FOREX TRADING

Markets Stalls, But Yen Moves

Overall, the forex market continued to trade with very thin momentum during the U.S. session. The only exception was the yen, but the rest of the market traded far below the ATR of the last few weeks. This comes, as investors prepare for the Bank of England and for the European Central Bank to announce the latest monetary policy developments tomorrow, during the late European/early U.S. session.

Dollar Index Technical View:

Daily chart trend: Long possibilities. Main price points: 75.83. Looking for: Wave V low

Prices on the dollar index chart were recently testing the upper resistance line of a trading channel, where a possible long break-out will confirm that wave V of a black C is done. However, this is not the case yet, and as such move into much deeper levels is still possible over the coming days, especially once the current 75.83 low is taken out. In this case, we will be looking for a new wave V target somewhere around 74.00 support zone.

The euro (Eur/Usd 1.4675) had a range of only 70 pips in Wednesday trade, one of the slowest of the last few weeks of trading. During the U.S. session, the euro tested the 20-day moving average, but still the pair failed to move any lower due to the very light momentum seen in the forex market. In order to move any lower, the euro would need a much stronger momentum, together with declining S&P futures.

The pound (Gbp/Usd 1.5935) spent almost the entire day in a 60 pip range, but during the late U.S. trading hours, it found the necessary momentum to surge higher. Over the last few days of trading, the pair failed to anywhere decisively as the market prepares for the BoE interest rate meeting. This will probably be a very volatile event, which will determine the trend over the upcoming period.

The aussie (Aud/Usd 0.8880) saw a range of only 30 pips during the entire U.S. session, even though the aussie traded relatively volatile over the last few sessions. On the daily chart, the aussie is looking to finalize an overextended wave 5, in the 0.89-0.90 area. Some market participants are intimating, on the medium to longer term, the next target is parity with the dollar.

The cad (Usd/Cad 1.0630) declined 80 pips during the first part of the day, but then the market turned around and recovered every pip lost earlier in a very tight uptrend channel. With the declines seen today, the cad reached a new low for the current year, but right now, the market is forming a bullish pin-bar on the daily chart, which might signal that the prior trend is approaching its limits.

The swissy (Usd/Chf 1.0340) started heading higher during the early U.S. hours and continued the uptrend until it met the 1.0350 resistance area. In order to move any higher from this area, the swissy might need a stronger momentum, something that is hard to find during the late U.S. session.

The yen (Usd/Jpy 88.60) had a range of 130 pips in Wednesday trade, the biggest among the major pairs. This happens even if the yen is a pair that moves very little. During the European session, the yen tested the 88.00 area, the lowest area touched since January 09. From there, the yen turned around and surged 130 pips, but right now, the yen is trading once again near Wednesday’s opening price.

Poor Momentum Seen In Wednesday Trade

Equity Futures: Dow -19.00. S&P +0.10. NASDAQ -0.75. Japan Nikkei -60.00. German Dax +2.00

The entire financial market came to a standstill in Wednesday trading, ahead of the start of the earnings season and just one day before the interest rate decisions coming from the Bank of England and the European Central Bank. The only exception was the commodity market, where gold reached a new record high while crude plunged $2.50

U.S. Trade: The U.S. session started with very light momentum even from the overnight session, and continued to trade so during the cash session. Since the beginning of the day, the S&P futures moved only 9 points, a little less than 1%, having one of the slowest days of the last few weeks of trading.

The main reason for the market’s resilience to move might be the upcoming earnings season, which will start today with Alcoa’s third quarter results. Analysts expect the current earnings season to the ninth in a row in which companies report declining earnings, but after this one, things are expected to improve, as the economic recovery will help the balance sheets of most companies.

S&P Technical View:

Daily chart trend: Short possibilities. Main price points: 1075. Looking for: Wave 5 or C top

The wave count on the weekly chart, below, 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 blue wave 2, with a targets somewhere around 38.2%-50% Fibonacci support levels, 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 lower blue wave 5 will follow.

Overall, the current price structure signals for a coming turning point with at least three wave push lower over the coming weeks, since the market is trading around the top of wave 5 or wave C leg, near the Fibonacci resistance levels.

Sector Moves: The basic materials sector started the day very strongly, as gold surged towards the $1050 high, but the declines seen in the oil & gas industry dragged most companies lower. For now, each of the nine major sectors represented in the U.S. market are trading in the red, with the industrial goods sector leading the declines.

The trading volume was very thin again in the U.S. markets, with only 687M shares changing hands on the NYSE, from which 2/3 of the volume was built on declining shares. The TICK was also negative, with 1800 companies declining compared to 1200 companies advancing. As always, Citigroup and Bank of America remained to most active shares on the NYSE.

Economic Moves: Clear

Crude oil for November delivery was recently trading at $69.65 per barrel, lower by $2.50. Crude oil traded flat most of the day, and even managed to gain some small ground during the overnight session, but then it plunged $2 as crude oil stockpiles increased during the prior week.

Gold for November delivery was recently trading up by $4.10 to $1043.80. Gold surged near the $1050 benchmark level during the European session, but the move was retraced. Since then, gold traded in a $5 range, without being able to move anywhere decisively. The current uptrend comes as some analysts say that central banks are dumping dollars for the safety of the gold market.

Gold Technical View:

Daily chart trend: Long. Main price points: 1040, and 1060. Looking for: Wave 3) top

On a daily gold chart, the market has broken through the previous 1023 highs, which was the reason for a push into 1040 target zone, as expected. This last move to the up-side is really strong, so any further moves up to the 1060 resistance area will not be a surprise. However, in the coming days and weeks we will be looking for corrective retrace in red wave 4), since wave 3) seems to be trading around the highs.

Treasuries gained ground in Wednesday trade, as the declining equity market made investors look for the safety of the Treasury market. In addition, the debt market advanced after 10-year Treasuries saw strong demand today at an auction selling $20 billion notes.

Written by TheLFB Trade Team