Analyst Picks Going Short this Week
- 5 Out of 6 DailyFX Analysts Looking to Go Short Currencies
Welcome to brand new DailyFX Analyst Picks! Everyday, we will share our favorite trades. On Mondays, its "Open Pick." Tuesday we cover the EUR and GBP. Wednesday is the JPY, Thursday is CAD and Friday is AUD or NZD pairs. There are 9 analysts on DailyFX Team, 3 are out for the July 4th holiday and will return on Wednesday - when you will get trade picks from all of us.
Chief Currency Analyst - Kathy Lien
My picks: Short GBP/CHF
Expertise: Combining Fundamentals with Technicals
Average Time Frame of Trades: 1-3 Days
My favorite pick this week is short GBP/CHF. With a very heavy economic calendar that includes an interest rate decision, the British pound should be a big market mover. Industrial production for the month of May was exceedingly weak. This follows a contraction in service, manufacturing and construction sector PMI. Consumer confidence has also plunged to a record low. The UK economy runs the risk of falling into a recession, which will prevent the Bank of England from raising interest rates anytime soon. There is even a remote chance that the BoE could CUT interest rates on Thursday. I don't think this will happen, but the pound may continue to sell off going into the meeting as some traders price in this possibility.
Technically, there is alot of resistance in GBP/CHF. It is currently trading at 2.0295. At approximately 2.0365 sits the 20 and 100-day SMA along with the 38.2 percent Fibo retracement of the 1.9378 - 2.0972 rally. Not far below that is the day 10-day SMA. The combination of weak fundamentals and technical resistance suggests that we will see a downside break in GBP/CHF in the very near future. Risk 2.0380, target 2.0135.
Senior Currency Strategist - Boris Schlossberg
My picks: Short USDJPY
Expertise: Fundamental
Average Time Frame of Trades: 12-24 hours
USDJPY has rallied on broad dollar strength, but the pair now faces a major challenge of overcoming resistance at the 108-108.50 barrier. Furthermore, the supportive equity environment that has nurtured carry trades may not exist for much longer as stocks absorb the impact of weak US employment data.
Currency Analyst - Antonio Sousa
My picks: Sell NZD/USD @ Market
Expertise: Interest Rate Dynamics, Volatility and Sentiment.
Average Time Frame of Trades: 1 week to 1 Year
I expect the New Zealand dollar to remain weak on speculation the Reserve Bank of New Zealand could have to cut interest rates faster than traders had previously expected. The current wave of risk aversion in the world's financial markets has been forcing many investors to cut holdings of higher yielding currencies and I expect more downward pressure on the value of the New Zealand dollar. Moreover, according to interest rate swaps for deposits denominated in New Zealand dollars, traders have already priced in a series of rate cuts by the RBNZ in 2008. While the 3 month swap rate stands at 8.69 percent, the 2 year rate is being offered at 7.86 percent and the 10 year yield at a much lower 7.35 percent. Generally, lower interest rates make holding the New Zealand dollar less attractive to foreign investors and the lower level of demand for assets denominated in New Zealand dollars could accelerate the losses in the NZD/USD. My trading recommendation is to sell NZD/USD at the market with a stop in a daily close above 0.80 for a 500 pips profit potential.
Currency Analyst - David Rodriguez
My picks: USD/CAD Short
Expertise: Quantitative Analysis, System Trading, Trader Sentiment and Positioning
Average Time Frame of Trades: 2-10 weeks
I've continued to stick to this USD/CAD short trade despite its relative rangebound trade, and I'm admittedly starting to lose conviction in my call. Yet the trade remains within the price ranges I had previously stated, and I still see it dipping below parity in the weeks ahead. Look to sell the pair on a hold of 1.0250, setting stops above previous spike-highs at 1.0324 and with initial targets at the 1.0100 mark.
Currency Analyst - John Kicklighter
My picks: EURGBP
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
After 0.7955 gave way last week, I was looking for EURGBP to run up to 0.8050 for test of the heavy resistance level that has stood up as a pivot since mid-April. However, a lack of momentum following last Thursday's major event risk would ultimately develop a very different technical formation than a horizontal congestion zone - a wedge. The wedge I'm looking at begins at the record highs of April 16th and 17th with a descending trendline from 0.81 and which now falls just above 0.80. The floor of the formation has two planes of support with the rising trend from November 1st low and May 2nd low. This puts relative support around 0.7885-7900. Such restrained price action points to an inevitable break, that could be played for the short-term breakout momentum or used as a potential jumping point for the next leg of the bigger trend.
I do not want to take a bias on direction before any major breakouts (especially when in such a strong trend, yet mature, trend). What's more, betting on high volatility (in a breakout) is equivalent to taking a trade that has a target that is far too wide. Therefore, I will continue to take half-sized range trades at the range/wedge extremes and place close stops with an ultimate target that is only 40-50% of the total range (this will improve my propability of securing profit should unexpected event risk force volatility). The breakout will be my ultimate objective from this trade however. A daily close above 0.8000 or below 0.7880 would be a relatively cautious entry and could still take part in the momentum of the initial breakout. Clearing 0.8040 or 0.7755 would be more secure for position trading. Relative targets for these trades would be for a first target will look for the initial volatility following a breakout (perhaps the width of the range just before it was broken) and the second objective will look for a move in the trend - with a stop that is moved up to breakeven to secure profit from the first lot.
Currency Analyst - Ilya Spivak
My picks: Short AUDUSD
Expertise: Macro Fundamentals, Candlestick and Fibonacci Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
AUDUSD price action has favored the downside since the pair broke beyond a bullish trend line that had supported price action since 8/17/07. The initial decline stalled above 0.9320. We saw a bounce here to retest trend line support-turned-resistance compounded by the top boundary of the range that confined the pair through the latter half of May and early June at 1.9628. The pair has not closed above this level in over 20 years, making it a very substantial hurdle.
The catalyst for the decline should come on Wednesday as it is revealed if June saw continued deterioration in the labor market following May's aforementioned loss of -19.7k jobs. The loss came as Australian companies yielded to a dual assault from high energy prices and record borrowing costs. Generally speaking, employment is the last indicator to turn south as the economy slows down. With little changed in the underlying forces driving labor demand from May, traders will expect another drop to cement Australia's downward trajectory in the near to medium term.
Strategy: Short on a daily close below 0.9590, set stop loss above wick highs at 0.9683, target a return to 0.9320.
DailyFX
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