4 Trade Ideas: Currencies, Commodities, UK And German Stocks

Marc Chandler | Mar 18, 2014 12:06AM ET

We have identified four interesting technical trade opportunities. Two of these are in the currency space: long Australian dollar against the New Zealand dollar and long sterling against the Swiss franc. The third is anticipating a recovery in UK and German stocks. The fourth is a breakdown in the CRB Index.

We turn to the currencies first. The Australian dollar fell 9.5% against the New Zealand dollar from last October through late-January. It retraced 38.2% in about two weeks into early February and then has trended down again. However it has been carving out a base of the past few sessions in the NZD1.0540 area.

It is posting an outside up day today. A tight stop would just below today's low. A stop below the late-January low, just below NZD1.05 would be also be a logic place.

Initially, there is potential to NZD1.0670-NZD1.0700. Trend line here is roughly intersecting this week with the early March high and retracement objective near NZD1.0755. A break of that opens the door to a much larger move that could see NZD1.09-NZD1.11.

A break of 300 would be helped, but there is the old gap from mid-February (298-55-299.29) that has to be filled too. The 28.2% retracement objective is found near 294.50 and the 50% retracement is just above 290.

Many participants consider the dollar-bloc currencies, commodity currencies. In our explanatory model of major currency movement, we tend to put an emphasis on capital flows over trade flows, as the former is a multiple of the latter. Even so, we not show a good, as in statistically important, correlation between the dollar-bloc currencies and the CRB basket of commodities. Lastly, the long Aussie, short Kiwi position proposed minimize residual currency expose.

That said, a decline in commodity prices in general could add to the pressure on the ECB.Officials have already indicated that the euro strength is raising the risk of deflation, It also identified the drop in oil prices lowering inflation (though core inflation was confirmed at a low 1.0% in February). The kind of decline in commodity prices that the technical outlook would suggest, can only further push the ECB into easing policy in next month

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Written By: Marc Chandler

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