Monday, June 22, 2009

Currency update 22 June 2009

A quick update on the USD (click on all charts to enlarge).

USD 10 year monthly chart:

As I blogged previous, the USD closed the month of May/2009 below the 12 month simple moving average (blue MA 12 line currently at 82.26). As such, from a long term perspective it can be assumed the USD has begun it's next long term decline.

The final piece to the puzzle will be a confirmation of the 12 sma signal with a cross of the Stochastic below the level of 50. It is currently at 55.84 and declining rapidly.

Of particular concern to me is the fact the USD was unable to breach the 38.2% Fibonacci level from its decline from 121.29 to 70.70 (shown in purple). It is common in Elliot wave analysis for price to retrace either the 50% or 61.8% Fib levels before continuing the current trend (which has been down for the USD since 1985). This weakness does not bode well for the USD in the future.

The USD is up +1.23% for the month of June so far and is attempting to break above the previous support level (now resistance) at 80.39. Next target to the downside will be the current support line at 77.69 followed by the previous low at 70.70.

The long term view on the monthly charts is Bearish.

USD 3 year weekly chart:

On the 3 year weekly chart the USD has had a 13 vs 34 week ema cross as well as an MACD cross below the zero line.

The USD is currently oversold on a weekly basis and appears to be correcting the stochastic oversold condition.

On a weekly basis this chart is Bearish.

USD Point and Figure Traditional chart:

The PNF traditional chart shows the trend switched to negative when price printed a closing price of 82.0. The chart projects a price target (based upon the structure of the chart) of 71.0.

The medium term PNF chart is Bearish.

USD .10 Box Point and Figure chart:

I like to use the shorter term .10 box PNF chart to drill down more closely into price patterns. This chart moves around a lot so it is not something you can trade with (other than day trades) but it does show nicely areas of support and resistance.

The chart turned bearish on Friday and currently projects a target of 79.20. Some reasonable chart support is evident at 79.80-79.90 but below 79.80 there is very thin support all the way down to the 78.40 low on this chart.

Based upon Friday’s closing price, this chart would be classified as Neutral.

USD 2 year daily chart:

The 2 year daily chart clearly shows the uptrend line that was broken in April. Along with that, price penetrated below the 200 day moving average (green line), the 38.2% Fib (82.39) and the previous support at 82.69.

Price appears to have formed a descending channel and has found support at the 61.8% Fib at 77.93 along with the support line at 77.85. Price is currently stuck between the 50% Fib and resistance levels of 79.96-80.38 (Friday’s close 80.31).

Momentum is positive (MACD in an uptrend), price is not overbought (Stochastic <80) and the Relative Strength Indicator (RSI) is neutral..

This chart is neutral with a very slight uptrend bias.

USD 6 month daily chart:

This 6 month daily chart is one of my "working man's" charts so it may appear a bit busy to those who are new to technical analysis.

Keys to note:

-the downtrend channel (black lines) from the 89.62 top is clearly defined.

-the previous downtrend channel-within-a-channel was broken to the upside in mid-June.

-price has moved above the Bollinger band midpoint (thin dotted black line) which is bullish but has been riding the midpoint band downwards. Note the midpoint band has now flattened and the USD needs to decide if it wants to break back to the downside or continue up.

-price appears to have begun to form an uptrend channel and Fridays lows did not break the channel. This is bullish.

-A move to the upside of the channel would take the USD to appox the 82.50 level. This falls in line with the 50% Fib (purple lines) of the most recent decline (82.61), the 38.2% Fib (lime green lines) of the decline from the top (82.65), the 50 day moving average (blue line) at 82.48, and the current resistance at 82.63.

Based on the above, the short term is still Bullish for the USD with a price target of 82.63-82.67.

Bottom Line:

The USD has begun its next long term and medium term declines. Short term it is neutral-to-bullish and there is no indication the next leg of the decline has begun (yet).

I will remain in the USD until the short term charts turn back bearish. At that point I will exit all long USD positions and reposition into other investment vehicles.

If history is any guide, recent declines in the USD have been net positive for equities, commodities and foreign currencies. My currency of choice is currently the Australian dollar (as a play on both commodities and the China exposure) followed by the Canadian/New Zealand dollars, the Swiss Franc, the British Pound, the Japanese Yen and the Euro (in that order).

In my trading account I have been holding the Australian, Canadian and Yen. When the next USD downtrend resumes, equity purchases will be in non-US ETF's (which will gain in value from both the rise in equities that these countries will see along with currency appreciation against the USD). I will primarily look to the ASX (Australia) and TSX (Canada) indexes along with Asian (non Japan) ETF's.

No changes to my provident fund holding as of the weekend. Still 88% USD and 12% equities.

**Strategic allocated percentages are as per how funds were originally allotted. Due to market fluctuations and ongoing equity monthly purchases these amounts vary several % from that posted (refer to current % holdings).

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