Analyst picks for: 2009/03/02
Written by the DailyFX Research Team
The US Dollar rose to test above multi-year resistance to start the trading week as stock exchanges in Asia and Europe fell sharply lower while US equity index futures slipped -1.7% on fears of deepening global recession. A busy week of economic data looms ahead culminating in the dreaded Non-Farm Payrolls report, promising heavy volatility and ample room for breakouts across the forex spectrum. Our DailyFX analysts weigh in and reveal their top picks for how to play the markets in the days ahead.
Questions about these picks? Visit the DailyFX forum for a Q&A with the Analysts.
Chief Strategist
Antonio Sousa
My picks: Short EUR/JPY
Expertise: Global Macro
Average Time Frame of Trades: 1 week
Higher yielding currencies and stock markets across the world are tumbling. In fact, the Dow Jones Industrial Average opened below 7000, the first time since 1997. To some extent, many investors thought the recent wave of stimulus plans could have led to a much broader recovery in the appetite for risky assets like stocks and high yielding currencies. However, judging by the recent price action, governments across the world are clearly failing to restore investor’s confidence in the global financial system and traders are showing their discontent by selling stocks and other risky instruments. So, given the current global macro environment of uncertainty and de-leveraging in financial markets one should expect additional pressure on politically unstable currencies like the euro against safe-heaven currencies like the U.S. dollar and the Japanese yen.
Senior Currency Strategist
Jamie Saettele
My picks: staying long USDCAD, against 1.2350, target 1.40
Expertise: Technical
Average Time Frame of Trades:
As I’ve favored the last few weeks, a triangle underway since October is complete at 1.2020. The breakout scenario is favored as long as price is above 1.2348. The rally above today 1.2770 inspires confidence in the bullish outlook and I may add to this position soon.
Currency Strategist
John Kicklighter
My picks: Long GBPJPY
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
The FX market's most popular whipping currencies are starting to fold back into the middle of the pack. This is typically how economics and markets work. Eventually, the worst performing economy will start to recover and an severely oversold currency will pull back from its extreme. This is likely what we are seeing with the British pound and the economy it backs. The sting from projections for the worst recession among the industrialized world (from the IMF) and perhaps the most aggressive role shift from yielding currency to funding currency may be wearing off as its counterparts (the euro and Japanese yen specifically) play catch up. My interest in the pound has developed over the past weeks - though its development is taking time. Last week, I took a short EURGBP on a reduced basis and looking for another break to develop momentum. This position has made little progress; but I believe it will still be valid until there is a genuine close above 0.90 - whereby I would cut out and wait for the next opportunity. For this week though, I have a more active pound setup that is unlikely to stagnate - GBPJPY. Not only is the pound recovering its speculative interest by pullback from record lows, but the yen's role in the currency market is changing dramatically. Once the safe haven of choice for global investors, the true instability behind the market's economy and markets is showing through.
The fundamental pressures behind GBPJPY are major; but may ultimately be slow to develop. However, the technicals are providing pressure now; so the market will demand resolution far sooner than economics may want to provide for. The general and slow reversal from this pair since the end of January is the largest and surest advance from this pair since August of last year. Clearly, this tells us that we are still engaged in a dominant bear trend. Therefore, my approach will start out slow and build with confirmation in milestones. I will look to start with a reduced position near the rising trend that has developing since the January 23rd swing low that now stands around 136.25. This steady advance is coming into conflict with a horizontal band of resistance between 141.00/75 (which is further capped by a 50 percent Fib of the Oct. 30th to Jan 23rd bear wave at 142.50 and the descending 100-day SMA which is capping this past week's worth of highs). A break through this high will encourage me to build my position. Should the aforementioned rising trend fall, my bias will be negated for the time being.
Currency Strategist
Terri Belkas
My picks: Short NZD/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 Day - 1 Week
My pick from Friday to sell NZD/USD on a break below 0.5000 was triggered on Sunday, and with risk appetite remaining low and the US dollar breaking higher, I am looking to stick with this position to target approximately 0.4500.
Currency Analyst
David Rodriguez
My picks: Short a break in the GBP/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
The past few weeks I've had a difficult time identifying truly worthwhile trades, as extremely choppy price action is the worst type of market condition for my momentum-based trading style. I try to trade medium to long-term breaks of trend, swinging for low-probability/high-reward trades. The GBP/USD represents one such trade right now. If the pair sustains a break below current market price and previous spike-lows at 1.4050, I believe that a move towards previous troughs near 1.3500 is likely. Current support represents the 61.8 percent Fibonacci retracement of the 1.3530-1.5000 move, and this is typically considered the "line in the sand" for trend traders. As such, I'll look to chase a break lower.
Currency Analyst
Ilya Spivak
My picks: Remain Short EURUSD
Expertise: Global Macro, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
I first sold the Euro against the US dollar at 1.5510 and have been holding short since, expecting the emergence of a long-term down trend. As expected, prices bounced lower last week having tested the top of a falling channel that has confined prices since late January and are now testing into the 1.2450-1.26 congestion area, the region that marked support of the range from 10/22/08 - 11/10/08. With the US Dollar Index poised to break multi-year resistance, the downtrend in EURUSD is likely to accelerate to take the pair past this critical support and opening the door for a decline to challenge the 1.20 level.
For complete analysis of all the major currency pairs, please see my latest weekly technical outlook report.
Currency Analyst
John Rivera
My picks:Short USD/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
My Short EUR/USD trade last week was good for over 200 bps as the pair continues to be range bound. The 20-day SMA held as resistance as I predicted and price action led the Euro to nearly test 1.2500. Although, it could be a good time to go long the pair as it trading near the lows of the range, the prevailing risk aversion in the market place will keep me on the sidelines.
This week I am looking at a short USD/JPY position as the pair’s momentum has stalled and is looking ripe for a retrace. I remain longer term bullish on the pair as safe-haven flows continue to find the greenback. However, we are seeing the Yen start to regain some of its correlation to investor sentiment. My target is psychological support at 95.00.
Currency Analyst
David Song
My picks: Stay Short EUR/USD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2- 10 Days
Expectations for a 50bp rate cut by the European Central Bank paired with a deteriorating outlook for growth and inflation continues to favor a bearish forecast for the EURUSD, and I expect the pair to retrace the rally from last year as policy makers use all of their available tools to steer the economy out of a deepening recession. I have lowered my target to the October low after the pair breeched 1.2600 last week, and will remain short against the euro as the reserve currency continues to benefit from safe-haven flows, and we may see the euro-dollar work its way lower to retest 10/28 low of 1.2329 over the week as investors remain risk adverse.
Currency Analyst
Joel S. Kruger
My picks: Pending Sell USD/JPY @96.85 for 94.60 Objective, Stop @98.05
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
Price action is starting to look bearish and could be warning of a short-term top. After rallying sharply for four consecutive days, the market finally stalled out on Friday, unable to post a fresh higher high above Thursday’s high, and subsequently breaking back below Thursday’s low. This sets up a bearish reversal day that could open the door to a more significant drop over the coming days. The overbought daily RSI is also just rolling back over in favor of a much needed and healthy correction. Look for a break below Friday’s low to confirm and open deeper setbacks towards the former resistance now turned support at 94.60. Stops to be trailed to cost on a break back below 96.35. Recommendation to be removed if not triggered by NY close (5pm EST) on Monday.
Fundamental Catalyst – After breaking away for much of last week, familiar risk aversion correlations fell back in line on Friday and have continued into Monday thus far, with the Yen rallying in the face of an escalation in fear on more troubles within the banking sector. HSBC has now come under pressure on news of significant losses and a need to shore up their balance sheet. The resulting price action has seen broad based liquidation on the yen crosses as money once again flows from the higher yielders back into the lower yielders. We would expect to see this pattern continue into the US session and will look to take advantage of what we believe to be an undervalued Yen at current levels (at least in the short-term).
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
Written by the DailyFX Research Team
The US Dollar rose to test above multi-year resistance to start the trading week as stock exchanges in Asia and Europe fell sharply lower while US equity index futures slipped -1.7% on fears of deepening global recession. A busy week of economic data looms ahead culminating in the dreaded Non-Farm Payrolls report, promising heavy volatility and ample room for breakouts across the forex spectrum. Our DailyFX analysts weigh in and reveal their top picks for how to play the markets in the days ahead.
Questions about these picks? Visit the DailyFX forum for a Q&A with the Analysts.
Chief Strategist
Antonio Sousa
My picks: Short EUR/JPY
Expertise: Global Macro
Average Time Frame of Trades: 1 week
Higher yielding currencies and stock markets across the world are tumbling. In fact, the Dow Jones Industrial Average opened below 7000, the first time since 1997. To some extent, many investors thought the recent wave of stimulus plans could have led to a much broader recovery in the appetite for risky assets like stocks and high yielding currencies. However, judging by the recent price action, governments across the world are clearly failing to restore investor’s confidence in the global financial system and traders are showing their discontent by selling stocks and other risky instruments. So, given the current global macro environment of uncertainty and de-leveraging in financial markets one should expect additional pressure on politically unstable currencies like the euro against safe-heaven currencies like the U.S. dollar and the Japanese yen.
Senior Currency Strategist
Jamie Saettele
My picks: staying long USDCAD, against 1.2350, target 1.40
Expertise: Technical
Average Time Frame of Trades:
As I’ve favored the last few weeks, a triangle underway since October is complete at 1.2020. The breakout scenario is favored as long as price is above 1.2348. The rally above today 1.2770 inspires confidence in the bullish outlook and I may add to this position soon.
Currency Strategist
John Kicklighter
My picks: Long GBPJPY
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
The FX market's most popular whipping currencies are starting to fold back into the middle of the pack. This is typically how economics and markets work. Eventually, the worst performing economy will start to recover and an severely oversold currency will pull back from its extreme. This is likely what we are seeing with the British pound and the economy it backs. The sting from projections for the worst recession among the industrialized world (from the IMF) and perhaps the most aggressive role shift from yielding currency to funding currency may be wearing off as its counterparts (the euro and Japanese yen specifically) play catch up. My interest in the pound has developed over the past weeks - though its development is taking time. Last week, I took a short EURGBP on a reduced basis and looking for another break to develop momentum. This position has made little progress; but I believe it will still be valid until there is a genuine close above 0.90 - whereby I would cut out and wait for the next opportunity. For this week though, I have a more active pound setup that is unlikely to stagnate - GBPJPY. Not only is the pound recovering its speculative interest by pullback from record lows, but the yen's role in the currency market is changing dramatically. Once the safe haven of choice for global investors, the true instability behind the market's economy and markets is showing through.
The fundamental pressures behind GBPJPY are major; but may ultimately be slow to develop. However, the technicals are providing pressure now; so the market will demand resolution far sooner than economics may want to provide for. The general and slow reversal from this pair since the end of January is the largest and surest advance from this pair since August of last year. Clearly, this tells us that we are still engaged in a dominant bear trend. Therefore, my approach will start out slow and build with confirmation in milestones. I will look to start with a reduced position near the rising trend that has developing since the January 23rd swing low that now stands around 136.25. This steady advance is coming into conflict with a horizontal band of resistance between 141.00/75 (which is further capped by a 50 percent Fib of the Oct. 30th to Jan 23rd bear wave at 142.50 and the descending 100-day SMA which is capping this past week's worth of highs). A break through this high will encourage me to build my position. Should the aforementioned rising trend fall, my bias will be negated for the time being.
Currency Strategist
Terri Belkas
My picks: Short NZD/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 Day - 1 Week
My pick from Friday to sell NZD/USD on a break below 0.5000 was triggered on Sunday, and with risk appetite remaining low and the US dollar breaking higher, I am looking to stick with this position to target approximately 0.4500.
Currency Analyst
David Rodriguez
My picks: Short a break in the GBP/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
The past few weeks I've had a difficult time identifying truly worthwhile trades, as extremely choppy price action is the worst type of market condition for my momentum-based trading style. I try to trade medium to long-term breaks of trend, swinging for low-probability/high-reward trades. The GBP/USD represents one such trade right now. If the pair sustains a break below current market price and previous spike-lows at 1.4050, I believe that a move towards previous troughs near 1.3500 is likely. Current support represents the 61.8 percent Fibonacci retracement of the 1.3530-1.5000 move, and this is typically considered the "line in the sand" for trend traders. As such, I'll look to chase a break lower.
Currency Analyst
Ilya Spivak
My picks: Remain Short EURUSD
Expertise: Global Macro, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
I first sold the Euro against the US dollar at 1.5510 and have been holding short since, expecting the emergence of a long-term down trend. As expected, prices bounced lower last week having tested the top of a falling channel that has confined prices since late January and are now testing into the 1.2450-1.26 congestion area, the region that marked support of the range from 10/22/08 - 11/10/08. With the US Dollar Index poised to break multi-year resistance, the downtrend in EURUSD is likely to accelerate to take the pair past this critical support and opening the door for a decline to challenge the 1.20 level.
For complete analysis of all the major currency pairs, please see my latest weekly technical outlook report.
Currency Analyst
John Rivera
My picks:Short USD/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
My Short EUR/USD trade last week was good for over 200 bps as the pair continues to be range bound. The 20-day SMA held as resistance as I predicted and price action led the Euro to nearly test 1.2500. Although, it could be a good time to go long the pair as it trading near the lows of the range, the prevailing risk aversion in the market place will keep me on the sidelines.
This week I am looking at a short USD/JPY position as the pair’s momentum has stalled and is looking ripe for a retrace. I remain longer term bullish on the pair as safe-haven flows continue to find the greenback. However, we are seeing the Yen start to regain some of its correlation to investor sentiment. My target is psychological support at 95.00.
Currency Analyst
David Song
My picks: Stay Short EUR/USD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2- 10 Days
Expectations for a 50bp rate cut by the European Central Bank paired with a deteriorating outlook for growth and inflation continues to favor a bearish forecast for the EURUSD, and I expect the pair to retrace the rally from last year as policy makers use all of their available tools to steer the economy out of a deepening recession. I have lowered my target to the October low after the pair breeched 1.2600 last week, and will remain short against the euro as the reserve currency continues to benefit from safe-haven flows, and we may see the euro-dollar work its way lower to retest 10/28 low of 1.2329 over the week as investors remain risk adverse.
Currency Analyst
Joel S. Kruger
My picks: Pending Sell USD/JPY @96.85 for 94.60 Objective, Stop @98.05
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
Price action is starting to look bearish and could be warning of a short-term top. After rallying sharply for four consecutive days, the market finally stalled out on Friday, unable to post a fresh higher high above Thursday’s high, and subsequently breaking back below Thursday’s low. This sets up a bearish reversal day that could open the door to a more significant drop over the coming days. The overbought daily RSI is also just rolling back over in favor of a much needed and healthy correction. Look for a break below Friday’s low to confirm and open deeper setbacks towards the former resistance now turned support at 94.60. Stops to be trailed to cost on a break back below 96.35. Recommendation to be removed if not triggered by NY close (5pm EST) on Monday.
Fundamental Catalyst – After breaking away for much of last week, familiar risk aversion correlations fell back in line on Friday and have continued into Monday thus far, with the Yen rallying in the face of an escalation in fear on more troubles within the banking sector. HSBC has now come under pressure on news of significant losses and a need to shore up their balance sheet. The resulting price action has seen broad based liquidation on the yen crosses as money once again flows from the higher yielders back into the lower yielders. We would expect to see this pattern continue into the US session and will look to take advantage of what we believe to be an undervalued Yen at current levels (at least in the short-term).
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
