FOREX TRADING

This week, the greenback started with a bang. However after the FOMC announcement, which puts a lid on interest hike prospects, dimmed the USD gains. By Friday, the USD has lost most of the gains from earlier in the week. The yen held its gains better. Commodity currencies such as CAD and AUD also started the week strong, but reversed these gains into losses by Friday. Let’s take a look.

EUR/USD Unconfirmed Bearish Engulfing

Daily and 1H: The daily chart shows this week’s move dominated by the first day, which created an engulfing pattern. However, the rest of the week has laboriously pared some of the initial loses in the EUR/USD.

The projection to 1.17 is still valid, with two negative reversals with the RSI in the Daily chart suggesting this target. (This is when the RSI makes a higher high from bottoming, but price action does not).

Basically there was no bearish confirmation after the signal offered at the start of the week

Looking at the 1H chart, we see the latest twist and turns develop a downswing and then a gartley retracement pattern yesterday. This suggests a swing towards 1.2150 sometime in the beginning of the next week.

We can see in the daily, that the 1.2150 area is an importan powerline, and may be tested as support when the decline reaches it.

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After the market put on some risk last week, it spent this week fiddling. USD and JPY crosses as well as commodity related and growth related currencies were all tested this week. The Euro led this week in gains against the greenback. The Japanese yen held its ground after 2 weeks of decline. Timing is becoming ripe for a continuation of risk aversion. The question is whether this week’s actions indicate reversal, or if there is yet another risk supported attempt.

EUR/USD Correction Rally At Resistance Zone

Daily and 4H: This week, the market did not respect continued putting back on risk, pushing the Euro higher against the dollar and other currencies. As I mentioned earlier this week, the rally could reach 1.24, and it has.

The daily chart shows a significant negative reversal, unless the market finds more momentum to push through 1.26. The swing projection targets the 1.17 area.

The 4H chart shows that the rally is still intact, with a rising support.

The RSI is bullish but is flattening. Price action on Friday provided a strong bearish candle, but again, this is not much of a clue. Breaking below the rising trendline should be a major clue to bearish continuation.

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The risk sentiments in the global markets stabilized this week after sliding last week. We saw the Japanese Yen and the Greenback lose some of its flight to safety appeal. Friday saw some of this fizzle but both currencies were still pressured within this week’s context. The GBP however was hit on Friday, as it posted poor manufacturing data. Let’s take a look at what we can expect next week.

EUR/USD Still Pointing South to 1.17

Daily and 4H: The continued slid last Friday below the 1.2150 support. This week, the EUR/USD pair crawled back up to retest the 1.2150 level.

The 4H time-frame shows new negative reversals forming, suggesting this market is still very bearish and that the 1.17 projection is still valid.

The daily chart shows we may be in a third wave, so a sharp decline may be coming next week.

However, I am not so convinced the internals of this week’s rally correction is over. So monitor the rising support in the 4H and 1H charts. If that breaks, then it is more likely the market is ready to head lower to 1.17.

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Last week, there was a slide in commodity related currencies, and risk correlated pairs. The Japanese yen and US Dollar were beneficiaries of this environment. This week, we saw this dynamic reverse a bit. Still, this may still be just consolidation setting up for continuation. On the other hand, it is always prudent to entertain the reversal scenario as well. Let’s juggle with these two scenarios entering into the next week.

EUR/USD Supported at 1.2150

Daily and 4H: The 1.2440 (61.8% retracement) level was tested, and resistance held up. The 1.2150 area is the current support, and was also respected.

If the market breaks below 1.2150, a swing towards 1.17 is suggested.

A break above 1.2440 suggests a continuing consolidation that may retest this week’s high at 1.26.

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Weekly Technical Update: Rotation Out of Risk and Commodity

Last week, I mentioned we should be getting ready for a rotation out of risk into commodity. This week, we saw commodity and commodity related currencies fall sharply. The Yen was a strong performer this week in the risk adverse environment. The Euro however, after exhausting declines, have finally bottomed for now near 1.22, and may be in an intermediate correction. By rotating out of equities and commodities, investors may be at the moment rotating into bonds, and treasuries.

EUR/USD Finds Short-term Bottom

Daily and Weekly: From the daily time-frame, we can see a bigger possible rally. I know just yesterday, I wrote “Bottom-pickers Go Away!” Well, signs are now finally showing a possible bottom. But I would still carry the same precaution and limit my expectation of a rally attempt.

The daily shows the 1.31 area at the 61.8% retracement, also coincident with where the SMA 50 should be, as well as a previous minor support turned into resistance. This is the furthest I would expect the rally to reach before another attempt at breaking the 1.24 support zone.

This means the market may have a tough time getting past here. But even before 1.31, 1.2750 is an important area to break above. Not shown here, but it is 61.8% retracement of the down swing from the start of May. The market may actually turn back down at the 1.2750 level.

A possible wave count is given, but is not resolved. From this scenario, the correction can actually reach 1.35. However, I am skeptical of that since so much resistance is at 1.31. (more…)

This week was an important one to assess how the market is reacting to last week’s shaker. The fundamental front is dominated by EU woes but the market is also starting to realize greater structural implications globally. The discussion now is whether this current crisis will derail the recovery in Europe and the US.

Intermarket Analysis

The US is plagued by realization of structural faults too as the market now all knows that the major US banks did not have one losing day trading in the Q1 2010. This eerily reminds me of Madoff’s equity curve, which was incredibly and improbably consistent. That type of consistency should call for attention, yet the banks slipped under the radar until Goldman Sachs was brought under criminal investigation.

The worrying sign here is that there appears to be no real improvement. The structure of our finance system has clearly remained unchanged, and possibly even encouraged by bailouts. The market’s confidence in the Euro and Pound has been dropping, which has made the Greenback pretty. However, I suspect that we are going to continue a commodities rotation, evident by the persistent surge in oil and gold. If structural changes are to come, the market may even accelerate this rotation process.

EUR/USD

4H: Looking at a short-term time-frame, we see that the Euro continues to be pressured. The market formed a negative RSI reversal this week suggesting a swing projection to 1.23, 1.2350. The RSI is in the oversold territory but reflects healthy bearish momentum.

Monthly: The monthly is just a reminder of the bearish scenario. With a break below 1.2350, 1.23, we may see a drop to 1.15, 1.14.

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Last week, the market remained in consolidation, but sentiments were building. As the EU kicked around the can a little longer regarding the Greece debt situation, the equities market grew more and more impatient, with their trigger fingers hovering above the liquidate button. The risk averse moves started show on Wednesday, 5/5. But it was on Thursday that the US equities market got a panic slide, but a close that pared most of this move. By Friday, the markets is either settling and getting a grip, or it is only a dead cat bounce. This week, I will be incorporating lower time-frames to get closer details of this week’s market moves. Some will also have longer time-frames to see the bigger picture.

Tracking EUR/USD and USD/JPY

Monthly: The monthly chart shows a possible decline all the way to 114 area. Currently there is support at 1.24 area, then 1.19 area before 114 can be reached. These are rough estimates and we may need to adjust with new data from intra-day charts as the market approaches these levels.

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The Euro continues to be pressured, but the greenback is giving back some of its recent strength as well. On the other hand the Japanese currency stalled its slide, though there has not been any significant show of strength. These developments may thus be corrective so let’s continue to stalk them for a return of dollar strength, and/or Japanese yen weakness. Meanwhile, commodity currencies such as the AUD and the CAD continue to firm up along with gold and oil.

EUR/USD: 1.3050 Target Shelved as Market Consolidates

Daily and 4H: The EUR/USD has been projected to slide to the1.3050 area. The week began in the direction of this outlook, but failed to break below the previous low at 1.3280.

A rally is materializing as we can see in the 4H time-frame. The daily time-frame shows a reversal combination to end the week as well.

This all suggests some furthering of the near-term bullish attempt.

Remember however that the market is in an established bearish mode, so stalk this current rally as a correction.

The 4H chart shows a swing projection can bring the pair to 1.36. The RSI in this scenario would reflect sideways instead of bearish overall momentum.

The daily RSI still shows bearish momentum and may still do so after a rally to 1.36. (The range has been staying below 60).

So stalk the current rally towards 1.36 and see if topping action and a bearish attempt can follow. If so, look for the market to essentially range between 1.36 and 1.33 with a bearish bias.

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