FOREX TRADING

Will The Real Dollar Bulls Please Stand Up

Overall, the U.S. session had been light, with the major pairs trading on a thin volume and retracing the declines seen earlier in the day. Most pairs moved somewhere around 100 pips, but today’s most actives currencies were, surprisingly, the Canadian dollar and the Japanese yen. The slow trading seen throughout the U.S. session might be a consequence of the fact that the economic calendar was very light on Monday, and will remain light until the FOMC Rate Statement on Wednesday. On top of this, the Japanese session will remain closed until Thursday, which has a strong influence over the trading volumes recorded overnight.

The Dollar Index: Daily chart trend: Short. Main price points: 75.00-76.00. Looking for: Wave V This is one of three charts posted daily the Dollar Index, and one of thirty available each day for LFB members that cover global equity, oil, gold, dollar index, plus six major currency pairs. On a daily dollar index chart we can see that wave V is maybe not complete as yet, as we are still looking for an ending diagonal in the wave V position, with a blue wave IV) in progress. Prices needs to stay below the upper black resistance line, otherwise the shape of an ending diagonal will be invalidated. So long as the structure remains intact, we will be looking for a move lower, with wave V) near to the 75-76 support zone, where a huge long turning point may appear.

The euro(Eur/Usd 1.4680) declined 80 pips during the day, to test the 1.4600 area, however, this downtrend was later retraced during the U.S. trading hours. During the day, the euro showed a strong bearish sentiment, especially throughout the first part of the day, but all this changed shortly after the U.S. open. In the medium to longer term, the euro’s outlook lies to the upside, but still it looks overextended on the shorter term.

Trade Plan of the Day: TheLFB Trade Plan is Eur/Usd, one of the six that are available to members on the major pairs each day, plus four Jpy based cross pairs, plus S&P futures, oil, gold, and the dollar index.

The pound(Gbp/Usd 1.6195) developed a 120-pips range during the Asian session, and since then has traded within its borders. For now, the pound is forming a doji-star candle on the daily chart, after it lost nearly 500 pips over the last 6 days of trading. In order for the pound to extend the current down-trend, it will have to break below the 1.6100 area, near the price point that it bottomed today, and an area it has held for two months.

The aussie(Aud/Usd 0.8625) is trading once again in the 0.8550-0.8650 channel, where the pair has spent almost an entire week. Over the last few days of trading, the aussie declined due to the sporadic selling going on in the commodity markets. If these declines continue, the aussie is likely to extend these declines over the upcoming period. On the shorter tem, the 0.8550 area is the next target to the downside.

The cad(Usd/Cad 1.0775) had a range of approximately 170 pips during the day, and for most of Monday trade. The cad tested the 20-day moving average during the early U.S. trading hours, but was easily rejected as S&P futures started retracing lost ground. A break above the 20-day moving average will shift cad’s outlook to long, but the pair has failed to break above this level for nearly two weeks.

The swissy(Usd/Chf 1.0320) is currently forming a daily chart pattern similar to a grave-stone doji. The last few candles on the daily charts are characterized by long-upper shadows, which shows that the bulls and bears are in a strong fight for now, but still the bears found the strength to come back by the end of the day.

The yen(Usd/Jpy 92.05) rose as much as 120 pips during the day, having one of the most active trading sessions over the last period. For now, the yen is trading just above TheLFB R3 (92.00), which happens very rarely and it managed to break above the 20-day moving average, but only for a short period, and the move was retraced during the U.S. session.

Wall Street Holds Steady- Treasuries Get Bids

Equity Futures: Dow -13.00. S&P -1.20. NASDAQ +7.25. German Dax -30.50

Global equity markets declined at a strong pace during the European open, but failed to extend the move throughout the rest of the session. The U.S. trading hours saw S&P futures recovering slowly some of the declines seen earlier in the day, but still the futures index is trading below the break-even line. The current declines come as investors weigh current stock market levels that maybe do not reflect the prospects of the global economy.

U.S. Trade: The U.S. futures markets saw strong declines during the overnight sessions, opening the cash session deep in the red. However, the S&P 500 index quickly found strong support in the 1058 area, which it held during the first part of the day. From there on, the index gained approximately 1%, but still this was too little to make up for the declines seen in earlier in the day. Despite the selling seen elsewhere, the NASDAQ managed to turn in a green day of trade, helped by the biotech sector.

The selling seen in the U.S. market, during the futures and cash trading sessions had a strong effect on the dollar index, which managed to strengthen for two consecutive days for the time since mid August. Investors turned long on the dollar index in order to buy Treasuries, which were today’s best performing categories.

S&P Technical View: TheLFB Member Charts: S&P Futures Example

Daily chart trend: Short possibilities. Main price points: 865, and 1070. Looking for: Wave 5 or C top

The wave count on the weekly chart, above, offers a question; is it wave 4 or not? The price structure on a daily chart is also showing two valid scenarios. On the left side of the chart below, it shows an impulse structure with five waves up from the 665 lows to the current highs. If this is the case, the wave 4 discussed on the weekly chart, above, will be rejected, since the fourth wave is a corrective wave, which means it cannot be sub-divided by a five wave move. However, in this scenario, a three wave push lower into a corrective wave 2) is expected.

On the right side of the chart, we have a different picture, with a wave count that has a clear zig-zag correction, which is valid for a wave 4 scenario. In this case wave 5 going lower will follow.

Overall, the current price structure signals for a turning point, since the market is trading on the top of wave 5 or wave C leg, around the Fibonacci resistance levels. For a down-trend confirmation the market needs to make a daily close below the 50% Fibonacci retracement level, and also must break through the lower support line.

Sector Moves:The healthcare sector was one that managed to trade in the green in Monday, while most others declined. Moreover, every sub-index of the healthcare sector stayed above the break-even line, as the biotechnology index gained as much as 2% after it was upgraded to “outperform” from “neutral”. This had a strong influence on the NASDAQ index, helping it to post gains on the day.

The declines seen in industrial goods, basic materials and financials added a strong downside pressure to the market, dragging the major indexes lower. The same pattern could have been observed earlier in Europe, were the same financials and basic materials were the worst performing sectors. The Dow Jones Transportation Average had yet again underperformed the Dow Jones index, which is becoming a trend lately, especially since the beginning of September.

Crude oil for October delivery was recently trading at $69.70 per barrel, down by $2.30. Crude oil declined the most in three weeks in Monday trade as the dollar strengthened across the market. The vast majority of declines came during the first part of the day, but it managed to find a bottom in the 69.50 area during the U.S. session. On the daily chart, crude oil is approaching a support trend-line that has been holding since late April.

S&P Technical View: TheLFB Member Charts:

4 Hour chart trend: Short possibilities. Main price points: 67.00, and 74.90. Looking for: Move lower

On a four hour chart oil prices have reached our 76.4% Fibonacci retracement area over the past few days, around $73 per barrel, which was the key for the current move down, near to the $71 area. The current price structure now signals for much deeper levels in the near-term as a wave II) correction seems to be completed with a simple zig-zag pattern, after wave c found the top just above the previous wave a. The current wave II) highs around $73 per barrel and $74.90 resistance must hold for a valid bearish scenario.

Gold for October delivery was recently trading lower by $5.40 to $1004.90. Gold continues to consolidate around the $1000 area, but its outlooks lies to the upside for now. As such, the current consolidation looks as an accumulation phase rather than a distribution one.

Treasuries continued to gain in Monday trade, as investors sold shares for the safety of the bond market, which has made Treasury mutual funds today’s best performers, with a 0.30% performance. However, not every maturity advanced, since the markets are preparing to absorb tomorrow a massive $43 billion sale of two-year Treasury notes.