Bearish AUD, CAD and EUR

Fresh back from vacation in the Sunny Caribbean – here are some trades that I like off the bat:

1) Short AUD – After last week’s disappointing GDP, retail sales, service and manufacturing PMI reports, there is no chance the RBA will be talking about another rate hike this evening. The last time we heard central bank governor Stevens speak, he was crystal clear in saying that the current level of interest rates is appropriate. He also indicated that the next rate hike may not be until mid next year. Last week’s dismal economic reports served to confirm that not only is now not the right time to continue raising rates, but it would be smart to let investors know that the RBA is officially on hold until the U.S. and/or Chinese recovery gains momentum. Now of course, the U.S. has its own problems so even though I am bearish Aussies against the U.S. dollar (AUD/USD now @ 0.9875), I particularly like shorting Aussies against the Japanese Yen (AUD/JPY now @ 81.65).

2) Short CAD – Same story in Canada. Even though there was an increase in employment last month, it was all in part-time and not full-time work. If this shift becomes a continuous trend, it would suggests that companies are growing concerned about future business activity. Back in October, the Bank of Canada downgraded their growth forecasts and last month the BoC warned that they could intervene in their if there was extreme movements in the currency market. As a result, with USD/CAD trading just a tad above parity (USD/CAD now @ 1.0070), I think that the BoC will remain cautious, warning of the downside risks that will impede them from normalizing monetary policy. There is a good chance that USD/CAD will be trading back above 1.02 before the end of the year.

3) Short EUR – European sovereign debt problems have not gone away and despite the weak U.S. NFP report, traders have resumed their sale of euros. All eyes are still on Spain and Portugal and this is not likely to change anytime soon. EUR/USD is currently trading @ 1.3270 and I am looking for another move into the 1.30 handle.

If you can’t tell – I am bearish risk. Good luck trading.

13 Comments

  1. Kathy,

    Are you a short term currency trader?

    With the United States employment situation looking less optimistic (a recent jump in the unemployment rate to 9.8%) and the FED’s willingness to increase the size of the quantitative easing program (beyond $600 billion) based on the efficacy of the program. Buying United States dollars long term is risky. Inflation is low and unemployment is high which is just cause for the FED to pull the trigger from more asset purchases at any moment.

    Reply
  2. Kathy,
    I’m just a guy living overseas a long time and spending Euro. I cannot follow all the technical trading talk, as I don’t trade. I just buy. But I thoroughly enjoy following your comments and watching your interviews when I happen to catch them. I really got a hoot out of your vacation pictures! They were great! The balloons were so nutty! You sure aren’t like any normal banker lady. Good for you! Take care and keep up the great work!

    Reply
  3. hi kathy’

    are u sure that the usd will be stronger than the aud? or any other currency?
    after the nfp the fed will go on with more stimulus///that supouse to weak the us
    any way im long aud/usd and short usd chf afer tp on both an stop moved to BE

    good luck

    Reply
  4. I’m not so sure the “long term” really matters all that much in the currencies, at least not if you are trading them. What matters is what’s happening right now. The factors that you mention, unemployment, QE, inflation are known risk factors and therefore it’s doubtful they hold any predictive value at the margin. Kathy is bearish risk, so we can infer that she is not optimistic on near term resolution to currency tensions. Yes, the long term is likely down for the dollar, but there are many other trades to make before then.

    Reply
  5. Well funded traders don’t mind fundamentals. They are prepared to absorb 75-100 pips loss. They trade for the purpose of making money not for being right or fundamentally correct. For them Forex is a boring game, for they are beyond 100% sure that they will eventually make money. Are you bored with your system? If you are then you are one of them 😉

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  6. Its all about the short term! Gene is right, the long term is of no relevance to the short term trader who isn’t keeping their currency on hold for a year, to many opportunities in the immediate to be doing that.

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  7. My opinion is that….it is probably short or mid term for fx trading. Long term is kinda hard for trading especially fundamental. Some people say that the price of the currency is already took into consideration of the fundamental; but somehow they did not think that the price itself is affecting the fundamentals.

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