Monday, December 07, 2009

Aussi dollar wedge part deux or Has the US dollar bottomed (for a while)?

I make a lot of calls on this blog and I think that I get feedback equally about the bad calls (UNG, DECK, etc) and the good calls (FNM, FSLR, etc), but more often than not, I get no feedback even when it was a spectacular chart read. My last (and only) post on the Aussie dollar back in August of 2008 was perhaps the best call I ever made and I'm pretty sure not a single person noticed it. I basically saw the rising wedge #1 in the chart below and targeted the bottom of the wedge. Well, FXA got to the measured rule target (77) and it kept going, ultimately declining 39% from peak to trough. That is an incredible move for the currency of a developed nation. An even more incredible move is the 59% gain it has made in the past year as FXA retraced 100% of its decline out of the wedge. Damn!This has set up an amazing short opportunity right here as FXA rolls over and breaks out of wedge #2. I find it hard to believe, but the target for this move is $59. Lets start with the rising 200 dma in the lower $80's first and go from there.

To further strengthen the notion that the US dollar has formed a longer term bottom lets look at the Euro ETF FXE (below). After consistently finding support at its rising 50 dma for eight months, the euro closed below it for the second day in a row today. The CCI is flashing a sell and given the recent false breakout I'd be inclined to judge this topped until proven otherwise.
*Note: When the US dollar bottoms all assets will get the axe.

Disclosure: I have no positions in either of these, but I plan to open a long term position against the Aussi dollar soon.


Gridlock said...

Hey pyth,

Nice call on the Aussie $ back in August!

I hope you made a boatload of cash on that trade.

betweenthebars said...

yep. long dollar now, short equities. deflation round deux!

pythagoruz said...

Hey Gridlock,
Thanks, unfortunately I did not put on an Aussi short back in August 2008. At the time I think I looked at FXA puts and decided to pass on the large bid/ask spread. I did see it falling though, kicked my self more than a few times over it.

This time I don't plan to make the same mistake. Today I bought some March FXA puts and sold the AUD/USD cross short. This was actually my first forex trade ever, going to see how it goes and perhaps I'll drop the FXA puts and just play it using forex. I think each vehicle has advantages and disadvantages but we'll see.

Gridlock said...

Let us know how you fare. I'd be interested to know how the forex trade plays out vs. the puts.

pythagoruz said...

I'll keep you updated. One first observation:

The forex position has very little margin but my broker checks it constantly. In other words, I think its possible to get more leverage from forex but you can get a margin call at 3 am while you are sleeping if you aren't careful. Options don't have margin but if I was short FXA instead of AUD/USD margin requirements are only checked during market hours.

Gridlock said...

Looks like another good call on the FXA!

pythagoruz said...

Thanks, its working out quite nicely. Santa must be unwinding his carry trade.