Navigating Volatile Markets

FX volatility is back!  Quoting Jared Dillian’s recent 10th Man, “Twenty years ago, former quantitative analyst (and physicist) Emanuel Derman wrote a seminal paper called “Regimes of Volatility” while working at Goldman Sachs…There are regimes in volatility—sometimes it is persistently low, and sometimes it is persistently high.  It is low more often than it is high.  My take is that we recently passed from a low volatility regime to a high volatility regime—without really knowing it.  What I mean is that disorder trends.”  I agree with Jared’s observation as it pertains to FX.  This is positive in the sense that volatility equals opportunity.  I wanted to share some of the opportunities that we’ve shared with members over the past week so that you get an idea of how we’re approaching this new regime.

-Jamie Saettele

@JamieSaettele

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6/7 Swing Update

USDJPY 4 HOUR

USDJPY 4 Hour

USDJPY closed last week more or less on resistance.  Note the importance of 109.70.  The level was resistance in late 2019 and early 2020.  It was also support in mid-March (circled).  The upper parallel from the short term fork was also resistance on Friday.  There was also a 4 hour volume reversal on Friday (see chart below).  I’m favoring USDJPY downside but would like to view early week price action before determining short entry.

JAPANESE YEN FUTURES 4 HOUR

Japanese Yen Futures 4 Hour

AUDJPY DAILY

AUDJPY Daily

There isn’t much to add regarding AUDJPY.  Daily RSI is nearly 82 now.  Readings above 81.5 are marked with magenta dots.  The most recent reading was in September 2014.  Readings in December 2012 and January 2013 did NOT mark important highs although minor reactions did occur.  The only other times that RSI was above 81.5 was December 2005 (major high) and January 2002 (minor high).  Similar to USDJPY, I’d like to see early week price action before plotting an entry.

6/9 Swing Update

DXY 4 HOUR

DXY 4 Hour

Stephen Roach, former Morgan Stanley economist and currently employed by Yale, published A Crash in the Dollar Is Coming yesterday.  He may be correct but these types of articles are usually published at near term price extremes (in this case a USD low).  Technically, this is the perfect spot (December low) for a bounce.  Also, DXY made a slight new low today but EURUSD did not make a new high.  This non-confirmation is typical at turns.  Back to 98.27 or so wouldn’t be a surprise.  Finally, consider the extreme short term sentiment readings (DSI readings from Monday) in front of FOMC on Wednesday.  The narrative heading into FOMC is that there is no limit to the Fed’s balance sheet.  What else can they say that would ‘surprise’ markets in that direction?  Risk for tomorrow seems like a classic ‘sell the news’ event.

SPX – 91

Nasdaq – 93

CAD – 89

AUD – 90

NZD – 95

Copper – 86

6/10 Swing Update

DXY DAILY

DXY Daily

DXY is testing the 25 line of the channel from the 2011 low.  This line was support at the March low.  Also, the June 2019 low is 95.84.  DXY closed today at 96.08 after making low at 95.72.  That’s right…DXY is almost exactly flat over the last year.  At risk of sounding like a broken record, ‘this is a good spot for a rally attempt’.  Markets (stocks down and USD bounce) started to fade after the Fed so I’ll stick with yesterday’s ‘sell the news’ call.

AUDUSD 4 HOUR

AUDUSD 4 Hour

AUDUSD spiked to a new high again before fading late.  Nothing has changed from yesterday’s view that price is going to pull back and that focus for supports will be .6855 and .6685.  Also, price has been testing the year open for the last 5 days.  One of my favorite (and simple) setups is to simply trade reactions off of the year open.  Examples are highlighted below (wouldn’t have worked in 2016).  If AUDUSD keeps grinding higher then be aware of .7132/48, which is the 61.8% retrace of the decline from the 2018 high and June 2016 low.

AUDUSD DAILY

AUDUSD Daily

USDCAD DAILY

USDCAD Daily

USDCAD tagged 1.3329 today (low was 1.3315) before rallying to close more or less unchanged and form a doji in the process.  The 78.6% retrace is 1.3319 and the decline from the high consists of 2 equal legs (1.3329).  The lower parallel from the channel was also support today.  Bottom line, there is a lot of technical consideration for support so I’m looking higher.  Initial resistance is 1.3570.

6/11 Swing Update

EURUSD 4 HOUR

EURUSD 4 Hour

EURUSD popped to a new high and reversed.  My view is that a corrective decline is underway.  The median line is possible support along with the late March high at 1.1148.  The high volume level at 1.1344 remains proposed resistance.