The Dollar Remains Bid as Markets Await The Next Round of Data
Dollar Stops its One Day Slide
USDCHF:
The Swiss Franc continues to ride the 50 day Moving Average as it looks for direction. The 100 day MA is converging on the 200 day MA. If those two MA's cross it will signal further weakness for the CHF. When major moving averages cross there is usually a period of price consolidation as well as a retrace towards the averages. If price action fails to break across one of the major moving averages then the MA cross is likely to follow, with further price depreciation ahead.
NZDUSD:
The NZD is in a precarious position. It recently failed to pop above the 100 day Moving Average despite finding support at the 200 MA. However, the 50 day MA is about to cross below the 200 day MA, usually a signal of weakness ahead. If the cross happens, expect the NZD to test Support near .68.
USDJPY:
After crossing above the 200 day Moving Average last week the USD has managed to hold onto its gains. Price bounced off the 50% Fibonacci Retrace level generated from the 2009 high and low. The next point of Resistance sits at 93.50. A break above the Fibonacci 50% level as well as above the near term Resistance level and the JPY may be headed north to test 95.50.
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Dollar Holds on Firm After Positive Job Data
GOLD:
Gold has been trading with relatively low momentum recently. It has had a hard time staying above the 50 day and 100 day moving averages. A close above recent Resistance at 1,140, which represents the Head of the Head & Shoulders chart pattern we discussed 2 weeks ago, would give Gold a resurgence of momentum. However, if Gold fails to stay above the 100 day MA then we look for it to close below the 50 day MA, currently below 1,110.
OIL:
Oil has been trading in a range since October 2009. The high of the range had been 85 while the low was 71.95. The high of the range represents Resistance while the low of the range represents support. Oil has managed to keep above its 50 day Moving Average since February. More importantly Oil broke though Resistance and hit a high of 86.90. The 50 MA has been trading below the 100 MA, usually a pattern associated with falling prices. However, the moving averages are upwards sloping which indicates prices are moving up but at a slower speed. Now that price has accelerated, the 50 day MA is set to cross back above the 100 day MA which may mean even higher Oil prices ahead. Remember that moving averages are lagging indicators, but are still very telling as averages are no less important.
USDCAD:
The Canadian Dollar is making another attempt to overtake the U.S Dollar. The CAD, as we have mentioned several times is a commodity currency whose price is directly influenced by the price of Oil. The Canadian economy is a large exporter of Oil. If you, as a trader think in terms of correlations, the price action on these 2 products makes perfect sense. We have also mentioned that parity, or a Dollar for Dollar, acts as a point of Resistance for any pair. Therefore a close below parity is psychologically important as it states the market is ready to support this price level. The opposite is also true as an inability to close above parity indicates the market is not ready to support the current price level. For those that trade Support and Resistance this is a seemingly optimal time to get in as the CAD is floating above $1. We have drawn trend line Support and Resistance, expect that if the CAD can not close below parity that it may bounce between trend line Resistance and $1 until the market moves forward.
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Commodity Currencies Continue to push higher against the Greenback
EURUSD:
There are many ways to trade and an endless amount of technicals a trader can look at. The key is to keep it simple and keep it consistent. We focus a lot of attention on Moving Averages as a means for measuring price action. As far as chart patterns go we always look for a Step pattern. The Step pattern is simple indicator and easy to identify, what's more, and unlike other charting tools, you do not need to make any adjustment to it based on chart Tenor. On the Chart below we have the main MA's, the 50, 100 and 200. The MA's indicate that the EUR is definitely in a bearish environment. Using the step pattern on the chart it would seem that if the EUR falls below near term Support at 1.3315 it will likely continue to drop as it would make a new lower low in the current Step pattern.
EURJPY:
On occasion it is good practice to see how a currency you are trading is behaving versus other crosses. In the example we take the EUR versus JPY. Since the JPY has been the weakest currency against the Dollar over the last several weeks it acts as a good barometer to analyze the EUR's overall strength. The EUR has been the more dominant of the two, however, it only climbed as high as the 100 day MA before retracing it's gains. We also see a clean inverse Head & Shoulders pattern complete itself just a few candles ago. A close back below the neckline would suggest further weakness may be ahead for the EUR.
USDCHF:
After reaching a high of 1.09 the CHF retraced its losses and hit a period of consolidation. The CHF nearly broke the 200 day MA, but could not close below that level. The CHF has since closed back above the 50 day MA. More troubling for the CHF is that the 100 MA is about the break above the 200 day MA. That leaves the 50, 100 and 200 MA's in numeric order, which usually suggest prices will climb higher. A close above near term Support at 1.0720 may cause the CHF to depreciate further as the Moving Averages look to fall into order.
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Patterns & Correlations
USDCAD:
The CAD had explosive price action Tuesday, gaining nearly 1.7%. Look at the 1 hour chart below. We use a line chart in place of candles as a clear pattern sticks out. We also over-layed in red an 8 moving average to smooth price action out further. What we see develop is a Head & Shoulders pattern. Even more remarkable is the equal velocity with which price rose and fell. The CAD Resistance sits between .9960 and parity and once again looks to close within that range.
OIL:
As we have mentioned numerous times, the CAD and Oil are highly positively correlated. The question is frequently asked which movement leads the other or do they share that role. More often than not they both serve as a price leader depending on what is pushing the markets higher or lower. In the chart below Oil fell from its recent high above $86 a barrel just as the CAD failed to sustain parity with the USD. Look at the 1 day jump in Oil prices a near $2.20 intra-day gain or a 2.0% (+/-) gain. Many traders use correlations to help formulate entries and exits. Very few correlations are 100% correlated and if they were it would remove the possibility for generating PNL as prices on the two assets would move in a near perfect parallel form.
USDJPY:
Although there are many substantive reason to own the JPY, we need to first examine the JPY's role within currency markets. The JPY is thought of as a funding or financing currency due to the historically low interest rate in Japan. This is also beneficial for Japanese exports which is a major component of their GDP. As such, when risk aversion is in control traders will limit their financing cost and exposure which causes the JPY to appreciate. When traders jump back into their positions they seek to continue their positional financing and therefore sell the JPY in favor of higher yielding currencies. This causes the JPY to depreciate. Look at the chart below and you can see Friday and part of Monday's market risk aversion. On Monday the DJIA closes higher signaling risk aversion has subsided (vertical line) and the JPY looses ground, nearly retracing its gains completely. The correlation between risk and the JPY is very high and obviously effect the actual price at which the JPY trades.
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Support & Resistance Levels
EURUSD:
Although there are always intra-day plays its a great idea especially after major market moves to reevaluate Support and Resistance (S&R). Major Resistance still sits at 1.38 while Support is holding just south of 1.33. The EUR is in the process of building a upwards sloping S&R trend line. If the EUR can maintain this trend line it will stand its best chance of breaking Resistance. A break above the 50 day MA would strengthen the EUR while an inability to take out the 50 SMA suggests further weakness may be ahead for the EUR.
GBPUSD:
The GBP has been trading above the top of its range for over a week. Prior Resistance was holding at 1.53 while Support was at 1.4950. Similar to the EUR above, the GBP is starting to trend nicely. Next major Resistance sits just north of 1.56 coinciding with a Fibonacci Retrace level and the 100 day MA. The GBP will most likely trade between the 50 SMA and the 100 SMA until market forces break one of the MA's.
AUDUSD:
The AUD has been trending nicely since early February. Major Resistance going back to 2009 sits between .9320 and .9370 as indicated by the black horizontal lines on the chart below. With trend line angling into a triangle price will be under pressure to break through or retrace. The 50 SMA has crossed back above the 100 SMA which provides added technical strength for the AUD. In addition, with the CAD already trading below parity and if you believe in drafting then the AUD may be primed for a breakout. Otherwise a close below the ever encroaching 50 day SMA would trigger a new bearish AUD bias.
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The Relative Strength Index (RSI) and Moving Averages
GBPUSD:
We spoke about the Pound in our analysis yesterday. Current Spot is holding below the 50 day moving average. At 1.5173, the Pound is clearly back in range bound territory versus the Greenback. To measure the strength of the move we have added the Relative Strength Index (RSI) to the bottom portion of the chart. A reading below 30 indicates oversold while a reading above 70 indicates overbought. However before blindly creating an entry the RSI must be crossing back above 30 or below 70. A Reading below 45 with a downward sloping RSI indicates a strengthening down trend, and the opposite when the RSI up upwards sloping above 55. The RSI is currently sitting at 44 so this trend may be in its early stages.
AUDUSD:
The AUD continues to hold firm in light of recent Dollar strength. Tuesday's sell off brought the AUD to the 50 MA and Wednesday's price action bounced off that level of Support. Notice the RSI is holding near 50, indicating that no prevailing trend is in place. The AUD has not traded below the 50 day moving average since mid February, so a breach would be very significant. Keep an eye on the RSI if the AUD retests Support.
NZDUSD:
Commodity currencies in general are holding up fairly well at the rest of G-10 weakens versus the Greenback. This pair had been trading such a tight range as the major MA have been converging on each other. Tuesday's price action was taken all the way down to the 100 MA, while Wednesday's price action bounced strongly off that level of Support. The RSI at 59 indicates that the prevailing trend has strength to continue upwards. However, keep an eye on the 200 MA as a 200 MA trading above a 100 MA is typical of a falling price environment. If that cross occurs sentiment may weaken causing the NZD to move from strength to neutral. If the RSI starts to reverse it may signal a shift in bias.
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Support and Resistance (S&R)
EURUSD:
The EUR has been under pressure lately, but is bouncing off lows after touching an intra day low just north of 1.31. The 50 day moving average will act as strong Resistance for the EUR. However, a close above the 50 day MA coupled with a close above the 23.6% Fibonacci Retrace at 1.36 may have the EUR challenging more meaningful Resistance at 1.38. The prevailing trend line is still downwards sloping and a drop back below near term support at 1.3280 may have the EUR once again retesting recent lows.
GBPUSD:
The British Pound was trying to rally until sovereign default risk sky rocketed. The GBP has since found Support at the 50 day Moving Average. Additionally, the GBP is trying to keep above the prior range between 1.4975 and 1.5310. The most recent but short lived range holds between 1.5310 and 1.55. The 100 day moving average is not far behind at 1.56. Using a Fibonacci Retrace from the 2009 high to the 2010 low also places the 23.6% Retrace at the 1.5310/5 S&R handle. A close below the 50 MA would signal further GBP weakness. A close above Resistance and the 23.6% Fibonacci level and the Pound may look to retest 1.55 again.
USDCAD:
After attempting to blow beyond Dollar parity for much of the last 6 weeks the CAD is finally looking a little weak. It is currently sitting at near term CAD Support which coincides with the 50 day moving average. When 2 significant points collide it usually triggers sizable price action on a break out (should one occur). A close above Support and the 50 day MA will signal possible further CAD weakness ahead. While a bounce off these levels would suggest the CAD will continue to trade this narrow range between 1.0167 and .9980. A close below .9950 and the CAD will have regained momentum.
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Moving Averages After Major Price Action
AUDUSD:
Commodities, and in particular Oil, has sold off. The Aussie, takings its place amongst the commodity linked currencies has also dropped drastically during this global market sell off. It went from finding near term Support above the 50 day Moving Average (in green) to crashing straight through major Support at the 200 day moving average. The next major level of AUD Support sits at .8650.
USDCAD:
The Canadian Dollar which only a week ago was flirting with Dollar parity struck 1.07 before retracing half its loss. Price action last week forced the CAD to close above the 50 day and 100 day Moving Average. However, CAD resilience hung tough as the CAD refused to break major Support with a close above the 200 day MA. Friday, the CAD actually bounced off the 200 MA and touched the 100 MA before retracing nearly half's its gain.
GOLD:
This has been a great Bull run for the precious metal. It highlights the moving average cross of the 50 MA back over the 100 MA. Gold has just accelerated beyond the 2 prior highs. The next major point of Resistance will be Gold's all time closing high near 1,218.
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The Velocity of Price
Every technician has their take on not only how to measure the velocity of price, but whether longs and shorts move at the same speed when they rise and fall. We are of the school of thought that believes shorts will invariable fall faster than longs. Look at the macro chart perspectives below. One way to look at price velocity is through the slope of the trend line when holding all variables equal.
OIL:
The bottom has fallen out here for Oil. It took Oil 4 sessions to crack the 200 day MA. You can see there was a period of consolidation around the 200 MA before the second sell off began. Oil now sits at the handle that started off the latest bull run. A close below that handle would signal further weakness. Using a Fibonacci Retrace from the 2008 low to the most recent high we see that Oil just closed below the 23.6% Fibonacci Retrace, near 74. The next target sits just north of 66. A very precipitous fall when you consider how long it took to reach the recent high.
EURUSD:
The EUR is treading on some dangerous ground. The most recent major low reached by the EUR during the initial onset of financial crisis back in 2008 was just north of a 1.23 handle. The EUR now sits 50 pips away from that level. Every high and low is significant as it represents the collective markets value for a particular currency. Said another way, why didn't the EUR hit 1.22 instead of 1.23? 1.23 was the fair market value buyers were willing to purchase the EUR. From that point forward the ratio of EUR buyers to Sellers increased. If this level up Support holds we may see buyers slowly come in and begin to bid up the EUR, however, if there continues to be more Sellers than buyers in the market place then a close below this level may trigger then next round of EUR bears to come out of hibernation, thereby push prices lower at an accelerated speed.
USDCHF:
Although the CHF traded below parity to end 2009 it has given up tremendous ground. The Moving Averages, 50, 100, and 200 are in an order consistent with depreciating CHF price levels. Unfortunately for the Swiss Franc, Friday's price action closed above the 61.8% Fibonacci Retrace level generated from the 2009 high and low. The next level Fibonacci targets is just north of 1.15. The CHF and Gold typically have a positively correlated price relationship, but in the last 2 weeks it has not held even as Gold has reached new highs. As many analysts feel Gold may be overbought this will prove even more difficult on the CHF as it is unlikely to appreciate on a correction in the price of Gold.
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EURUSD:
The EUR has been trading a range between the 2 Fibonacci levels of 61.8% and 50%, generated from 2009's high and low. From a straight Support and Resistance perspective we would put Resistance at 1.38 and Support at 1.3450. As the EUR closes in on Support we will take a closer look at price action possibilities. A close below 1.35 would be significant although we would not call out the EUR bears until we see a close below the 61.8% level, which may cause the EUR to dip below 1.30.
NZDUSD:
The NZD has been using the 100 day moving average and the 200 day moving average as Resistance and Support respectively. With the recent bounce off the 100 day MA and the 200 day MA sitting right at .7000, the NZD is due for some significant price action. Using the 2009 highs and lows of the year, the Fibonacci Retrace level of 23.6% sits at .6994. It would seem that a close below the 200 day MA would have the Kiwi testing a .6800 handle. Should the Kiwi fall through that level .6600 could be the next potential target.
USDCHF:
The CHF has been trying to make its move against USD, but has run into consolidation between 1.0550 and 1.0650. Although the CHF did close below the 50 day MA, it did continue to fall until it struck trend line Resistance. The next round of price action will be particularly important. If price falls further it will have breached trend line Resistance and will then attempt to take out the 200 day MA just below 1.05. However, if we see a bounce off trend line Resistance it will turn price action into the Step pattern, whereby there are new higher high and higher lows. In which case we would expect the NZD to break above the prior high
GOLD:
Gold Prices may be headed lower. Looking at the daily Gold Chart below, we see Gold has been having a difficult time breaking free of the 100 and 50 day MA's. What we do have on the chart is a head and shoulders pattern. A break below the neckline and Gold may test the 200 day MA near mid term Support at 1,060.
bforex is a world leading foreign exchange broker established on an entrepreneurial vision to provide FX traders with simple and intuitive interaction with the Forex market. We are highly valued by our customers due to our expertise in providing traders with unrivalled execution speed, 24 hour assistance with professional analysts, tight spreads, superior exchange rates, commission free trading and an unrivalled trading platform.