Any more crisis in Europe?? (2010-03-30 EURUSD analysis)

Finally all my mid-term examinations are over. My last one is Derivatives examination this morning. After spending lots of time figuring out the pricing of Forward and swaps, I can have some time to be back to the market and analysis.

My main interest is in Euro in recent days. It is really exciting when keeping track of what is happening, with sudden news driving the price crazy.

Having no bad news means good news. Euro rebounded these few days. However, would this trend last long?



With the price far below the ichimoku cloud, we could conclude that the trend is still bearish. The price is actually touching the channel I drew, and it would probably result in a greater drop afterwards. Is there any other crisis in Europe going to pull the price down?

End of unclear Market movements? (2010-03-26 HSI analysis)

In response to the many sudden news announced (Portugal bonds downgraded, brighter directions for Greek aid) and the fluctuating currency markets, equity markets seemed not to be able to react accordingly. The future movement is really blur, and investors are choosing not to arbitrarily choose one side. Volume dropped these days, though the index was not that flat.

However, we have to be aware of a coming big change. According to the graph below, HSI is forming a pennant.



After HSI touched the 50-day moving average yesterday, it rallied today and stopped at 10-day moving average. We could see that basic form of pennant is not far from completion, and we would predict a large movement for HSI. Just like what I suggest for gold, long strangle (Long Call and Long Short) could be a good strategy for you to gain something even if you are not sure about the future movements. This movement would be clearer once the index breaks through the pennant, and it would be the best time to long/short equities.

"Safer" currency? (2010-03-25 CHFUSD analysis)

Following the credit downgrade of Portugal bond, EUR has had a great drop, and GBP followed. JPY fell too. The currency markets looked so volatile with unpredictable movements. While deciding whether or not to speculate/invest in one of the risky currencies, I here add one "safer" currency to your choice list.

The Swiss Franc has been rising, most probably due to the plunge of EUR. Technically, we can see that the trend is really obvious --- rocket!



Conservatively, the price would be up to the 38.2%-fibonacci line 1.0821. However, I predict that the price could go up to 1.1045, in around 2 weeks. Rather than taking risk in speculating those with unclear directions, why not such obviously-trended Franc?

Be aware of high volatility in Gold (2010-03-23 Gold analysis)

The unexpectedly increased interest rate in India sent the stock markets to fluctuate to a larger extent. Investors worried that the other countries in Asia would follow, and globe markets dropped. While everyone is focusing on the equity markets, we should not ignore an important commodity which is somehow related to interest rates --- gold.

Gold price has been flat these days without much variations. However, it is eventually converging, and a pennant occurs. Following such magical pattern would be a highly volatile price movements, either straightly going up or down.



So we can see that the red line is a middle-run line, with supporting function in the beginning and now becoming a resistance. If the gold price is to break through the pennant, for going upwards, it would have to break the difficult-to-break red line. On the other hand, would it signal a big drop? Theoretically, when interest rate increase, people would less prefer gold. Then the price would drop.

While we are uncertain about the movements, why don't we simply bet on the high volatility of gold? We can long both call and put options. Then if the price really moves in great extent, we can gain no matter which way it goes.

Uncertain about enquity markets (2010-03-19 NZD analysis)

So, what we have to learn is to know how to change our stances according to "sudden incidents". I think everyone would short EUR now after the news that Greece may not be able to get financial aid from EU.

Today, I have done an analysis on NewZealand Dollar (NZD). We could see that the price has been following the downtrend for long time and it has just reached the top line. It is time for another drop.



The stock market keeps on fluctuating. Last time I said HSI would more likely to rise, but there is still worry which makes HSI drop. It is very unclear about the future movements of the globe markets. Let's stay calm and observe for a longer time before making any decisions.

Another Worry For HSI (2010-03-17 HSI analysis)

There was finally some breaking news! and the continuous boring movements of the markets are over! Both Fed's ensurance of not increasing Interest Rate and the seem-to-be-over financial problem in Greece impacts on the indexes and EUR.

According to the graph in my previous post, EUR was successful in breaking the downtread line due to the news and was likely to heading upwards. I believe only other breaking information would change its direction such as "accidentally" discover another financial problem in Spain / Portugal.

Dow Jones Industrial Index broke the resistance line yesterday, but we still have to wait for 2-3 days before confirming its trend. But I predict that DJI would have its trend going upwards.

Now, let's get back to Hang Seng Index.



We can see that HSI raised through the fibonacci line and was attempting to break the 125-day moving average. This is really a big resistance! With my prediction on DJI, HSI could be brought up by DJI and the next point should be at 21,640. However, there is still a worry for such prediction of HSI: interest rates of China.

After such a long time of recovery, China seemed to have signals of improving economy. Last time, China government raised the reserve rates of its banks. This time, it is almost time for China to make a second step (given current high asset price) to increase its interest rate. If it is so, the China enquity markets would probably fall in a short period (say around few months), and HSI would follow such and become bearish. This is what we have to worry about before entering long positions in Hong Kong market.

Rest's over (2010-03-13 EURUSD analysis)

WOW! It just looked like nothing happnened this week! The heating atmosphere for the enquity markets cooled down a lot and the indices were just going up and down not more than 0.5%! Did you take enough rest during the previous week?

While everything is going so flat, we could not ignore the fact that EUR has already reached the upper line after a long and boring horizontal move. Yesterday EUR was trying to break upwards, with the help of the red triangle as shown below. However, it was just so powerless that it could hardly make it. EUR would have to break two lines, fibonacci and downtrend line, in order to achieve a higher position. But I predict that bad news about Portugal and Spain would follow and EUR would more likely to plunge sharply. The red triangle would push it downwards rather than giving it power to surge.



EUR would be more likely to drop to a new low and becareful of your long positions for EUR.

Slow recovery in Japan (2010-03-10 JPYNZD analysis)

Though the global markets seemed to be stablized after the great surge in HSI on Monday, the bull wave would be arriving as analyzed posted in my last blog.

I am always focusing on forex these days to gain more knowledge on cross rates rather than simply the rates to USD. It is really challenging for me as I do not have much time to keep track of the changes of the rates, and I have to use much of my spare time to do so. However, I am still a newbie in this aspect and I believe I am improving.

Today after reading news from Bloomberg about Japanese Yen, I did an technical analysis on JPY/NZD. On Bloomberg, a bond and currency dealer in Japan said due to the faster economy recovery in Asia-Pacific region than in Japan, many people showed their anticipation in NZD by selling JPY/NZD. That's why JPY/NZD dropped.



We could see that the price dropped through the channel and was heading to the next fibonacci line, which is at 1.5528. We would expect a small rebound at that point, but given the slow recovery in Japan, the line is probably having a very small supporting effect, and the price would go further downwards.

Be prepared for another "bull wave" (2010-03-06 DJI Gold analysis)

Just a brief summary, GBP returned to above 1.51 after its great drop to 1.478 last week. With the satisfaction to the policies made by Greek Government about increasing tax to reduce deficit, EUR stopped its sharp drop and became more stable. Now the currencies seem to be calm down for a while before any breaking news, and focus should be turned back to equities and commodities like Gold.

There was a good news to highlight, the surging Dow Jones yesterday led the price to break the unbreakable-for-three-trial line. Though it was only a small pass, together with the stablized unemployment rate and the better atmospher in the global markets, it is more likely for a bullish markets to begin. If it's really so, and DJI is confirmed to have successfully gone beyond the barrier, it is anticipated that Dow Jones would go as far as 10,900. This may bring Hang Seng Index further upwards.



We could often hear that when the market is falling, gold would always be a good shelter and with increasing demand, its price would rocket. So what would happen when DJI is expected to rocket instead? Looking at the below graph, we can see that there are at least 3 resistances. The upper downtrend line (in red), the 61.8%-fibonacci line (in thin dotted blue) and the barrier in thick blue dotted line. Given such many barriers, it is more likely that Gold price would hardly reach the highest point in three months and would remain more-or-less in the flat horizontal channel. Only really breaking news could lead to a volatile rise or drop for Gold.

Strange GBP (2010-03-02 GBP analysis)

Australia Central Bank raised the interest rate from 3.75 to 4 yesterday, but AUD reversed after two-day rise. This shows that actually the sensitivity of AUD to interest rate reduced and AUD is more likely to drop even after such a good news on AUD.

While everyone talking about EUR and the attack by speculators on it, we could not miss out one currency that has dropped quite a lot in the past few months --- Sterling. Seeing the below, we could find out that actually GBP has dropped over 8% in just half year and it was really horrible. It seems that there might be investors speculating on GBP too.



Doing some research on such an unusual-moving currency, I found out some data about the forecast of price on GBP by some companies. Let's see:



I circled the three groups that had the most pessmistic view towards GBP: Banque Cantonale Vaudoise Group, Morgan Stanley and UBS. Interestingly, two out of three base in Switzerland. UBS has changed her views after Sterling dropping to 1.48 and said it would go further downwards. Morgan Stanley said concerns on UK's shaky policies will further drag GBP to lower position.

On the other hand, Goldman Sachs and National Australia Bank predicted a surge in February shown in the poll and said GBP would go as high as 1.85.

The main reason for this strange movement is due to the growing concerns and debt in U.K. However, do they really contribute so much to such "expectations"? is it simply due to the speculations with huge amount of money? If so, looking at UBS and Morgan Stanley's active words, it seems like the drop is not yet over.

On contrary, Goldman and NAB do not have much words on Sterling, does it show that this time, they are not involved in the speculations?

Nevertheless, the next sign for movement of GBP should be the figures released about U.K. If there is no strong evidence on U.K. having measures to reduce debt, it will be a good time for another large drop in Sterling.