…Or actually, I guess, the three currencies we all should have bought last week. But if last week was indeed, as I suspect it may prove to be, the start of a fundamental sea change in the forex markets, then there’s still plenty of time to take advantage of the fact, plenty of money to be made. Every few years you see some major, long term trend changes that afford an opportunity to make some major, long term profits!
This forecast is, admittedly, a bit outside of my realm of trading expertise. I’m primarily an intra-day trader and therefore usually more focused on the action within each day’s trading than on the longer term “big picture”. Nonetheless, I do keep an eye on higher time frames, from hourly all the way up to monthly and even yearly. And once every 3 or 4 years, I detect something like this in the markets and, well, you know me – I can’t keep a secret.
The following forecasts are based on both fundamental factors and on some specific technical factors that I noticed during the markets’ action at the end of last week. I’ll detail the fundamental and technical cases for each of my currency pair “predictions”.
1 – SELL USD/SGD (US dollar vs. Singapore dollar)
Fundamental: Singapore has a strong and booming economy, with virtually no debt, especially since thousands – yes, thousands – of multimillionaires and billionaires like Facebook’s Eduardo Saverin have relocated there. It’s now considered to have the highest per capita population of millionaires anywhere in the world.
So why isn’t the Singapore dollar already worth much more vs. the US dollar? Because up until just recently, Singapore’s central bank has foolishly pursued a policy of purposely trying to suppress the value of their currency. Because Singapore is a very trade-based economy, the MAS – Singapore’s central bank – has rather desperately tried to suppress the value of SGD vs. USD over the past few years. However, it looks like the MAS may have finally gotten a wake-up call when it reviewed the staggering losses it has suffered as a result of that ill-conceived policy, and thus it may be changing direction in the future – i.e., not actively trying to suppress the value of its own currency. The ultra-favorable tax policy in Singapore (e.g., no capital gains tax) attracts investment, and this should lead to a continuing rise in the value of the Singapore dollar. And like many emerging market countries, Singapore has begun to grow less attached to the US dollar as the almighty reserve currency of the world.
Technical: USD/SGD made a recent high a bit above 1.2800 – it attempted to move higher, but fell short this time just below that 1.2800 level (so, essentially a possible double top), followed by a sharp sell-off to around 1.2550, falling back below both the 100 and 200 moving averages on the daily chart. It looked like it might possibly be recovering an uptrend, but it ran into stiff resistance at the 50, 100, and 200 MA’s on the various hourly, 4-hour, and daily charts, and then following Friday’s NFP data release, fell back dramatically. At the time of this writing, it’s fallen from 1.2650 almost all the way down to 1.2500, and notably following a failed attempt to push back above the 200 MA on the hourly chart.
Possible Trade: I’m looking to re-enter the short side on retraces back up to the 10 MA on the hourly or 4-hour chart (aggressive entry), or around the 100 MA on the hourly or 50 MA on the 4-hour chart (more conservative approach). I’d be happy to get short again from 1.2580 to 1.2600. If my forecast is correct, it’s unlikely that the market will trade much above 1.2620 any time in the near future.
Long Term Target: 1.1000 (admittedly, that might take a couple of years – but hey, that’s a LOT of pips!)
2 – BUY AUD/USD (Australian dollar vs. US dollar)
Fundamental: I think the Aussie benefits by being one of the few currencies that, while watered down like all the rest of the majors, still does have at least some real value. And that’s the basic sea change I think I see in the forex market – that is, the market moving toward being dominated by the currencies that have real value, rather than those with only “reputation” value remaining – like the US dollar.
I’ll make this short and simple: Unlike the U.S., Australia’s population and export growth are booming. Also, Australia benefits from being a primary trading partner of China, which is, I think fairly obviously, the world’s next great economic empire. Australia is also a major mining country, and thus benefits from the rising prices in both precious and non-precious metals.
Chart of Australia’s Exports
Technical: Shoot, just look at the chart over the past week. But what really struck me in particular was the way that AUD/USD was able to do a moon shot at the same time that EUR/USD and GBP/USD were being hammered to dust – that showed some real strength. Also, look at the recent dramatic drop below the 1.5000 level in EUR/AUD.
Possible Trade: The way AUD/USD has soared in the past few days, it’s going to be tough to find a good entry point. I’ll probably be looking for maybe just a pullback to the 10 MA on the 4-hour chart, or possibly the 50 or 100 MA on the hourly chart. As far as a specific price level, .9220 – .9250 would, I think, pretty much be a gift entry price at this point. Although I suppose a retrace all the way to around .9150 is possible (possible, but in my opinion, not likely).
Long Term Target: 1.0200 – 1.0500 That may seem like a long way off, but it sure made it from .8700 to .9300 pretty quickly.
3 – SELL USD/NOK (US dollar vs. Norwegian Krone)
Fundamental: This is an interesting one. USD/NOK has been nearing multi-year lows, around the 6.0000 to 6.2000 level, and has just recently tumbled under that 6.0000 level.
Norway has virtually no national debt, and government treasury funds are equal to over 100% of the nation’s GDP (the U.S. Treasury is in about the exact opposite shape at the moment). And Norway’s central bank is one of the few central banks in Europe with a good-looking balance sheet at the moment – compared to the balance sheet of the Federal Reserve Bank in the U.S., Norway’s central bank finances look like Paradise. And oh, by the way, Norway’s economy makes a lot of money from oil, something I haven’t noticed getting any cheaper lately.
Technical: I already alluded to the fact that USD/NOK is already near multi-year lows, and has now fallen below the important 6.0000 level that has supported it for some time (coincidentally, just as USD/SGD was starting its fall). Its fall from around the 6.3000 level in late January has been dramatic, and it just recently failed to get back above the 20 MA on the 4-hour chart. I’ll be trying for an entry around 6.0000, or alternatively on a retrace to the 20 MA on the 4-hour chart, wherever that happens to be at the time. Tricky, because of the dramatic drop from near 6.3000, we possibly could see something like a 50% retrace to near 6.1500, but my whole scenario here is that last week represented some fundamental changes in direction, so there could be significantly more downside movement before seeing that sort of retracement.
Long Term Target: Beats me, as we’re pretty much in uncharted waters. 4.0000 – 2.0000 maybe?
All right, well, those are the “big picture” notions that were rolling around in my feeble mind as the action unfolded in the past week, and I just thought I’d share them with you – Singapore good, Aussie good, Krone good…USD bad. Who knows? – I could be right. But, as always, I want to caution you that there is always risk in any trade, and I certainly never want or suggest that someone take a position in the markets simply because I do – These are just my personal thoughts and opinions, and I could be wrong.
Best wishes always, and I welcome comments on these, or other significant long-term changes that YOU see shaping up in the forex market. Also as always, please share this article around if you like it. Thanks for listening (reading).
Jack Maverick is a writer and forex trader. Find him on Google+ at https://plus.google.com/u/0/103534926809963693894/?rel=author and check out his novel, the psychological thriller “A Cross of Hearts”, on Amazon at http://www.amazon.com/Cross-Hearts-J-B-Maverick-ebook/dp/B006GHJ0ZC/
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