Currency relative strength study: Which pairs to trade?

٢٥ أكتوبر ٢٠١٥

Hi, in this chart I conduct quarterly analysis of all currencies pitted against gold to get a good idea of relative strength for them.
We have seen a period of domination of the dollar, which has had a slow quarter.
The reason for these movements are purely fundamental, related to money flows, and don't change all the time like most retail traders expect.
Despite the ebb and flows of smaller timeframe charts, these fundamental trends give me a good idea of which pairs to pit against each other for optimal trend scenarios. Some quantitative traders even go as far as creating synthetic pairs, born out of specific portfolios, with varied weights, both long and short. I'm not that sophisticated, but I do my best with what I have.

Here I see a few key things:

• There were few pairs with uptrends and trading above the highest volume zones in the charts. These were the strongest.
  
• The chinese renminbi will soften considerably, the chart is clear, and we have news of the recent rate cut, make no mistake, it's a short.
  
• The Canadian dollar aims down overall, it has been the weakest alongside the Yen and the Euro, and it looks to stay that way, despite finding support at the low volume node on chart briefly.
  
• The Euro is dragging the Swiss Franc down, as well as the specific needs of the exporting business Switzerland depends on. If the chinese cut rates, expect further easing for the Swiss Franc. 0 question here.
  
• NZD is king, right now it's trending up after rejecting the bears with a strong quarterly high spin doji candle right over low volume support and is closing above the highest volume node as we speak. Expect strong uptrends in most NZD pairs.
  
• AUD is at a make or break level, wouldn't touch it yet, it can go up or down but mostly aims down. Fundamentals for AUDNZD demand parity, and it looks to be headed that way, despite the IHS people see.
  

Conclusion is simple, if you want to ride some larger fundamentally backed trends, pick your crosses wisely.
This methodology is a mixture of what I learned from Tim West, and Ashraf Laidi's insights about relative strength for Forex traders. Read his book if you can, a great one: ashraflaidi.com/about/book

I will be hosting a free webinar this week, to introduce traders to the techniques that I am using, which are the fruiton of Tim West's mentoring, as well as my own experience with them in the Forex space, which has its own characteristics and challenges. One of them being the reduced liquidity of certain crosses, and the problems this creates when using more standard 'diagonal type' thinking, like wave analysis. I will discuss how market types affect systems' performance, and what the 'Holy Grail' of trading Forex really is. It will surprise many to know the answer to this.
Stay tuned for more details on how to join it.

If you want live updates and more information, make sure to follow me at collective2, where I provide signals for auto trading and via email. I'm also providing access to a live trading chatroom.
All of these are free of charge for concordbay.com customers.
Contact me via skype or pm for more details.

Cheers,

Ivan Labrie
Time at Mode FX
Analyst at Concord Bay dot com