Trade Analysis - Buy GBP/ AUD

The Australian economy was one the first major economies to come out of a recession. For the past 12 months, Australia has been reaping the fruits of the Chinese stimulus. The last unemployment figures blew away estimates (Australia added 35K jobs vs. 5K forecast). The UK on the other hand …not doing so well; On Feb 17th UK Job claimant count was released and in contrast to the story in Australia, the surprise was NOT pleasant. An additional 23,500 people in UK claimed unemployment benefits in February vs. a forecast of a drop of 10,000 claimants. Unemployment news highly impacts the perception of the health of any economy and little wonder the GBP / AUD pair languishes at multi year lows.


The GBP AUD chart below shows the relentless GBP selling against the Aussie Dollar over the past several months. You can also see that the pair sits on multi-year support between the 1.7175 and 1.7250 which presents a good risk/ reward trade. The spot price of GBP / AUD already reflects the divergence in economic performance of the two economies and interest rate expectations. Looking forward, UK CPI printed 3.50% (3.10% ex Food & Energy) in January (YOY) – beyond target. The hot CPI will begin to pressure the BOE to start thinking about wrestling inflation by raising interest rates. This will narrow the interest rate gap between the U.K and Australia.

It is important to note that the primary driver for this trade is technical. Weekly and daily charts show that the British Pound is thoroughly oversold against the Australian Dollar and we believe a short term correction is due (at the minimum).

Trade Plan:

Buy 1 lot @ market 1.7230

Target / Sell @ 1.7730 for a total  profit potential of + 500 pips @ $0.90 a pip = $450.00

Stop Order - 1.7090 (this is the risk on this trade  -160 pips, @ $0.90 a pip = $144.00 Risk)

Trade Tenure = 1 to 3 weeks

Trade Status = in progress

On a standard account (leveraged 1:100), 1 lot = $100,000 trade of GBP AUD @$0.90 per pip

GOLD RUSH

If we had Oscars for commodities, Gold will take home the “popular commodity” awards for 2009. Gold as an investment vehicle never has been so popular. TV ads, Radio shows, Billboards were filled (and still are) with advertisements touting Gold investment opportunities, pleas to buy Gold, or sell Gold. Why the sudden Gold rush?

Well, the answer is simple. The chart below shows the price action in spot Gold for the past 12 months. Jan 2009, Gold was trading just over $800.00 (per ounce) and by December of 2009, Gold was trading north of $1220 (per ounce):- a 50% move. Yes!, moves like this will get some attention but as impressive as a 50% move is, it is not enough by itself to cause a “rush” especially when the general market (S&P, DOW) rallied significantly within the same time frame. So what fanned the flames of Gold exaltations?

Beyond the obvious uptrend, reduced confidence in major currencies like the US dollar, Euro, and Yen due to bloated sovereign debts and faltering economies served as proverbial fuel to the Gold fire.

Today, Gold has pulled back from its late 2009 highs but it is still well north of $1000 mark and investors are still jumping on board. As I write this post, spot Gold bids at $1090…so should I jump in at these levels? The answer is NO!

If anything, on a short time frame, I will be shorting Gold at $1090 and looking to cover at $1020. Looking at the longer term picture, Gold is still a good buy but at lower levels. The chart below shows the marked buy zone which begins at the 50% retracement of the 2009 move up to $1220 and bottoms at the 61.8% fib retracement. I will buy ½ of my position at $1017 and the second ½ at about $970 for an average entry price of $993.50 targeting $1,400. I will update this post if the trade triggers so we can track the move on this blog.

How to trade Gold:

The most basic way to trade Gold is.. Buying and selling of new and used Gold jewelry whether at a pawn shop or Gold party (the latest Gold “Merchanting” technique). Eternal Market Analysis does not focus on physical buying, holding, or physically selling. I buy and sell Gold via my trading platform (spot Gold) which is one way active traders invest or trade Gold, currencies and other commodities. Another way to join the Gold play is to invest via ETFs. Many Gold ETFs track the price of Gold fairly well a list of Gold ETFS can be viewed at http://seekingalpha.com/article/139775-not-all-gold-etfs-are-created-equal. A third and my least favorite way to invest in Gold; is to invest in Gold mining firms. Whichever way you chose, you’ve got to know the spot price.