Thin Trading In The Currency Market

The major pairs saw some action during the European session, after a flat Asian session, but little of it looked sustainable. As seen in the equity and in the commodity markets, the trading volume remained thin throughout the Asian and the European sessions, most likely due to upcoming Christmas and New Year Holidays. One exception proved to be the cad, which dropped 80 pips ahead of the retail sales report, expected at 08:30 EST

Dollar Index Technical View: TheLFB Member Charts

4 Hour Chart Flows: Long Price Points: 78.00 Looking for: A Short wave IV) pull-back, towards 76.50

Momentum: The dollar index went into Long mode on in early December and has held that trend since. The near-term path of least resistance is consolidation around new highs, with long-bounces on weak equity trading days. The weekly close above 76.00 was a signal that buyers are dominating, is bullish and signals a momentum reversal.

Elliott Wave: The dollar index made a turning point around the 78.00 resistance area, where a Long, blue wave III) may finally have found its highs. A three wave Short move in a pull-back into a lower wave IV) should follow; after every five waves move finishes, Elliott wave traders will look for a correction, labeled as a black a-b-c in our case.

As long as  the 78.00 high stays in place, prices could fall into the 76.50 zone.

The euro (Eur/Usd 1.4340) spent the day swinging around the neutral pivot point (1.4340). Around the European open, the pair had an attempt to move lower, but the downtrend was quickly retraced back to the same pivot point. On the 4-hour chart, the euro is trading in a very steep downward channel, but the light trading volumes seen recently have helped it to set a base in the 1.4300 area.

Euro Technical View: TheLFB Member Charts

4 Hour Chart Flows: Short Price Points: 1.5140 Looking for: Low of a Short wave III

Momentum: The euro trend went Short on 3rd December, and has meandered lower since then.

Elliott Wave: On Friday the Eur/Usd hit new lows 50 pips below the main 1.4300 support region, and close to our Fibonacci extension levels, where a turning point may appear. Traders will look for a near-term euro recovery against the Usd, now that the Short, red wave III) could be complete. In this case a three wave move into a Long, corrective wave IV is expected, if the S&P holds the support region around 1090.

Any break lower on the S&P may easily drive the Usd even higher.

A move into a Long wave IV may get confirmed once the upper line of a trading channel is taken out, around 1.4450.

The pound (Gbp/Usd 1.6135) tried to break below the 1.6100 area over the last three days of trading, but until now, it has failed to hold the move. In this area, the pound met a support trend-line, which has held the market since mid November. If the bearish momentum seen over the last three weeks of trading continues, the pound could fall to the 200-day moving average, in the 1.6000 area.

The aussie (Aud/Usd 0.8850) lost 80 pips in Sunday/Monday trade, and managed to break below the 100-day moving average, an important swing area. Interestingly, the aussie made this move on mixed commodity markets, and at a time when the other major pairs were barely moving. Usually, this denotes a bearish outlook.

The cad (Usd/Cad 1.0615) dropped 80 pips during the European session, ahead of a report that is likely to show that Canadian retail sales advanced for the third consecutive month. Since the beginning of December, the Canadian dollar has been the second best performing currency after the U.S. dollar, with investors pricing in the fact that U.S. and Canada will emerge from recession much stronger than expected.

The swissy (Usd/Chf 1.0420) tested for the third consecutive day the 1.0480 area, but until now, it has failed to move any higher. This is usually a sign that the prior trend is close to forming a top, however, the trading volumes have been light, which makes this top look only temporarily.

The yen (Usd/Jpy 90.40) had a range of only 30 pips since the Sunday session open, after moving over 200 pips in the previous session. On the daily chart, the yen is consolidating in the 90.50 area, above a trend-line that has held the market since April. For now, the yen’s outlook lies to the upside.

European Shares Advance, U.S. Futures Stall

Equity Futures: Dow +9.00. S&P +1.50. NASDAQ +4.50. Japanese Nikkei +10.00. German Dax +5.00.

European Trade: European shares turned positive in Monday trade, and following a pattern seen lately, trading volumes overnight remained subdued. The case was the same for the S&P 500 index, which traded on very thin momentum, having a range of only 5 points.

After two days of declines, the European markets advanced 0.50% around the opening bell, with the vast majority of gains coming from the main markets. Throughout the session, Norway’s OBX gained 1%, while Netherlands’ AEX advanced 0.30%. In emerging Europe, the trading session was somehow mixed, with Greece and Poland trading near the break-even line, while Hungary added 0.65%

The light trading volume seen in the financial market is a consequence of the upcoming Holiday Season. After a very busy 12 months of trade, most trade desks will look to balance books, and prepare for the New Year. The report calendar was clear of any red flag releases this Monday, something that affected trading activity in the equity market.

S&P Technical View: TheLFB Member Charts

4 Hour Chart Flows: Mixed Price Points: 1084, and 1118 Looking for: An ending diagonal (reversal pattern)

Momentum: The S&P futures market confirmed a Long momentum read on Nov 11th and has built a near-term support base around 1085. The trend has flattened out, and the 1105 area will be a major resistance point to battle this week. The moves to test and hold support are impressive, and now backed with Japanese and German equity markets that are also looking bullish.

Elliott Wave: S&P futures prices are still trapped between the upper and lower ending diagonal lines.

If the S&P breaks through and holds under the lower support line of an ending diagonal at 1095, the dollar could make further gains against the major pairs, if the Usd/S&P correlation holds as it has done recently. For this scenario to follow through, the wave 5) highs shown at 1118 must remain unbroken.

If there is any break through the 1118 top, we will look for a move into the 1130-1140 area (alternative, boxed wave count), with a Long reversal of the current down-trend on the major currencies to follow.

Sector Moves: With the exception of carmakers and healthcare companies, every other sector advanced in Monday trade in Europe. Carmakers declined after Deutsche Boerse said it would replace VW ordinary shares with preferred ones in the German DAX index. Following this announcement, VW common shares dropped 3.80%, while the preferred shares advanced 1.20%. This also had a negative influence on other German carmakers, dragging Daimler and BMW bellow the breakeven line.

The European healthcare sector lost 0.30% on Monday as the U.S. healthcare bill approaches its final vote. Further negative momentum came from the biotechnology company Actelion, after health problems emerged from one of its insomnia drugs.

In the telecommunication sector, Nokia lost 2% after Fitch rating downgraded the company’s debt to A-, from A. However, further downgrades are excluded for now, since the rating company kept its outlook to stable.

Upcoming Economic Moves: Clear of red-flag reports

Crude oil was recently trading at $73.30 per barrel, higher by $0.05

Gold was recently trading up by $3.60 to $1115.10.

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

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