Forex Positioning Update: Short Euro, Canadian Dollar, Australian Dollar, Long Pound - ONE-TWENTY TWO: Trading Financial Markets

(This is an excerpt from an article I originally published on Seeking Alpha on April 7, 2014. Click here to read the entire piece.)

There was a lot of action last week in the foreign exchange market. This piece is a quick update on how I have adjusted and/or maintained positioning in select currencies: the euro (FXE), the British pound (FXB), the Canadian dollar (FXC), and the Australian dollar (FXA).

Euro
Last week on April 3rd, the European Central Bank (ECB) rolled out its latest update on monetary policy. President Mario Draghi reminded markets that risks in the euro area remain to the downside. There were some other points that caught my interest.

Investors continue to show interest in euro area assets. This interest no doubt explains at least some of the stubborn strength in the euro.

{snip}

I believe the clincher for the euro came during the Q&A period when Draghi confirmed that the ECB’s Governing Council discussed the possibility of implementing QE. Draghi also re-emphasized the importance of the exchange rate, an emphasis I think has been largely missing until now…even if the exchange rate itself is still not a “policy target”:

{snip}

The euro fades after a trigger-finger surge in reaction to the start of Draghi's Q&A session — The euro fades after a trigger-finger surge in reaction to the start of Draghi’s Q&A session

The euro is on the move lower again, but the general uptrend from last year's lows remains unbroken — The euro is on the move lower again, but the general uptrend from last year’s lows remains unbroken

British Pound
I do not think there is much to say about the British pound right now. Economic data are generally supporting the recovery theme for the UK. {snip}

The British pound continues to meander in a very slow-moving uptrend

Canadian dollar
The Canadian dollar has had a strong comeback since getting slammed by the Federal Reserve’s March monetary policy announcement. {snip}

The upward momentum in USD/CAD loos done for now

Australian dollar
The Australian dollar is firmly in breakout mode against the U.S. dollar (AUD/USD). However, its run against the Japanese yen (AUD/JPY) finally seems to be ending. {snip}

Energy and resource earnings are projected to keep growing for another year or two

Source: the Bureau of Resources and Energy Economics

Sure this rise is supported by expanded production capacities and the demand to absorb it. However, if I had not known the expectations for a peak in the terms of trade, I would have looked at this chart and assumed the terms of trade remained bullish. {snip}

So, on balance, I am staying net short the Australian dollar rather than switching to match the bullish technicals that defy the fundamentals. {snip}

The Australian dollar is defying expectations against the U.S. dollar

The Australian dollar finally showed some weakness against the Japanese yen

Source for charts: FreeStockCharts.com

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on April 7, 2014. Click here to read the entire piece.)

Full disclosure: net short the euro, Australian, and Canadian dollars. Long the British pound.

Leave a Comment