This Is One Of My Favorite ‘Go-To’ Trades

Weekly FX Insight — June 19, 2005

 

In this week’s issue:

 

         
Dollar bulls; a little ruffled

         
Technical overview of key FX pairs

         
AUD and NZD remain resilient

 

It took a while, but the “short-term” overbought conditions
in the dollar have finally caught up with it.  A series of weaker than expected
economic data, dovish comments from Fed Governor Hoenig, and a
short-term speculative community that is
extremely long the dollar was the proper mix for a leg lower on Thursday and
Friday.

 

How much lower is
the real question?  Technically, the dollar has barely suffered as most major
fib levels remain untouched.  Nonetheless, it is far too early, from a
medium-term viewpoint to be calling a bottom. 

 

 

 

AUD & NZD

 

We expect the upward momentum in ‘aussie’ and ‘kiwi’ to
continue going forward.  Early last week both were resilient, despite the dollar
trading above 89, due to two primary factors, interest rates and commodity
prices (although NZD is far less sensitive to changes in commodity prices). 
Weaker than expected data in the US once again gave rise to rate concerns and
with both pairs offering an attractive overnight rate, yield seekers positioned
in AUD and NZD as both countries still hold out the possibility of further rate
hikes.  Gold, aluminum, copper and nickel were all higher on the week also
lending some strength.

 

 

 

Our near-term target for AUD is .7820 and .7840

 

While we see similar technical patterns playing out with
NZD, we would expect that for medium-term traders, those with time horizons of
several days to a few weeks that AUD has more technical and “macro” merit to it,
especially given the pick up in commodity prices.

 

USD/NOK

 

This pair has quickly become one of our favorite “go-to”
trades since adding it in recent weeks to our day-to-day analysis.  Once one
overlooks the wide pip spread (50 pips) and recognizes that on a swing trading
time frame it becomes less of a concern, they will realize there is some good
price action to take advantage of.

 

Like most pairs last week, there was some technical damage
done, USD/NOK is no different.  However, based on our assessment, we see the
current oversold condition on the 60-min chart,

combined with a confluence of daily support levels,
resulting in two possible trades depending on ones level of aggressiveness:

 

1.  a viable long from the 6.4160 level should be
considered by short-term scalpers as a move back towards 6.4500-6.4600 is quite
possible.

 

2.  those looking to trade with the current trend on the
60-min chart would be advise to use rallies towards the 6.4500-6.4600 level as a
short entries. 

 

If the dollar continues under pressure this week, we would
not be surprised to see USD/NOK trade down to 6.3785. 

 

As always, feel free to send me your comments and
questions.

 

Dave