The dollar index swing up and down around the breakeven line throughout the overnight session. The trading volumes were strong during the European hours, but the market moved chaotically in very close ranges. This is in reaction to the fundamental part of the market being very mixed mixed: on one side, U.S. yields are rising, which is dollar bearish, but on the other, the U.S. economy appears to be emerging faster than the Euro-area from recession, which is dollar bullish. Looking ahead, the dollar bulls and bears will continue to fight during the first part of the U.S. session, with the U.S. and Canadian trade balance numbers at 08:30 EST probably setting the direction of trading.

Dollar Index Technical View: TheLFB Member Charts

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

Momentum: The dollar index went into Long mode in early December and held that trend up until January’s Non-farm Payroll release. The read turned short this week, and a weekly chart close below 76.50 will be a signal that sellers are dominating.

Elliott Wave: The dollar index has traded lower since the end of the past week, towards the 77.00 region. As such, we are looking for a complex corrective paten, shown in a blue wave IV) position.

A corrective pattern seems to be a double zig-zag structure with a wave c of a wave (Y) in process that may find its lows somewhere the around 76.70 or 76.50 region, before an up-trend can continue.

From an Elliott wave perspective, bullish expectations remains valid so long as the market trades above the critical 75.58 support zone, which is the top area of a blue wave I) that may be forming.

The euro (Eur/Usd 1.4485) traded in volatile fashion during the European and the Asian sessions, in a range of only 55 pips. On the daily chart, the euro is trying to break above the 1.4500 area, where it hit the 23.6% retracement of the uptrend that started in March 09 and lasted until December 09. A break above this level will be interpreted as bullish

Euro Technical View: TheLFB Member Charts

4 Hour Chart Flows: Mixed Price Points: 1.4570, and 1.4670 Looking for: A Long, wave IV reversal

Momentum: The euro trend went Short on 3rd December, and has meandered lower since then. It does look as though a long test of resistance is overdue.

Elliott Wave: Eur/Usd has shown some small weakness recently after moving from the 1.4550 Monday top, to the 1.4450 suport zone, which was probably just a correction of the current up-trend shown in our red wave IV.

Overall, we are looking for a more complex correction in our wave IV reversal with a double zig-zag pattern, separated by a wave (x). Currently, the market is trading in the wave C) leg of wave (Y), which may show us an extended structure towards the 1.4570 and 1.4670 zones.

The pound (Gbp/Usd 1.6135) and the Japanese yen are the only currencies that strengthened against the dollar overnight. The pound was probably helped by the 200-day moving average, located in the 1.6100 area, which housed an important number of institutional orders. The Gbp/Usd advanced approximately 60 pips since the Tuesday’s session open, but the pound recently hit a resistance trend-line that held the market for a month. A break higher would lead into the 1.6300 zone.

TheLFB Trade Plan of the Day is one of the six that are available to members on the major pairs each day, plus four Jpy based cross pairs, as well as S&P futures, oil, gold, and the dollar index.

The aussie (Aud/Usd 0.9225) was the weakest pair during the overnight session, and especially throughout the European trading hours, when it dropped 60 pips in just a few minutes. This move was somehow expected, since the aussie appears to be in an overbought state on the daily chart. Today’s sell-off is only the second decline over the last 13-day of trading. However, as soon as it finds support, the aussie will very likely continue resume its uptrend; this does not yet look like a swing change.

The cad (Usd/Cad 1.0345) had been moving higher since the prior U.S. session, when poor macroeconomic data coming from the Canadian economy hit the newswires, and the Prime Minister spoke of the impact of C$ strength on the overall economy. In the near-tem, the cad could re-test the 1.0420 area, which has been an important swing point over the last few months of trading. A bounce lower from the 1.0420 area would signal that the cad is ready to resume its downtrend.

The swissy (Usd/Chf 1.0180) moved very little overnight, unaffected by the price action seen in the other major pairs. On the daily chart, the swissy is trading just below the 50-day moving average, which will probably provide some resistance if buyers will show up again.

The yen (Usd/Jpy 91.70) is heading lower for a third consecutive day, the longest declining streak in a month. Over this period, the yen has lost 180 pips, after it bounced off the 200-day moving average, in the 93.50 area. To the downside, the next important support area is in the 91.30 zone, which is near the 20-day moving average.

European Shares Drop After Alcoa’s Results

Equity Futures: Dow -32.00. S&P -3.80. NASDAQ -5.50. Japanese Nikkei +29.00. German DAX -6.00.

European Trade: European shares posted some small declines around the opening bell, but overall, the selling was contained. The U.S. futures markets followed a similar pattern throughout the overnight session, losing points in a test of 1135 support.

The selling started after Alcoa, the first major company that reported its Q4 results, disappointed investors. Alcoa’s profit was $0.01 per share, but analysts had expected a $0.06 read. Looking ahead, the market will look for further guidance on the earnings season momentum. As such, investors will focus extensively upon the next few major companies waiting to report.

In European trade, Germany’s DAX has lost 0.45%, France’s CAC 40 fell 0.40%, but the selling was more pronounced among the Nordic markets, like Norway’s OBX, which lost 1.10%. Earlier in the day, Asian markets closed the trading session mixed, with the Nikkei closing up 0.75%, but the S&P/ASX index fell approximately 1.00%.

S&P Technical View: TheLFB Member Charts

4 Hour Chart Flows: Long Price Points: 1127 Looking for: A Long, wave iii)

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 have been bullish since the NFP release, when Usd was sold off. We are looking for a new wave count, with an impulse structure towards the 1150-1170 resistance area.

Currently, the blue wave iii) is in progress, and may hit the highs somewhere around the 1150 zone, before a lower wave iv) and higher wave v) can get underway. The S&P will remains bullish so long as the market trades above the 1127, wave i) top, where the blue wave iv) must not touch if this wave count is correct.

Sector Moves: Alcoa was among the companies that moved the most overnight. Alcoa plunged 6% in pre-market trading, following the weaker than expected Q4 results. This created broad weakness among the basic materials sector, with BASF, Vedanta, Fresnillo and Petrofac falling between 2.50% and 4%.

Companies from the travel & leisure sector also were among the top decliners in European trade after the Japanese airline JAL plunged 45%, affected by a possible bankruptcy. Air France-KLM lost 2.4%, Lufthansa fell 2.3% and the British Airways declined 1.60%.

The beer maker Heineken, which previously announced that it will buy the Femsa’ beer unit, was upgraded to “buy” from “hold” by RBS. Heineken shares jumped 1% in intra-day trade.

Upcoming Economic Moves:
08:30 EST Cad Trade Bal. 0.8B, Prev. -0.4B
08:30 EST Usd Trade Bal. -34.9B, Prev.-32.9B

Crude oil was recently trading at $81.90 per barrel, lower by $0.60

Gold was recently trading down by $2.10 to $1149.30.

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

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