Monday, November 19, 2007

Forex Analysis

It's been awhile since I posted about the foreign currencies so lets take a look at the four major currencies that I follow.

Above is a daily chart of the Swiss Franc, Euro, Japanese Yen and the British Pound.
I charted the above currencies in order of strength, with the Swiss being the strongest and the Pound the weakest.

As you can see the Swiss Franc in making new highs with the Euro and Yen not far behind.. The British Pound is clearly the weakest of the 4 currencies.

Looking at the above chart it is obvious that the trend is up in all 4 markets so what I'm looking to do is be a buyer of the strongest currency. Basically I'm looking to buy the Swiss franc on the next dip if it continues to show relative strength versus the other currencies..


throwaway said...


What is the theory behind relative strength? I am always a bit dubious about relative strength analysis because historical relationships tend to re-assert themselves - hence a currency that is leading the pack may merely be a first mover which will then stall later on. Also are many quant models not based on the principle that historical relationships will re-assert themselves? hence aren't you betting against the quant funds when you buy the swiss franc in these circumstances?

kk said...


It is great to see you back posting about FX!!!

I am longing JPY but not sure when to exit. From the chart, it seems USD/JPY has another leg down. However, the IMM position is showing positive net JPY long, seems carry trade unwinding is no long an issue now. I really appreciate if you could kindly shed a little bit of light on this!

AUD/USD seems to be in the process of forming head and shoulder on its daily chart. But given the overall USD weakness, it might not move down. What's your opinion on this? Moreover, it seems that market is getting acustomed to bad subprime news and is not reacting as violently as what we saw in Aug.

Your guidance is highly appreicated!!!

Kevin said...

Hi Throwaway,

I try to keep this real simple.. I use relative strength to help determine if a market (currency, stock or commodity..etc) is being accumulated or distributed. I always try to determine what the weakest and strongest markets are and I always position myself accordingly. For example...If I am looking to buy a currency, I'll always try to find the currency that is the strongest and I'll buy it..I don't buy laggards with the hopes that it will catch up.
Does this method always work? Of course not but I've done well with it over the years and that is why I use reltaive strength in my trading.

Kevin said...

Hi KK....

I dont have a strong opinion on the Yen...if I did have an opinion, I would have a position in the yen but I don't. Sorry...


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