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No Christmas For Carry Traders After A Year Of Debauchery
Submitted by Nic Lenoir of ICAP
Well, our theme throughout October and November has been that upon a break of the 50-dma EURUSD would post a rather sizable correction as I think the EUR above 1.50 is completely mispriced against the USD. Yesterday we thought 1.4550 being reached we would see a bounce, but a flurry of stops overnight took us a fair bit lower again. We are currently in sub-wave 3 (probably towards the end of sub-wave 3) of the initial bearish impulse. Any bounce close the 50-dma should be sold as the view for a stronger USD remains intact.
AUDUSD overnight has triggered its H&S breaking 0.8965. I will only point out that on the 3-hour chart we have a potential support here on the C=A from the tops. There is a risk of failure here which would be highly contrary to our overall view but it is worth taking due notice. If you sold 0.9330 as we had originally suggested you can afford patience but I would not welcome a close daily back above 0.8965. The medium term target remains around 0.82 where we have the 38.2% retracement of the 2009 rally as well as the wave 4 of lower order which should act as support. Eventually I think there is a risk we go even lower. Also watch the 200-dma which is in that same support area.
Stocks had decorrelated from FX the past couple weeks as has been discussed previously, however there is a sense the gap might need to be filled here. We note especially that the Nasdaq has failed to take out the multi-year resistance as seen on a log scale on the attached chart. Also the Dow has completed a perfect C=A from the lows of March, which probably sets us up for hefty correction. Last but not least, the S&P has broken the support on the 3-hour chart which was at 1,097. As discussed the past couple weeks we think 1,120 was a good entry for shorts and even though the price action has been confused and confusing since, and we need to see 1,084 breached to confirm a further decline towards the key support at 1,048. The only thing that has been a possible counter argument technically to that view is the similarity on an hourly chart of the S&P future price action over the past month compared with the Dow's price action throughout the 70s on a weekly scale. I need to investigate the fractal nature more to decide whether this is a real danger or a scarecrow for the bears.
Good luck trading,
Nic
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Nic, thanks again for the quality work. I'd love to get your full take on the AUDUSD, what you think of this in the medium term etc. in regards to price levels. I have a particular interest in buying more AUD, and own a substantial amount right now, but understand that this is a commodity currency and thus can be highly susceptible to large pricde moves.
Any thoughts you have would be appreciated.
"I need to investigate the fractal nature more to decide whether this is a real danger or a scarecrow for the bears."
The manipulation since March has been so crazy and after that July debacle, it has caused a lot of second-guessing in bearville.
Thanks Nic. It is hard to say due to floating currency game of musical chairs, but my count has small caps and Nikkei soon heading into a wave 3 down of nastiness. To what degree, I am not sure. I'm guessing it would be just a minute 3, which portends ungliness ahead.
Steve, Fundamentally AUD is not a bad play for the comodity and Asian exposure as there is no doubt Asia will have overall greater growth than the rest of the world over the next 20 years if free trade is allowed to exist in its current condition. However, China is massively overvalued right now, and so are a lot of markets, like Australian real estate which is in a bubbly state as well. If some liquidity is pulled out of the system AUD could get seriously hurt. 0.82 is a key support zone. You have the 200day moving average, the wave 4 of lower order which if is a bullish market is likely to be support and the 38.2% retracement. Personally think we could go a lot lower, possibly back down to 0.7350 (the 61.8%). There is a great chart out there I can't get my hands on that shows the credit spreads markets' behavior in relation to mortgage resets and they move ni perfect harmony. If that hols in 2010 and 2011 we are due for a second wave of credit mayhem with mortgage resets spiking over these couple years.
Hope this helps. I will update based on market developments my views on AUDUSD. For now I think it is south and we are really just starting. EURAUD is a good buy as well around 1.60.
Hope this helps,
Nic.
Thanks Nic, I concur with your points. Some patience before converting the next batch of USD to AUD is in order.....
Much appreciated.
Time for "Dollar Rally" Lenoir to become a term of endearment.
What happened to Gold?!?
We're f--ked!
Eh? Got gold, bitches? Anyone?
SteveNYC - First of all, depends on your timeframe. The AUD looks to be making a long overdue correction. Have a look at weekly chart 0.800 is possible.
Secondly, on gold - this was always an overhyped speculative move up. Gold will head for previous high of 1036 soon and will probably trade under 1000 when the fear sets in.
It was oil all over again but people are too stubborn or naive to notice even 1 year after.
gold shines, when fear sets in. paper gold is plentiful, like dollars. just try to get your hands on some physical, right now. good luck. would you rather have a promise, or the real thing. GLD is just a new way to naked short gold. the metal backing this confetti,if it exists, is still in the friggin ground. If they will pervert, and manipulate one segment, of the market, the will do it to every segment. the whole enchilada is rotten. consume at your own risk.
Thanks again Nic :)
Any thoughts about the Norwegian krone ?