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Timing the Convergence on Analysis for Dollar, Pound and Yen Crosses

Timing the Convergence on Analysis for Dollar, Pound and Yen Crosses

2017-03-21 02:37:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

There are few better ways of filtering good trade opportunities than using diametrically analysis techniques

• While the confluence of fundamental, technical and general environment conditions is unusual; it still requires timing

• We use the Dollar's restrictions last week with this mix in mind as well as Yen and Pound options with timing ahead

See how retail traders are positioning in the majors using the DailyFX SSI readings on the sentiment page.

Timing is a critical function of successful trading - as a trader of considerable renown said, 'if you're right at the wrong time, you're wrong." While a pair, asset or market may seem to have all the ingredients of a high probability setup; the elements don't always coalesce at the same time - and that can significantly undermine the probabilities. In my trade selection, I like to filter through options that meet certain technical, fundamental and general environmental conditions. However, the miss-firing of one of these elements can neutralize a great opportunity. Many false breakouts, failed trends and stalled ranges have resulted from the wrong mix.

For a general over-view of market conditions, liquidity and appetite; there are few prevailing trends with meaningful momentum and fundamental themes currently carry deference for mature trends - extreme monetary policy and complacent risk exposure. That sets the tempo for opportunities that seek a healthy mix of event risk and technical formations. In this backdrop, a pair that finds itself at the extreme of a well-worn range with a piece of data or event that can hasten a reversal (with the correct outcome) would represent the ideal blend. That said, the same situation that produced a fundamental spark that forced a break would be a struggle for follow through. A range test without a motivating spark could linger at its boundary without an 'edge' to direction or time frame to operate on.

We consider the throttling effect that a disparate mix of analysis can have on markets first with reference to the US Dollar. Last week, the DXY Index slipped a rising trend channel as bullish momentum on a fundamental backing (the leverage for rising Fed rate expectations) was fading. The FOMC decision fast tracked a bearish correction against the prevailing macro-economic wind, but it wouldn't cover the full scope of the past months' range - leaving a much more significant head-and-shoulders neckline intact with a limited engagement drive of a tamer-than-expected hawkish view. The same consideration of the proper blend and timing is then applied to Pound and Yen crosses. The Sterling has its ties to a paced Brexit progress, but technical proximity from GBP/NZD, GBP/USD and GBP/CAD stage different options. For the Yen, risk trends are anchor that can quickly turn to engine. When that motivation arrives is critical for successfully aligning to the different timing presented by GBP/JPY, USD/JPY and NZD/JPY in their various stages. We discuss the concept of timing as a coordination of analysis techniques in today's Strategy Video.

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