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Christopher Vecchio's Analyst Pick

Christopher Vecchio's Analyst Pick

2012-03-26 15:31:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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If you've been following me on the Realtime News Feed, you're likely to have noticed a discernable shift in my bias: I'm buying higher yielding currencies and risk-correlated assets. There are two reasons, but they are essentially one in the same: both the European Central Bank and the Federal Reserve are in the midst of massive easing cycles (so are other major central banks, but that can be disregarded as per my picks).

Even though Chairman Bernanke has backed away from his ultra-dovish rhetoric in recent weeks (beginning on February 29 at his testimony on Capitol Hill), the fact remains that the Fed is still a very dovish institution at present time. I firmly believe that, while there isn't a legitimate economic reason to do so, the Fed will choose to unveil another round of easing in the coming months, most likely in the form of a sterilized bond purchase program.

As such, I've taken the opportunity to get long into higher yielding currencies such as the Australian Dollar on dips. Currently, I am long AUDUSD from 1.0430 (triggered overnight) with an open target. I will look to add on dips.

I'm also long AUDJPY. This seems like overexposure but I'm rather bearish the Japanese Yen this week. Seasonally speaking, the Japanese Yen tends to depreciate from mid-March to early-April as companies move funds around for tax exemption then repatriate said funds just a few weeks later (thereby lifting the Yen). This would suggest to look for a weaker Yen in the days ahead (a push higher by AUDJPY, NZDJPY, and USDJPY) before a deeper retracement by said pairs in three weeks.

There is some meaningful overhead resistance at former highs in both AUDJPY and AUDUSD, but if Chairman Bernanke's comments today were an early indication of what the Fed is preparing to do, both AUD-crosses should break said resistance with ease.

Any other trade ideas and general macroeconomic musings can be found in the Real Time Newsfeed, or by following me on twitter @CVecchioFX

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