We may be seeing a paradigm shift in the forex market. Bad news in the U.S. is no longer translating into a broad risk trade.

In the past, bad news in the U.S. would lead to a ‘risk off’ trade where the JPY was the main beneficiary but the USD also rallied against EUR and the commodity bloc. Over the past three days we have seen risk aversion coming from China and bad news in the U.S. Instead of seeing EUR/USD strength, we are seeing weakness.

Remeber that currencies are relative. Over the past 8 months, the euro has slumped based on euro-centric worries. The thinking was that European economic growth would lag U.S. growth by a large margin.

The outlook hasn’t improved for Europe but it is now darkening for the U.S. and elsewhere. Relatively, that’s a good thing for the euro.

If this is a paradigm shift, it’s major. It’s would be reminiscent of the USD during the financial crisis. Initially, the USD was falling to record lows as it appeared the crisis was limited to just the U.S. housing market. Later, when it became clear that the U.S. housing crisis was going to send the worldwide economy into recession, the USD rallied. This wasn’t good news for the USD, rather, it was relatively good news.

We are not yet saying there has been a paradigm shift but we are on the lookout. The caveat is that we are at the start of a new month and new quarter. Trading patterns often get skewed by flows. We won’t get a real idea of what is happening until July 6, when the U.S. returns from holiday.

First, we would like to update yesterday’s post. We noted that USD/JPY was gearing up for a big move and that is exactly what happened. We were cautious on the early move (especially since we had a slight bias to the downside) but once the news that Japan’s Prime Minister quitting hit, we knew which way this pair was heading. His replacement will likely be Fiannce Minister Naoto Kan, who has been quoted as saying he prefers a weaker yen. It seems as though the technicals and fundamentals are aligning for this trade. A strong U.S. non-farm payrolls report on Friday will likely lead to another leg higher.

The U.S. dollar has been strong today but it has been badly outpaced by it’s northern neighbour as Canada’s loonie has led the forex market. If we get a daily close below 1.0414 we see it as a bearish signal.

The Bank of Canada hiked interest rates on Tuesday but didn’t commit to further rate hikes and we saw a disappointment trade combined with a risk averse environment that left a negative technical picture. We were thinking about entering longs but today’s impressive rally in CAD has taken us aback.

We are now back below the key 200-day moving average. The pair is about to hit some significant technical support at the 100dma (1.0330) followed by trendline support and the old range bottom of 1.0205.

Still, we find it very hard to be long USD/CAD after today’s price action. We caution against agressive shorts because today’s move seems so out of the ordinary. A close above 1.0414 and we might wade into a long position with a very tight stop. If we close below that level we start looking for ways to short the pair.

The rebound in ‘risk’ trades today left some interesting patterns. Some look like they could be putting in bottoms, others look convincingly like the trend will continue. We are looking for clearer signals but in the meantime we see some charts that are flashing trading opportunities.

Cable has posted an interesting pattern over the past 10 days, bouncing in a 300-pip range. We will be watching this trade over the next few days and think a break to either side will be a good barometer of the broader risk trade.

As we can see, GBP/USD has traded in a 294 pip range since the gap lower to start the week of May 16. The gap lower co-incided with the election of a new government and we are now getting a sense of the austerity measures they plan to unveil to curb the huge UK deficit. It’s possible that announcements on that front will be what pushes this pair from its range. If the measures are too severe of too leniant, the pound will fall. Poilcymakers will need to strike a plan that’s both credible and promotes economic growth.

Technically, there are two ways to trade. The first is to buy at the bottom of the range and sell at the top. The second is to await a breakout. At the moment, we would favour selling a rally if GBP/USD reaches the top of the range and covering a portion at the bottom of the range. Playing a breakout is also an attractive strategy. The measured target of a range-trade breakout is equal to the range, so a fall to 1.3940 or a rally to 1.4822 is expected.

The coast is clear for GBP/USD to continue higher as fundamental and technical indicators point to an extension of the recent rally.

Fundamentally, it’s looking increasingly likely that the Conservatives will secure a majority victory in the May 6 election. Today’s poll of swing electoral districts showed the Conservatives with a convincing lead. Moreover, the market seems to be shifting its gaze away from the debt problems in the UK in light of data showing economic improvement, especially in exports.

Technically, this has all been reflected in the price action of GBP/USD.

The pattern is very similar to EUR/USD but is showing more conviction to the upside. There is a double-bottom at 1.4787 from March 1 and March 27. The neckline at 1.5378 was broken last week and we have gone back and retested it successfully. The measured target of the double bottom is 1.5969, which corresponds nicely with the 200-day moving average (red). Before that level can be reached, there are several technical hurdles to overcome. The most formidable will be the late February top at 1.5815.

Overall, we think this trade sets up nicely and we also like the fact that there has been good volatiliy in this pair and that looks set to continue.

Alright, so before we start today let’s see how our review yesterday and what happened with the AUS/USD. As you remember yesterday we talked about the amazing trend this pair has and how over the last few month we saw the great uptrend this pair offered us ( I will show you how much money you could have made yesterday with this pair).

Now let us talk more about the G7 (meeting of the finance ministers from a group of seven industrialized nations), as Forex traders we receive some very interesting news from those ministers and world leaders. All leaders made a bold statement expressing support for a strong dollar. The joint statement after their meeting in Istanbul was identical to an earlier statement of April “We come back and strengthen the common interest of our strong In recent months we began to see signs of global economic recovery, continuous improvement in conditions in the capital markets. However, there is no room for complacency, since the growth forecast is still not stable labor market conditions have not improved. To recovery will be based, we leave the support mechanisms in economics “, the ministerial statement said.  The ministers are seeking to strengthen the global market by indicating what they would like to see however we are still seeing a weaker buck today and the big question is, when will they intervene and make it a stronger dollar?

Fundamentals:  We have a few announcements today which will affect the market. Coming from United Kingdom we have the “Manufacturing Production M/M”. The previous announcement was 0.9% and the forecast for today is 0.4%. (08:30  GMT). Two more announcements coming in from Canada “Building Permits M/M” which will be released at 12:30 GMT. The previous announcement was -11.4% and the forecast for today is 4.5%. We have the “Ivey PMI”. The previous announcement was 55.7 and the forecast for today is 56.6. (14:00 GMT)

USD/CAD

The USD has lost it power over the last 3 days after it appeared like the USD was getting stronger.  We know that over the last few weeks we are seeing more sales of the USD and more buyers of the CAD and those actions are increasing the value of the Loonie. As we all know over the last 3 quarters the USD has been dropping against the majors against the EUR alone it is down 15% Y/Y already. Today we will wait and see what the result from Canada will bring today. Those results can give a strong indicator as to the direction of the CAD. I will Put Support and resistance lines so we can get a much better feel to where this pair goes. In a technical point of view we used a moving average of 30 days on a weekly and daily chart and with both it appears to be a down trend.

AUD/USD

It‘s not the first time that we are talking about this great pair.  The thing about this pair that makes it so exciting is that every few weeks, days or hours this pair is breaking the previous record and moving in a uptrend. Take a look over the daily chart and you will clearly see the trend this currency is moving in. Over the last year we have seen that this pair has moved in the 2600 pips range and in a clear uptrend. Now the big question I hear everyone asking is when and will this pair will really break the record and prove this uptrend to be real and reach the highest point of 0.9400?

In order to get the feeling of the movement you will need to take a look at a few different parameters, one is the fundamental news that will come from the US and Australia that will directly affect the move and trend of this currency.  Next thing to do is keep looking over the chart and to technically analyze the trend of this pair over non fundamental days where only sentiment will effects its movement.  The combination of both will help you make the right decision when trading. Over the last few weeks the market has moved nicely for this pair, let’s go ahead and translate today’s movements to money in our pockets!

Fundamentals:  We have a few announcements today which will affect the market.

Coming from United Kingdom we have the “Services Purchasing Managers’ Index”. The previous announcement was 54.1 and the forecast for today is 54.6. (08:30 GMT).

Two more announcements are also coming in. One from the US “ISM Non-Manufacturing PMI” which will be released at 14:00 GMT, the previous announcement was 48.4 and the forecast for today is 50.  Also coming from New Zealand we have the “Business Confidence”. The previous announcement was -25. (21:00 GMT), no forecast on this one available.

Today I want to talk about the silver (also known as XAG).  We are all aware that it is part of the commodities in the forex market. While I was traveling around the world this year, I met with many jewelry traders, most of them told me that they believe that 2009 will be the year of the silver and less of the gold. We all remember how a few years ago a few announcements affected the market in regard to the silver.  We also saw how the price of oil affected the USD over the last several years.  it looks like since the recession began and during the recession the commodity market became more and more unclear to analyze and find a trend to follow.

Coming back from my trip around the world, a smart man told me, that the longer the recession will continue the larger the demand for silver will be.

Let’s begin analyzing this pair. When we look at the silver from a few different points of view, we see a few different trends that we can analyze.  When I want to see what happened with the silver I will open a daily chart, there I will have the ability to analyze the previous buying and selling rate of silver and with that information I am able to determine a clear trend of movement for the silver during the previous trading day. From that point it is much easier to find a clear trend and determine the direction the silver is heading into whether an uptrend or a downtrend.

When viewing the daily chart, I can always find a clear trend for the silver.  However by viewing the strength of the USD against the major currencies I can also find a trend for the silver, since the silver is exclusively bought in USD. Let’s see when was the last time the market reached the same market rate; the last time this happened was August 4^th, 2008.  Clearly we want to know until when the silver will continue moving in this uptrend. For that we will need to keep on looking for the support and resistance lines as it reaches certain market levels.

Resistances-17.4200-17.7000

Supports-16.9600 – 16.700