Week of Major Currency Shifts Flips Me Bullish Australian and British Currencies - ONE-TWENTY TWO: Trading Financial Markets

(This is an excerpt from an article I originally published on Seeking Alpha on April 7, 2013. Click here to read the entire piece.)

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The market seemed to convulse on the notion that the Fed could actually end asset purchases but seemed to ignore the conditional of a much improved labor market and improving economy. Moreover, Williams did not express certainty, he expressed hope. In fact, Williams went to great pains to remain consistent with standing policy and highlighted that the Federal Reserve will remain in a very accomodative stance for quite some time. {snip}

The S&P 500's churn continues as it bounces nicely off the lower-BB

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After finally breaking away from its QE3 price, the dollar index ran into a brick wall at its QE2 price

QE3 could not contain the dollar, but QE2 continues to do so

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Australian dollar
I covered the latest decision on monetary policy several days ago (see “The Reserve Bank Of Australia Marginally Concedes To A Brighter Outlook“). At the time, I stubbornly decided to hold onto my short Aussie bias with my short AUD/USD position given my expectation that resistance at the long-standing downtrend line would hold. I was rewarded but in a very unexpected way.

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AUD/JPY crosses 100 for the first time since the month before Lehman Brothers collapsed

...but AUD/USD further retreated from resistance at the downtrend line

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Japanese yen
No superlative is enough for the rapid weakening in the Japanese yen in the wake of the BoJ move. When I wrote about how the Nikkei was finally selling off just on the heels of a 3-week strengthening of the yen, I claimed that it had opened a rare buying opportunity for iShares MSCI Japan Index (EWJ) and a good spot to open fresh shorts on the yen. However, I did not anticipate this instant surge to fresh 2+ year highs for EWJ.

EWJ gaps up to fresh highs in the wake of the BoJ

2013's rapid gains only take EWJ back to where it was the week before disaster struck the country in 2011

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No rest for the weary - the yen looks ready to get a lot weaker on a breakout of USD/JPY to 2009 levels

Playing the British pound against the yen may be even more attractive given the amount of upside to be gained from pre-crisis levels

I mention the British pound (FXB) as potentially an even better play than the U.S. dollar because it seems to have bottomed for now.

British pound
The Bank of England (BoE) delivered no surprises in keeping rates and QE steady. However, with economic conditions weakening, the lack of action seems to imply that stubbornly elevated inflation levels are causing hesitation. {snip}

GBP/USD appears to have bottomed for now

The euro
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The euro rallies against the U.S. dollar first on ECB and then U.S. employment news

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The euro is facing some stiff overhead resistance

Swiss franc
One factor working against the euro is the creeping recovery of the Swiss franc (FXF) from weakness earlier in the year. {snip}

The euro has yet to regain its momentum against the Swiss franc that is achieved earlier in 2013

Source of charts: FreeStockCharts.com

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on April 7, 2013. Click here to read the entire piece.)

Full disclosure: long SSO calls, short GBP/USD, net long Australian dollar, long EUR/CHF, long USD/JPY

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