Daily Forex Briefing 29/07/2020

In today’s Daily Briefing, we found those amazing setups we thought you’d find interesting!

EUR/PLN bouncing from a crucial support on the 4,4.

Brent with a possible false bearish breakout and an upswing but still below important resistance.

EUR/USD awaits the FOMC inside of a pennant.

USD/JPY is getting ready to test the 106 as a resistance.

EUR/CHF bouncing from the upper line of the flag.

GBP/NZD with a major, long-term buy signal.

EUR/JPY finishing a big inverse head and shoulders pattern.

EUR/NZD with a double bottom formation but still below important resistance.

SP500 drawing a head and shoulders pattern but buyers have an appetite for an upswing.

CAC in a slightly worse position but still fighting on a major up trendline.

For a look at all of today’s economic events, check out our economic calendar.

EUR/JPY Bullish Bounce and Cup with Handle Pattern

The EUR/JPY has formed a cup with handle pattern and we might expect further continuation to the upside.

A retracement towards the POC zone 121.65-75 could be used for a possible entry. Bulls are waiting for a new push above D H3 camarilla pivot. The price is bullish but also in a retracement mode. 122.00 is important support so the pair could also bounce from it too. Targets are 122.46, 122.70 and if bullish momentum persists – 123.09.

The Analysis has been done with the CAMMACD.Core and Sit Systems

For a look at all of today’s economic events, check out our economic calendar.

 

Yen Under Fire as Risk Appetite Improves

The Yen has already lost ground against major currencies over the past 36 hours, with the most noticeable losses versus the Euro and Swedish Krona. As investors place their hopes in an economic recovery fueled by unprecedented central bank support and handsome fiscal stimulus packages, the Yen and other safe-haven assets may remain in the direct firing line.

EURJPY finds comfort above 121.00

The EURJPY remains in an uptrend on the daily charts with support at 121.00. An intraday breakout above 122.00 should encourage an incline towards 122.80 and 123.70. Should 121.00 proves to be an unreliable support, the currency pair may retest 119.70.

USDJPY remains in 100 pip range

A breakout opportunity is forming on the USDJPY with a weakening Yen potentially pushing prices towards the 108.00 resistance. A solid breakout above this point may open the doors towards 109.40 and 110.20. If prices end up tumbling below 107.00, expect the USDJPY to challenge 105.90.

GBPJPY approaches 135.00

It has been the same story for the GBPJPY for the past three weeks. Prices remain in a wide 340 pip range with support at 131.600 and resistance at 135.00. A solid close above the 135.00 could trigger a sharp move towards 137.00. Lagging indicators like the 20 and 50 SMA in addition to the MACD are in line with the bullish setup.

AUDJPY slips after RBA decision

We some weakness in the Australian Dollar after the Reserve Bank of Australia left interest rates unchanged at 0.25%. The AUDJPY may weaken towards 72.80 in the short term if an intraday breakdown below 74.40 is achieved. Alternatively, a softer Yen could provide enough support for the currency pair to test 76.50.

Commodity spotlight – Gold

Since we are discussing safe-haven assets, it does not hurt to speak about Gold which is just over $16 away from the $1800 level.

The precious metal may struggle to push higher in the near term amid the improving mood with the next key level of interest around $1765.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Having Suggested the Markets Lacked Inspiration and that Risk Assets would Look to Chop Around in the Short

If I look cross-asset it feels like the bulls have just won a small battle here, with equities working fairly well, especially in the small end of town (the Russell 2000 closed +1.1%) while tech worked nicely (the NAS100 +1.2%), with cash volumes somewhat in line with the 30-day average.

I continue to look at the chart of the NAS100 and see a thing of beauty – Flip to the daily and see a bullish outside day reversal, although the weekly shows the pure rhythm and flow – it’s one where we’ll look back forget valuation, forget any traditional fundamentals and just hold the thing…less thinking, more profits.

The S&P500 lagged a touch (+0.6%), held back by financials (-0.5%) and health care (-0.4%), with the outperformance seen in tech, utilities, and consumer names. Everyone loves a spurious overlap of the current tape versus a key period in time, and this from Bloomberg makes me question if what we’re seeing is really a re-run of the move post-2009 – if this continues to track then equities have far more juice in the tank.

Lower equity volatility ahead?

Vols have been offered, with VIX pushing down 3.38 vols to 31.74%, while on the VIX futures (which is what our price is derived) we see a bearish outside day, and if we see follow-through selling we could see a re-run into 27%. When we consider that the daily implied S&P500 move (higher or lower) portrayed by the VIX index is 2%, then it feels that anecdotally that there are downside risks to the vol index.

Commodities are hot

Our flow in commodities has been strong, with gold getting a strong working over, notably in USD-terms (XAUUSD). We pushed into 1763, although the breakout is not as convincing as I would like to have seen and the 18 May highs are seemingly a tail barrier. It’s hard to be anything but long gold here, especially given the dynamics in the bond market, with 5- and 10-year breakevens (inflation expectations) rising 5bp (0.05%) a piece, and nominal Treasury yields up 1bp across the curve – this has resulted in ‘real’ yields moving lower, and at -79bp (on UST 5yr real) we’re not far from testing the March lows of -84bp.

Real rates are core to markets right now and if yields are going lower then gold will find buyers on weakness and equity will continue to trend.

It’s not just gold, but crude has caught a bid and our XTIUSD price (which basically tracks front-month futures) is not just testing the top of its range, but closing the 6 June gap at $41.05. Traders react to behaviour around gaps, it’s a science in trading, but a break here takes us to the 61.8% fibo and 200-Day MA ($44.18 and $45.47).

Copper is now +1.2% at $2.65p/lb – there seems to be a clear message we’re getting from the copper market because the moves I am seeing on the daily look bullish. As suggested yesterday, whatever copper is seeing is not shared by the bond market, which doesn’t seem to be buying the recovery play just yet, with yields unaffected and perhaps that is moving full circle into the risk sentiment.

The secret sauce

Consider this – Commodity prices higher, inflation expectations up (5yr breakevens +5bp at 1.12%, 5y5y forward B/E +4bp at 1.53%, 5y5y swap +4bp at 1.83%), high yield credit 2bp tighter, yet nominal bond yields unnerved. This is where I see the bulls winning a short-term battle.

FX moves – the USD sell-off resumes

We can’t leave out FX markets, because the USD is lower by 0.6%, and the dynamics mentioned above have resonated in a bid in risk FX. The lower USD would have fed back into commodity buying and again into lower real yield – it goes full circle. We’ve seen bullish key day reversals in CADJPY, AUDJPY, and EURJPY, so the move to sell JPY shows the bulls are back in the driving seat.

EURUSD stopped shy of printing a bullish outside day, as price failed to make a lower low, but did close firmly above Fridays high – a similar effect. The USDX (USD index) closed through the ST uptrend and we’ll watch for how Asia and EU trade the move – as follow-through will confirm a potential change in structure in the FX market and perhaps allow further USD selling.

For those running EUR or EU equity exposures do consider the key event risk on the docket is the EU PMI data. You can see expectations, and for the EUR to build on the move an upside surprise would clearly help.

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Chris Weston, Head of Global Research at Pepperstone.

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EUR/JPY Aims for 144 ema after Breaking Below 21 ema Zone

The EUR/JPY made a bearish bounce at the 21 ema zone after a bearish breakout below it (wave a). The bearish impulse will probably complete a counter trend move near or at the 144 ema close.

4 hour chart

EUR/JPY 4 hour chart

The EUR/JPY remains bearish as long as price action stays below the 21 ema zone. Price is aiming for the 38.2% or 50% Fibonacci retracement levels. This can be a bouncing spot for the end of the wave 4 (purple).

A re break above the 21 ema zone is needed to confirm the uptrend. The targets are up at 25-126.50 where the 161.8 and 176.4% Fibs are located around the Wizz 7 level. A break below the 50% Fib invalidates (red x) the bullish outlook and indicates a downtrend (dotted orange arrows).

EUR/JPY chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

Yen Firms Despite risk-on Rally

Asian stocks have rallied for their ninth straight day following the overnight gains on Wall Street that propelled the Nasdaq 100 index to an all-time high. While global stocks may push higher in the short term, the medium to longer-term outlook remains clouded by a growing list of negative factors straining market sentiment.

Given how investors are questioning the apparent disconnect between stocks and gloomy fundamentals,

caution is clearly in the air and this continues to support safe-haven assets. When factoring sizzling trade tensions between the United States and China and fears around slowing global growth, storm clouds may be on the horizon.

This is being reflected in Japanese Yen which has appreciated against every single G10 currency today.

Looking at the charts, the Yen is steamrolling the Dollar with prices trading marginally below 108.00 as of writing. A solid daily close below this level may open the doors towards 107.00. This bearish setup may be validated once prices break below the 20 Simple Moving Average and the Moving Average Convergence Divergence (MACD) crosses to the downside.

Alternatively, if 108.00 proves to be a reliable support level, the USDJPY may rebound back towards 109.40.

EURJPY tumbles towards 121.00

Over the past 36 hours, the EURJPY has tumbled over 250 pips with prices trading around 121.40 as of writing.

Prices remain in a bullish trend on the daily charts as there have been consistently higher highs and higher lows. A breakdown and daily close below 121.00 may threaten the uptrend and offer bears an opportunity to jump into the scene.

Should 121.00 truly give way, the next key point of interest will be found around 119.70. Alternatively, a rebound from 121.00 is seen triggering a rebound back towards 122.80.

Time for GBPJPY to enter range?

An appreciating Yen is dragging the GBPJPY back towards the 135.50 dynamic support level.

If the currency pair breaks below this point, prices are likely to remain a wide range with support at 131.00 and resistance at 135.50. Given how the Pound is expected to remain unloved thanks to the Brexit drama and Yen seen appreciating on market caution, the GBPJPY may sink lower in the short to medium term.

Sustained weakness under 135.50 could open the doors back towards 133.30. Should the 135.50 dynamic level prove to be stubborn support, the GBPJPY may rebound towards 137.00.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

EUR/JPY Retracement From M H4/W H5 Levels

Dear Traders,

The EUR/JPY has started a retracement from the confluence of two important camarilla pivots. We might see a move lower.

122.55 – 65 zone is showing new bears which might be taking over bullish trend. The price has started to move lower and this is a retracement. M H3 121.18 and W H4 121.22 are the first possible retracement targets. If it breaks lower then pay attention to W H3 – 120.45 which could be the final target. Only a close above 123.00 could invalidate this scenario.

The Analysis has been done with the CAMMACD.Core and Sit Systems

For a look at all of today’s economic events, check out our economic calendar.

Three Great Bullish Occasions With the Euro!

Are there still any bears on the market? Will, we will give them some rest and time to reflect on the decisions they made in the past few weeks. In our videos, we warned them many times not to go against the FED. We said that they should not seek for logic or sense out there. Trading these days is crazy and we just have to adjust to the fact that markets and the strict macroeconomic approach are broken.

In today’s analysis, we will focus on the Euro, where traders have been enjoying a flawless upswing.

On the weekly chart the EURJPY created a double bottom formation, which looks very promising for long-term buyers. One long-term down trendline was already broken and currently buyers are aiming for a second one. Before they get there, they’ll have to break the horizontal resistance at the 38,2% level, which has been extremely powerful so far. Powerful enough to initiate a bearish reversal, or at least a small correction.

Next is the EURCAD, where the price is inside a long-term flag formation. It seems like that flag is coming to an end as the price doesn’t want to go lower than 1.505, which is currently a crucial support. As long, as the price stays above this area, the sentiment is positive and traders can think about a great risk to reward ratio.

We’ll end this with the EURCHF, which has been enjoying three great weeks. The price broke two crucial down trendlines and is currently aiming at a strong horizontal resistance, created by two Fibonacci levels: 23,6% and 38,2%. Furthermore, this area is strengthened by 2019 lows, so it seems like a great occasion to take profit action, for some at least.

For a look at all of today’s economic events, check out our economic calendar.

EUR/JPY Breaking Wizz 7 Zone and 120 Round Resistance

Dear traders, the EUR/JPY is building a triangle pattern in a large uptrend. Price was able to break above the Wizz 7 target. This indicates that an uptrend continuation is likely.

1 hour chart

EUR/JPY 1 hour chart

The EUR/JPY uptrend is clear when reviewing the moving averages (MAs): all of them are bullish aligned. Price has used the 21 ema zone (high & low) several times as a bouncing spot. The current triangle pattern could indicate another continuation. The wave count also suggests a potential wave 4 and wave 5 continuation (purple).

The main obstacle is the 120 round resistance level. Price will need to break that zone before a continuation towards Wizz 8 at 121 becomes feasible. The 176.4% Fib target at 120.25 could also cause a small pullback. A failure to break 120 could also indicate a larger pullback. But price remains in an uptrend as long as price stays above support (green box). A break below it invalidates the uptrend (red x).

EUR/JPY chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

 

Market Caution Returns on Vaccine Doubts

Healthcare news website Stat published a report on Moderna Inc, indicating that the American biotech company provided insufficient data. Such a development has raised doubts over the efficiency of a potential vaccine and this negative sentiment continues to be reflected across global stocks.

A darker mood certainly awaits financial markets as concerns revolving around the vaccine compound with global growth fears and renewed US-China trade tensions.

Yen positioned to gain on risk aversion

Expect the Japanese Yen to appreciate against G10 currencies if risk aversion makes a full-blown return.

Looking at the technicals, the USDJPY remains in a wide range on the daily charts with resistance at 108.00 and support at 106.60. An appreciating Yen may encourage a decline back towards 106.60 and 106.00, respectively.

Alternatively, a breakout above 108.00 could swing open the doors towards 109.00.

EURJPY eyes 118.50 resistance level

The EURJPY is in the process of a technical rebound with prices heading towards the 118.50 resistance level.

A solid breakout above this point may trigger a move higher towards 119.00 before sellers re-enter the scene. Given how the fundamentals are in favour of the Japanese Yen, the long-term outlook for the EURJPY points south.

If 118.50 proves to be reliable resistance, prices could sink back towards 117.00.

GBPJPY breakout setup still in play

It has been the same story with the GBPJPY as the currency pair trends within a wide range. All eyes will be on the support at 129.50 and resistance at 135.50.

The fundamentals moving the GBPJPY revolve around Brexit uncertainty, slowing global growth and risk aversion among many other themes.

A decisive breakdown and daily close above 133.00 should pave a path towards 135.50. Alternatively, if 133.00 proves to be reliable resistance, prices may move back towards 129.50.

Commodity spotlight – Gold

Gold is set to glitter this week as investors adopt a more guarded approach towards riskier assets.

The precious metal is finding comfort at levels not seen in more than seven years around $1750 and could push higher should risk-off make a full-blown return.

Focusing on the technicals, a move above $1765 could inspire an incline towards $1770.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

EUR Crosses Appear Fragile with EURUSD & EURJPY at Risk

Headlines that a new political row in Europe could eventually lead to a breakdown in the Euro are very premature, and it would take a number of other EU members to follow the path of the German court or even for Germany to threaten its own membership (even more unlikely) in order for a serious level of damage for the Euro to be in play.

For the meantime, the Euro has suffered against a few of its trading partners with both the EURUSD and EURJPY falling victim to the German court ruling.

The EURJPY has already declined to its lowest level since April 2017 on this development with further potential woes in the Euro threatening the EURJPY meeting levels not seen since 2016. The Daily and Weekly charts illustrate the negative state of momentum in play for the pair, with the Weekly candlestick low for week ending 16 April 2017 at 114.84 a level that can be met should the EURJPY fall below 115. It would take an acceleration in Euro fortunes to the downside for EURJPY to decline as far as 112.70 and perhaps even 114.40 should the situation for the Euro become far worse.

The situation in the EURUSD also appears bleak and the Eurodollar in recent days has fallen through the potential scenario previously highlighted here. Further support that can potentially be found should EURUSD momentum remain lower can be seen at the Daily low of 23 April at 1.0755 and the 24 April low marginally above 1.0726.

Elsewhere the GBPUSD has maintained a very quiet stance throughout the trading week so far. One risk that traders could be on the potential lookout for is whether the confirmation that the UK has now suffered the second highest world fatalities to the coronavirus in the world and highest in Europe increases the probability that the governmental lockdown in the United Kingdom will be extended.

If the GBPUSD does kick into a lower gear, possible support for the pair to find can be found at 1.2297 and 1.2204.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Yen Underwhelmed as BOJ Jumps on “Unlimited” Bandwagon

However, the BOJ has maintained its policy rate at minus 0.1 percent, while forecasting a GDP contraction between -5 to -3 percent for the year.

The relatively muted reaction in the Yen is perhaps because the announcement is seen as having little material impact on bond markets, with the BOJ’s purchasing momentum lagging behind its previous target of 80 trillion Yen prior to Monday’s pledge for “unlimited” purchases. This has fuelled criticisms that the BOJ has not been keeping up in ensuring enough policy support to curtail the economic damage left by the coronavirus outbreak. The central bank is also mindful of its limited policy space, while not lending too much upward pressure on the Japanese Yen, as export activities could be curtailed by a stronger JPY.

Markets could have another chance to react during BOJ Governor Haruhiko Kuroda’s press conference later today.

Central banks in race to unleash support measures

Stil, the BOJ’s Monday announcement was in line with other major central banks, such as the Federal Reserve and the European Central Bank, who have used unprecendented monetary policy measures to support their respective economies in the wake of Covid-19. The BOJ likely moved ahead of the ECB and Fed’s scheduled policy decisions later this week, in order to not be seen as lagging behind its major peers when rolling out more supportive measures, in which case could have resulted in a massive Yen surge.

The BOJ announcement also failed to excite EURJPY, which is holding steady around the 116.3 mark. The European Central Bank, which has a policy decision due Thursday, is widely expected to ramp up its emergency bond-buying programme over the coming months. This year, the ECB could end up buying over 1.5 trillion Euros worth of assets to support the EU economy that is set to see the sharpest recession in its history.

Despite EURJPY having clawed its way back up in recent sessions, it should not detract significantly from the overall downward bias for the Euro, amid forecasts of a EU economyic contraction of up to 15 percent this year, versus the overall risk aversion that is set to be supportive for safe haven assets, such as the Japanese Yen.

Open your FXTM account today


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

EUR/JPY Bearish Move as SHS Pattern Progresses

Dear Traders,

The EUR/JPY shows bearish continuation signs. The price is very bearish as the shoulder-head-shoulder pattern progresses.

We can see on the chart a giant head and shoulders pattern. 117.50 zone is the bottom of the right shoulder and we should see a move lower. The 4h timeframe shows a clear bearish momentum too where 116.60 is support. This is the final target for the intra week swing move. A close below 116.60 and the price will continue to 116.00 and lower.

The Analysis has been done with the CAMMACD.Core and Sit Systems

USD/JPY Price Forecast – US Dollar Breaks Down Slightly Against Japanese Yen

The US dollar dropped a bit against the Japanese yen during early trading on Monday as most banks around the world were closed. Ultimately, it seems as if the market is drifting a bit lower towards perhaps the ¥107 level. If the market breaks down below there, then it’s likely that the next target will be the ¥105 level, possibly even the ¥102 level. In the short term, I believe that the market will continue to be very choppy, but overall I feel that this pair is a bit more neutral than anything else. I think at this point we are probably looking at a scenario where you can probably use this chart as an indicator of Japanese yen strength or weakness. Ultimately, I think that this is best used as a way to decide how to trade other pairs like AUD/JPY and EUR/JPY.

USD/JPY Video 14.04.20

I believe that the upside is probably protected by the ¥111 level, extending to the ¥112 level. If we were to break above that level, then we certainly could go much higher. I am a bit suspicious about any move towards that area, because it would certainly be a major “risk on” environment, something that has supposedly been thrown into the marketplace due to the Federal Reserve and all of its injection of liquidity, but notice how this pair has moved along with that. Something isn’t quite right so it’s best to leave this particular pair alone in the short term.

EUR/JPY Is Bullish While Above The Trend Line

Dear Traders,

The EUR/JPY is trying to break higher above the trend line. If the price succeeds in staying above, then the next target could be W H5.

120.55-70 zone should provide buyers with fresh momentum. If the market gets addiotional impulse we should see a continuation towards 120.85. Above 120.85 we should see a push towards 121.30 and 121.56. Ideally, the price should not drop below 120.00 for this scenario to succeed. The recovery in EUR/JPY also puts the price in the risk on mode and the equities might go up too.

The Analysis has been done with the CAMMACD.Core and Sit Systems

 

USD/JPY Weekly Price Forecast – US Dollar Has Wild Week Against Yen

The US dollar has pulled back a bit to kick off the week, but then shot straight up in the air as the demand for the US dollar continue to pick up. Even though the risk appetite has been decidedly negative, the Japanese yen has suffered at the hands of the greenback, which is by far the most favored currency in the world right now. Having said all of that, the ¥112 level looks to be very resistive, so I think it’s only a matter of time before we rollover.

USD/JPY Video 23.03.20

Looking at the size of the candle, it shows just how volatile the markets are, and have been for the last couple of weeks. I think we are trying to carve out some type of range year, and for what it’s worth the US Dollar Index is getting extraordinarily overextended, which should weigh upon this market as well. While I don’t necessarily like shorting the US dollar, I do think that the Japanese yen is far oversold. It’s very likely that we go looking towards the ¥108 level on signs of weakness, possibly even as low as the ¥105 level.

Keep an eye on the yen related currency crosses out there, and I think that paying attention to this chart may lead to opportunities in pairs such as AUD/JPY, EUR/JPY, and the like. Remember, this is one easy way to measure the overall strength of the Japanese yen in can be extrapolated to other markets.

Fed Intervened to Prevent Financial Crisis, Not to Save the Stock Market

Last Thursday, the U.S. Federal Reserve made a dramatic move to stabilize the financial system that many thought represented a stock market bailout. The Twitter-world was fast to call it a bailout with some tweeters suggesting if the Fed has enough money to bail out the stock market then why not those ordinary folks holding student loan debt or common mortgages. However, the real reason the Fed injected about $1.5 trillion into the debt markets was to keep them from collapsing in the face of the rapidly spreading coronavirus mania.

Were the debt markets on the brink of collapse? We’ll never know, but what we do know is the call was close enough to cause the Fed to take aggressive action. It also highlights how fast conditions can change even in a highly regulated marketplace. It was important for the Fed to act quickly because of lessons learned during the 2008-2009 financial crisis, where credit markets seized up, ultimately putting a couple of major brokerage firms out of business, forcing mergers and leading to the biggest bailout of the U.S. financial markets in history.

In short, the Fed did not flood the market with cash to save the benchmark S&P 500 Index from crashing or widely-held Amazon shares from wiping out small-investor 401K accounts. Its aggressive move was not meant to save the few, but to save the many from a major collapse of the vital Treasury market. This move was designed to prevent another financial crisis.

Every day, small banks, big banks, brokerage firms, hedge funds, money markets and the Federal Reserve participate in the repurchase agreement or repo market. The world’s financial institutions use this type of transaction to fund themselves using government debt as collateral. Due to the excessive demand for Treasurys, liquidity has become a major issue. Essentially, if the repo market seizes up for some reason, much of the financial system will cease to function. This occurred during the 2008 financial crisis which is often described as a “run on the repo market.”

So the Fed didn’t bailout the market last week, it provided liquidity to a major market that became less liquid as financial firms gobbled up safe-haven Treasurys as protection during the coronavirus crisis that turned our bull markets into bear markets in a matter of weeks.

With the major investors taking cash out of the markets by buying Treasurys, the Fed made a move to address this shortage by putting cash back into the market.

I wrote on March 10 that investors should ignore the headlines and focus on the direction of Treasury yields. “Looking at the short-term, stocks could continue to retrace their recent break if yields continue to rise. That’s the simplest forecast.”

Stocks closed lower last week, but Treasury yields moved higher. Some of the selling in the stock market was related to investors making adjustments to lower earnings. This is normal. What isn’t normal is a stock market crash and that aggressive selling was being fueled by fears of a financial crisis, not only a recession.

Now that the Fed has stepped in to provide liquidity, the Treasury bond buying could subside. So we could actually see yields and stocks rise at the same time. (I know, it’s not what you’ve been used to seeing.) Furthermore, rising yields and stocks could also pressure other safe-havens like the Swiss Franc and Japanese Yen. Gold could continue to tumble as rising rates drive up the U.S. Dollar, making dollar-denominated gold a less-desirable asset.

In summary, the Fed didn’t intervene last week to save the stock market, it moved to save the financial system. And it probably made the best move at the right time. Just look at how many markets were impacted by its move to make liquidity available. If conditions worsen, don’t be surprised if the Fed does it again.

Put that in your trading toolbox:  Fed intervention, yields rise, stock selling subsides, dollar rises, and safe-haven bonds and Japanese Yen break. Gold, well with yields rising, gains are likely to remain caps and losses could grow.

Fed monetary liquidity is good news. Massive government fiscal stimulus will be next. Hopefully, the Fed and the government can get on the same page and provide a double-dose of stimulus simultaneously.

Why Euro Is So Strong?

A lot of people are wondering why the Euro is surging in the past few weeks. Coronavirus is spreading heavily across the Old Continent and nobody really have a strong plan how to stop it. What is more, many of the leading European companies will be heavy hit by the situation in China, where for example the demand for the new cars absolutely collapsed. And what is Euro doing here? Climbing to the highest levels since July.

Sometimes movements on the market does not really have an explanation. It is foolish to assume that every market movement needs to have a reason. Sometimes it is a combination of various factors. In the media, the recent strength of the EURUSD is contributed to the few factors.

First one, it is a weakness of the USD itself. FED cut rates and traders are expecting that it will cut those rates even further in the nearest future. On the other hand, ECB is doing nothing, saying that the stimulus to fight the virus should be fiscal, not a monetary one.

What is more, some traders are saying that it comes from the fact that investors from Wall Street are taking profits, selling stocks and in the same time, planning to move part of their capital outside of the US.

In addition to this, some experts say that rising Euro has to do with the reverse of the carry trades. During happy times, traders often engage in the carry trades, so buying currencies with higher rates (usually EM currencies) and selling those with lower rates (Euro in this case). Now, in times of uncertainty, traders want their money back and they are simply closing those trades, so in consequence, buying back the Euro. Good example of this can be seen on the Euro with Mexican Peso.

Furthermore, I would add a technical reason here. This week, EURUSD managed to break two major, long-term down trendlines, which definitely triggered some pending orders, accelerating the original movement.

On the other hand, Euro did not become a safe haven asset overnight. Some part of the movement can be contributed to the escape towards liquidity but Euro did not replace the Swiss Franc or Yen. At least for now and this can be clearly seen on the EURJPY and EURCHF charts, which are still close to the long-term lows.

Show Must Go On. S&P 500, Gold and EUR/JPY

Did you wonder what will be the cause of the next recession? As for now, that will not be a war between Iran and US and it will not be a Coronavirus. Stock traders made that pretty clear – they are no longer interested in this topic. Fair enough, after a short break, time to focus on the central banks again.

Traders on the SP500 are still voracious. If you saw or read our previous analysis, it should not be a surprise for You. New all-time highs are a fact and something tells me that it is still not the last time that buyers are celebrating this achievement.

If traders are so optimistic, gold should be like a hot potato, which nobody wants to hold in his hands. Wrong. Even stronger USD is not killing the bullish vibe here. Yes, the price creating a right shoulder of the head and shoulders pattern but we are still relatively high. As long as we stay above the major up trendline, buyers seem safe.

Last one will be a very handsome setup on the EURJPY. Beginning of February started with a crucial test of the resistances broken at the end of January. Test was positive for the sellers as the price bounced and went lower. Sentiment is definitely negative, just look at this: we are below the horizontal resistance on the 122.7, long-term down trendline and lower line of the wedge and a flag. Very rarely you can see more bearish setup than that.

Three long-term Forex occasions. EURJPY, AUDJPY and CADCHF

Traders are slowly getting bored with the Coronavirus. In financial media, this topic is mentioned less frequently and slowly, the attention of the market participants is being shifted towards the other information. This allowed to perform a bullish correction on the indices and a bearish one on safe heavens. Today, we will show you long-term situation on the three currency pairs, where we could spot interesting trading opportunities.

First one is the EURJPY, where the recent pursuit to safe heavens increased the appetite for Yen and triggered a negative sentiment. It all started with the bounce from the 122.8 and the upper line of the wedge. Wedge is a trend continuation pattern, so it was naturally promoting the breakout to the downside. It happened on the 24th of February and after that, the price created a small rectangle. This rectangle is promoting a further slide and this is our current outlook on this instrument.

Similar setup can be found on the AUDJPY, where the price also bounced from the horizontal resistance and later broke the lower line of the correction pattern. In this case, it was a flag. What is different is the price movement after the breakout. On AUDJPY the price dropped like a rock, without a pause like on the EURJPY. Well, Australian Dollar is simply much weaker right now. Today, the price tries to initiate the correction but we are not convinced about the durability of this movement.

Last week was absolutely crucial for the CADCHF and you need to look on the weekly chart to understand why. After few weeks of a decline, the price eventually broke the lower line of the massive symmetric triangle pattern. In theory, that can start a new long-term down trend on this instrument. As long as we stay below the triangle, the sentiment remains negative.