Especially after the Asian overnight, "No QE for You!" from the BOJ and PBoC, I was actually surprised to see FXP down, but it does look like a head fake move/stop run below some pretty well defined support. I'm still keeping FXP open, if I had the room from a Risk Management perspective, I'd probably add today, here's why (besides what was already mentioned)...
As many of you know I've been looking for a way to play China short all year, FXP hasn't given us much of an opportunity (until now) so we were looking at commodities after the Chaori default as banks were making cash calls against business' collateral which in the immediate default sectors was mostly iron ore and copper, you may recall we were looking at aluminum as a possibility and then a couple of defaults were rescued so the situation became a little murky on the commodity side, then FXP finally gave us an in,
I'm still holding that FXP position open (long). I would think that the overnight Central Bank hawkish talk out of Asia would do FXP some good and a move like today's could very well be the typical last minute head fake before a reversal as it's easy to fill out a large institutional position when you create supply by hitting stops.
We also have a Channel Buster above, which means when FXP gets going on the upside again, the momentum should be very impressive.
As for the daily chart today, we have a hammer or almost a long-legged Morning Doji Star and on volume, either way they are both bullish reversal candles and the increasing volume makes them more likely to be effective.
On a 60 min chart we have a stage 1 base area , these flat ranges are where there's tons of underlying action although they seem flat and boring, just think "Fill at consistent VWAP" and you'll understand why these ranges have so much underlying action. The first break didn't seem to hit much in the way of stops, but the hammer support it created would be an obvious place to put a stop or open a short and today's move below that hammer support seems to have done just that.
The long term multi-day 3C chart looks great, there's definitely something going on here and the base area of FXP looks quite large.
Note where the positive divergences have occurred, every one at the lows (white boxes).
The 60 min 3C chart shows where FXP went negative inside the channel BEFORE the break below it and how it has gone positive since right at that flat range, I'm guessing today is a head fake move/stop run to create some supply to be accumulated quickly, possibly because of overnight comments.
I will try to get to the Carry trade follow up, you may want to look at that before making any decisions, for me the decision is easy, I'm sticking with FXP.
30 min chart showing the same negative inside the channel before the break under it and a positive divegrence since, even at today's gap down which doesn't typically hit a 30 min chart that quickly, again making me think this is some quick last minute buying.
The intraday charts aren't the best on FXP so I just went with the 2 min chart's trend, it is leading positive the entire time, it just looks like there may have been a little supply fed out to keep prices steady and at the lower level where anyone would want to accumulate-who can refuse a sale?
The 3 min chart looks like the last few days have been accumulated above and beyond the normal accumulation as I scaled the chart to be in line to the left to show the recent action.
This also looks like they've been "steering" prices to keep them at a particular (lower) level and today's gap down has no downside confirmation, but the opposite, a leading positive divegrence.
From here, I've seen enough that I like it and would add to it if I had the room, the only thing left would be the reversal process, but you may have noticed that overseas charts don't behave the same as US equities, they are more gappy, less predictable and there's already a SUBSTANTIAL reversal process in place so I'm not so concerned about that as far as a small reversal process for today's gap down, you may want to require that to raise the standards of the trade, I'm fine with it as is.
From my last look at the market it still seems like I have enough time to cover some other assets so as long as nothing has changed and things still look like that broader "W" is the highest probability and we are not preparing for an imminent move up, I'll try to get as much of the FX Carry trade update out as I can *(USD/JPY) mentioned earlier.
Bottom line, I like FXP (long), I'd probably add to it if I had room available.
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