Happy New Year, Everyone! Today the US Senate is expected to confirm Janet Yellen as the next chair of the Fed to take over from Ben Bernanke at the end of this month. CNBC commented that Bernanke "has succeeded in establishing something of immediate value for Ms. Janet Yellen, his talented successor: A quantitative easing exit policy that has been communicated well externally, that markets seem comfortable with, and that has a chance of playing out as planned." Though Yellen's first scheduled meeting as chair is not until March 18 to 19, we do have a critical jobs report coming out this Friday, which is likely to provide a clue as to whether the Fed will be able to continue tapering as planned or hold steady. Forex Volatility Prices Remain Elevated, Signaling Potential Market Turmoil Ahead If market conditions do in fact become strained and volatility rises substantially, DailyFX quantitative strategist David Rodriguez said "we would then look to our volatility-friendly Breakout2 strategy as our preferred tool to take advantage of market shifts". Breakout2 is currently giving a signal to buy EUR/JPY at current levels. If you have a live FXCM account, you can use your Trading Station login to access the Mirror Trader platform and automate this strategy.
The Momentum2 strategy on the Mirror Trader platform just gave signals to short AUD/USD and buy USD/CAD at current levels with trailing stops 70-80 pips away. For both currency pairs, the Speculative Sentiment Index (SSI) has hit its most extreme negative level for the past 145 trading hours with retail traders shorting the US dollar versus the two commodity currencies. SSI is a contrarian indicator to price action, so the fact that the majority of traders are short the US dollar gives signal that the currency may continue higher.
Today's ADP Employment figure of 238k vs. 200k expected was the single best print since December of 2012, when the figure came in at 209K, sending US Treasury yields and the US Dollar higher. While not always the most reliable guide for the government Non-Farm Payrolls report due on Friday, January 10, it does give guidance on private-sector hiring. That is why Treasury yields went up in anticipation of the Fed continuing to taper. Yields rise when the price of Treasuries fall. And as yields rise, that is bullish for the US Dollar. Yesterday, I mentioned that the Momentum2 strategy on Mirror Trader went long USD versus AUD and CAD. Past performance is not necessarily indicative of future results. Currently the AUD/USD trade is still trading at the same levels, and the USD/CAD trade is now floating a 70 pip profit. According to DailyFX PLUS, the USD/CAD signal is still valid to enter now at current levels which means that conditions could still be favorable for the US Dollar to continue higher.
The US Non-Farm Payrolls Employment report came in at the worst levels seen in 2 years: +74K versus +197K expected, from +241K previously. The gut reaction of the markets was that this would halt the Fed's plans to taper at least for the short term. As a result, Treasury yields and the US Dollar sunk on the news. USD/JPY 1-minute Chart: January 10, 2014 Intraday The Japanese Yen and British Pound were the biggest beneficiaries immediately after the number. GBP/USD 1-minute Chart: January 10, 2014 Intraday Since then, the Momentum2 strategy on Mirror Trader has gone long EUR/USD and GBP/USD and long USD/CAD. Past performance is not necessarily indicative of future results.
Last week we highlighted several key factors that left us in favor of further Japanese Yen strength. Namely: a build in Forex volatility prices/expectations, extremely one-sided JPY positioning, and the potential for a break of Yen resistance (USDJPY, EURJPY, GBPJPY support) warned of a potentially significant rally. A scan of this morning's best and worst performers via the Strong/Weak app on the first full trading day after the weakest US labor market report since January 2011 shows that capital is returning to risk sensitive assets. Intraday Price Perspective In particular, the Japanese Yen has started the week sharply higher versus the British Pound, Euro, and US Dollar. Why might it continue higher, and how can we trade it? Quantitative strategist David Rodriguez addressed these questions this morning on DailyFX.com: DailyFX Individual Currency Pair Conditions and Trading Strategy Bias "Our SSI-based Momentum2 strategy on the Mirror Trader platform has had a busy several days as it is now short USD/JPY, EUR/JPY, GBP/JPY, and CHFJPY. Past performance is not necessarily indicative of future results. "We like said positions as long as USDJPY continues to make a series of lower highs and lower lows."
Yesterday's hawkish remarks from Atlanta Fed President Dennis Lockhart failed to prevent a breakdown of the US Dollar, allowing gold to continue building upward. Currency strategist Ilya Spivak provided the following technical analysis in his article on DailyFX.com: "Prices turned higher as expected after putting in a Harami candlestick pattern. A break above resistance at 1248.70, the 38.2% Fibonacci expansion, has exposed the 1261.28-70.28 area (marked by bracketed by the October 11 swing low and the 50% level). A further push beyond that targets the 61.8% Fib at 1291.86."
In his Weekly Strategy Outlook on DailyFX.com, quantitative strategist David Rodriguez says that traders are bracing "for big market moves on a week with three major central bank meetings and a highly-anticipated US Nonfarm Payrolls report. <iframe width="853" height="480" src="//www.youtube.com/embed/jqQfNcLhu7A" frameborder="0" allowfullscreen></iframe> "Forex volatility prices have jumped, favoring stronger market moves ahead "We see little option but to position ourselves for similarly large FX moves in the days ahead, and our volatility-friendly Breakout2 trading strategy could do well across Japanese Yen and US Dollar currency pairs in particular." DailyFX Individual Currency Pair Conditions and Trading Strategy Bias You can automate the Breakout2 system on your FXCM account via the Mirror Trader platform. The same login and password you use on Trading Station will allow you to access Mirror Trader.
The ISM Non-Manufacturing Composite print for January showed a slight uptick as the print came in at 54.0, beating estimates of 53.7 and the December figure of 53.0. Notably, the only component to decline MoM was in fact export orders- a possible indication of mounting pressure in global trade as the Baltic Dry Index presses lows not seen since last summer. USD/JPY February 5, 2014 (5-Minute Chart) The better than expected ISM figure helped lift the greenback, US Treasury yields and equities, but the move has proved short lived thus far. Momentum in USD/JPY price action has been slowing over the past half hour and- as has been the case over the past two weeks- Yen weakness continues to be short lived. The Breakout2 strategy from DailyFX PLUS is currently giving a signal to short USD/JPY at current levels based on readings from our Speculative Sentiment Index (SSI). Breakout2 and other DailyFX PLUS Trading Signals can be automated on your FXCM account via the Mirror Trader platform.
Last week's sharply disappointing US Nonfarm Payrolls data left the US Dollar noticeably weaker across the board and through key price levels. In the video below, our Senior Technical Strategist highlights why several key USD levels will be critical to watch—particularly versus the Euro and British Pound. <iframe width="853" height="480" src="//www.youtube.com/embed/9iiHsC58CGI" frameborder="0" allowfullscreen></iframe> We recently favored high-volatility trading strategies and our proprietary Breakout2 trading system. Yet the broader shift in market expectations pulls focus towards other systems. The trend-following Momentum2 remains attractive more generally with the important exception of some range-bound USD pairs. DailyFX Individual Currency Pair Conditions and Trading Strategy Bias You can automate the Momentum2 and other DailyFX PLUS Trading Signals on your FXCM account via the Mirror Trader platform. The same login and password you use on Trading Station will allow you to access Mirror Trader.
It's Thursday which means the weekly update of the Speculative Sentiment Index (SSI) was posted today on DailyFX.com The strongest bullish signals are for EUR/USD and GBP/USD which means it's no surprise that the SSI-based Momentum2 and Breakout2 strategies are currently giving signals to buy these pairs. You can automate both strategies on your FXCM account via the Mirror Trader platform. The same login and password you use on Trading Station will allow you to access Mirror Trader.