GBP/USD fell during the session on Monday as the markets went into the “risk off” trade. The Pound does enjoy support at the 1.55 level, and the bounce during the later hours of the session on Monday show this by forming a hammer for the daily candle.
The UK is simply far too exposed to the European Union for us to feel comfortable owning it for any real length of time. The Dollar is strong around the markets, and as a result we aren’t very keen to sell it. This means that we will only sell this pair, but the fact that it is sitting on a massive support zone keeps us out of this pair currently. The support area starts at 1.55, and goes down to the 1.53 handle. The area being broken would have serious ramifications for the strength of this pair.
The 1.53 level being closed below on the daily chart would be a breakdown of a massive head and shoulders pattern that measures down to the 1.41 level. The pair is going to face pressure going forward as the headlines out of Europe fail to relieve nerves for traders around the world. The UK banks unfortunately are going to be heavily exposed to the EU debt crisis, and the EU makes up over 30% of British exports. Both of these factors are going to weight on the strength of the UK economy, and by extension – the Pound itself.
The pair has enjoyed a bounce over the last several months, but the downtrend does seem to be continuing. Because of this, we are selling only, and will certainly do so hand over fist if we do get below the 1.53 level. The Pound should continue to suffer at the hands of the buying of US Treasuries, which are presently enjoying some of the largest bid-to-cover ratios in history. The Pound, while still a viable currency overall, is going to play second fiddle to the Dollar for the foreseeable future as the world simply is far too risk-adverse at this point to buy.
EUR/GBP fell on Monday as the Euro continues to concern traders as a whole. The market looks very weak, and the recent breakdown below the 0.85 level sends a very bearish tone in this market. The breaking lower of this pair would send it to the 0.80 level, and rallies are simply going to be invitations to sell from higher levels. With all of this in mind, we are selling on a break lower or after rallies as long as we stay under the aforementioned 0.85 level.
USD/CHF had a very quiet session on Monday as traders are starting to think of holidays, and not so much of economics. The pair continues to find support at the 0.93 level, and this is just below where the market sits presently. The 0.95 level will also be resistive, but only as a minor level in our opinion. The Swiss are working against their own currency, and the Dollar is the safest trade out there, so this should continue to put upward pressure on this pair over time. We are buying dips, but only with the knowledge of it being a slow grind higher, not a straight shot. We won’t sell – the SNB is working against that trade.
EUR/CHF fell on Monday as traders continue to run from the Euro in general. The fact that the Swiss National Bank is working against the value of the Franc against the Euro and the pair still falls says plenty about the state of the Euro presently. The volumes are light, but the signal is there – you simply cannot buy this pair at the moment. However, the SNB is going to defend the 1.20 level, and the pair is difficult to trade for anything more than a scalp at this point. Presently, we see so much weakness that we are not willing to buy until we get closer to the SNB-imposed floor in this pair.
AUD/USD fell hard on Monday as the commodity trade was hit fairly hard. The “risk off” trade came back into vogue during the session, and the afternoon in the US saw an acceleration of this move. The Aussie will often suffer at the hands of a “risk off” trade, and as a result it was no real surprise we saw this pair fall.
The breaking of the lows on Thursday signals a move down to the 0.97 level to fill the gap from a couple of weekends back, and we think this is what happens next. We are selling rallies, and a breakdown to fill the gap for a quick profitable short trade.
USD/CAD had a volatile session on Monday as the market closed in an unchanged manner. The range was somewhat extended, but the more important fact is that the 1.03 level has continued to hold as support. The chart looks bullish, and the oil markets are looking weak. As oil wells off, the Canadian dollar does as well. The 1.05 level looks to be resistance in this pair, and the 1.07 level above it should be as well. The braking of the 1.05 leads to the 1.07, and the breaking of the 1.07 level leads to the 1.10 level. The pair looks ready to rally, but there is a lot of pressure to the downside in this pair, so it will be more of a grind than a run. We buy dips as long as we stay above 1.03 or so. We are not selling until we get below the 0.99 level in this pair.
NZD/USD fell on Monday as the commodity trade got hit. The markets sold all risk assets, and the Kiwi is always going to lose in that situation. The NZD/USD is very sensitive to this trade as the Dollar is the ultimate “safe haven” for currency traders.
The 0.75 level below could provide some support, but the gap from a couple of weekends ago still hasn’t been filled. The markets are very headline sensitive as the EU situation suggests that the bad news hasn’t ended. The breakdown of all risk assets should continue, and the low volume that we see in the markets could provide fireworks in the near future as this pair is already less liquid than most of the majors. The pair has us selling rallies, and not buying at all as the headline risks are too great. We like selling also if the gap gets broken below as well, as it would be a massively bearish signal.
The CL market had a very quiet session on Monday as the markets took a breather in the energy sectors. The oil markets will continue to be pressured to the downside if the economic numbers out of China continue to show a slowdown in the economic over there, and the situation in the EU also certainly isn’t helping. The market will find a ton of support at $90, but the overall bias is down at this point. We are selling rallies as they appear at this point in time.
Brent markets have literally stalled over the last three sessions as the $102.50 level is showing signs of either support, or simple selling exhaustion. The market still looks very heavy, and we think the real support isn’t until we get to the $95 level below. With this in mind, we are selling rallies in this market as well.
The natural gas markets fell during the Monday session. The market fell as low as $3.05, and the downtrend continues to pressure the market lower. However, the larger picture has a consolidation from earlier this year between the $5 and $4 levels suggesting a $3 target. The move has been close enough for us, and as a result we are expecting some kind of decent bounce at this point. Also, being so close to the end of the year, there is also a high probability of traders taking profits now that we are at the end of the year.
The traders that have been short of this market have had a massively strong year, and in the overall market – profits like this are hard to give back. Because of this, there is a good chance we see this market rise as a short covering rally should be seen. Either way, the volume will be very light, and this always produces a chance of a super spike in markets like this. The entirety of all of these facts has us concerned about selling, but you cannot buy it based upon what it “might” do.
The natural gas markets still remain a “sell only” market for us as the US has over 14 Trillion Cubic Feet of proven reserves presently that aren’t even out of the ground yet. Because of this, it would take something pretty massive to have the market rise for any length of time. The markets will bounce of course, but as it has been in the past – it will more than likely continue to be so next year. However, as the professional traders all go on holiday for the end of the year, the markets will behave more and more erratically. The higher the market rises in any short covering rally should simply provide better profits being a seller next year.
With all of this in mind, we are sellers of natural gas, but at higher levels and look very forward to seeing this market bounce quite a bit as it will almost undoubtedly produce nice profits in the near future.
Gold markets rose slightly on Monday as the value investor stepped into the markets after massive losses over the previous week. The $1,550 level has acted as support, and is the center of the entirety of the support zone we have marked from $1,500 to $1,600. The area should be very supportive, and with this long-term uptrend still intact, the market is most likely to bounce from this point. Because of this, we want to buy for a bounce. The real move probably won’t happen until 2012, so we will be quick to move stop losses up to break even if we are profitable. A break below the $1,500 level would be very bearish.
EUR/USD rose slightly on Friday as traders did a bit of profit taking before the weekend. However, the options markets are showing that the net short positions in the Euro are at all-time highs, suggesting that the outlook for the common currency is getting worse. The Moody’s credit agency downgraded Belgium by two notches after the stock markets closed, and this chart doesn’t reflect any possible reaction to this move. The markets are expecting several downgrades in the EU, so it is hard to determine whether or not the Euro will sell off based upon this.
The 1.30 has historically been a big deal, and the fact that it has held shouldn’t be ignored. However, the real target to break through is actually 1.29, as it is the bottom of the support “zone” that is currently holding the Euro up. If we break below that level – 1.25 is almost a certainty at that point. The headline risks out of the EU should continue to plague the markets and all risk related assets are to be treated with suspicion, and this now includes the Euro. The next few weeks will be very low volume, and as a result – the moves could be exaggerated and extreme on headlines. The later in the week we get, the less the volume will be, creating a dangerous environment to say the least.
The outlook for the Euro is going to be heavily tied to these upcoming downgrades. It really comes down to one country: Germany. If the Germans get whacked by the agencies, we could see serious selling in this pair. The Germans are the one piece of the puzzle that everyone still thinks is solid, and if that gives way, there isn’t much left at that point. The next few days will offer many chances for the agencies to do this, so news flow will be even more important in this pair than ever. The selling of rallies is how we are playing this pair, and we will not buy it until we see significant progress in Europe on the debt issues – something that likely won’t happen in the next few weeks.
USD/JPY fell on Friday as traders sold off the Dollar in general. The pair did bounce towards the end of the session though, and the resulting candle for the session was a hammer. The lows are getting higher, so this pair looks like it wants to rise over time, but the 78.50 area above is massively resistive. The pair may be seeing the results of yearend short covering at this point, and no rallies will be overly impressive until the 80 level gets broken, which we have as a massive resistance area. In the mean time, we are waiting for rallies that show weakness to sell.
GBP/USD saw a fairly muted move on Friday as the markets overall tried to rally. However, the “risk on” traders we stymied by the end of the bell as the stock markets ended up fairly flat. The 1.55 level is certainly supportive, and in fact goes all the way back to 1.53 as the bottom of support. The markets could be very difficult to sell until we get below that mark. The 1.57 level above looks like the top of the range, and with the new year coming so soon – we think that the most likely path is sideways at this point and would suggest that playing the 200 pip range might be the way to go.
EUR/GBP had a third consecutive quiet session on Friday as traders took a break from the onslaught that happened earlier in the week. The session shows that the market is focused in the 0.84 level as the market hasn’t been able to move. The break below the 0.85 level was massively supportive, and a break below that signals more weakness going ahead. The pair is a “sell only” pair now, and we are selling rallies at this point, or a break below 0.8360 or so. We will not buy this pair.
USD/CHF fell on Friday as traders continue to buy back the Franc after the lack of a rise in the “floor” of the EUR/CHF pair. Traders had expected the Swiss National Bank to raise the minimum accepted rate in this pair, forcing the world to sell of the Franc again. The announcement didn’t happen on Thursday, and as a result the speculators that tried to anticipate the move got burnt.
The pair should continue to rise over time though, as the US economy is much better off than Switzerland’s. The Swiss have the unfortunately problem of having the EU as it’s number one export market, and massively so. If your best customer is broke, you aren’t going to be selling much. The Swiss economy is more than likely going into recession, and as a result the Franc will continue to be sold off over time.
The Dollar also enjoys being the “safe haven” currency du jour at the moment, and the Franc cannot be so like it was traditionally because of the actions of the central bank. Because of this, we have a situation where the pair can really only go in one direction over the long term. This will sit well with many traders as this pair is less prone to exaggerated moves, and a steady stair step type move up has been found over the last couple of months. This is the epitome of what many traders are looking for. In this financial environment, it’s a rare thing to see steady markets in anything.
The European Union would have to get its act together to think that the Swiss will walk away from all of this unharmed. The truth is that the trend in this pair has changed on the longer-term charts as well, and as a result we like buying dips in this pair. The market seems to agree with this thesis, so it is the one we will stick with. As long as we are over the 0.85 mark, we think the uptrend is still intact in this pair.
EUR/CHF fell on Friday as the gap from November has been closed. The area should provide support now, but the close of the candle was at the extreme low. The 1.22 level is also the bottom of the range, and this could be a buying opportunity if we get supportive action on a shorter time frame. Although owning the Euro doesn’t feel good, the Swiss National Bank is sitting below, and the 1.20 level won’t be broken without attracting the central bank’s attention. The pair should continue to grind sideways overall.
AUD/USD fell below the parity level a few sessions ago, and Friday saw a very bearish candle as the day saw an attempt to rally above that parity level, only to form a shooting star at the close. The failure to rally above that parity level shows just how difficult it will be for the bulls to get back above that mark. The market looks very likely to continue lower to fill that gap form a couple of weekends ago, and we are selling weakness in order to join that move. We are not buying the Aussie at all in this environment of fear.
On Friday, the USD/CAD pair managed to retest the 1.03 level as support and finished the day on a positive note. The oil markets are presently going to be the tell for the pair as the Brent market in particular looks very weak. The Loonie is heavily influenced by this commodity, and as long as there is pressure on the oil markets, there will be upward pressure on this pair.
The Dollar is enjoying a bid in this “risk off” environment, and as long as the EU is struggling with this crisis, there will remain strong demand for Dollars. This keeps us from selling Dollar related assets currently, and especially against the commodity currencies like the Loonie. As long as we can keep above the 1.03 level, we are buying dips.
NZD/USD had a bullish day on Friday as the markets bought the “risk on” move for most of the day. The resulting candle was a decent green one, but the end of the day did give back some of its gains. The risk off trade is always ready to come back into the market, so we are more inclined to sell this pair over time, but waiting for rallies that show weakness going forward. We are not interested in buying at this point in time as the headlines are always liable to be bearish for risk in general these days, and the highs are getting lower.
EUR/USD had a very bearish week as traders pushed the market to retest the 1.30 level for support. The level did hold, but the candle closed very near the lows for the week. The lack of enthusiasm in buying at the level also suggests that the pair is going to have a very hard time in rallying going forward as there are simply far too many negative headlines coming out of Europe to make traders want to buy the Euro presently. Because of this, we want to sell, but there is significant support below this area down to the 1.29 level, and we are looking for rallies to sell from. A break below the 1.29 level on the daily close would also have us selling. We will not buy at all.