Author: Lior Alkalay

Euro Out Of The Woods?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


No doubt the most dramatic event of the FX market this past week was the ECB decision. Draghi, it seems, has finally "cut the mustard." He delivered a powerful response to the latest softness in Eurozone inflation. Essentially, the ECB expanded its QE program to €80Bln of purchases a month and pushed the deposit rate lower into negative territory. But if you expected these moves to play right into the bears' hands (as it has in times past) you might be in for a surprise.

Eurozone: The Good vs. Bad

When the Euro ended up higher in the aftermath of the ECB decision many were caught off guard. Some claimed the Euro's reprieve was the result of Draghi's rhetoric which suggested no more "bazookas" anytime soon.

But what seems more probable is that Draghi's words might just be the consequence rather than the cause. That is the consequence of some green shots that had started to appear in the latest Eurozone data. Those readings suggested that printing money until the apocalypse was not necessarily needed. That's what we call the "good news."

Below are two important indicators for the Eurozone; the balance of trade and industrial production. Both indicators are keenly scrutinized for this export-oriented region.

EU Industrial Production vs. EU Balance Of Trade
Chart courtesy of Tradingeconomics

The balance of trade figure has upticked higher and reaffirmed its rising trend from 2012. This suggests that the Eurozone exports more goods than it buys. Continue reading "Euro Out Of The Woods?" →

Speculative Bets On The Aussie To Rise?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Ever since China's stock woes escalated it seems all commodity-related trades have sunk under water. The Aussie took a nose dive vs. the two dominant safe havens, i.e. the US Dollar and the Japanese Yen, and turned range bound vs. the Kiwi.

In the not too distant past, there had been some signs of a tentative recovery in the Aussie. However, those signs quickly became mixed messages, offering nothing but false hope. Simply put, China continued to lose its grip on its financial system. Now, as always, China has been the wild card for the Aussie. We've already elaborated on the fact that China can't keep the Yuan high; at best, it can only slow its depreciation. But can China's latest actions be the springboard for the Aussie to rally? Continue reading "Speculative Bets On The Aussie To Rise?" →

Doubts And Fears Still Loom For The Dollar

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Growth momentum is back in America? That is what investors believe after the positive surprise from the latest US GDP release. The second US GDP release for Q4 2015 was revised higher to 1% from 0.7%. Core PCE Inflation was also encouraging, reflecting a 1.67% rate of inflation. But while data from the last quarter has certainly been less anaemic, Dollar bulls shouldn’t pop the champagne just yet. Doubts over the current quarter continue to exist. Risks still loom and hurdles need to be cleared before we get another move higher.

What Looms On The Dollar?

Of course, I continue to reiterate that the Dollar’s long-term trajectory is still up. However, there are soft patches along the way because even the US economy can’t always perform well. And when those soft patches occur the FX market will be filled with doubt and the Dollar will dip again.

Then, when once again it becomes clear the US economy is still the outpacing its peers, confidence will return. And with that, we will get another bullish wave. But as long as there is doubt the Dollar will find it hard to break into new highs. Continue reading "Doubts And Fears Still Loom For The Dollar" →

Buy The Sterling On Brexit Fears

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Unless you've been incommunicado this past week, you've surely noticed that the FX arena has been dominated by one trade. That, of course, is short Sterling, because Britain appears on the verge of leaving the European Union (EU).

The black swan event that brought about this situation was the surprise announcement by Boris Johnson, the incumbent Mayor of London. Johnson, a rising star of the Tories, is campaigning for Britain to leave the EU. That, of course, was a bit of a game changer. Investors got spooked by the thought of the financial Armageddon that could be visited upon Britain if a Brexit (British Exit) does occur.

Luckily, such panic creates an ideal situation for the rational investor. It's time to exploit and buy the Sterling low and sell it high later on when Brexit fears fade. Continue reading "Buy The Sterling On Brexit Fears" →

Dollar Takes A Plunge; Where Will It Land?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Undoubtedly, this February will be remembered as painful for the dollar. Investors have long awaited the opportunity to short the greenback after a prolonged period of steep gains. When US growth came out surprisingly weak, FX traders pounced, taking the dollar on a brutal roller coaster ride.

Then we had Janet Yellen’s testimony, which suggested banks should be prepared for negative interest rates. Many considered that a hit below the belt as investors were betting on more rate hikes. So now, they’ve got to get ready for negative interest rates? No one was prepared for that remark, despite Yellen’s suggestion that it was only a remote possibility. Of course, now, the million dollar question is, how low can the dollar go?

Short Term Dollar Outlook

As with all corrections, the first catalyst is always about momentum. The question of whether that will lead to a wider correction is fundamental. But what about the imminent target? That’s driven by technical momentum. So what do the technicals say?

Daily Chart of the U.S. Dollar Index
Chart courtesy of Netdania.com

As seen in the Dollar index chart above there are two key levels in this correction. The first is our resistance level at 100. The Dollar index has been attempting to break this level for a while now, though without success. When the Dollar index failed, it was really only a matter of time before the correction would come. And so as it did. Continue reading "Dollar Takes A Plunge; Where Will It Land?" →