The USD/CAD continued to respect the parity support area on Wednesday, as not only the demand for “riskier” currencies fell, but the demand for oil did as well. This was a double-whammy for the Canadian currency, and it showed in this market. The resulting candle is a hammer, and it looks like the market is ready to jump back up on any signs of bad news. If the oil markets move to the downside from here, we expect this up move to continue. Watch oil for the bias, and then trade the Canadian dollar accordingly.
The NZD/USD pair rose to the all-important 0.8000 number and promptly fell. The 0.8000 level is in our opinion a massive resistance area, and will have to be overtaken in order to get long the Kiwi for any real length of time. The fall was quite rapid, and the snap back does go in line with the overall trend, which is also down. This gets us selling rallies, or a break of the Wednesday lows.
The GBP/USD pair rose quite a bit during the first part of the Wednesday session, only to pull back in the later hours of the session. The 1.57 level held as support, and this is bullish for this pair, but with the global markets constantly working against worry, any longs in this pair will be overly dependent on the global risk appetite. The headline driven markets are sure to make this pair very volatile over the longer-term, and as such we are very careful about entries. The 1.57 simply must hold if you are to buy this pair on dips. If it gives way – this will become a very bearish market quickly.
EUR/USD rose during the session as traders piled back into the Euro again on hopes of some kind of deal being worked out between Germany and France. (There was a Guardian report out of the UK that said as much.) However, that story was quickly denied, and the move got faded. The fall was pretty impressive, and the 50% Fibonacci retracement has held the price down. The daily candle is a long shooting star, and looks quite bearish. The failure of the bullish move has us thinking that the 1.38 – 1.40 levels should continue to be resistive in the short-term. We feel that selling rallies is the way to go at this point.
The EUR/CHF is a heavily manipulated market currently. The Swiss National Bank has declared the 1.20 level a “floor “in this pair, and as such – it doesn’t dare test it. The Wednesday session saw the EUR/CHF rise for a while though, and this would be the only direction we could take since the other direction has a central bank in the way. However, this market rose, and then fell back forming a shooting star. This doesn’t look overly bearish, rather like a market that simply isn’t ready to move yet. We will be looking for a long-term buy on a bullish candle, but until Europe gets its collective act together, this market will struggle to rise.
AUD/USD had a wild range on Wednesday, as traders originally bought the Aussie in large amounts, only to pullback later in the session. The risk off trade came back into vogue when reports of disagreements came out of Europe, and this sent riskier currencies like the Aussie down in the US session. The shape of the bar is a shooting star, and although not at the top of the range like we normally look for, shows just how hard it is going to be to rally above the massive 1.03 – 1.05 resistance level. The pair remains a “sell the rally” pair in our eyes.
Light Sweet Crude
The CL contract had a very bullish day on large volume on Tuesday. The market is still under the $90 level, and the level seems to be still pushing prices down. Although the move is significant in its strength and volume, $90 simply has to be broken on a daily close in order to get bullish at this point in time. Until proven otherwise, the $90 level – which is just above, should still be thought of as the top of the range. Because of this, we would sell signs of weakness if they appear.
Brent markets actually fell for a while during the Tuesday session, only to pop back up later in the session. The resulting candle was a hammer, and it appears to be a bullish sign at this point. However, with the recent run up being so parabolic, it is hard to buy at this level – especially since the $115 level is above, and has been so resistive. The breaking of the lows from Tuesday would be a massively bearish signal, and we would be more comfortable selling on that event.
Natural gas markets had a very bearish day on Tuesday as the doji we talked about on Monday broke to the downside, and the move only confirms the weakness in this market as every time the market rallies – it only fails in the end. Because of this, we still prefer selling on the rallies, and of course new lows. There is absolutely no reason to be long of natural gas at this point in time.
The gold markets had a wild ride on Tuesday as the market fell most of the session. The headlines out of Europe stating that the EU might increase the EFSF bailout fund to 2 Trillion Euros pushed the market back higher, as it appears that the Europeans are getting ready to “print” more money at this point. It should be noted that the story is unconfirmed at the moment, and this showed up in the gold pits as gold is an investment people will buy in uncertain times.
The market is very leery of printing, and this should only help to bolster the demand for gold. The resulting candle for the day is a massive hammer, and it looks set to bounce from this point. A breaking of the highs from Monday should clear the market to go much higher at this point. It would take a breaking south of the $1,600 level in order to think of selling.
The USD/JPY pair had a fairly quiet day on Tuesday as the range continues to hold in this market. The market closed near the 77 mark, which has been the epicenter of this very tight range recently. The 77.50 area is the top, and the 76.00 level is the bottom.
With the Bank of Japan threatening possible intervention in the marketplace if the Yen appreciates too quickly, it is going to be hard to sell this pair for any serious length of time. The range has held, and has paid traders quite handsomely if they played it. The range continues to be a guideline for scalpers to clean up in this environment. The range should continue to be abided by, with smaller positions to the downside, and larger ones to the upside as the threat of intervention is still out there.
USD/CHF finished the day fairly unchanged as the market continues to run around in circles. The result is a small doji, but the move proved the 0.9000 level should continue to give reactions in this marketplace. The Swiss National Bank is still working against the appreciation of the Franc, so we are not willing to sell this pair under any circumstances. The breaking of the top of the Tuesday session would get us buying though, and is in line with the idea of the USD being a “safe haven” while the Franc is no longer allowed to be. With all of the negative headlines out there – it makes sense to us that the pair should continue to rise over time.
The USD/CAD pair fell during the Tuesday session, and continues to react inversely to the oil markets. The parity level below still keeps this market afloat though, and until we get a close below it on the daily, we are not selling this pair. The 1.0650 level above is massive resistance, but it is far enough that we are interested in buying on a sign of supportive price action, perhaps in the form of a hammer or engulfing green candle.
NZD/USD had a strange day on Tuesday as traders went from bearish to bullish and back to bearish later. The pair is a great barometer of global risk, and will continue to be influenced by events in places like Europe. The 0.8000 level is also in the neighborhood, and should continue to be resistive at this point. It is because of this, we prefer finding selling opportunities, but are presently seeing none.
The daily long-legged doji that was formed on Tuesday does give us a set up though. The doji is traded on a break of the top or bottom, and in that coinciding direction. The breaking of the lows is more tenable to us as it is with the trend. However, a daily close above the 0.8000 mark, and a breaking of the top of the candle is a very bullish sign, but this pair will always be at risk because of the global issues.
GBP/USD had a wild day as the “risk on / risk off” environment continued to plague the markets. The cable is tainted as the British economy is suffering from both high unemployment, and extremely high inflation. Because of this, the Pound originally sold off during the Tuesday session.
The markets whipped back into the positive side when an announcement also came out suggesting there was a plan in Europe again. However, it was proven to be suspect at best, and the markets turned back around to the downside as a result. The end was a massive doji, albeit a negative one. The trade set up should be straightforward as the long-legged doji on the chart calls for a trade in the direction of which way the market breaks out of it. If we go higher – it is to be bought. If we break below the lows – it is to be sold.
EUR/CHF continues to sit still as it barely budged during the Tuesday session. Even with the report coming out in the later hours of the session that the EFSF could possibly be expanded by 2 Trillion Euros, the pair did almost nothing. The Swiss National Bank is willing to buy this pair if it gets below 1.20, so there is a floor in this market presently. However, there is no real reason to own the Euro as there are simply far too many issues out there in the EU to buy this pair. With that in mind, we simply wait to see if the Europeans can give us a move upward.
EUR/USD had an absolutely wild day during the Tuesday session as the market originally sold it off, and hard – only to turn it around in the late hours of the NY session. After that came another bit of a selloff, resulting in a long-legged doji for the daily candle.
The China GDP numbers missing slightly spooked the markets and the EUR/USD sold off as a result. The late hours in New York saw a story that stated the Germans and French had reached an agreement to increase the EFSF to over 2 Trillion Euros, and that the banks would be recapitalized. This turned out to be overblown, and the market fell again. The Tuesday session did show one thing though: There is serious concern about Europe still.
The set up is easy though: A breaking of either end of the doji trades in the same direction. If we break to the upside – it becomes a buy. Alternately, if it breaks to the downside – it is a sell. Either way, this pair will remain hostage to the headlines that will certainly continue to come out of the EU.
The AUD/USD pair had a pretty wild session on Tuesday, as traders reacted to varying headlines around the world. The European issues continue to dominate headlines at the moment, and fears out of Europe rocked the markets. The fact that the Chinese GDP numbers came out at “only” 9.1% vs. 9.3% suggests that the Chinese economy is slowing down a bit. As the Aussies supply China with a lot of its resources, the two economies are inevitably interlinked.
The resulting price action saw an attempt at 1.03, but a failure at the end of the session. The 1.03 area still looks very important to us as resistance, and should be a continued source of frustration for the bulls. Shorting this pair on weakness is still our thought, but at the moment we have no candles to confirm this idea.
The EUR/USD pair fell hard on Monday as German Finance Ministers stated that the “solution to the EU problems aren’t going to be announced in a few short days”, which seemed to be what the market was expecting. The trend has been down, and the 50% retrace has held intact overall. The Euro continues to be plagued by indecision and high anxiety about the debt issues, and as far as we call tell – will continue to do so. The pair should be sold on rallies at this point, at least until the market makes a new high. The 1.40 level above should be massive resistance as well, should this market reach that level.
USD/JPY continues to hover in its tight range as traders are taking advantage of extremely low volatility in the market. The Bank of Japan is willing to step into the market on the buy side if the Yen appreciates too quickly against the Dollar, and have been very public about it.
Because of this, the pair has had a range between 76 and 77.50, and we feel this should continue. The trade has been very simple: Buy close to 76, and sell close to 77.50. This can be repeated until it stops working, which of course we don’t know when that is. But the truth is that this pair has been very generous with its 50 pip scalps over the last several weeks.
The GBP/USD pair has a bearish day on Monday, as traders reacted to statements about the lack of speed of an upcoming EU solution. This put the “risk on” trade on the back foot for the session, and this pair was no different.
It should be noted that the 1.57 was once resistance, and it could step up to be support going forward. Because of this, we aren’t willing to sell until we get a daily close below that level, but until global risk slows down – it is hard to get overly bullish on any of the risk pairs, cable included.