Weekly Analysis 05 October – 11 October 2015 – Commodity Currencies Are Back!
This was the week the commodity currencies CAD, NZD and AUD had their revenge.
This was the week of commodity currencies. It was the best week for them after more than a year of constant decline. They gained 4-5 cents each against the Buck, partly due to USD weakness and partly due to an increase in the value of commodities. Gold is flirting with 1155 and WTI oil broke above $50 per barrel. It was a busy week for the biggest central banks of the globe as well. The Royal Bank of Australia (RBA), the Bank of Japan (BOJ), the Bank of England (BOE) and the Federal Reserve (FED) all made important decisions in their statements this week. We had a good week in general regarding our signal performance and closed the week with 79 pips, although the volatility of the commodity currencies roughed us up a bit.
Forex Signals
The US Dollar has been in a downtrend the entire week, and it only accelerated as the week progressed. The price of oil has bounced from mid-$40 to above $50, and that has given the commodity currencies an unexpected push. This has made it difficult to trade them because they have been in a massive downtrend for more than a year and now they suddenly put up an impressive fight. That has presented some good trading opportunities, especially for long-term signals, but the performance has oscillated as a result. Nonetheless, we closed the week in profit. We made 79 pips this week from 18 signals; 13 signals closed in profit while 4 hit stop loss and 1 is still open. That gives us a win/loss ratio of 77:23 which is in line with our recent months´ performance.
On Monday, we opened five signals but only three of them closed and we finished the day 8 pips down. Tuesday was a good day for us, as we had four winning signals out of four opened. On Wednesday, we issued seven signals and closed the day with a 45 pip profit. The US Dollar made a retrace on Thursday and we got caught out by it, thus losing 90 pips. But we made it all back on Friday which was the best day of the week. We closed our long-term USD/JPY signal at mid-day and we received 151 pips. We opened that signal on Thursday when the price was at the 119.20-40 support level. So in general, we had a very successful week even though the price action and the USD uptrend was somewhat unjustified.
The market this week
The commodity currencies, such as the Canadian, Australian, and New Zealand dollars have been in very strong downtrends for more than a year, losing between 25 and 30 cents against the US Dollar. But, in recent weeks the downtrend has slowed and we have seen them consolidate in tight ranges. This week, the ranges were finally broken and they made a comeback. They gained about 4-5 cents against the USD which seems impressive after such a
We opened our USD/CAD signal above the resistance line and made 73 pips from it.
We started on Monday with a losing AUD/USD sell signal in the morning, unaware of the upcoming weekly uptrend in the commodity currencies. We recuperated later on the day with three winning signals and finished the day nicely in profit. On Tuesday, we had a mixed day and closed it with a 1 pip profit, but hey… a profit is a profit. The commodity currencies strength gave us more trading opportunities on Wednesday; we opened a long-term NZD/USD sell signal thinking the 16 month downtrend in this pair would be over, but it pushed up for another 250 pips and hit our stop loss. Later that day, we opened three short-term signals, all of which hit take profit. Then we decided to open a long-term buy signal in USD/CAD just below 1.30, which is an important round number and a previous resistance level (see chart). We closed that signal manually with a 73 pip profit. On Thursday and Friday, we opened another six signals, with four of them hitting take profit and only one resulting in a loss. One of them, the long-term NZD/USD sell signal remains open.
The commodity currencies such as the Australian, the New Zealand and the Canadian Dollars made a great performance this week. They gained between 400 and 500 pips against the US Dollar after a long trend downwards, where they lost about 20 cents in a period of more than a year. They have put up fights before, but this was the biggest gain in a single week during this downtrend. The weakness of the USD has helped, but the main reason was the appreciation of commodities (oil in particular), which broke above $50 and benefited the related currencies. Will the commodity dollars push further up and turn into an uptrend? The weekly charts of all of them were nearly overbought and the price is at the 20 weekly MA, so I would recommend being cautious going long at these levels.
We also had plenty of activity from the central bankers this week. The Royal Bank of Australia started the week off with their cash rate decision and the attached statement. Many economists were expecting them to cut rates after recent troubles in China, but they kept them unchanged at 2% and that gave the AUD another reason to rally. The Bank of Japan and the Japanese government officials hit the press on Wednesday morning. They vowed to keep the monetary policy accommodating as well as increase their fiscal policy. The Bank of England followed on Thursday afternoon with their monetary policy summary and official bank rate decision. No one expected changes in their monetary policy, so everyone was concentrated on the interest rate votes. At the moment there is just one member of the BOE voting for a hike, so a real surprise would be if more members voted pro. Well, nothing changed which brought some disappointment into the market, and sent the Pound about a cent lower. The FED´s September meeting minutes closed the week for the central banker. The minutes are out-dated since they are more than two weeks old. During this time, the US employment data for September showed a worrisome slowdown. This is the only month with such bad numbers after two years of employment increase, so it might just be one off. Nonetheless, the market sentiment for the US Dollar turned sour and the USD remained in a downtrend until the end of the week.
Economic data
China was on bank holiday during the first half of the week so there was no data coming from their sectors this week. The services data were all scheduled on Monday and it was disappointing. The European service sector missed expectations and so did the UK services, which is a little surprising after two years of expansion. The US non-manufacturing sector didn´t do any better as it came 1.1 points below the 58 expected. The RBA left the interest rates unchanged on Tuesday morning, which helped the AUD since many were expecting a cut. In the evening that day, the dairy products price index came at 9.9% which is lower than last month but it is the third month of gains and that helped underpin the NZD. On Wednesday, the German industrial production showed a 1.2% decline but the Euro remained stable due to USD weakness. The UK manufacturing and industrial production, on the other hand, beat the expectations and last month’s numbers were revised higher as well. The Canadian building permits shrank by 3.7%, but the oil appreciation helped the CAD. The US unemployment claims came out 11k below the 274k expected on Thursday and the 4-week moving average moved south, which shows a declining trend in claims, and the USD still lost value for the day after the FED meeting minutes made some dovish comments. On Friday afternoon, the unemployment rate in Canada went up 0.1% to 7.1% against an expected 0.1% decline. That put an end to the CAD uptrend, at least for this week.
Pairs analysis
USD/CAD has been in a massive uptrend for more than a year, following the decline in the price of oil and all the declining revenues that oil brings to Canada. This week oil rebounded and so did the CAD. As you can see from the H4 chart, the downtrend that started by the middle of last week has accelerated this week and broke below all the moving averages. It made a small retrace from 1.2990s to 1.3070s which we got 73 pips from with a long-term buy signal. After the price reached the 200 and 20 MAs and stochastic became overbought, it returned back down. The price broke and closed below 1.30, which is a confirmation of the break. It continued down to the 100 MA in the daily chart, which comes at the same level as the 20 MA in the weekly chart but couldn´t break this level, so that is proving to be a strong support level for now. The next level is around 1.28, which has been resistance before and might turn into support now.
The weekly downtrend has been smooth without much resistance.
The 20 MA is providing support but will it reverse the retrace?
Just like the Canadian Dollar, the New Zealand dollar has made some impressive gains against the USD. While the driver for the CAD has been the higher oil price, the NZD has seen increasing demand coming from the higher prices of the dairy products. NEZ/USD has been in a short-term uptrend. It has been continuous, as you can see in the hourly chart and the retraces have been shallow. The price has been leaning against the 50 MA during this uptrend. Looking at the daily chart, this seems to be a retrace from the long-term downtrend. The 50 and the 100 MAs in this timeframe have been broken, but the stochastic is now overbought. Looking at the chart history, whenever the stochastic indicator has reached oversold levels, the price has turned down. On top of that, the RSI has just reached overbought levels as well, which makes the reversing scenario evermore possible. But the coin has two sides, and in this case, the NZD and USD. If the USD weakness continues we might see the short-term uptrend stretch further, but these gains will be limited in my opinion.
The 50 MA has provided strong support during the uptrend.
The price broke above the 50 and 100 MAs this week after consolidating in September.
In Conclusion
The market finally offered up some love to the commodity currencies with a retrace this week after a long, difficult road. They rallied about 5-6 cents against the
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