Nearby Natural Gas Monthly Analysis for December 2012

Predictions of a mild winter in the U.S. are putting pressure on natural gas futures. Although the reduction in the number of rigs has the potential to create a drawdown in supply, lower demand could offset any decrease in inventory. 

Last month’s weak close has nearby monthly natural gas in a position to decline during December. Although there was an attempt to breakout to the upside when the market crossed a long-term downtrending Gann angle at 3.194, the rally fizzled, leading to a resumption of selling pressure. An uptrending Gann angle at 3.412 could provide some temporary support, but a break through this angle is likely to trigger further downside pressure.

Nearby Monthly Natural Gas
Nearby Monthly Natural Gas

 The main range is 6.528 to 2.772. This range has created a retracement zone at 4.650 to 5.093. Two months ago, the charts looked as if this zone was going to be tested, but the buying stopped when the market reached 4.133. 

The current short-term range is 2.772 to 4.133. This range has created a key pivot price at 3.453. November’s close was slightly above this price level, putting the market in a position to take it out in early December. 

In summary, forecasts of above normal temperatures across key demand areas in theU.S.are likely to mean a resumption of selling pressure. Technically, a potential support cluster at 3.453 and 3.412 could attract some buyers, but breaking through this level will put the market in a weak position.

AUD/USD Monthly Analysis for December 2012

Although the AUD/USD traded in a tight and narrow range, it did manage to close higher for the month. Demand for higher yielding assets underpinned the Aussie while talk of another interest rate cut by the Reserve Bank of Australia kept a lid on any substantial upside movement. 

Since the big story this month is expected to be the U.S.“fiscal cliff”, any move by the RBA is expected to take a backseat to the resolution of a major U.S. issue that could cripple the economy during the first quarter in 2013. If government can reach a timely compromise then demand for higher risk assets could increase, driving the Aussie sharply higher. A failure to reach a resolution could pressure the AUD/USD. 

The technical picture is leaning toward a resolution based on the positive close. Based on the 1.1080 to .9387 range, the market’s ability to hold a pivot price at 1.0233 is a positive sign that buyers are supporting the Aussie.

Monthly AUD/USD Chart
Monthly AUD/USD Chart

 Also during the month, an uptrending Gann angle is at 1.0467 and a downtrending Gann angle is at 1.0400. Last month’s close at 1.0426 has placed the market in a somewhat bullish position. A sustained move throughout the month over 1.0467 could attract buyers, leading to a possible rally to another downtrending Gann angle at 1.0740. 

The first sign of weakness will be a break under the pivot at 1.0233. This will likely mean that a compromise over the “fiscal cliff” has not been reached. This news could cause ripples in the financial markets that pressure higher-yielding assets like the Australian Dollar. Heavy selling pressure may even trigger a break to 1.0008. 

In summary, the narrow trading range has the AUD/USD set up for a volatile move. This is likely to coincide with a news event regarding theU.S.“fiscal cliff”. The key number to watch is 1.0233. This price will dictate the direction of the market. The upside potential this month is 1.0740. A possible downside target is 1.0008.

Nearby Gold Monthly Analysis for December 2012

Nearby gold followed through to the downside after its monthly closing price reversal top in October. Typically, this pattern leads to a two to three month retracement equal to at least 50% its recent range. Depending on the downside momentum at the time of the retracement, it may even break as much as 61.8%. 

Based on the short-term range of $1536.20 to $1798.10, the first downside target is $1667.15, followed by $1636.25. 

The longer-term range is $1944.80 to $1536.20. This range has created a retracement zone at $1740.50 to $1788.71. Last month, gold tested the 50% level at $1740.50. The actual high was $1757.50 before sellers hit the market.

Nearby Gold Monthly Chart
Nearby Gold Monthly Chart

 November’s lower close also put the market on the bearish side of an uptrending Gann angle at $1760.20 and a downtrending Gann angle at $1704.80. This is likely to lead to fresh selling pressure during December.

 Besides the retracement zone at $1667.15 to $1636.25, an uptrending Gann angle at $1648.20 is a potential downside target.

 Fundamentally, investors and traders continue to see-saw between treating gold as an investment and as a reserve currency. With money flowing into equities, gold has taken a backseat in the investment community. The stronger U.S. Dollar should be supportive for gold. It may be underpinning the market at times, but it is not producing the rally that many traders have anticipated.

 If gold tests the retracement zone as expected then value buyers may re-emerge, creating the demand the metal needs to overcome the reversal top at $1798.10. The failure of buyers to show up between $1667.15 and $1636.25 could mean the market is poised for further downside activity.

EUR/GBP Monthly Analysis for December 2, 2012

A late month surge in the Euro helped the single-currency recover nicely against the British Pound during November. The strong close has the EUR/GBP in a position to breakout to the upside once it takes out two key technical points. 

Based on the long-term range of .6535 to .9803, a key retracement zone has been established at .8169 and .7783. Last month’s close is currently breathing on the upper end of this zone as well as the October high at .8164. A breakout through .8164 and .8169 is likely to trigger a sharp rally to the upside.

Monthly EUR/GBP Chart
Monthly EUR/GBP Chart

 Last month, the market tested successfully an uptrending Gann angle at .7954 this month. It is also following another Gann angle at .8154.  If the market does breakout to the upside then regaining this angle will be a sign of strength. Because the market has been holding in a range, a breakout is likely to fuel a volatile move with .8403 the next likely target. 

The short-term range is .7754 to .8164. The mid-point or pivot price of this range is .7959. This price is controlling the short-term direction of the market. Holding above it puts a bullish spin on the EUR/GBP. A break through it will be a sign of weakness. 

Fundamentally, traders are focused on the U.S. “fiscal cliff”. If U.S. officials reach an agreement then the Euro is likely to soar. While the British Pond may rally against the dollar, the Euro should outperform the Sterling. This is because the U.K. economy is still showing signs of weakness. Investors have been reluctant to buy the British Pound because of the possibility of another recession during the fourth quarter and because the Bank of England may resume its quantitative easing program. 

Besides greater demand for higher risk assets, the Euro may gain strength if Greece gets its bailout money in a timely manner and if Spain makes a formal request for funds.

GBP/USD Monthly Analysis for December 2012

Conflicting fundamentals continued to plague the GBP/USD during November. On one hand, the weaker U.S. Dollar helped underpin the pair while concerns about the U.K. economy falling back into a recession during the fourth quarter kept a lid on any rallies. Additionally, investors had to deal with the possibility of a resumption of the Bank of England’s asset-buyback program which essentially injects more cash into the economy.                                                                                                    

Technically, the GBP/USD is trading inside of an elongated pennant formation. The upper end of the pennant is 1.6450. The lower boundary is 1.5640. Because of the length of this chart pattern, traders should watch for a volatile breakout once the support and resistance lines are violated. 

Monthly GBP/USD Chart
Monthly GBP/USD Chart

According to the theory of technical analysis of chart patterns, the pennant is a non-trending pattern. The gradual narrowing of the support and resistance lines compresses prices and creates conditions ripe for a breakout. 

The first sign of strength will be a breakout over a downtrending Gann angle at 1.6280. This should be followed by another breakout over a swing top at 1.6301. Although there are tops at 1.6746 and 1.7042, if upside momentum increases as expected, the market has room to run to a 50% level at 1.7346 over the long-run. 

Breaking the support line at 1.5640 is likely to trigger an acceleration into a 50% level at 1.5272. Taking out bottoms at 1.5268 and 1.5233 could lead to a major collapse in prices. 

Although the U.K. economy is exerting downside pressure on the British Pound, a resolution of the U.S. fiscal cliff crisis is likely to trigger the strong upside breakout that the chart pattern is suggesting. Over the short-run, if the pivot price at 1.5784 continues to hold as support then traders should watch for the upside breakout and increased volatility.

USD/JPY Monthly Analysis for December 2012

Increased demand for higher risk assets drove up the USD/JPY during November. Shortly after the U.S. presidential election, the Japanese Yen showed some strength when traders sought safety against a sharp drop in U.S. equity markets. After U.S. officials vowed to avoid the “fiscal cliff” threatening the economy, equity markets rose, encouraging investors to sell the Yen and buy higher yielding currencies. 

The strong rally in the USD/JPY, following a test of an uptrending Gann angle at 80.123, formed a higher-high, higher-low in November. This move created a new main bottom at 77.123. When compared against the previous bottom at 75.566, a double-bottom may be forming. A trade through the last swing top at 84.173 will not only confirm the double-bottom but it will also change the main trend to up.

Monthly USD/JPY Chart
Monthly USD/JPY Chart

 After finding support on an uptrending Gann angle at 80.123, upside momentum triggered another move through uptrending Gann angles at 82.566 and 83.123. The former is likely to provide good support throughout the month. In fact, holding this angle is likely to put an upside bias on the market while a break though it could lead to a near-term sell-off. 

With the USD/JPY in a position to rally further, traders should watch for a potential breakout over the swing top at 84.173. A move through this level is likely to be news driven because traders are betting on a resolution of the “fiscal cliff” problem. This issue is likely to go down to the wire so watch for increased volatility towards the end of the month. 

EUR/USD Monthly Analysis for December 2012

After surviving a setback early in the month, the EUR/USD rebounded enough to close slightly better during November. Although the Forex pair had a lower-high and a lower-low during the month, it closed within striking distance of the October high at 1.3139 and the November high at 1.3172. 

The Gann angle which helped stabilize the market at 1.2660 in November moves up to 1.2842 in December. This angle should be considered support, however a break through it will mean that sentiment is shifting to the downside. 

A breakout through the October high at 1.3712 is likely to trigger an acceleration into a downtrending Gann angle from the 1.4940 top at 1.3420 this month. 

Monthly EUR/USD Chart
Monthly EUR/USD Chart

The short-term range is 1.2042 to 1.3172. The retracement zone created by this range is 1.2607 to 1.2474. If the Gann angle at 1.2842 fails to hold then look for a test of this zone. 

The long-term range is 1.4940 to 1.2042. This range has formed a retracement zone at 1.3491 to 1.3833. This zone is a potential upside target if the downtrending Gann angle at 1.3420 is violated. 

With the EUR/USD surrounded by 50% levels at 1.2607 and 1.3491, the market could trade in a range unless one of these levels is violated. An even tighter possible range is 1.3172 to 1.2607. 

Fundamentally, the EUR/USD is likely to be most influenced by U.S.fiscal cliff news. With the deadline rapidly approaching, a failure by U.S. officials to reach a compromise regarding tax hikes and lower spending, should put selling pressure on the Forex pair. If a timely decision is reached, the Euro should rally against the dollar.

EUR/USD Mid-Session Analysis for November 30, 2012

The EUR/USD surged overnight to a new high for the week at 1.3027. End-of-the-month profit-taking took over from there, driving the market lower into the mid-session. A lower close today will create a closing price reversal top which could lead to a sell-off early next week. 

The first level of resistance today is 1.3059. A break back under 1.2979 will be a sign of weakness and could attract fresh selling pressure later in the session. 

Daily EUR/USD Chart
Daily EUR/USD Chart

The first downside object is an uptrending Gann angle at 1.2920. Since the market has found resistance slightly over 1.3000 over the near-term, it is possible that it may be setting up for a strong correction. Based on the range of 1.2660 to 1.3027, a 50 to 61.8 retracement could mean a test of 1.2843 to 1.2800 over the near-term.

EUR/USD Weakens on End-of-Month Position Squaring

The EUR/USD rallied overnight to a new high for the week at 1.3027 before easing on profit-taking ahead of the week-end. News affecting the Euro included the German Parliament’s approval of the Greek bailout deal reached earlier in the week and the Euro Zone November CPI inflation report which came in much lower than expected. Worries about the possibility of a U.S. fiscal cliff continue to produce volatility. Investors want to see a quick resolution to the possible crisis however “no substantive progress” has been made.

 The movement of the Euro continues to dictate the direction of the GBP/USD. Like the Euro, this Forex pair has been particularly sensitive to the “risk on/risk off” scenario that has been created by the U.S. fiscal cliff situation. Other factors that have been driving price movement include the possibility of additional quantitative easing by the Bank of England and the possibility that the economy will enter another recession. 

The British Pound surged earlier in the session along with the jump in the Euro, but eased on profit-taking ahead of the week-end and on normal end-of-the-month position squaring. The market finished higher, but well off of the highs. 

February gold traded higher as traders are still trying to absorb the huge loss on Wednesday. Oversold conditions helped to generate some long interest but most of it has been short-covering or profit-taking. Traders are also keeping an eye on the U.S. Dollar. Renewed fiscal cliff issues could drive up demand for the safety of the Greenback. This is expected to put pressure on gold. 

January crude oil finished slightly better on end-of-the-month profit-taking and position squaring. The market continues to remain rangebound between $90.00 and $84.00 with $87.00 remaining a key pivot price. Oversupply continues to remain the main issue keeping a lid on any rallies. Helping to attract a bid in the market is the possibility of an improving economy which could generate some demand.

EUR/USD Mid-Session Analysis for November 29, 2012

The EUR/USD is following through to the upside after Wednesday’s strong turnaround. This upside momentum generated by the move has helped the market to recover a 50% level at 1.2899, a Fibonacci retracement level at 1.2956 and a downtrending Gann angle at 1.2984.

Daily EUR/USD Chart
Daily EUR/USD Chart

 The market is now set up to challenge this week’s high at 1.3008. A break though this level doesn’t mean a return to bullish conditions. This will be accomplished when the October top at 1.3020 is violated. 

Current momentum suggests that the Euro is likely to rally into a slow-moving downtrending angle from the 1.3139 top. This angle is at 1.3062. 

On the downside, new support is on an uptrending Gann angle at 1.2900. A new minor bottom has also been formed at 1.2953.

Fiscal Cliff Optimism Drives Euro Higher

The EUR/USD finished sharply higher after reversing late yesterday and continuing the rebound overnight. Optimism that U.S.lawmakers will reach an agreement in a timely manner to avoid the so-called fiscal cliff drove up demand down demand for safer assets. 

In addition to the possibility of avoiding the fiscal cliff, investors also drove up demand for higher yielding assets in anticipation of a report on U.S.gross domestic product which is expected to show an acceleration last quarter. 

The Euro also found support on a drop in Spanish and Italian bond yields. Their respective bonds rallied on the thought that pressure from the debt crisis is easing. 

In keeping with the theme of greater demand for higher yielding assets, traders also drove up the GBP/USD. With uncertainty continuing to linger about the U.K. economy, the short-term direction of the British Pound continued to be driven by the movement of the Euro. Curtailing some demand for the Sterling is the possibility that the Bank of England will resume its asset buyback program if growth turns negative once again. 

February gold rebounded slightly on Thursday after Wednesday’s sharp decline. The weaker dollar and thoughts that yesterday’s sell-off may have been overdone are also factors contributing to the rise. Choppy conditions may prevail over the near-term as investors continue to decide whether gold is a reserve currency or an investment. Technically, the retracement zone at $1738 to $1750.00 continues to be a major hurdle to overcome for this market. 

The weaker dollar supported January crude oil overnight, but the market continues to remain rangebound between $90.00 and $84.00. The pivot price at $87.10 continues to dictate the short-term direction of the market. Bullish traders are optimistic that signs of renewed growth in the U.S. economy will lead to increased demand for crude oil. At this time, the abundance of supply continues to be the major issue to overcome. 

EUR/USD Mid-Session Analysis for November 28, 2012

The EUR/USD is following through to the downside following Tuesday’s closing price reversal top. The move doesn’t represent a change in trend, but indicates the Forex pair is poised for a 2 to 3 day break equal to at least 50% of the last rally. 

Based on the rally from 1.2660 to 1.3008, the next major downside objective is the retracement zone at 1.2834 to 1.2793. Standing in the way of the break into this zone is an uptrending Gann angle at 1.2880. 

Daily EUR/USD Chart
Daily EUR/USD Chart

At the mid-session, this uptrending Gann angle is holding as support. Sell stops are likely building under this level which means a late session penetration could trigger a sharp break to the downside. 

Traders should look for the start of a 2 to 3 day break into the retracement zone unless the market reverses back to the upside and takes out the closing price reversal top at 1.3008.

Fiscal Cliff Worries Send Gold Sharply Lower

Gold prices plunged this morning, dropping more than $25 on concerns that U.S. lawmakers will not reach an agreement on spending cuts and tax hikes in time to avoid the “fiscal cliff”.  

Technically, the market had been having trouble at a Fibonacci retracement level at $1750.00, but there was on indication that a sharp break was in the making. The charts indicate that a test of $1706.00 is likely, but a break through $1704.50 will change the main trend to down on the daily chart, signally a serious shift in investor sentiment. 

Some reports are surfacing that the size of the break is being attributed to a technical glitch due to the rollover from the December to the February futures contract, but this hasn’t been substantiated. For several months, gold has traded without a true identity. At times it trades like a reserve currency, but other times it reacts like an investment. 

A typical gold market reacts positively to uncertainty, but the current action suggests that investors are more comfortable moving money in the safety of the U.S. Dollar. 

The EUR/USD also finished lower. Not only did the uncertainty over the resolution of the U.S. fiscal cliff pressure the market, but the inability of the Greece bailout plan to provide clarity for traders also led to renewed selling. 

Technically, the daily chart suggests that a break to 1.2834 may be necessary to relieve the market of overbought conditions. Since the main trend is down, there is still a question as to whether a test of this level will generate any true buying interest. 

The short-term, counter-trend rally in the GBP/USD also appears to be over with the Forex pair failing to take out any significant resistance levels. The technical picture suggests a pull-back into 1.5900. 

The charts also indicate that the recent rally in the Sterling against the dollar mirrored the rallies in the Euro and the U.S. equity markets. This is a strong indication that short-covering and demand for higher risk assets were the driving forces behind the rally. Some investors were suggesting that the U.K. economy had turned the corner, attributing to some buying interest, but the currently developing break indicates that investors are still bearish the currency. 

January crude oil was hit hard on Wednesday in conjunction with the strong dollar and weaker demand for higher risk assets. Although the market remains rangebound between $84.00 and $90.00, today’s break under a pivot price at $87.10 indicates that there is a strong bias to the downside. 

Worries that the U.S. fiscal cliff will send the economy into a recession hurt the market today. With supply at high levels, a recession would mean lower demand for oil, putting further pressure on prices.

EUR/USD Mid-Session Analysis for November 27, 2012

The EUR/USD surged to the upside early in the session on Tuesday before reversing course and trading lower into the mid-session. The attempted breakout to the upside also failed at 1.3008, slightly in front of a previous top at 1.3020, keeping the downtrend intact. 

An attempt to breakout over a downtrending Gann angle at 1.2994 also failed to generate any fresh buying interest or trigger stops, leading to an intraday reversal down. The new downside target is an uptrending Gann angle at 1.2860. 

Daily EUR/USD Chart
Daily EUR/USD Chart

Retracement zones are also playing a role in today’s price action. The main range is 1.3139 to 1.2660. This creates a retracement zone at 1.2899 to 1.2956. Although the EUR/USD spent some time on the bullish side of this zone, today’s break back inside of it suggests a possible top. Based on the short-term range of 1.2660 to 1.3008, another retracement zone was formed at 1.2834 to 1.2793. This is another potential downside target. 

Today’s close should dictate this week’s price action. At the mid-session, the market is in a position to form a daily closing price reversal top. This chart pattern typically leads to a 2 to 3 day break equal to 50% of the last rally. This assessment reaffirms the forecast for a correction into the 1.2834 to 1.2793 retracement zone.

News of Greece Deal Weakens EUR/USD

  1. The EUR/USD traded lower after briefly testing the psychological 1.3000 level. News of a deal to provide financial aid for Greece sent the single-currency higher, but after last week’s sharp rise, it appears to be a buy the rumor, sell the fact situation. 

    With the Greece situation taken care of, traders will now shift their focus on Spain and its need for fresh financial aid. This weekend’s elections led to victories by pro-independence parties, leading some to believe that the formal request by Spain for financial aid will become more complicated. 

    Getting back to Greece, the new deal struck between the European financial officials and the Greek government calls for an extension in time for principal payments and a postponement of interest payments. It appears that an actual solution wasn’t reached and that the issue was “kicked” down the line although as details of the deal are revealed, it may show that Europe has decided to “bite the bullet” and share some wealth with Greece rather than just lending it more money. The decision doesn’t seem to be sitting too well with traders today, but the Euro may improve later in the week once traders get a grasp of the new proposal. 

    Gains in the U.S. Dollar are also exerting pressure on the Euro as well as the British Pound. The dollar gained after a U.S.economic report was better than expected. Orders for U.S. durable goods were flat in October, economists had predicted a decline. Improvements in U.S. home prices also helped support the greenback. 

    The GBP/USD finished its latest session lower in conjunction with the weaker Euro. Sterling traders are worried that a recession in Europe will keep pressure on the U.K. economy. Additionally, some traders believe that the Bank of England will revive its asset-buyback program if economic reports continue to point toward a fourth quarter recession. 

    Weaker equity markets and a stronger dollar pressured December gold prices today. Once again the clash continues between those who believe gold is an investment and those who want to treat it as a reserve currency. Technically, the market is straddling a key Fibonacci level at $1750.00. A failure to hold above this level could encourage profit-taking and fresh shorting, making a move to $1735.00 over the near-term likely. 

    January crude oil continued to trade flat-to-lower as the lack of clarity holds prices in check. A broad range has been defined as $84.00 to $89.00 with a mid-point at $87.10. Today’s close was above the mid-point, giving the market a slight bias to the upside, but strong buyers have been absent. Traders appear to be getting mixed fundamental signals. Although inventory levels remain high, there is an optimistic view building that the worst is over and that an improving economy will drive up demand.

EUR/USD Mid-Session Analysis for November 26, 2012

Following last week’s surge, the EUR/USD is taking a break. At the mid-session, the Forex pair is posting an inside day. Technically overbought conditions and uncertainty over when European officials will approve an aid package to Greece are helping to keep prices in check. 

Technically, the main trend is still down on the daily chart until the late October top at 1.3020 is violated. Last week’s high at 1.2990 provided resistance today as well as a downtrending Gann angle at 1.2999. The cluster of these three prices suggests a wall of resistance, however, if buyers can overcome this area, watch for an acceleration to the upside. 

Daily EUR/USD Chart
Daily EUR/USD Chart

Based on the main range of 1.3139 to 1.2660, a key retracement zone exists at 1.2899 to 1.2956. The market closed on the bullish side of this zone on Friday, but today it is straddling the upper level. A close under 1.2956 could trigger a break back to the 50% level at 1.2899. 

The recent rally from 1.2660 to 1.2990 has formed a retracement zone at 1.2825 to 1.2786. A full-blown correction of the rally will mean a test of this zone. Before it can even reach it, the EUR/USD is likely to run into support on an uptrending Gann angle at 1.2840. 

Last week’s thin trading conditions allowed buyers to get the upper hand and drive weak shorts out of the market. This week, however, the shorts may regain control and drive the market back into the lower end of the range. The value area on the downside is 1.2825 to 1.2786. Since this is a news driven market, traders should watch for a potential breakout over 1.2990 to 1.3020.

Euro Traders Awaiting Decision on Greece Aid

The EUR/USD finished slightly higher but inside of Friday’s range, indicating some uncertainty. The trading action was widely expected since volume is returning to normal in the Forex markets following last week’s light holiday trade. Also holding the market in a range is the on-going talks between Euro Zone finance ministers and Greece officials. Traders expect a decision to be made regarding the next payment to Greece perhaps as early as today. Although the Euro gained against the dollar last week, a certain level of pessimism still exists because of European budget talks, week-end elections in Spain and the ongoing talks regarding Greece’s bailout. 

The GBP/USD also closed down slightly due to the weakness in the Euro. Last week’s strong rally was probably a reaction to optimism that conditions were improving in Europe. Because of the connection to the U.K. any positive developments in Europe are likely to translate into economic improvements in the U.K. Short-covering also played a role in the rise in the Sterling. Many traders had been bearish on the currency because of the thought of a fourth-quarter recession, but once again, the possibility of improving conditions in Europe encouraged these traders to pare their short positions. 

December gold closed slightly better after a strong surge late last week. Technical factors are still a major role in this market’s action. After toying with a major 50% level for almost two weeks, gold rallied sharply higher into a Fibonacci level at $1750.12. The chart pattern suggests that a pull-back to $1735.00 may be necessary to draw the attention of buyers. Investors are likely to prefer buying gold on dips rather than strength. Speculators are more likely to treat the metal as a reserve currency. This may cause a choppy two-side trade over the near-term. 

January Crude Oil finished the session slightly lower. Last week’s cease fire between Hamas and Israel sent speculators to the sidelines. Holding $87.10 could mean the market is building a support base, but unless it moves through $90.00 with conviction, look for it to remain rangebound. The focus this week will be on supply and demand. Traders will want to see if improving economic conditions in the U.S. has led to a drawdown in supply. This could underpin the market the rest of the week. 

EUR/USD Mid-Session Analysis for November 23, 2012

The EUR/USD is trading sharply higher at the mid-session after breaking through a key 50% level at 1.2900. Since this level was old resistance, it now becomes new support. With nothing to stand in its way, the Forex pair surged to the Fibonacci level at 1.2956. 

Daily EUR/USD Chart
Daily EUR/USD Chart

For some traders this was the objective of the current rally but since momentum is so strong, other traders may be looking for even more upside action. A downtrending Gann angle at 1.3004 appears to be a reasonable target. An uptrending Gann angle at 1.2980 could be a minor target, but overall a resistance cluster has formed at 1.2980 to 1.3004. 

On the downside, a break back under 1.2900 will be the first sign of weakness. This move will likely mean that the uptrending Gann angle at 1.2820 will be tested. Since the main trend is up and the market has been rallying under below normal conditions, long traders should be prepared for a possible correction once institutional traders return on Monday.

Weaker Dollar Fuels Gold Rally

December Gold futures closed sharply higher on Friday after several days of consolidation. Investors were drawn to the gold market because of the weaker U.S. Dollar and the stronger Euro. Both of which reacted to news of a better than expected business-climate report from Germany. 

Technically, gold finally broke through the major 50% level at $1735.30 that had been retraining the market for a couple of weeks. This action triggered a further rally through the last swing top at $1739.40. Upside momentum continued to strengthen as the market drove through the swing top, confirming the uptrend. Finally, with nothing to stand in its way, gold rallied virtually unimpeded into a Fibonacci level at $1750.12. 

The EUR/USD finished the week near its high, driven by greater demand for higher risk assets and optimism that the Euro Zone may be successfully weathering the economic weakness in the region. 

The Forex pair reacted positively to the news that German’s business confidence rose in November. Traders are also confident that European officials will reach a decision regarding financial aid to Greece on Monday. 

Technically, once the market broke through a 50% level at 1.2899, it was off to the races as no resistance could be found until 1.2956. The EUR/USD finished the day straddling this level. Continued upside momentum is likely to mean a test of 1.3000 over the near-term. 

Greater demand for higher risk, improving conditions in the Euro Zone and news that the British Bankers Association reported a rise in mortgage approvals helped drive the GBP/USD higher into the close. The Forex pair also closed higher for the week for the first time in a month. 

Technically, the strong surge helped the Sterling reach its first short-term objective at 1.6000. If the rally is sustained and this price becomes support then look for a test of 1.6041 over the near-term. 

January Crude Oil finished lower as the weaker dollar and greater demand for risk failed to fuel any interest. Supply is still a major concern affecting prices. Although some economic reports released this week showed improvement, the numbers will have to translate into greater demand and supply will have to draw down before this market will rally out of the range it is currently establishing. 

EUR/USD Mid-Session Analysis for November 22, 2012

The EUR/USD broke out to the upside on bullish economic news from China. The move culminated three days of congestion under a 50% level at 1.2840. Breaking through this level makes it a new support point. 

Sustaining a rally over 1.2840 meant that the next upside objective was the Fibonacci level at 1.2882. This price was easily tested as upside momentum increased throughout the trading session. Thin trading conditions because of the U.S. Thanksgiving holiday may have contributed to the exaggerated move. 

Now that the EUR/USD has successfully tested the retracement zone created by 1.3020 to 1.2660, traders have set their sights on another retracement zone formed by the 1.3139 top and the 1.2660 bottom. This area is 1.2899 to 1.2956. The Forex pair traded as high as 1.2898 today before selling off slightly into the mid-session.

Daily EUR/USD Chart
Daily EUR/USD Chart

An uptrending Gann angle from the 1.2660 bottom is at 1.2800. This angle is controlling the short-term direction of the market. Throughout the week, a pair of downtrending Gann angles from the tops at 1.3139 and 1.3020 respectively were potential upside targets. These angles were tested today at 1.2860 and 1.2879. 

With the EUR/USD hitting so many upside targets today, don’t be surprised if it has reached a short-term top. Today was a low volume day so the rally may have been exaggerated. In addition, many traders feel that the rally was driven by a short-squeeze rather than strong buying. This makes the market vulnerable to a break on Friday once trading volume returns to near normal. 

Finally, keep in mind that that the next move in the Euro may be event driven because Europe is still deciding whether to give Greece its bailout money. It is possible that this will be completed on Monday which could mean it has already been cooked into the market.