The Weekly Update: Analyzing the Commodity Currencies

Weekly Trade Alerts

Following a subdued trading week  most of the focus will be on the Bank of Japan (BOJ) monetary policy at the end of the week. The Japanese yen was heavily sold on speculations the BOJ I read to expand its easing measures by between JPY 20 – 30 trillion and possibly slashing rates further into a deeper negative territory. We will only consider a trade in JPY pairs and crosses on Wednesday rather than the beginning of the week.

After reviewing multiple currency pairs it appears the commodity currencies are set for moderate gains including crude oil and possibly gold. One of the possible triggers aside risk appetite mode is the Fed’s monetary policy on Wednesday.

NZDUSD Weekly Chart

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Although it may appear to be top H&S it is not the case. Higher highs and higher lows is a distinct sign of an established uptrend.  We are aware the Reserve Bank of New Zealand (RBNZ) is expected to slash rates in August but it may not prevent NZD from posting temporary gains in the market although at the time of this writing the uptrend appears to be intact. We also have short entries in EURNZD and GBPNZD, however, the required stop exceeds +400 pips, these are not the type of stops we wish to exercise. To recap, the RBNZ introduced new measures to prevent a steep rise in the housing market upon slashing rates. Although it seems unlikely, the RBNZ may choose to wait until October when the measures are expected to be implemented before cutting rates.

The Canadian Dollar

Similar to NZD, the Canadian Dollar (CAD) is also lining up for corrective gains in the Foreign Exchange market. We are less keen on using the technical signals that are derived from the charts in CAD pairs and crosses.

USDCAD Daily Chart

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EURCAD Daily Chart

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We are less keen on using such entries but they are present. As the chart appears to suggest both NZD and CAD are due for corrective gains we may conclude it may be as a result of a renewed strength in the commodity currencies. We have been unable to locate firm entries in the Australian Dollar (AUD) aside the trade we are currently holding. What also adds to our bullish view on the commodity currencies is crude oil. Following the attempted coup in Turkey and recent downgrade by S&P, any escalation to the current crisis may spill over to crude oil.

Crude Oil Weekly Chart

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This is a fairly clean entry in crude oil. Reversed H&S with strong support at sight. We are uncertain if Turkey may be the initial trigger for the gains. If 43.20 gives way the latter support at 39.90 is expected to hold, which may provide a second entry in the commodity.

At the time of this writing it will be between NZD and crude oil. We are reluctant to take both trades as we wish to ensure the market exposure remains low. It will greatly depend on Kiwi Dollar opening price. If we are able to exercise a tight stop in NZDUSD we may consider opting for crude oil. Please note crude oil opens for trading after the opening the Forex market.

NZDUSD Trade Alert

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NZDUSD long at market price (0.6994)
Take profit: 0.7280
Protective stop: 0.6870
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 14 days#

US Crude Oil Trade Alert

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Please note this trade will increase our market exposure although it is not in the Forex market. Crude oil can be very volatile. If we timed our entry we should be in a fair profit in the early part of the trading week. We cannot rule our a re-test of 43.20 prior to the anticipated gains.

WTI Crude oil (SEP 16) long at market price (44.02)
Take profit: 49.70
Protective stop: 42.10
Risk Ratio (RR): 1 : 2.7 (approx.)
Estimated duration: 14 days

26/07/16 UPDATE: NZDUSD is trading at 0.7043 at the time of this writing.

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We do not have a sufficient distance to shift the stop to the entry, we are however closing 20% of the long trade at market price.

29/07/16 UPDATE: NZDUSD is trading at 0.7073 at the time of this writing, we are closing 20% of the long trade at market price prior to the BOJ monetary policy.

29/07/16 UPDATE II: Crude oil selling persisted in the market despite the rally in gold and further gains in global indices. The market has triggered the protective stop loss order, ending the trade with a loss.

29/07/16 UPDATE III: NZDUSD is trading at 0.7216 at the time of this writing.

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We are closing the trade at market price, ending the long position with a decent profit.

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