NZD/USD Forecast December 16, 2011, Technical Analysis

NZD/USD bounced on Thursday as it was left sitting at the all-important 0.75 level from its current fall. The level is the start of a gap, and while the gap hasn’t been filled, the top of a gap is often supportive as well. Add this to the 0.75 large round number and a bounce was probably always going to happen. However, the directional bias should still be down as the world continues to shun risk taking currently, and the Kiwi is so tied to the commodity trade.

The breaking lower of this pair would be expected, but we want to see the gap not only get closed, but see the pair trade lower than the bottom of that gap in order to add short positions at this point in time. We won’t buy this pair, but would be interested in selling any weakness that appears nearer to the 0.73 level.

NZD/USD Forecast December 16, 2011, Technical Analysis
NZD/USD Forecast December 16, 2011, Technical Analysis

GBP/USD Forecast December 16, 2011, Technical Analysis

The GBP/USD pair had a mildly bullish day on Thursday as it sits on the 1.55 support line. The area is actually 200 pips thick, and there is certainly massive support at the region. With this in mind, we aren’t keen to sell now, but don’t necessarily look to buy either as the “risk on” nature of the pair doesn’t jive well with current market conditions. The pair is to be sold, but we need to see a rally first in order to do so. 1.57 still looks very resistive, and we are more likely to sell up at that level.

GBP/USD Forecast December 16, 2011, Technical Analysis
GBP/USD Forecast December 16, 2011, Technical Analysis

EUR/USD Forecast December 16, 2011, Technical Analysis

EUR/USD had a fairly quiet day during the Thursday session as the 1.30 level came into play to offer support. The area is a major one, and the 1.29 would need to be broken in order to consider the next move down. With this in mind, it is likely that we will see either a bounce or a sideways grind for the near-term.

Because of this, we are currently flat in this market. Although there is significant bearish attitudes towards the Euro at the moment, the area should entice value investors looking for the Euro on the cheap. Breaking below the 1.29 level has us selling, while we won’t buy at the moment. We also would sell rallies that fail up above at the 1.32 to 1.33 range.

EUR/USD Forecast December 16, 2011, Technical Analysis
EUR/USD Forecast December 16, 2011, Technical Analysis

EUR/GBP Forecast December 16, 2011, Technical Analysis

EUR/GBP had a very flat day on the session as traders took a breather on Thursday. The recent fall has been fairly severe, and the market needed a period of rest. The 0.85 level above giving way was a serious breach of support, and the bias is certainly to the downside. With that in mind, we are selling rallies and new lows. We will not buy the Euro at all currently, and that includes against the Pound.

EUR/GBP Forecast December 16, 2011, Technical Analysis
EUR/GBP Forecast December 16, 2011, Technical Analysis

EUR/CHF Forecast December 16, 2011, Technical Analysis

The EUR/CHF pair has been stuck in a range for quite some time now, but the Thursday session might have been the first real attempt to break out of it. The pair fell as the Swiss National Bank offered no new remarks about lifting the “floor” it has imposed in this pair at the 1.20 level. The market had speculated that the pair could be forced back above the 1.25 or even 1.30 level during the meeting of the SNB on Thursday.

The gap from early November has been filled as of close of business on Thursday. This pair now will decide if the range comes back into play, as this is the bottom of it, or if it is going to try and break even lower – perhaps to retest the 1.20 area that the SNB has promised to defend. The market typically will take on single central banks, but this pair is illiquid enough that the SNB actually can cause extreme havoc to short positions.

The Swiss economy looks to be going into recession, as their biggest customer Europe is as well. The Franc should by all means devalue naturally, but the Euro is so toxic currently that the desire to buy it for any real length of time doesn’t exist. The 1.25 level has been formidable over the last three months or so, and should continue to be. A close on the daily chart above that level would be the kind of signal that only comes around every few years – a long-term one that can be held onto. Until that happens, the best strategy will continue to be playing the range for short-term scalps between the 1.24 and 1.22 levels, and assuming the market will stay in that range by selling at the highs and buying at the lows.

Until the European Union figures out long-term solutions to the debt crisis, it is unlikely that any sustained move can be achieved in this pair. In fact, it is very possible this pair will go flat for months now, as the EU simply doesn’t look set to figure out their problems.

EUR/CHF Forecast December 16, 2011, Technical Analysis
EUR/CHF Forecast December 16, 2011, Technical Analysis

AUD/USD Forecast December 16, 2011, Technical Analysis

AUD/USD rose during the session on Thursday to retest the parity level as resistance. As the level was former support, this is very common from a technical perspective. The resulting daily candle was a shooting star, and this shows a failure to rally at this point. The parity level has held up as resistance, and the market is looking weak yet again.

The gap from two weekends ago goes all the way down to the 0.97 level, and this is where the market looks to be heading next. The real question now is whether or not that level holds as support, or if it gives way. It is does give way, this would be a massively bearish signal in this pair going forward.

A breaking of the bottom of the Thursday session would be a sell signal, and we are willing to sell short-term rallies as well. We won’t buy the Aussie it simply looks far too vulnerable at the moment. The commodity trade has been getting hit hard, and the Aussie has been suffering as a result. The recent sessions have seen a harsh selloff in this pair, the kind that never happens in a vacuum. With this mind, we are very bearish of this pair at the moment.

The failure to break above parity a second time would only embolden our shorting bias, and have us adding to our sell positions. The pair may continue to struggle going forward as well as the global demand for many raw materials appears to be cooling. With the Chinese economy slowing down, Australian miners are seeing less demand from their number one customer. The trend looks likely to continue as the Chinese are seeing their number one customer, Europe, fall into recession. All of this adds up to potentially slower growth around the world, and this should continue to plague the high-flying Aussie. Until the EU gets the debt problems under control, it is very likely that all rallies in this pair will simply be selling opportunities in the long run. The pair is to be sold only at this point.

AUD/USD Forecast December 16, 2011, Technical Analysis
AUD/USD Forecast December 16, 2011, Technical Analysis

EUR/USD Forecast December 15, 2011, Technical Analysis

EUR/USD fell again on Wednesday as the FX community continues to shun the EU and the “solutions” that the region keeps coming up with. The 1.30 level has been broken, but the candle for the session looks slightly supportive, suggesting that we could see a bounce from this obviously important support level. The rallies in this pair should continue to offer selling set ups, and as a result – we are willing to sell them in the future. We won’t buy this pair with the myriad of problems coming out of the EU presently.

The 1.30 level goes back quite some time in history as a significant support and resistance zone, so a move from here wouldn’t be much of a surprise to be honest. The Euro should continue to be plagued by the debt issues, and even if that series of seemingly impossible problems get resolved – there is still the issue of the region going into recession in the near future. Adding to this problem is the fact that the ECB should continue to cut rates, and you have absolutely no real reason to own the Euro now.

The bounce that could be coming should be sold into, especially if we see weakness near the 1.32 level which was previous support. The breakdown over the last three days should offer some kind of pullback, and it is this pullback that we think will have more people stepping in to sell this pair off.

The Dollar is the currency that everyone wants to own at the moment, and as long as that is the case, there will be no real reason to sell it against anything – let alone the epicenter of all of the problems like the Euro. The crisis is likely to continue into the New Year, and as a result we think this pair should start trending fairly nicely. If we can get a break below the 1.29 level, we believe the 1.25 level will be the next serious support level. We cannot imagine buying this pair unless it closes on a daily chart above the 1.35 level.

EUR/USD Forecast December 15, 2011, Technical Analysis
EUR/USD Forecast December 15, 2011, Technical Analysis

USD/JPY Forecast December 15, 2011, Technical Analysis

USD/JPY rose a bit on Wednesday, but continues to be pressured to the downside overall in this market. The Bank of Japan has intervened several times in this pair, but at much lower levels. Because of this, we prefer selling at these higher levels, and will continue to do so until we see a daily close above the 0.8000 level. The pair looks very strong lately, but overall – this pair is very bearish.

USD/JPY Forecast December 15, 2011, Technical Analysis
USD/JPY Forecast December 15, 2011, Technical Analysis

GBP/USD Forecast December 15, 2011, Technical Analysis

GBP/USD had a tumultuous session on Wednesday as traders continue to weigh the “risk” trade in this environment. The 1.55 level is the start of a massive support, and it runs all the way down to the 1.53 level. This area should continue to give the market a bit of a lift, but the action has been quite bearish as of late, and we think it is only a matter of time before it gives way. The breaking of the 1.53 level would be a massively bearish signal, and would have us aggressively short. The rallies in this pair will continue to be sold by us until we break above the 1.57 level.

GBP/USD Forecast December 15, 2011, Technical Analysis
GBP/USD Forecast December 15, 2011, Technical Analysis

EUR/GBP Forecast December 15, 2011, Technical Analysis

EUR/GBP fell again on Wednesday as the Euro continues to fall against most other currencies. The problems in the EU continue to worry the markets, and the EUR/GBP speaks volumes as the market isn’t exactly enamored by the Pound either. The candle looks a bit supportive at the 0.84 level, and a bounce would be viewed as a selling opportunity. The 0.85 level could be retested to check for resistance in the near future, and a failure would be a massive sell signal. We are selling rallies, and will not buy this pair.

EUR/GBP Forecast December 15, 2011, Technical Analysis
EUR/GBP Forecast December 15, 2011, Technical Analysis

USD/CHF Forecast December 15, 2011, Technical Analysis

USD/CHF broke through the 0.95 level on Wednesday as the world still continues to buy the Dollar while avoiding a conflict against the Swiss National Bank and their distaste for Franc appreciation. The move recently has been a bit overdone, and a pullback will be more than likely end up being a chance to buy this pair. 0.93 was once resistance, and now it should be support at this point. We are looking to buy pullbacks at this point, and will not sell.

USD/CHF Forecast December 15, 2011, Technical Analysis
USD/CHF Forecast December 15, 2011, Technical Analysis

EUR/CHF Forecast December 15, 2011, Technical Analysis

The EUR/CHF pair rose during the session on Wednesday as the market continues to grind back and forth in the 1.22 to 1.24 range. The pair is supported by the Swiss National Bank, and should continue to be so going into the future. The 1.25 level cannot be broken, and to be honest it makes sense as the Euro isn’t a place we would want to invest in. The daily close above the 1.25 level has us long of this pair, otherwise we simply wait.

EUR/CHF Forecast December 15, 2011, Technical Analysis
EUR/CHF Forecast December 15, 2011, Technical Analysis

AUD/USD Forecast December 15, 2011, Technical Analysis

AUD/USD fell on Wednesday as the risk off trade came back into vogue again. The parity level has been broken though, and the gap from two weekends ago looks set to be filled. The 0.97 level looks to be the target and knowing this we are willing to sell rallies and a break below the Wednesday low. The pair cannot be bought at this point in time as the commodities markets are falling apart presently. The Aussie will continue to get punished in this “risk off” environment.

AUD/USD Forecast December 15, 2011, Technical Analysis
AUD/USD Forecast December 15, 2011, Technical Analysis

USD/CAD Forecast December 15, 2011, Technical Analysis

USD/CAD rose again on Wednesday as the oil markets absolutely cratered. The selling of oil often will drive the value of the Canadian dollar down, and Wednesday wasn’t any different. The 1.03 level below could offer support at this point as it has been important several times lately. The 1.05 level will more than likely be resistive, and a pullback at this point would be welcomed. The pullback and showing of support at 1.03 has us buying this pair aggressively. We are not willing to sell, and don’t want to buy at this level as it is simply far too overextended at this point.

USD/CAD Forecast December 15, 2011, Technical Analysis
USD/CAD Forecast December 15, 2011, Technical Analysis

NZD/USD Forecast December 15, 2011, Technical Analysis

NZD/USD continued to fall on Wednesday as traders sold off commodities in general. The Kiwi will always move with the commodity markets over time, and this pushed the pair much lower. The gap from two weekends ago is now being approached, and filling it almost seems a foregone conclusion. The real test will be whether or not the NZD/USD can break below the 0.73 or not. The breaking below that would be extremely bearish. With this recent move, we are willing to sell rallies in this pair, and have no interest in buying at this point.

NZD/USD Forecast December 15, 2011, Technical Analysis
NZD/USD Forecast December 15, 2011, Technical Analysis

Oil Forecast December 15th, 2011, Technical Analysis

Light Sweet Crude

The CL market fell all the way down to the $95 support level on Wednesday as the markets sold off all commodities across the board. The Euro is falling apart, and the Dollar is getting bid up against everything. The level is the beginning of massive support, but with a move like this – it is hard to buy on blind faith. The result is that we are willing to sell after rallies now as the market looks weak suddenly. $90 below is also a possible support level.

Oil Forecast December 15th, 2011, Technical Analysis
Oil Forecast December 15th, 2011, Technical Analysis

Brent

The Brent market smashed through the $105 level on Wednesday as the markets sold off in a tremendously violent fashion. The volume was extremely high, and as a result we think the path of least resistance now is going to be down. The $100 mark a bit lower could possibly provide some kind of support due to the psychological significance of the number, but there are no real signs of massive support at that area, and any bounce form there will be viewed with suspicion.

With the slowing of Europe and China, the oil markets will have a hard time justifying bidding prices up again. Although there will be some who will try to play for a bounce, the next rally should only be that as the move on Wednesday was just so significant. The markets have certainly spoken, and we are now not willing to buy this contract going forward as the signs are certainly there that we are going lower. The price of oil hasn’t made sense for quite some time, and these high prices are going to be difficult to hold onto as the Dollar rises, and the world slows down. Demand will simply evaporate, and in that scenario – we sell this contract. In fact, the demand hasn’t really ever been the driver; rather simple speculation has been the reason for rising oil prices. The war in Libya is over, and as a result even more Brent is coming to market. For this point going forward – we sell rallies.

Natural Gas Forecast December 15, 2011, Technical Analysis

The natural gas markets fell hard again on Wednesday as the market simply cannot get a boost at this point. The natural gas market is certainly oversold at this point, but we are not willing to try and catch this falling knife. The rallies in this market will continue to offer us selling opportunities in this arena, and as such – we are willing to be patient and wait on an attempt to rally into resistance, perhaps to the $3.50 area, or even $3.25 as it is the spot where we gapped lower. The breaking of the lows on Wednesday could also offer another sell signal.

Natural Gas Forecast December 15, 2011, Technical Analysis
Natural Gas Forecast December 15, 2011, Technical Analysis

Gold Forecast December 15th, 2011, Technical Analysis

Gold markets absolutely fell apart during the Wednesday session as traders continue to run towards the US dollar in general. The long-term outlook for gold is still strong, but it has become obvious that the support in this market has failed on all levels. With this in mind, we are not willing to buy it at all currently. The $1,600 level was the “bottom” of our “buy zone”, and it has been seriously violated. The $1,500 level still looks as possible support, but in this environment we aren’t overly excited about stepping in front of this freight train.

The markets in general are in a sell off mode, and all things risk related or commodity related is getting sold off en masse. The gold market will ultimately get a boost by uncertainty, but currently people are selling first and asking questions later. In this kind of environment, it is prudent to step away from the market, and with the end of the year in sight – the action could possibly become more exaggerated as the volume will certainly dry up.

The market will need to find support near the larger round numbers such as $1,500 for us to get excited about buying again, and in order for us to consider it a decent show of strength, we need to see several days of stagnation around one of these large area. Until then, we simply do not trust this market as it certainly has come completely undone at this point in time. As long as the EU is still front and center, the US dollar could continue to give commodities in general all kinds of problems. Because of this – we are flat of this market as we simply haven’t seen enough supportive action recent to even consider going long, and the longer-term trend is decidedly up over the last ten years, which makes us leery about selling at all. The bounce that we could see near the larger zones could be massive, and as such – we are hopeful for gold buying in the near future as the move has been so overdone.

Gold Forecast December 15th, 2011, Technical Analysis
Gold Forecast December 15th, 2011, Technical Analysis

EUR/USD Mid-Week Analysis for the Week of December 12, 2011

At the mid-point of the week the Euro is under tremendous selling pressure after piercing the October 4 bottom at 1.3145. Downside momentum is firm and bearish traders now have their eyes set on the low for the year at 1.2873. The steepness of the selling can best be described by the downtrending Gann angle at 1.3127. This angle is dropping at a rate of 0.016 per week from the October 27 top at 1.4247. At this pace the EUR USD should reach the low for the year by next week.

Sellers started hitting the Euro right from the start of the week. The mass exodus from the single currency began after European Union policymakers failed to end concern that Italy and Spain would succumb to a sovereign debt crisis that forced Greece, Ireland and Portugal to seek bailouts.

Last week’s interest rate cut by the European Central Bank also weakened the Euro against other foreign currencies since it took away the interest rate differential edge it had on these countries. Although technical factors suggest the market is oversold, the fact that the last bottom at 1.3145 has been violated means that the main down trend on the weekly chart has been reaffirmed. This doesn’t mean the Euro cannot have a rebound in the form of a short-covering rally, but what it likely suggests is that the single-currency is headed to and perhaps likely to penetrate 1.2873 on its way to a new low for the year over the near-term.

Besides the monetary policy easing, pressure on the Euro is also mounting because of an expected lower growth outlook. Economists are predicting the Euro Zone’s economy will expand 0.5 percent next year. Compared to the U.S. expected growth rate of 2.19 percent, the Euro is definitely at a disadvantage. With growth prospects expected to continue to decline, the ECB will probably be encouraged to continue to slash interest rates all the way to zero just like the U.S. and the U.K. This should keep the pressure on the Euro which could accelerate a decline into 1.20 over the intermediate term.

With perma-hawk Jean-Claude Trichet out of the way, the new ECB President Mario Draghi has no choice but to cut rates in an attempt to create a soft-landing for the economy should it go into a full-blown recession. On December 8 Draghi also offered banks unlimited cash for three years while muffling speculation the ECB will buy more sovereign debt to stem the Euro Zone’s debt crisis. These events started the Euro’s rout late last week.

On Tuesday the U.S. Federal Reserve contributed to a late session sell-off when it pointed out that the turmoil in Europe is a big risk to the U.S. economy. The Fed’s language left open the door to further easing of monetary policy. “Strains in the global financial markets continue to pose significant downside risks to the economic outlook”, the Fed said.

With European financial institutions expected to continue to deleverage themselves from the Euro, traders should continue to look for further downside pressure. Since the Fed did not mention any additional quantitative easing, the U.S. Dollar should continue to appreciate versus the Euro. Of course there is always a possibility of a short-covering rally due to oversold conditions, but overall, the pressure should remain on the EUR USD.

Factors Affecting the Euro this Week:

  • Downgrades:  Traders should be bracing for a possible across the board downgrade of Euro Zone nations. This would raise borrowing costs while contributing to a deepening of the region’s debt crisis. France is likely to be the first to be downgraded.

 

  • Technical Factors:  Oversold trading conditions may lead to a fast short-covering rally. Traders should be careful selling new lows. This may occur if institutions decide to defend the low for the year at 1.2873.

Crude Oil Mid-Week Analysis for the Week of December 12, 2011

Technically, it looks like distribution is taking place in February Crude Oil, but one can’t be certain until the last major low at $95.16 or for that matter the 50% level at $95.15 is penetrated. The first sign of weakness took place four weeks ago when the market posted a closing price reversal top at $103.28. The confirming break which followed should have led to a 2 to 3 week break equal to at least half of the last rally. This could still occur, but a few moves have to take place first.

One move that has to take place is the penetration of the downtrending Gann angle at $98.57. This should then lead to a break through the uptrending Gann angle at $95.73. Once traders begin to see the shift in sentiment then they are likely to pile on the short-side. Once $95.15 is cleared, the charts indicate there is plenty of room to the downside. Based on price and time protections, February Crude Oil could trade down to 50% of the last rally from $75.73 to $103.28. This makes $89.51 a potential downside target by the week-ending January 13, 2012.

This scenario will be negated if the closing price reversal top is taken out. If this occurs then the market may spike to the upside with the downtrending Gann angle at $106.57 the next likely downside target.

With the technical picture laid out, what must happen fundamentally to trigger the break to the downside?  One would have thought that the tanking of the Euro would have fueled a rapid exit from the crude oil market, but instead the market has held up quite nicely. This just proves what we have known for months that crude oil has decoupled itself from the Euro. If traders suddenly wake up and see the strength in the U.S. Dollar then maybe crude oil will trade like it did before, latching on to every down move in the Greenback. If the Dollar continues to rise then the longer crude oil stays up here, the harder the break once traders begin to exit their positions.

Pressure on the equity markets could also trigger a break in crude oil if global investors decide to deleverage from equities and commodities at the same time. It’s just a matter of how much risk big institutions and hedge funds want to be exposed to at this time.

Tuesday’s mention by the U.S. Federal Reserve that the European crisis has the global economy in turmoil at this time can’t help matters either. This type of talk by a central bank should at some time trigger weakness in the energy complex because it may have been the Fed’s fancy way of saying there’s another recession coming. While this may not hold true for the U.S., Europe is definitely in the firing line for a slow growth period. This should curtail crude oil demand, leading to lower prices.

Price manipulation by algorithmic traders is being blamed by some for the firm prices, but if the Dollar continues to rise and equity prices continue to fall then margin call selling pressure could trigger a mass exodus by these traders in the crude oil market.

This leads us to what may be the main reason why the market is holding its ground:  speculation that military activity may take place in the Middle East with Iran being the aggressor. It looks as if bullish traders are focused more on Iran and the possibility of a supply disruption caused by the blockage of the Strait of Hormuz.

Factors Affecting Crude Oil This Week:

  • U.S. Supply and Demand:  Talk of a recession in Europe is one reason why demand may drop, however, a supply disruption could be bullish. Tough call for oil analysts. It looks as if market estimates may be all over the place this week. A cut in supply could trigger a spike to the upside. Buyers may be loading up on crude oil for protection against a conflict in the Middle East.

 

  • Euro Zone:  The falling Euro doesn’t seem to be an issue at this time since crude oil and the single-currency have decoupled. However, at some point, strong signs of a Euro Zone recession may begin to limit upside movement in crude oil.

 

  • Middle East Tensions:  Simply stated, Iran is a wildcard. If it shows aggression in the Strait of Hormuz then U.S. military action may follow. This would trigger a huge move to the upside.