by Dave Evans of binary.com
When The Tide Goes Out…
Perhaps one of the greatest quotes (and prescient) to emerge from the credit crunch was Warren Buffet’s “After all, you only find out who swimming naked when the tide goes out”.
Written in his Chairman’s letter years before the worst excesses of the highly leveraged banking era were exposed, Buffet painted a perfect picture of the shaky foudations that underpinned the banking boom. The ensuing credit crunch exposed those who were taking too many risks and expecting the good times (or the high tide) to last forever.
While most banks have restructured their balance sheets, we still haven’t shaken off the final vestiges of the credit crunch or indeed the euro crisis.
These twin worries raised their heads this week briefly with shares in Portugal’s Banco Espirito suspdended on Thursday. BES’ shares had plunged by 19% amid fears surrounding its exposure to companies part of the wider Espiroto Santo group. There were shades of the credit and euro crisies as ripples of concern extended to other vulnerable areas including Spain and Greece.
Thankfully this time (so far) this does indeed seem to be an isolated problem, with markets quickly rebounding as analystics picked through the latests BES statements. The rumbles of another wave of banking collapses has been averted – which is a good thing as most senior traders are heading for their summer retreats at the Hamptons or other high profile destinations.
The euro held up relatively well with a sell off that was only marginally ahead of orther currencies. The EUR/ JPY came in for the biggest selling pressure, but this appears to have been driven as much by weakness in the USD/ JPY.
EUR/ JPY
Looking at the two pairs, we can see both appear to be sitting on support, with the USD/ JPY in particular finding a floor in at the 101.25 marker.
USD/ JPY
Given the light summer volumes, it would take a lot for both pairs to break support in the short term. While we may see some fake breaks, it its more likely than not that the EUR/ JPY’s support level will hold.
A good way to play this is a HIGHER trade predicting that the EUR/ JPY will close above 138.00 in 7 days time for a potential return of 11% – or put another way, betting that the EUR/ JPY will be above 138.00 at the close on July 18th could return £21.04 from a £10 stake.
What’s Up Canada? It Was All Going So Well…
The Canadian dollar has been going great guns against the US dollar with January’s large spike higher almost entirely reversed.
The monthly chart of the USD/CAD below shows how the pairs has been on a five month losing streak since January:
USD/CAD
The run came to a halt today after Canadian employment and unemployment data came in much worse than expected. This has sparked a rapid rally, bringing a halt (for now) to the USD/ CAD’s bear run.
USD/ CAD daily chart
Although the economic data has undoubtedly played its part, there is no denying that the USD/ CAD pace of decline had slowed once the 1.0650 had been reached again. Profit taking may be one of the most clichéd explanations for a trading reversal, but it could well apply here. After a five month sell off, the bears have had a good run for their money and the 1.0650 level is a good a place as any to book those profits.
From here, we could see some further upside as the bears lessen the selling pressure, making a bullish bet attractive from here.
A good way to play this is a HIGHER trade predicting that the USD/ CAD will close above 1.0750 in 14 days for a potential return of 170%. Or put another way, betting that the USD/ CAD will be above 1.0750 at the close on July 25th could return £27.03 from a £10 stake.
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