FOREX TRADING

Majors Form Important Swing Points

The dollar index was sold during the overnight session, but as U.S. trade approached, the major pairs started losing ground gained earlier in the day. This move was widely expected because the uptrend of the last few days came on very light trading volumes, and more importantly, against the near and medium term trend reads. Looking ahead, the dollar index is expected to continue its uptrend, breaking free from its correlation with S&P futures and to some extent, with the commodity market. For the major pairs, the next important support area is to test lows set in pre-Christmas trading.

Dollar Index Technical View: TheLFB Member Charts

4 Hour Chart Flows: Long Price Points: 78.45 Looking for: A Short, reversal wave IV)

Momentum: The dollar index went into Long mode 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 flat equity trading days, and major pairs probing support whenever they can. A weekly close above 78.50 will be a signal that buyers are dominating, and until then we may see further tests of support.

Elliott Wave: The dollar index has broken through the lows of the past week after a small corrective wave b was finished. The final leg of a blue wave IV), shown as wave c, is in progress. and that may complete a Short, corrective move somewhere between the 76.60 and 77.00 zone.

Overall, we are looking for the low of a zig-zag pattern, shown as a black a-b-c move, of a larger blue wave IV), before an up-trend can continue.

The euro (Eur/Usd 1.4350) is currently forming an inverted star pattern, which usually signals the end of an uptrend. More importantly, this formation has formed as the euro failed to break above the 23.6% retracement of the downtrend started in December. This is a bearish sign, which indicates that this downtrend is likely to last.

The pound (Gbp/Usd 1.5890) had an attempt to break above the 200-day moving average earlier in the day, but as expected, the market turned around. Throughout the U.S. session, the pound plunged 140 pips, falling to a fresh 10-week low. On the daily chart, the pair is currently forming a bearish engulfing pattern.

Pound Technical View: TheLFB Member Charts

Daily chart trend: Mixed. Main price points: 1.5705, and 1.7041. Looking for: A complex wave IV

Over the past three months of price action, traders were unable to push the market into new yearly highs, and as such a wave IV correction may still be in progress.

With this being said, market is forming a more complex correction than first thought, and we have seen a (W)-(X)-(Y) pattern form, with wave (Y) in process. The current wave count structure signals for a move below 1.5705 support over the following weeks.

Aussie (Aud/Usd 0.8940) is currently the only major pair that is trading above the breakeven line against the U.S. dollar. However, the aussie is expected to catch the other major pairs during the upcoming sessions if the selling wave continues on the major currencies. For now, the aussie is trading near the 0.8950 swing point area. A bounce from this resistance would confirm the aussie’s negative momentum.

The cad (Usd/Cad 1.0435) had been the strongest pair in December, but now, the cad is showing some signs of weakness. In intra-day trade, the Usd/Cad broke below the 1.0420 area, which has been the main support area over the last two weeks of trading. However, this breakout was retraced completely, and now the cad is forming a bullish pin-bar on the daily chart.

The swissy (Usd/Chf 1.0365) had some weak attempts to break below the 1.0300 area, where the 20 and the 100-day moving averages meet, but the move was retraced. Similar to the cad, the swissy is forming a bullish pin-bar on the daily chart, which could indicate that the trend is shifting again to long.

The yen (Usd/Jpy 92.00) ignored most of the things that happened in the currency market in Tuesday trade, and moved on its own will. For now, the yen is heading towards the 92.50 area, where the market has formed two important swing areas over the last four months of trading. A break higher would be an important event for this pair.

Shares Close Lower On Light Momentum

Equity Futures: Dow +23.00. S&P +1.80. NASDAQ -0.50. Japan Nikkei +30.00. German Dax +16.00

U.S. Trade: The trading had been once again light in the U.S. cash session, a pattern that was repeated over the last few days of trading. It appears that unless something out of the ordinary happens the light trading ranges will continue until mid-January, when companies will start reporting Q4 earnings.

The current pattern of trading is very different from the one observed throughout the Christmas Holidays of 2008. Back then, institutional investors took advantage of the Holiday season, and moved the market wildly. However, in 2008, the fundamental climate was completely different, and most of the financial sector was close to bankruptcy. These days, the economy appears to be in a relatively good shape, with most investors and analysts having bullish forecasts, and happy with the current fair value on risk.

In Tuesday trade, the three major U.S. indexes opened near the break-even line. Technology shares dragged the NASDAQ index lower, while the Dow and the S&P indexes stayed in the green most of the day. However, at the closing bell, the three indexes were trading in the red. Over the last week of trading, the S&P futures have developed an intra-day upward channel, but right now, the futures market is struggling to break lower. Such a move is usually seen as bearish in near-term, but due to the light trading volumes seen in the market, these are very unreliable.

S&P Technical View: TheLFB Member Charts

4 Hour Chart Flows: Long Price Points: 1125, and 1135 Looking for: An ending diagonal (reversal pattern)

Momentum: The S&P futures market confirmed a Long momentum read on Nov 11th and built a solid near-term support base around 1095. The 1125 area will be a major resistance point to battle this week. The moves to test and hold support are impressive, and are backed with global equity markets that are also looking bullish.

Elliott Wave: S&P futures are looking bullish with prices that are trading above the early December highs. Our alternative wave count has now become our primary wave count.

We are looking for a complex wave 5) leg, as it seems that the market is forming a (W)-(X)-(Y) pattern in larger wave 5), with wave c of wave (Y) in progress at the moment. The target of this final bullish wave is shown at the 1125 region, followed by a second target at the 1135 zone, where a potential top may be hit.

Sector Moves: Most of the trading activity was concentrated in the basic materials and in the technology sectors. In particular, the technology shares had an important influence on the NASDAQ index, keeping it below the breakeven line for the entire day. In the technology sector, Apple fell 1.30%, Dell lost almost 2% and Windstream Corporation plunged 4.40%

To the upside, Sprint Nextel jumped 4.40%, while FedEx added 2.40%. Interestingly, there is no major news event around the two companies this Tuesday.

Upcoming Economic Moves: Clear

Crude oil was recently trading at$78.65 per barrel, higher by $0.10.

Gold was recently trading down by $9.70 to $1,098.20.

Treasuries found some buyers in Tuesday trade, but as it happened in the global markets, the trading had been light. The yield on the 10-years notes is 3.80%, 43 basis points more than the similar maturity German bunds.

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

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