Prop Trading Futures

Commodities, Financials and FOREX Special Situations – Nov 3, 2014

In this weekly review, we start from the US Dollar – the most important of all the markets we follow (commodities and stock index are mainly priced in Dollars). Then we follow with Gold and Silver, the ultimate “value traps”. Other Patterns in Play this week are the Canadian Dollar, the US Singapore Dollar, the EUR-AUD pair, the Mexican Peso, the China Index Fund (FXI) and the Australian Dollar.

Markets that could near to launch new swings are the AUD-NZD pair and the EUR-JPY cross rate.

Patterns in Play

United States Dollar (DX futures, UUP ETF)

Four up weeks and two of them closing at 4-year highs is something that traders shall listen carefully. No matter if trading the US Dollar Index or not, equities and commodities are going to be influenced by a strong Dollar, especially if – as charts are suggesting – the buck is headed north of 107.

The US Dollar Index is a weighted geometric mean of the Dollar’s value compared with a “basket” of currencies which are:

  • Euro (EUR), 57.6% weight
  • Japanese yen (JPY) 13.6% weight
  • Pound sterling (GBP), 11.9% weight
  • Canadian dollar (CAD), 9.1% weight
  • Swedish krona (SEK), 4.2% weight
  • Swiss franc (CHF) 3.6% weight

A stronger Dollar means that all those currencies, as a group, are expected to get weaker. Which currency will be leading the others on the way down is not clear. But as a matter of fact the Euro is the most important one in the basket having a weight of 57% in the index, while all other currencies are accounting for less than 14%.

As my readers know I’m not trading the US Dollar directly, but instead I use the Euro and the Canadian dollar to replicate the trade.

Going back to the Dollar, from here to the end of the year the key levels to watch are 84.955, that should act as support, and  88.410, 92.260 and 89.470, that should act as resistance.

United States Dollar (DX futures, UUP ETF) United States Dollar (DX futures, UUP ETF)

Gold (GCZ futures, GLD ETF)

In the continuous contract, last week GC has touched – on intra-day basis – lowest level since 2010. It then closed the week at a key support level that – at this point – should not hold, but let the yellow metal fall much further.

Support is at $1176. 4. The target is at $964.6.

I’m short December futures.

Gold (GCZ futures, GLD ETF)

Silver (SIZ futures, SLV ETF)

1st target below is at $1391. 0, the second one is at $1019. 0. Resistance is at $1670.

I have no position in this market.

Silver (SIZ futures, SLV ETF)December 2015 Eurodollar (GEZ5)

Once the price move reaches 70%, 80% of its run to the target and then start to struggle I’m used to close the position and call it a day. In the case of the Eurodollar the contract traded to 66.8% of its target (on intra-day basis) and then retrace up to the upper trendline of the Ascending Triangle (as shown below). Technically the pattern is still in play, but I seriously doubt that October’s high will be revisited anytime soon. I’m flat in this market.

 December 2015 Eurodollar (GEZ5)

Canadian Dollar (USD-CAD spot; 6C futures; FXC ETF)

There is nothing new to be said about the Canadian Dollar (please refer to previous reports for the long term analysis)

October highs could be taken out as early as next week.

Canadian Dollar (USD-CAD spot; 6C futures; FXC ETF)

US Dollar-Singapore Dollar (USD-SGD)

Here we have a very good action, both on weekly and daily chart. I will be glad to add to my long position below 1.2800 with a stop at 1.2750.

US Dollar-Singapore Dollar (USD-SGD) US Dollar-Singapore Dollar (USD-SGD)

Euro-Australian Dollar

Up until last week I was looking for a breakout on the upside in EUR-AUD, but that setup failed, a new pattern formed and a third pattern may be completed soon too.

On Monday I will open a short position in this market, risking 0.3% of my capital. My MOC stop will be at 1.4412. I’m planning to add to this initial position as (if) the market moves lower (below 1.3548).

Euro-Australian Dollar

Euro-Japanese Yen, Mexican Peso (USD-MXN)

The longer term interpretation remains intact (see previous report). In the short term  the market is bouncing between the 13.336 support level and 13.605 resistance. A weekly close above 13.605 would be extremely constructive.

Euro-Japanaese Yen Mexican Peso (USD-MXN)

China Index Fund (FXI)

This is a pattern that we discussed long time ago. I have not mentioned it for a long time (since when I have no positions). Right now the price had just retested the upper boundary of the 4-year Simmetrical Triangle. This is a decent spot to re-enter the market or scale on an existing position.

For the bullish scenario to play out the market shall not close below $37.84.

China Index Fund (FXI)

 Australian Dollar (AUD-USD Spot; 6A, M6A futures; FXA ETF)

The trend is down. The first target below is at 0.7979.

Shorter term a possible bear flag can offer a good spot to short this market. I will be watching  for a close below 0.8719 for this purpose.

Australian Dollar (AUD-USD Spot; 6A, M6A futures; FXA ETF)

Australian Dollar (AUD-USD Spot; 6A, M6A futures; FXA ETF)

Developing Patterns

Australian Dollar-New Zealand Dollar

I have mixed feelings about this pair, that right now may be ready to give a buy signal.

Tactically, I’ll be long if it closes above 1.1304 with a MOC stop at Friday’s low. The upside potential may be huge.

I will risk less than 0.5% of my trading capital on this trade.

Australian Dollar-New Zealand Dollar

Euro-Japanese Yen

I was so convinced about a resolution on the downside for this 10-month Descending Triangle and the market is almost giving a signal in the opposite direction 3 weeks after the failed breakout.

Often when a market fails to complete a pattern one shall expect a strong reaction on the opposite side. EUR-JPY was not an exception.

Euro-Japanaese Yen