Pound Drops After GDP Report, Cad Strengthens

The currency market followed a pattern similar to the one seen in Monday trade. Despite the positive cash and futures equity markets, the major pairs have failed to move outside of their previous session ranges. The exception was the pound, after the U.K. GDP read disappointed investors once again. The Canadian dollar proved to be the strongest currency against the Usd, being the only one of the majors that actually strengthened against the dollar. Looking ahead, the overall trading volume is expected to remain subdued, as the market prepares for the Holiday break.

Dollar Index Technical View: TheLFB Member Charts

4 Hour Chart Flows: Long Price Points: 78.15 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 78.15 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.

So long as the 78.15 high stays in place, prices could fall into the 76.50 zone. A corrective short move may be confirmed once the lower support line is taken out.

The euro (Eur/Usd 1.4305) continues to trade in the 1.4300 area for the third consecutive day, as the market has once again failed to find the momentum necessary to push lower and hold. On the 4-hour chart, the euro is trading in a steep downward channel, which will probably dictate the euro’s trading direction over the next few days.

The pound (Gbp/Usd 1.6005) is trading in a very sensitive area right now, in the 1.6000 zone, just above the 200-day moving average and slightly above a support trend-line that has been holding since Nov 12 09. A break lower will probably trigger a large number of sell orders into the market, driving the pound towards the 1.5800 area. On the fundamental side, things also appear downbeat for the pound. Overnight, a report showed that the U.K. GDP expanded less than expected in Q3, which justifies the current downtrend.

Pound Technical View: TheLFB Member Charts

4 Hour Chart Flows: Short. Price Points: 1.6250. Looking for: Move lower, if 1.6250 holds

Momentum: The pound’s trend went Short on 3rd December, and has meandered sideways since then. The pair can be just as easily bought as sold.

Elliott Wave: Cable moved lower recently, in moves that are not as strong as may have been expected, considering that a Short red wave iii) may be in progress. Wave three is usually the strongest wave and therefore it would be expected to push lower in strong fashion.

Elliott Wave traders can still look for a down-trend continuation so long as the market trades below the 1.6250 critical resistance area, and wave ii) top. The target regions are shown at the 1.6000 area followed by a second target at the 1.5860 area.

Any move higher, through the 1.6250 area will require a new wave count.

The aussie (Aud/Usd 0.8800) lacked a solid direction overnight, and just followed the market’s overall weak momentum. In Monday trade, the aussie broke below the 100-day moving average (0.8860), which has been an important swing area in the past. On the medium term, the aussie’s outlook lies to the downside, but some further tests at the 100-day moving average cannot be excluded.

The cad (Usd/Cad 1.0570) was the star of the overnight session, declining 70 pips at a time when the major currencies were losing ground against the U.S. dollar. With this downtrend, the cad is approaching the 1.0550 area, the same place where the market based over last week of trading, including Monday trade. At this point, it is questionable whether the cad can develop a downtrend on its own, without the help of the other major pairs.

The swissy (Usd/Chf 1.0470) had very small trading volumes overnight, as has happened a lot recently. Against the euro, the swissy is heading higher for a second consecutive day, after rumors emerged on Monday that the SNB intervened in the currency market.

The yen (Usd/Jpy 91.30) is heading higher for the sixth consecutive day, a time in which the pair advanced as much as 270 pips. The overnight trading volumes has been relatively subdued, but it is expected that the upcoming U.S. session will add some further momentum. To the downside, the yen might find important support in the 91.00 area, near the 100-day moving average.

European Markets In The Green On Slow Momentum

Equity Futures: Dow +36.00. S&P +3.50. NASDAQ +8.25. Japanese Nikkei +10.00. German Dax +13.00.

European Trade: European shares continued to advance for a second consecutive day in Tuesday trade, even though the macroeconomic releases are not very positive. U.S. futures also added a few points overnight, with the S&P futures continue their consolidation in the 1110.00 area.

The European cash markets and the S&P futures moved higher hand in hand overnight, with trading volumes substantially stronger in the cash market. From the opening bell the U.K.’s FTSE added 0.75%, Spain’s IBEX rose 0.30%, while Italy’s MIB advanced 0.95%.

On the fundamental front, Greek debt was downgraded again, this time it was Moody’s turn to finish what Fitch and S&P had started with their earlier downgrades, in a move that now values the debt one step lower, at A2. This sparked a rally in the Greek bond market, but had little consequences in the Greek, or global, equity markets. The market had already taken into account future possible downgrades. In European trade, the Greek stock market is trading up 3.20%, being the best gainer in the Euro-zone region.

During the European session, the GDP report showed that the U.K. economy shrank 0.2% in the third quarter. This is more than the market expected, and was something that added downside pressure on the British pound. Q3 is the fifth consecutive quarter in which the U.K. economy contracted, and covers a period in which it has shed 6% of GDP.

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. 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: Each of the sectors represented in the European markets advanced in Tuesday trade. The strongest gains came from the automobile & parts, which advanced 1.20%. Until now, this is the only sector that added more than 1% in European trade. The gains within this sector were wide-spread among the major carmaker companies, with Peugeot adding 1.50%, and Volkswagen advancing 1.80%.

The trading volumes remain light, and are far below the average of the last few months of trading. This greatly reduces the markets’ capacity to develop and sustain a trend, something reflected in the price that investors have to pay to buy options. As such, the market’s implied volatility has fallen to the lowest value in a more than a year.

Upcoming Economic Moves:
08:30 EST Usd Final GDP Exp 2.8%, Prev 2.8%
10:00 EST Usd Existing Home Sales Exp 6.3M Prev 6.1M

Crude oil was recently trading at $73.75 per barrel, higher by $0.05

Gold was recently trading up by $0.80 to $1097.00.

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

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