FOREX TRADING

Dollar Index Finds Buyers

Overall, the dollar index started slowly to add points during the Asian session and continued doing so throughout the first part of the European session. Right now, every major currency is trading below Tuesday’s opening price against the dollar, even thought the U.K. sterling and Japanese yen currencies showed some resilience. The dollar’s uptrend seen overnight reflects the selling from the equity markets, and echoes Mr. Bernanke’s latest comments, which called for a stronger dollar.

Dollar Index Technical View: TheLFB Member Charts

4 Hour Chart: Mixed. Main price points: 74.70, and 75.77. Looking for: Wave V)

The dollar index traded lower recently, and the market found buyers around the 74.70 area, and at the support line connected from October 22nd. This could a bullish reversal bounce, but traders still need to see a break of 74.77 resistance for a near-term long confirmation.

Dollar support around 75.00 looks very strong which indicates that the bottom of the short blue wave V) may be near.

The euro (Eur/Usd 1.4900) moved almost exclusively lower during the overnight session, but the pace at which it fell accelerated throughout the morning European trade. Since the day started, the euro fell 90 pips, and has reached TheLFB Support 1 (1.4895) area, which is also the support area formed by the 20-day moving average.

Euro Technical View: TheLFB Member Charts

4 Hour chart trend: Mixed. Main price points: 1.4820, and 1.5062. Looking for: Complex wave II/B

The price action on the Eur/Usd chart looks weak for the near-term trade, especially after Mr. Bernanke’s speech from on Monday that created volatility in the pair. After his speech the euro failed at the long test of the 1.5000 physiological level, which seems to be a bearish signal for now.

As such, the market may still be trading in a corrective channel of a more complex red wave II/B structure. Traders will look for a move into the short side of a corrective channel, near to the 1.4800 zone, so long as the market holds 1,5000 resistance.

The pound (Gbp/Usd 1.6800) and the yen were the only major pairs that managed to strengthen during the European session. However, the pound reversed shortly after the U.K. CPI numbers hit the newswires. Interestingly, the CPI numbers were rather bullish for the pound, but has not been enough to stop the overall Usd strength.

The aussie (Aud/Usd 0.9275) is currently trading at TheLFB Support 2 (0.9270) area, following broad weakness seen in the financial market. The aussie’s sell-off was also influenced by the Reserve Bank of Australia’s minutes, where the central bank seemed undecided on the pace of interest rate adjustment.

The cad (Usd/Cad 1.0575) was the strongest pair among the majors in Tuesday trade, moving 110 pips from the overnight session. The cad’s uptrend is rather interesting, since the pattern of the last few months of trading saw the pair lagging behind the rest of the market during the overnight trading hours. On the daily chart, the cad is approaching the 1.0620 resistance area, where the 20 and 50-day moving averages meet.

The swissy (Usd/Chf 1.0130) had a range of 80 pips during the overnight session, flanked by the 20-day moving average and by the 1.0050 support area. This happened, even though the pair saw very thin momentum over the last few days of trading.

The yen (Usd/Jpy 89.05) re-tested the 88.70 area during the overnight session, the same place where the it formed a swing point low in Monday trade. A break below this support area would clear the road down to the 87.00 level, where the Usd/Yen bottomed in late January 2009.

European Market Profit Takers

Equity Futures: Dow -11.00. S&P -1.50. NASDAQ -1.00. Japanese Nikkei -11.00. German Dax -3.00.

European Trade: After a very strong start on Monday, the major European indexes opened below the break-even line as investors used the current equity valuations as a reason to book profits. Earlier in the day, most Asian shares closed the cash session in negative territory, despite a positive start.

With the selling seen around the opening bell, the European markets fell for the first time in four days. Across Europe, the German Dax was trading down 0.30%, while the France’s Cac 40 lost 0.40%. The DJ STOXX 50 index, which gauged the evolution of the 50 biggest European companies, lost 0.20% in Tuesday morning trade. The emerging European markets also traded lower, while the only region that managed to stay near the break-even line was Benelux, formed by Belgium, Netherlands and Luxembourg.

S&P Technical View: TheLFB Member Charts

4 Hour chart trend: Long. Main price points: 1082, and 1115-1120. Looking for: Wave C top

S&P futures found a top around the 1112 area; just 3 points below around 1115 target, where the long wave V) may already be complete. We can clearly count five black waves up from the red wave a B low, which suggests that wave C is trading around the top of its potential.

After every five wave move, a three wave correction is expected, so move lower on the S&P, near to the 1082 support zone should not be a surprise technically. If this follows through, traders may see some dollar buying in the near-term, which will pull the euro away from the major $1.50 level, while the 75.00 dollar index support holds. These markets are all inter-connected at the moment, with a 90%+ correlation.

Bearish confirmation on S&P futures hits if there is a short breakout of 1082.

Sector Moves: Most sectors traded flat in Tuesday trade, but companies from the banking and from the basic resources sectors had a substantial downside contribution. To the upside, the ultra-defensive utility sector added 0.20%, while travel & leisure, and media companies added 0.90%, being the best gainers in European trade.

The gains in the travel & leisure sector were led by Accor, which said that it is considering whether to split its business model into two units; hotels and travel cards. In the Cac 40 index, Accor is trading up 5.5%, being by a large margin the best gainer in the index. Media companies surged after the U.K. operator Cable & Wireless announced it plans to raise 200 million pounds from the bond market. Following this statement, Cable & Wireless jumped 3%, British Sky 1%, while the heavyweight Vivendi gained 0.80%.

With broad weakness seen in the market, the defensive healthcare sector also declined, with the Merck downgrade to “underweight” helping to send the entire industry lower. In the German Dax, Merck lost 2.00%, while Novartis, Roche and Synthes lost between 0.5% and 0.8%.

Economic Moves: During the European session, a report showed that the U.K. CPI for the month of October increased to 1.5%, up from 1.1% just one month previously. Currently, the U.K. inflation rate is strongly above those recorded in the Euro area and U.S., but still the Bank of England says that deflation, not inflation, is the bigger threat. Ahead, investors will prepare for the U.S. PPI and TIC numbers.

Crude oil was recently trading at $78.45 per barrel, lower by $0.45.

Crude oil Technical View: TheLFB Member Charts

4 Hour chart trend: Mixed. Main price points: 71.92, 75.50, and 82. Looking for: 75.50 to hold

Oil prices have reached our minimum long objective around the 79.00 area, discussed yesterday. The wave count now remains bullish so long as the market trades above the 75.50 area, where recent lows were made.

Traders with a bullish bias however, must be very careful around the current levels, as the market did not break through the upper black resistance line of a bearish channel. Any long break-out here will put a wave V) in play and that targets the 84.50 area.

Gold was recently trading lower by $6.90 to $1132.30.

Gold Technical View: TheLFB Member Charts

4 Hour chart trend: Long. Main price points: 1083, and 1130. Looking for: Wave 5) top

Gold has reached new highs recently, which means that the bullish outlook in our blue wave V may not be complete. Traders should wait on a short break of the 1100 support zone, of a re-worked wave IV, before they can confirm a bearish reversal. Until that happens, a move up into the much higher levels (1150) may still be the case, especially if U.S. dollar breaks through the 74.70 support zone.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.