FOREX TRADING

U.S. Midday Currency Market Hit By Risk Aversion

The dollar index strengthened across the board in Thursday trade, as the market traded in a classic risk-aversion phase that mirrored a drop in global equity trade. The major pairs headed lower from the start of the Asian session, and continued to so during the following sessions.

The sell-off on the major currencies against the Usd was driven by equity and commodity market trade, which also posted substantial declines. In the current economic climate of questionable global growth, risk aversion means lower stocks, higher bonds, and stronger Usd as Treasury notes are bought.

Dollar Index Technical View: TheLFB Member Charts

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

Dollar index prices are still trapped between the 75.77 resistance and 74.70 support regions, which means that traders should wait a break-out of either before getting a near-term trend read.

A break of the lower support line and 74.70 bottom will put the 74.00 – 74.30 target in play.

On the other side, traders will look for bullish Usd opportunities if market trades above the 75.77 zone.

The euro (Eur/Usd 1.48670) dropped just over 100 pips since trade began, with most of the declines coming during the early European and Asian sessions. Following this sell-off, the euro is testing again the 20-day moving average. A break below this level will probably send the pair much lower.

Euro Technical View: TheLFB Member Charts

4 Hour chart trend: Mixed. Main price points: 1.4800, and 1.5000. Looking for: Two scenarios

The Eur/Usd pair made a strong retracement on Wednesday from the 1.4800 support region, near to wave B)/II) highs. The market however, is still trading below the 1.5000 philological level and 1.5062 yearly highs, which means that both scenarios presented below are valid.

First scenario

From this area, euro may start to trade higher again, through the 1.5062 zone, following the A), B), C) corrective count in red II/B shown on the 4 hour chart. To confirm this, the market needs to trade above the black wave B)/II) 1.5000 area, while the 1.4807 holds.

Second scenario

The market is still trapped in the bear channel, so move lower into the powerful short black wave III may easily follow through if the 1.4800 support zone fails to hold as support. Break of 1.4807 support will put 1.4630 zone in play.

The pound (Gbp/Usd 1.6635) fell to TheLFB Support 1 area (1.6685) during the Asian session, but was unable to push any lower until the London open provided the necessary momentum to move the price action lower. Around this same area, 1.6685, the market formed a swing point low on October 23. Right now, the pound is trading just above the 1.6600 swing area.

The aussie (Aud/Usd 0.9155) headed almost exclusively lower during the day, shedding approximately 140 pips. In addition, the aussie has just broken below the 20-day moving average, an important swing point area. If the sell-off in the commodity market will continue during the upcoming sessions, the aussie could easily extend the current sell-off.

The cad (Usd/Cad 1.0665) rose 120 pips since the day started at 17:00 EST, and it recently broke above the resistance area formed by the 20 and the 50-day moving averages. A break above this price point may not come easily, but usually most of cad’s volume is built during the U.S. session.

The swissy (Usd/Chf 1.0170) held a range of 150 pips over the last few days, moving up and down around the 20-day moving average. This comes as the market has problems finding an appropriate value for the Swiss franc, and it is also the currency with the smallest amount of red-flag reports on its economic calendar this month.

The yen (Usd/Jpy 89.05) was driven lower by risk aversion throughout the first part of the day. However, as soon as it approached the 88.70 area, the pair started reversing. The 88.70 area has represented an important intra—day swing point lately, apparently, being protected by very large orders.

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

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