The USD/CAD pair bounced hard from the parity level on Tuesday, an area that we have mentioned several times over the last week or two. The area offered support, and was urged on by the Bank of Canada not only holding rates on Tuesday, but also being very dovish on the future of the Canadian economy due to the global uncertainty in the various markets. With this in mind, it appears that we could see a bounce in this pair. Also, if the EU doesn’t come together with a reasonable solution to the crisis over there, the “risk off” trade could come back into play – forcing this pair higher as well.
NZD/USD fell on Tuesday after breaking the 0.8000 barrier, and then printed the shooting star on Monday. The signal was confirmed as the markets broke below the low on Monday, which was a sell signal. The fact that we have closed below 0.8000 does not bode well for bulls. If the market can break the lows over the last week or so – this pair goes much lower, perhaps to 0.7500 or so. The breaking of the Monday high is what it would take in order for us to get long of the Kiwi dollar. The “Risk On” trade needs to be in vogue for this pair to rise again. With situations in Europe being so cloudy, it is difficult to get bullish the “Risk On” trade.
Light Sweet Crude
The CL contract rose during the session as it has broken above the all-important $90 mark recently. However, the daily candle is forming a shooting star, which shows that we could possibly be seeing a “false breakout”. The breaking of the bottom of the Tuesday session would be a sell signal, and a breaking of the top of the Tuesday session is a buy signal. Because of this, the CL contract now becomes a very binary trade.
The Brent markets actually fell a bit during the Tuesday session, but did manage a bounce during the latter hours of the session. The $110 area acted as support, and with the CL breaking out, it is very conceivable that the Brent markets could follow. In the meantime, we want to see $115 overtaken in order to buy this contract. Selling isn’t advised until we can get below $105 or so.
Natural gas markets rose during the Tuesday session, and on high volume. With this in mind, it stands to reason that we are about to see a bit of a bounce from the $3.75 support level. The market seems to have massive support at this area, but any move up will almost certainly be a selling opportunity as the trend is so bearish. With the supply being so large in this commodity, it is very difficult to get bullish for any particular reason. We are looking for a bounce to roughly $4, and then weakness to sell.
Gold markets finally made the move we have been waiting for on Tuesday, as it shot straight up and through the $1,700 resistance area. The situation in Europe has investors concerned about the solution, and the safety of fiat currencies – namely the Euro. In times like this, gold is often bought as a “safe haven trade”, as investors cannot trust a paper currency that has so many issues attached to it. While the US dollar gained all day, so did gold – meaning a flight to safety. Until the EU gets a handle on the situation in the banking and debt sectors, this market will continue to rise overall. We like buying any and all dips at this point.
EUR/USD rose again on Monday, but saw a sharp pullback from the 1.3950 area in the later hours of trading. It should be noted that the 1.30 level had served as resistance over the last few days, and it appears that the market is willing to fall back under that level. With the EU summit on Wednesday supposedly being the “final” answer to the crisis, the market may be getting ahead of itself at these levels, and judging by the recent track record of European leaders, a disappointment isn’t a real stretch of the imagination. However, with all of the risks to both directions, we feel that trading this pair is going to be very difficult to do until after the results of the summit are known.
The USD/JPY pair fell again on Monday, as the Dollar got hit against all major currencies. However, the Bank of Japan has been very vocal over the last 24 hours about “speculative” moves in the Yen, and that they are watching the markets closely. The pair is approaching the lows, so one has to think that the Bank of Japan could get involved soon. We cannot sell this pair at the moment because of this. The buying of this pair could be done – but we would stress that position sizes should be small at best.
The GBP/USD pair rose on Monday, and even retested the 1.60 level. The area held as resistance during the late hours of the session, and the recent consolidation in August at this level shows that we may have hit a very tough spot for the bulls. If we could close above the 1.60 level on the daily chart, this would be massively bullish, and even more so if we close above 1.61 as well. The pair looks set for a pullback from this formidable level, so we are watching the hourly and 4 hour timeframes for sell signals. The 1.60 area is also the 61.8% retrace of the latest plunge to the downside. Needless to say, this area is important.
USD/CHF rose, and then sold off on Monday to form a shooting star on Monday. The market is being manipulated by the Swiss National Bank, which has been actively working against the Franc. Because of this, we cannot sell this pair as the Dollar is a “safe haven” currency as well, and with all of the headline risks out there, we could see a flight to safety. This would push this pair up, and we would want to buy it. The 0.88 level continues to hold prices up, but we think the closer we get to 0.85 – the closer we get to the Swiss National Bank and should see it get involved. We are waiting for supportive candles between 0.88 and 0.85 to buy from.
EUR/CHF had a slightly bullish day for Monday, but fell towards the end of the trading session as traders started to pare back bets in the Euro. The Euro fell in the last hours of US trading all around, and this pair was no different. Remember, the Swiss National Bank is threatening to defend the floor in this pair at 1.20, so its downside will be limited. Because of this, we want to buy, but only after Europe gets the debt crisis under control. The meeting on Wednesday could have that signal for us – however, we don’t dare do anything in this pair until after that.
The AUD/USD slammed into the 1.05 level on Monday, and pulled back slightly. The area proved to be massively resistive, but the candle is closing towards the very top of the range, which is always a bullish sign. The 1.05 area level is considered massively important, not only because of the technical resistance, but also because of the fact that it is a “large round number”. The pullback was late in the session, so it is hard to put a lot of weight on it. However, looking towards the shorter time frames might be the way to go in order to see if we are going to fall again. The trend is decidedly up over the last couple of weeks though, so shorting is tough. A daily close above the 1.05 level has us buying.
USD/CAD fell on Monday as traders sold the Dollar around the world. The oil markets also managed to break above the $90 mark, and this was massive resistance. The demand for oil could and should push the value of the Canadian dollar up, which of course pushes this pair down. However, the parity level has held for the session, and the level is massive support. Until we close below that on a daily candle, it is going to be very difficult to short this pair. Signs of support and a move upwards from current levels could send this pair go up to 1.03 in short order. In the meantime, we need to see what markets due for the Tuesday and perhaps Wednesday session, and then place our trade accordingly.
NZD/USD rose on Monday as traders bought back into the “risk on” trade. The Kiwi is a commodity currency, so the move makes sense to us. The 0.8000 level has given way, but it appears that the 0.81 level might be the top of that resistance area. The resulting candle looks somewhat like a shooting star, but is a bit too thick to actually considered one. The set up is fairly simple: buying this pair on a break of the Monday highs is considered a decent long opportunity, while the breaking back down below 0.8000 would have us bearish.
Light Sweet Crude
CL exploded to the upside on Monday as traders dumped the Dollar across the board. The market looks like it has broken out, and we should now see an attempt to reach the $100 mark. The breakout is significant, but could be derailed by news out of the EU on Wednesday. Remember, if the markets don’t like the solution for Europe, it will sell assets first, and ask questions later. Because of this, we are bullish, and willing to buy on a break of the Monday highs, but are going to be a little tighter with our stops than usual.
Brent had a positive day on Monday as the aforementioned scene played out in most commodity markets. The Dollar is on the back foot around the globe, and the Brent market gets bought up as a result. The candle on Monday almost broke above the shooting star formed on Friday. If the top of the range on Friday gets broken, this could be a massively bullish sign. We are willing to buy on a break of that shooting star.
The natural gas markets fell again on Monday as traders continued the bearish momentum that the market has seen over the last several months. The $3.75 level still seems to be holding up, but it seems that it is only a matter of time before it gives way. Of course, the winter is coming and it is a traditionally heavy usage time for the resource. However, the supply is so great now; it appears any bounce at this point is simply another invitation to short natural gas. We remain firmly bearish, and aggressively so as long as we stay under $4.
Gold markets rose on Monday as the continuing drama coming out of Europe goes back and forth. As the Situation is so fluid, many traders are starting to buy gold again as a safety trade, in case of some kind of massive blow up coming out of the EU during the week. The markets have been very generous to the EU in its patience, but it certainly needs to come up with something on Wednesday, the “extended” deadline for finding a solution – or things could get ugly. The gold markets benefit from the falling Dollar, and has gotten a boost from that during the Monday session as well. We still like buying dips above $1,600.
EUR/USD rose again on Friday as traders anticipated some grand plan coming out of the EU over the weekend. The fact that it couldn’t break out of its trading range shows just how little faith there actually is in this idea, and it could be setting up for a fall at this point. In fact, the EUR/CHF showed weakness, and suggests that might actually be the case. However, with the meeting over the weekend, we will need to see what the Monday close looks like in order to make another trade. At this point in time, you should probably be flat in this pair.
The USD/JPY pair spiked lower on Friday and even managed to peak below the 76 handle. The area has been massive support, and as such – repelled the surge eventually. However, this was a serious test of the will of the Japanese central bank, which didn’t do much it appears. (It can be said that there are rumors of them stepping in “quietly” at the 76 handle, however this is just speculation.) We still believe in the range, and think this could be a good spot for a scalp. However, the EU meeting over the weekend could produce massive fireworks in the markets at the open on Monday, so smaller positions are urged.
In a surprising show of strength, the GBP/USD pair broke above the resistance area at 1.58 on Friday. The level had been keeping the market down, and as such the market popped after it gave way. However, the 1.60 level is roughly the 50% retrace of the total move, and it should provide massive resistance to the cable pair. We think the buy move has already ran too far, so looking for weakness closer to the 1.60 level is probably the best route for selling. The pair made an impressive move – but there are a lot of headwinds and potential headline risks out there that could push this pair down.
USD/CHF fell again on Friday as investors sold off the Dollar against everything in response to the anticipation of the EU bailout meetings over the weekend. The idea of the meeting producing something major seems to be the focus of the markets. However, the Swiss National Bank is still willing to work against the Franc, and we think this pair only has limited downside because of that. The pair is a “buy only” pair at this point, and with that in mind – we are not willing to join this move. We are looking for a supportive candle in which to buy this pair currently.