Four Trade Ideas

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.

The second currency idea is to buy sterling against the Swiss franc ideally near CHF1.44, which has been the lower end of a its six-month range.   On the upside, CHF1.48-CHF1.50 looks like a reasonable objective.

The Swiss National Bank meets this week and it is likely to reinforce its commitment to the CHF1.20 cap for the euro cross.  This strategy would benefit it the global tensions--Russia/Ukraine, China, etc do not escalate. 

The third strategy idea involves the German and UK stock markets.  Both were hit hard last week, but appear to turned.     In the chart here (all created on Bloomberg), shows the German DAX (white line) and the UK FTSE 100 (yellow line).  They closely tracked each other over the last several months. 

A simple 50%- 66% retracement of the recent losses would allow the DAX  and the FTSE rise between 1.5%-2.5%.  Such an advance would not even challenge the 20-day moving averages, let alone test the recent highs. 

This last chart is of the CRB Index,   We had previously identified the island top that had been traced out.  After consolidating in the second half of last week, the index broke down and is at new lows for the month. Today is the first time in two months that the index is spending the entire session below the 20-day moving average. 

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