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USING FX FUTURES CHARTS TO ANALYSE THE FOREX MARKETS

If you’re short of time or struggle to analyse 30+ Forex Markets regularly then here is a way to quickly filter through to the high probability charts. By using Currency Futures charts we can very quickly look for relative strength of Currencies to help pair the strong against the weak. We can do so by using traditional Technical Analysis to identify trends, patterns or even trade signals, before pairing the strongest currencies with the weakest. The free www.finviz.com charts below consist of daily: AUD, CAD, CHF, EUR, GBP, JPY, NZD, USD.

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ASX200 – Still within a bearish retracment?

– US Indices have been outperforming the ASX since Oct 2009.
– More recently European stocks have been outperforming the ASX from around September 2011 (particularly the SMI and DAX).
– In Jan 2012 the CRB Commodities Index ratio line broke its own descending trendline, showing commodities are also outperforming the ASX.
– Should stocks continue to decline and Commodities go up, we can expect the $AUD to continue gaining strength.
– A descending triangle appears to be forming on the ASX200. We would need to see a clear break below the 4100 swing low (and triangle’s lower trendline) to confirm.

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ALOCOA vs ALUMINIUM

With Alcoa being a leading producer of Aluminium it shouldn’t come as too much of a surprise that the company has a well formed relationship with Aluminium prices.
– Last two primary tops of Alcoa provided a 1-3 month lead for Aluminium top
– Aluminium bottomed 1 month before Alcoa to provide a buy signal
– Both markets are within a downtrend so look out for either to provide the lead for a buy signal in 2012
– Relative strength should provide a clue here if it breaks its current downtrend line
– They currently correlate very closely (0.8 out of 1) so expect the correlation to drop once either Alcoa or Aluminium take the lead (historically Aluminium has bottom first)

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FTSE SECTOR – GENERAL INDUSTRIALS (NMX7570)

– Recently broke its Relative Strength descending trendline against the FTSE
– Both markets are currently consolidating, but General Industrials is potentially a market to watch for longs next year
– I’m looking for a close above 2750 to confirm a bullish move within this sector
– Generally correlates with FTSE
– Stocks to monitor: REX, RPC, SMDS

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RIO TINTO PLC vs NICKEL

The primary uptrend from ‘09 produced some interesting signals once compared with Nickel.
– Whilst both were in a steady uptrend, the Ratio Line between the two would have quickly shown which market was most favourable to buy.
– Rio topped prior to Nickel on each occasion.
– Nickel broke its own trendline 3 months prior to Rio providing a very early warning that Rio’s trend may change – although in that time Rio also produced a lower high.
– The last two times Nickel topped the correlation between the two were near zero.
So there seems no clear leading signal – but the 2 markets do seem to work in harmony with each other which in itself is of use (ie Dow Theory). However, because both markets are currently in a downtrend the ratio line signals will be of no use as this is primarily a bullish tool. But should either market break their descending primary trendline then it may provide an earlier warning that the other market will also change its trend – and then the ratio line may be of use again to provide such signals.
These signals may never happen again… but I’ll certainly be monitoring these two markets next year.

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AUDNZD vs Copper

Comparing Copper ETF to AUDNZD suggests Copper could be a viable leading indicator for this Commodity FX pair on a longer-term basis (weeks or months). The lead time varies between 1-3 months but so far has produced 3 reliable signals, warning of a trend reversal or continuation on AUDNZD. Also interesting to note is the correlation between Copper and AUDNZD as being generally low (between 0 and 0.4) so these 2 markets could even be traded alongside each other without worrying too much about the markets mirroring each other on a longer-term basis.

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USDCAD vs OIL

In 2012 I intend to study inter-market relationships to help invest longer-term trades, so here is just a quick post to get the ball rolling where I’m studying the relationships between FX and Commodities.
1st Chart – USDCAD Daily
2nd Chart – Brent Oil Daily (violet)
                   USDCAD Relative to Brent Oil
3rd Chart – 20 and 60 day correlation between USDCAD and Brent Oil
Interestingly the relative strength between the two instruments broke its own trendline, providing a 7 day lead for USDCAD to also break its own trendline. By the time USDCAD has achieved a higher high to confirm the change in trend you’d have had 3 months warning that a new trend may be taking place.
Conclusion
– USDCAD and the USDCAD/Brent Ratio Line are both in a steady uptrend – so it may be worth taking a longer-term long position on USDCAD. (Also note the symmetrical triangle forming on USDCAD)
– However if the Ratio Line were to break the trendline then this may provide an earlier warning that the uptrend in USDCAD may be nearing an end, or provide a lead to invest in oil.

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LSE:NXT

  • Potential head & shoulders pattern forming
  • Today saw a heavy sell-off to test the trendline but closed upon it.
  • A close beneath prior swing low confirms the patterns and projects a target to around 22.46
  • This target also meets the potential rising trendline from March 2011
  • Ratio line trend has broken showing change in relative strength between FTSE100 and Next Plc
  •  Volume profile (2nd pic) shows active trading around 25 – if this level breaks then volume profile has been very thin until around 22-23, and these thin areas of volume can act as vacuumes and provide little support for a decline

***

“Trade what you see, not what you think…”

Follow @cLeverEdge

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FTSE350 Sector: Ratio Analysis

The following charts represent the relative strength between FTSE350 Sectors against the FTSE100.
               Rising Line = Sector outperforming FTSE100
               Descending Line = Sector under-performing against FTSE100
For an article on how to use relative strength you can read my article here

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FOREX: Relative Strength

A very quick and visual way to choose your potential FX pairs for the week ahead – below is the relative strength of 15 curreny pairs over the past month.
Look for long opportunities on rising pairs and short opportunities for falling pairs.
The strongest performer overall is clearly CHF, so wait for pullbacks to go long on CHF/JPY and short on GBP/CHF