Combining Technical And Macro Analysis In FX
Combining Technical & Macro
Analysis in FX
Today’s piece will be brief, but will hopefully
illustrate a key point nonetheless. While most short-term traders rely heavily,
if not exclusively on technical analysis, FX lends itself to a combination of
both, especially on longer time frames.Â
First, let’s look at this daily chart on
CAD/JPY
As you can see, the technical picture is
vulnerable, but not a clear sell at this point. However, let’s also consider
some macro factors that added some solid arguments to go short on any further
technical weakness.
-Â The
Canadian dollar is overvalued by more than 30% versus the yen based on
Purchasing Power Parity
-Â Stock prices, on a relative basis, appear more
attractive in Japan versus Canada
-Â Commodity prices, we believe, will begin to turn
lower.
-Â
Rates are not likely to rise in Canada, in fact, as mentioned yesterday
(reference to my commentary in FX service), major Canadian exporters report that
the strong Canadian dollar is negatively impacting them, rising rates will only
compound the problem
We went short at 84.95
(see chart below) and are quite satisfied with the progress thus far.Â
Naturally, combining
macro analysis takes a bit more effort given that most of the data needs to be
gathered from different sources, but for me, this “story” behind the technical
backdrop provides a higher level of conviction.
As always, feel free to
send me your comments and questions.
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