Weaker USD In Majors

Forex Market Overview 21 August 2008

The Usd was weaker across the board in the Asian session, as continued concerns over Fannie and Freddie weight on sentiment. The EurUsd climbed from 1.4741 to 1.4812, while the UsdJpy fell sharply from 109.90 to 108.79. The GbpUsd traded in a 1.8620 to 1.8669 range, before breaking out in late session trading. The Jpy fueled carry trades continued to come under selling pressure, as risk aversion has crept back, with the EurJpy trading down to 161.07 and the AudJpy to 95.06. Wall Street closed in the black, but Asian regional indexes have been unable to hold on to the positive momentum, with loses across the board. European stock indexes are all pointing to a lower opening, with the exception of the FTSE. Crude & Gold continued to gain ground (pressuring Usd) with wti trading at $116.83bll and gold up 0.93% to $821.28oz.

The Japanese trade balance was only 91.1bn vs. 234.9bn exp, as import value grew (18.2% y/y) driven by oil related-price increases. It's interesting to note that exports to Asia grew, while US and Europe destined exports remained weak. Machine Tool Orders dropped -8.9% vs.
-8.9% prior reading.

On the continent, the market will be watching Eurozone's PMI surveys for continued evidence of deteriorating business activity. Should the figures come in line with market expectations, this will suggest that the region is in the midst of a technical recession. Sharp declines were printed in July for both manufacturing and service PMI for the second consecutive month.

In the UK, the market will be focused on Retail Sales. With CBI's falling off the map to lows not seen since 1983 and with the BRC's measure that also fell, we expected retail sales to follow…however not to dire levels.

Daily Forex Pivot Point
AUDUSD
R 3: 0.8846
R 2: 0.8797
R 1: 0.8757
CURRENT: 0.8750
S 1: 0.8626
S 2: 0.8593
S 3: 0.8503

EURJPY
R 3: 163.88
R 2: 163.10
R 1: 162.39
CURRENT: 161.04
S 1: 160.88
S 2: 160.14
S 3: 158.61

USDSGD
R 3: 1.4265
R 2: 1.4219
R 1: 1.4201
CURRENT: 1.4102
S 1: 1.4025
S 2: 1.3891
S 3: 1.3819

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Forex Daily Market Commentary

EURUSD Outlook
Yesterday the EURUSD attempted to push lower, bottomed at 1.4672, but failed to continue this bearish momentum by closed higher at 1.4743. Early today in Asian market, the pair is traded around 1.4780 at the time I wrote this comment. The pair is making a new soft bullish channel and CCI about to cross 100 line up suggesting a possibility of another soft bullish correction on 4h chart. My model goes mixed with neutral bias. Immediate support is seen at 1.4720 followed by 1.4672 (yesterday’s low). Initial resistance at 1.4820 followed by 1.4875. CCI just cross -100 line up on daily chart suggesting a potential bullish correction.

EURUSD Daily Supports and Resistances:

• S1= 1.4674
• S2= 1.4606
• S3= 1.4540
• R1= 1.4808
• R2= 1.4874
• R3= 1.4942

GBPUSD Outlook
Similar to EURUSD, yesterday the GBPUSD attempted to go lower, bottomed at 1.8539 but closed higher at 1.8613. We have a ranging market between 1.8722 and 1.8536 on 4h chart from the beginning of this week and need a breakout. I am expecting an upside breakout as a correctional move at least at 1.8750 resistance level since we don’t have a significant upside correction so far. Immediate support is seen at 1.8580. CCI just cross -100 line up on daily chart suggesting a potential bullish correction. Eyes on UK Retail Sales data today.

GBPUSD Daily Supports and Resistances:

• S1= 1.8540
• S2= 1.8467
• S3= 1.8396
• R1= 1.8684
• R2= 1.8755
• R3= 1.8828

USDJPY Outlook
Yesterday the USDJPY made no significant movement. The pair topped at 110.27 and bottomed at 109.60. My model remains mixed with neutral bias. We have a soft bearish channel on 4h chart and CCI just cross -100 line down suggesting a soft bearish correction potential. Immediate support is seen at 109.30 followed by 108.50. Initial resistance at 110.27 (yesterday’s high).

USDJPY Daily Supports and Resistances:

• S1= 109.54
• S2= 109.23
• S3= 108.87
• R1= 110.21
• R2= 110.57
• R3= 110.88

USDCHF Outlook
Yesterday the Swiss Franc wad traded weaker against Greenback. The pair topped at 1.1039 and closed at 1.0985. We have a ranging market between 1.0872 and 1.1039 since 14/08/2008. My model is mixed with neutral bias. Any breakout from ranging area would give us a clearer direction. CCI just cross 100 line down on daily chart suggesting a potential bearish correction.

USDCHF Daily Supports and Resistances:

• S1= 1.0908
• S2= 1.0831
• S3= 1.0766
• R1= 1.1050
• R2= 1.1115
• R3= 1.1192

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CHFJPY Hedge to Cover Longs Through 380-pip Drawdown

The Swiss Franc has been trending higher against the Yen since late November of 2000. With both CHF and JPY traditionally used as funding currencies for carry trades when paired with other currencies, their relationship among themselves has been primarily driven by the slightly higher yield offered by the SNB versus the BOJ. With both monetary authorities now firmly on hold, there is little reason to believe the underlying conditions guiding the pair’s broad direction will change in the near term. That said, CHFJPY does tend to oscillate in wide ranges along its upward trajectory. This can mean substantial swings in P/L for traders holding long-term CHFJPY positions.

Price action has seen the pair confined to a neat upward-sloping corridor since August of last year. Current trading has taken CHFJPY to the upper boundary of this corridor, with the Slow Stochastic oscillator topping out above the key 80 level and appearing to favor a reversal. A bearish Hanging Man candle now appears at resistance, lending further credence to a near-term selloff.


Hedging Strategy

Currency Pair: CHFJPY

Long Term Bias: Bullish
Long Term Position: Holding Long

Short Term Bias: Bearish
Short Term Position: Short below 103.40, Target 99.59, Stop-Loss at 104.31

Traders looking to protect their existing long CHFJPY position or enter long at a favorable price may consider a hedge short CHFJPY below 103.40 with a target at 99.59. Once the profit target is hit, we expect the bullish trend to resume. We will maintain a stop-loss on our hedge position should CHFJPY break out to the upside prior to the limit being hit. We will set the stop-loss near 104.31.





When should I use the hedging feature?

Markets hardly ever trade in the same direction for long. Though there are general trends that may unfold for weeks, months and years; there is almost always considerable fluctuation in price during these periods – sometimes leading to significant retracements. There are a few common strategies that traders use to immunize their risk to counter-trend moves while still holding to the long-term trend. One method of reacting to these changing tides is to actively enter and exit a trade on each swing, which requires constant attention and a superior ability to pick tops and bottoms. The other, more passive, strategy is to hold on for the long-term trend through retracements in the belief that the higher trend will reengage. Taking a temporary hedge positions through the counter-trend moves, on the other hand, requires less accuracy in picking tops and bottoms and at the same time lowers the drawdown while increasing the potential for return.

The hedging feature is currently available on all accounts using FXCM’s No Dealing Desk service.

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