USD/CAD fell on Wednesday as the oil markets gained. However, the Dollar saw a bid in the afternoon in Europe and the later hours of the US session, forming a hammer just above the 1.02 level. The area has been supportive in the past, and the forming of this hammer at this level is a truly bullish sign indeed. The breaking of the highs from Wednesday would signal higher rates, and we would be willing to be long of this market at that point. However, shorting this pair will be very difficult as we see support all the way back down to the 0.99 level.
NZD/USD rose on Wednesday in the early hours as the trading community looked to continue the bullish momentum from the session before. However, the day saw a selloff later in the session, and this caused the pair to print a perfect shooting star that has a top right about at the 0.78 level, an area we said to looks out for selling opportunities yesterday. The pair looks set to continue lower and try to fill the gap from a few weekends ago at the 0.74 level as the market become nervous again. We like selling the break of the Wednesday lows in order to attempt to fill the gap again.
Light Sweet Crude
The CL contract rose again on Wednesday as the move from the previous session found follow through. The $97.50 level was taken again, and the $100 level is sitting just above. The market is currently in a down channel, but a break above this channel could actually be a bullish flag breaking out. If this is the case, we are looking at much, much higher prices in the Light Sweet Crude markets. The pole would measure this move as high as $132 roughly, and this would be a serious weight on economic output in not only the United States, but also around the world.
It is because of this that we actually believe more in the down trending channel presently, and are willing to sell weakness at this point. However, if we are wrong – there could be a nice buy and hold trade in this market. There are some catalysts out there to potentially case a spike in oil, but demand really isn’t one of them. If the commodity spikes, it is probably more indicative of the US dollar, and less so of oil itself.
Brent markets tried to fall on Wednesday, but bounced at the end of the session in order to form a hammer. The hammer sits just above the $105 level, and it looks like we are reentering the previous consolidation area up to the $112.50 level. A break of the Wednesday range should see this market trying to reach that $112.50 mark, and would have us on board for a short-term scalp. The breaking of the lows from Wednesday would have us bearish again as it would show a failure to rally and that the bulls simply do not have enough power to pick the market up at this point.
With the holiday season in full swing, it is easy to think that this pair may simply go sideways in this range for a while, and as a result this is how we are playing it: for small gains from wither the bottom or top of the range, simply scalping for a dollar or two at a time.
Natural gas markets rose again on Wednesday as traders continue to collect profits from a one way trade over the past year. The market is certainly in a downtrend, and as long as we stay below the $4 mark, we see this as a “sell only” market. The $3.30 level saw that gap form a while back, and we think this area should continue to have an effect on this market, and we are looking for shorting opportunities in that neighborhood.
The market simply cannot be bought at this point in time, and we think that the year coming up is going to be more of the same. We like selling on rallies, and on new lows. There isn’t a scenario that we can imagine currently that has us buying natural gas as the supply far outweighs demand.
Gold markets rose initially on Wednesday, only to fall back down in the end. The cluster of previous support just above the $1,600 level has acted as resistance, and the daily candle has formed a shooting star, a very bearish sign indeed. Because of the shape of the candle and the location, we simply must step back as it looks like the gold market is going to fall gain. A breaking of the lows from Wednesday is actually a sell signal, and should see a move back down to $1,550. However, if the market can manage to break above the top of the Wednesday range, it would be a significant bull signal telling us to buy. We generally don’t like the idea of selling gold, but the move looks like it might just have more gas left in the tank at this point.
The $1,500 level below is certainly a significant support level as it is a large psychologically important round number, and the bulls will certainly step in at that point if the market gets down there. The gold markets have enjoyed a large uptrend over the last 10 years, and these pullbacks do come back from time to time, and the moves have been very brutal if you were long at these points in time. However, over time the bulls were redeemed in the end, and if they held on – they made a fortune.
The market is still a long term buy, but the current price action has us concerned about the health of the market currently. The end of year thin volume will certainly increase the possibility of a breakdown or melt up, but the overall looks just doesn’t have us as bullish as we were just a few weeks ago.
The next year should be bullish for gold in general as the European Central Bank is almost assured to start printing Euros to fund all of the mess over there, and gold will get a little bit of a bid due to this. Also, the US dollar is being devalued over the long run, so it is hard to see how gold ends up lower next year. With all of this in mind, you couldn’t be blamed for simply ignoring this market for a few weeks or even do something we almost never do – sell it for a short-term gain to the downside.
The EUR/USD pair rose on Tuesday as the market bounced from the 1.30 level. The rise has been rather strong, but it also gave up a lot towards the end of the session. The 1.31 level proved to be resistive, and the situation in Europe simply hasn’t improved, even with a fairly successful Spanish bond auction for the day. The breaking below the 1.29 level is the next sell signal that we could get, but in this low volume market during the holidays, it is possible that we won’t see it until January. No matter what, we aren’t buying the Euro at this point in time. A rally could be sold on weakness, as well as a daily close below 1.29 as well.
The USD/JPY pair fell on Tuesday as the Dollar got sold off in general. The downward momentum in this pair is immense, and the path of least resistance is certainly to the downside. The 78 level continues to offer serious resistance, going all the way up to the 78.50 level. The market should continue to offer resistance all the way back up to the 80 level, which is massive resistance. Because of this, we are selling rallies in this pair going forward.
GBP/USD rose on Tuesday as the markets bought into the “risk on” scenario. The pair rose all the way to the 1.57 level where is promptly turned around, suggesting it was a low volume move. The 1.57 level is the first resistance level it saw, and it didn’t make it above that level, showing a lack of conviction. However, it isn’t impossible to think that the pair could rise above that level, but the low volume can work against the pair as well. With this in mind we prefer to sell as it is in line with the overall market moves. The selling of rallies and a failure at 1.57 could be a decent short-term move. Otherwise, we would be on the sidelines.
EUR/GBP fell below the recent consolidation area as the Euro fell against many currencies around the board. The EUR/GBP made a significant move when it broke down below the 0.85 handle a few days ago, and we believe this is the start of a leg down. The 0.80 level is more than likely the next stop for this pair, and as a result we are willing to sell at this point. Rallies would also have us selling as well. The 0.85 level would have to be broken to the upside for us to consider a change in our approach to this pair currently.
USD/CHF had a bearish day on Tuesday as the Dollar got sold off in general. However, the pair only managed to sell off to the all-important support level at the 0.93 handle. We have been waiting to see if this mark would get tested as support since it was broken through as resistance, and it produced a hammer-like candle for the session.
The move to 0.95 was tempered by the announcement form the Swiss National Bank on Thursday of last week. In this statement they didn’t mention lifting the “floor” in the EUR/CHF as expected, and as a result – traders that were speculating that the Franc would be devalued were burnt. However, it appears that the momentum players have been taken out, and this uptrend could continue from this point now.
The Swiss economy is going to suffer over the next year or so. The #1 export venue for the Swiss is Europe, and that area is almost certainly going into recession for 2012. The rising value of the Dollar against the Franc is partly because of this, but also because the Dollar enjoys a “safe haven” status around the world. With both of these factors in play, it is hard to think that this pair will fall any significant amount over time. Adding to the bullish case is that fact that the Swiss could very well do something to continue the move against their currency.
The 0.95 level will have to be overcome in order to continue the grind higher, but this level looks set to give way. In fact, one has to wonder whether or not it would have if it weren’t for the announcement as that is where the pair had traded right up until that communiqué came out. With this in mind, we are buying a rise in this pair, and dips as well for the short term. Also, a breaking above the Tuesday highs has us buying. The longer-term outlook has us even more bullish. Because of this, we will not sell this pair at all until we see the stance out of Zurich change over time, something that isn’t going to happen anytime soon.
EUR/CHF had a flat day on Tuesday as the markets simply didn’t go anywhere. The Euro fell in general against many currencies, and the Swiss Franc simply cannot be bought with the Swiss National Bank willing to sell it off. The pair is effectively stuck between the floor imposed by the Swiss at 1.20, and the 1.25 level above that the Euro simply cannot break above. Until the EU gets its collective act together, buying this pair for any type of trade longer than a scalp is impossible. The scalping range suggests that the pair might be at the bottom, and ready to rise for a hundred pips or so. However, we wouldn’t be holding a trade in this pair for more than about 2 days.
AUD/USD rose rapidly on Tuesday as the latest round of “risk on” suddenly came back to the markets. The Spanish managed to sell bonds at a decent rate for the session, and this got the market a bit overly excited. The move was more than likely helped by a lack of volume, and this will make the rally very suspect as the validity of it gets questioned. The 1.02 level above looks very resistive. The pair isn’t to be trusted as a bad headline can easily cause a move to the downside that would be just as rapid. We are selling rallies on weakness at this point.
USD/CAD fell on Tuesday as the oil markets rallied hard. The pair managed to break below the 1.03 level for a sustained period of time during the session, but bounced back above it by the close. The level looks as if it is trying to be supportive for the market, and the move is probably somewhat overdone as the Light Sweet Crude market rose over $3 for the session. With this in mind, we are willing to buy on supportive action, but are aware of the light volume and ferocity of the Tuesday move. The parity level below is the next massive support area, extending all the way down to the 0.99 mark. The economic situation didn’t exactly change overnight, so this move is probably a bit suspect at this point.
The oil markets are getting a boost by fear mongering about the Iranian tensions and the North Korean succession questions. To be honest, this is more likely to be market noise once it is all said and done. The Canadian dollar will certainly get sold off once calm returns to the oil markets as the recent drama turns out to be just that – drama.
The breaking below the 0.99 level has us changing our minds, and the area all the way down to that mark 400 pips below will certainly have plenty of supportive positions. With this in mind, our proclivity is to buy on dips, and on supportive candles. We like the fact that 1.03 has held, and now would look for short-term hammers and the like to buy from. The market looks bullish still, despite the impressive moves in crude. In fact, the USD/CAD pair didn’t move nearly as much as you would expect on a day that oil markets skyrocketed, which could be a tell in and of itself.
The breaking of 1.04 has us thinking that we are heading to 1.05, 1.07, and then onto 1.10 eventually. We are still bullish on this pair, and one day doesn’t change this conclusion. The pair will continue to be bought on the dips by us.
NZD/USD rose rapidly on Tuesday as the latest round of “hopium” hit the markets. The traders all around the world suddenly seemed convinced that since the Spanish bond yields went down during the Tuesday auction that things were getting better. However, we have seen this movie before, and know that rallies in December aren’t likely to be trusted anyway. The low volume allows for exaggeration, and we are very bearish on risk in the markets. The Kiwi is a “risky asset”, and as such – we aren’t looking to buy at this point. We instead will look for rallies to fade on signs of weakness. The 0.78 level looks like a great place to find a selling opportunity.
Light Sweet Crude
The CL contract rallied very hard on Tuesday as the Iranian tensions and simple lack of volume contributes to the move. The Dollar fell in general, and this helped the oil markets in general. The minor support level at $92.50 has held, but the validity of the move will certainly be questioned. At this time of year, it is hard to take the moves seriously. The day finished very bullish and near the top. However, it also is just starting to see resistance in this area, so we could and would expect to see a pullback at this point. In fact, we are willing to sell rallies at this point if we get any sign of weakness in the markets going forward.
The tensions in Iran with the US and Israel are basically an excuse as far as we can tell. The low volume has allowed the upward momentum to swing much further than normally, so this rally still makes no real sense at this point.
Brent markets did the same thing for the Tuesday session, taking advantage of the low volume and sense of concern in the Middle East. However, unless you believe there is a war coming in the near future – the Iranian question is just market noise. The fact is that we are approaching the bottom of the recent consolidation that was broken below, and this area could be resistance in the near term. The first sign of weakness would have us bearish at this point, as we don’t trust these kinds of moves at the end of the year as they are just more likely to be short covering than anything of substance. Also, one would have to ask exactly what has changed overnight to believe that there is suddenly going to be some kind of economic upsurge and demand in crude will suddenly spike. With this in mind, we are selling rallies as we break a little higher not that we could see serious resistance just above current levels, and the simple lack of reasoning for the move.
Natural gas markets rose during the Tuesday session after printing a hammer on Monday. The market looks set to bounce from the $3 level, and this looks as if it is the start. The $3.25 level was the site of a gap down, and we think that letting the market rise at least to that level before shorting again will be the prudent thing to do. The 50 day moving average is sloping quite nicely to the downside, so we are not willing to get long of this market. The supply is far too strong for the demand to create any major move up, and the market is a “sell only” one. With this in mind, we wait for another opportunity to sell.
Gold markets rose again for the Tuesday session as the $1,600 level was broken to the upside again. The area should be the top of a significant support zone, and the recent selloff was far overdone in our opinion. However, there is low volume in the market now, and it will be difficult to figure out if this is a real move, or a low volume short covering rally. With this in mind, we are cautiously optimistic. The buying of this contract can be done for a short term trade. The $1,500 level is the bottom of the support zone, and anything under that has us very concerned about the bullish uptrend we have seen over the last several years.
EUR/USD fell on Monday as the market continues to concern itself with the European debt crisis. The Euro is fairly untouchable at the moment, even if it is sitting right on the 1.30 level, an obvious support area. The market could bounce from this level, but it should only provide the prudent trader with an opportunity to sell from higher levels at this point. The Dollar is simply too strong for the Euro currently. We are selling rallies, and would sell aggressively if the daily chart closes below the 1.29 level.
USD/JPY had a strong day on Monday as the Dollar is being bought up by traders in a bit to run to “safe havens”. The Dollar is without a doubt going to get a bid every time the markets get nervous, and the market being nervous seems to be more often than not. However, the 80 handle has been extremely resistive to even central bank interventions. The pair looks to be building upward pressure, and the triangle that is forming is indeed very bullish. If the triangle gets broken though, the long green candle from the last intervention should be paid attention to as it showed the Bank of Japan and its failure to break above the 80 mark that is so important from a long-term standpoint.
The Japanese Yen is being worked against by its own central bank, and this shows just how attractive the Yen looks to the market as they simply cannot get the markets to move away from it. The economic situation in Japan is starting to weaken a bit, so this could in turn help, but the 80 mark that we mentioned above certainly is what needs to be overtaken to think that any rally can be sustained. Although the triangle looks strong, we prefer letting this pair rise to the 80 level, or at least as close as it can – and then selling aggressively. If we get stopped out, it is because the trend has changed, and we would be willing to take the opposite position as the daily close above 80 would be so massively bullish for this market.
2012 is coming fast, and the volume of trading will dry up the later we get into the week. Because of this, we could see a bit of a spike in this pair, but this should only serve as a chance to sell form higher levels as the longer-term trend continues.