for the day which has me considering moving up my stops to I can take advantage of the downside potential, when markets realize that help isn’t on the way.

Subscribe to This Analyst

Keeping up with the EUR/GBP recommendation from the previous day, the pullback during the U.S. trade triggered the short entry I had at 0.8756, the 20-Day SMA, but the overnight rally on Tuesday close the position after hitting the stop at 0.8788, the 1/22 high. At the same time, we saw the exchange rate rise to a high of 0.8820 during the European session and the pair looks poised to test the 200-Day SMA at 0.8830. As a result, I will try to range-trade the pair again and have placed sell entry at 0.8830 and will target 0.8650, the 1/20 low, with the stop at 0.8889, the 50-Day SMA.

Subscribe to This Analyst

The market has been in a freefall for the past several days, and although key support by 1.5700 has now been cleared, we can not ignore oversold inter-day readings which have the daily RSI well below 30. Next key support now comes in by psychological barriers at 1.5500, and while we do see this level potentially being taken out over the coming hours, any additional setbacks are seen limited in favor of a major short-term corrective rebound back towards 1.6000 in the days ahead. STRATEGY: BUY @1.5490 FOR AN OPEN OBJECTIVE; STOP 1.5390. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY. POSITION SIZE SHOULD BE 3X TOTAL EQUITY.

Subscribe to This Analyst