Market Update: Traders Stuck in Doubt

Coming Up Today

• UK Revised GDP
• US Durable Goods

After the markets convinced themselves on Wednesday afternoon that the FOMC Minutes indicated a pending easing move from the FED and rallied, doubts have begun to emerge. Triggering the second thoughts was an appearance by St. Louis Fed President James Bullard where he stated “that U.S. data has been somewhat better since the July 31-August 1 Fed meeting.” Traders reacted by selling US equities yesterday, which triggered an overall move lower in riskier currencies. Of note, the Aussie continues to see selling pressure after Australian miners have been reporting gloomy forecasts. The news has raised expectations that the RBA will be forced to cut interest rates to compensate for the potential drop in economic growth from the country’s large mining sector.

Forex Today & The Week Ahead

While not much news is expected today other than the US’s New Homes Sales the week is slated to possibly be pretty exciting for Forex traders. Firstly, following today’s US housing figures, we will see further housing numbers from the US along with Durable Goods orders on Wednesday.  The US data will be critical to whether the USD will extend its rally following last week’s FOMC Meeting.

The big event for the week will be the EU Summit which starts on Thursday.  EU leaders will be discussing the future of bailouts, Eurobonds, and collective responsibility.  The Euro is expected to see volatility before and during the summit as Forex traders will be reacting to  news and rumors of the potential EU actions.

USDCAD & USDJPY Two Breakout Candidates

This morning we have two potential breakout trades taking form.  The USDJPY is once again below 79.00 and has fallen back towards yesterday’s lows. In a similar vein, the USDCAD has been trendling lower but has been unable to break below 1.0190.  Both of these pairs could see a downside breakout if their support levels are broken.

USDJPY: The pair jumped higher to open the week following the Greek election triggered risk rally.  However, with fear returning to the EU, the pair has been unable to above the 79.00 figure.  Last week, we saw the USDJPY also find support above 79.00 before finally breaking below that level and hitting a low of 78.60.  As such, if the current short term support at 78.82 fails to hold, it could trigger a downside breakout to last week’s lows.  Beyond that level, momentum could take it to the low 78.00’s.

USDCAD: Unlike the NZD & AUD which have been breaking out against the USD, the CAD’s gains have been limited.  Currently, the pair is finding support just below the 1.0200 figure, even as it has been trending lower.  The current trading conditions have created a triangle trading pattern which could ultimately lead to a breakout lower if 1.0200 support fails (see chart).  Its worth watching price of Gold which have been range bound over the last few days, but are currently trading at 1630, their upper range.  If Gold finds momentum, it could lead to demand to in the CAD and trigger a move lower in the USDCAD.

USDJPY & EURUSD Post NFP Analysis

Starting the Forex week, Forex traders should keep their eyes on the Highs/Lows following last Friday’s Non Farm Payrolls report.  The NFP figure was much worse than expected and triggered an across the board exit from the USD.  As such, if we see Forex pairs trading beyond the spikes of Friday, it could trigger further momentum, as will show that the exodus from the USD continues.  On the other hand, if Forex pairs from Friday’s moves it will indicate that risk and fear continue to be embedded in the Forex market, and until some encouraging data or solution emerges from the EU, traders will favor risk selling.

EURUSD 

USDJPY Analysis: Fade Moves Until Friday

 Spain’s banking demise has triggered a week long risk off move in the Forex markets. As would be expected, the Japanese Yen has been gaining overall on its safe haven status. While the moves in Yen crosses such as the EURJPY and GBPJPY may continue to have follow-through downward momentum, the USDJPY could be a bounce candidate. As can be seen in the chart below, the USDJPY is dropping out of its two week long triangle formation. While such moves can often trigger a sustained breakout move in the direction that a Forex pair trades out of the triangle, fundamental news could hamper the technical moves in the USDJPY.

GBPUSD Analysis: CPI & Fibonaccis

UKCPI Figures are slated to be released today with the Bank of England than holding its Inflation Report shortly afterwards.  With the GBPUSD falling below 1.6000 support to a low of 1.5725 last week we decided to take a closer look on potential moves the pair could make following the figures.

Possible EURGBP Short Trade

The EURGBP is back near Monday's lows.  With the GBPUSD holding steadily above 1.6100 and the EURUSD falling back below 1.3000 this morning, the EURGBP looks set to keep moving lower.  A possible play would be to short the EURGBP at current levels of 0.8040, with a target of 0.8000.  Also, rather than entering a standard stop loss, this short can be exited if the EURUSD trades back above 1.3000 and reestablishes support.  

USDJPY Is the Next Move to 79.00?

I keep staring at this USDJPY chart. Demand is there at 79.60, but.... Gold had support at 1630; broken yesterday.  EURUSD at 1.3000, broken Monday. Is the USDJPY the next one to drop? Risk/reward wise probably not the best idea to short now on anticipation of a move lower (this pair can be very stubborn), but the technicals are showing selling pressure becoming more aggressive.  Therefore, could be a downside breakout candidate if it trades below 79.55. 

EURUSD, GBPUSD, USDJPY Analysis

EURUSD: Bounced off its lows yesterday as buyers stepped in bid the EURUSD back above 1.3000.  However, the pair failed to close its gap from yesterday’s close.  This sets ups resistance going forward this week at 1.3065, followed by 1.3085.  With the lack of follow through buying to close the gap, it could trigger profit taking from yesterday’s short term buyers.  Forex traders should keep their eyes on the 1.3000 level to see if it continues to be supported.

Forex Techncial Analysis

EURUSD: Opened the week below 1.3000 on weekend election results in the EU.  Momentum for the rest of the week could be contingent on where we close today; above or below 1.3000.  As the chart below shows, the pair has been in a 4 month trading range between 1.3000 and 1.3500.  Therefore, even with the current Euro weakness, the pair may need to see much more selling pressure to bring the EURUSD out of its range.  

Forex Technical Analysis

EURUSD: Fell apart yesterday but has since found rising support above 1.3100 (see chart).  Looking ahead, its all about “will it or won’t it” be able to cross above its current 1.3170 resistance.  A break above could trigger momentum to the 1.3200 figure. However, after failing to trade above yesterday’s bounce high this morning, the pair is vulnerable to additional selling pressure if its support breaks. Important: Keep an eye out for today’s ECB meeting as it could be a catalyst to a breakout higher or lower.

EURUSD Technical Analysis

The Euro is extremely weak against the US Dollar today. The pair broke 2 daily lows around 1.3205 and a rising trend line on the 4 hour chart. The brake is confirmed by the indicators. Daily Stochastic show a clear cross down and 4H RSI crossed the 50 level. Current support is around 1.3155 (21 days MA). This clear brake could open the door to a move all the way down to 1.30 support area. If retested again, 1.32 level can be an aggressive entry point to a medium term down move. Protective SL should be placed above the last high around 1.3280. Note that tomorrow ECB will announce his rate decision, and after the surprise from Australian Central Bank, anything can happen.

NZDUSD Analysis

The kiwi is still trading in a range among 0.81 - 0.8285. Watch for a break of this channel that couldlead to a 200 pips move. Major economic news for the NZD/USD this week will be unemployment rate and of course NFP on Friday. Each one of the news mentioned has the potential to trigger a break.

Monday Forex Chart Patterns

Interesting Chart Patterns that are developing as we start the new week

GBPUSD: Support Keeps Rising.  Technical indicators suggest that the GBPUSD should be bought on the dips with stop losses just below its previous support levels.