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How far EUR/USD may fall?

May 28, 2014 in Chart Alert

The near-term bearish sentiment had become stronger for EUR/USD when the pair had broken below the previous support of 1.3443, after finding a good support 5 pips over that level once. The fact that the pair had fallen strongly, ahead of 1.4000 level can also not be missed. After touching 1.3993 and missing that important level just by 7 pips had given a strong suggestion that the currency pair is not yet ready for that landmark. Some of the points we will be touching in this alert were already covered in the weekly outlook of May 24th.

Let’s have a look on the daily chart with some observations:

EURUSD daily chart - break of recent range after the break of a major support.

As the above chart indicates, that the currency pair even broke below 1.3612 which was the low of the range during past 4 trading days. This break simply added fuels to the already existing bearish sentiments.

What can be expected?

Let’s have a look on the weekly chart:

EURUSD weekly chart - trend line and double top - possibilities to hit 1.3540 or more.

The above chart shows the break of the trend line support as well as the double-top pattern. These points were also covered in the above mentioned weekly update. With all the above facts combined and a break below 1.3612, further declines are fully expected as it also signified that the psychological fear of 1.3500 ranges is not so strong. The fall should extend, first towards 1.3540 and may even hit 1.3485.

Do check more at EUR/USD analysis and outlook page.

EUR/USD on the way to complete double-top chart pattern

May 21, 2014 in Chart Alert

EUR/USD had gone down to 1.3648 last week and in doing so the pair had broken below the hammer styled candle of May 15th. That daily candle had created some doubts about a possible reversal and failure of the chart pattern. However, the subsequent market moves seems to be just a brief market noise and the pair saw a sharp fall again, which took it below the neck line.

EURUSD double top chart pattern

What to Expect?

Caution is required for a possible support at 1.3643 of February 27th. In case the price breaks below that, then a sharp drop towards 1.3565 can not be ruled out. Remember 1.3562 strong support of February 12th for the same, which also brings in the psychological support of 1.3500 ranges. However, possibilities of a drop towards 1.3520 will come into the picture with such a move.

Do also keep an eye on EUR/USD outlook.

Short-term bearish shadows for USD/JPY

April 10, 2014 in Chart Alert

We had mentioned on March 15th that we would expect some volatile side ways moves between 100.00 and 105.00 for USD/JPY. The pair is moving that way. The recent strong fall from 104.13 suggested that the resistance of the psychological level of 105.00 is staying intact even when the pair had tried to break over it.

100 and 105 fight is on one side but the which side has more pull? Well, overall we stand by what we have been mentioning that a decisive break over 105.00 and a test towards 108.00/110.00 are on the way, sooner or later. However, the recent price-action has indicated that the downside pull is gaining strength. We do not take that as bearish outlook but just as a correction.

Let’s see what the charts say.

The pair broke the support of 200-day moving average

Break of 200 day moving average

The pair broke the support of the short-time trend line

break of trend line support

The weekly MACD stays bearish

Weekly MACD bearish

The daily MACD gave a bearish crossover signal

Daily MACD bearish crossover for USDJPY

What now?

Well, all of the above observations are indicating a bearish outlook. And yes, a further drop is expected. The question is whether this drop will find a support in the range of 100.75 to 101.20 or not.

Longer time trend line support for USDJPY

The possibilities of a break of that support are high now. However, the current outlook will not turn really bearish till a  decisive break below 100.60 takes place. 100.70/100.75 represents the near-term trend line support and though a sharp fall like this may cause a brief break of this support but any decisive break below 100.60 may extend the fall towards 100.20 to 99.80 first and then may be lower.

Conclusion

Overall outlook stays bullish.If we keep the technical and price action-studies aside then the negative factors against JPY are the political tensions with the neighbors i.e. China and Korea. In fact mainly China. However, the background effects of these tensions may go in the favor of JPY more than against it. The Japanese governments decision about allowing weapon exports may favor  JPY and the pair may weaken further.

NZDUSD drops after bearish price action signals

April 3, 2014 in Forex Analysis

nzdusd

The NZDUSD rallied straight into a weekly resistance level last week, which has contained prices on 3 consecutive tests (visible on the weekly chart). The most recent re-test of the market top, seen the daily candle produced two bearish rejection candle price action trade setups, which have now ripened into profit.

Last session the bulls were shaken out, and price finally dropping lower. The sell off was quite aggressive, coming straight down from the open price of the day, and closing near the day lows. We’re now moving into London trading hours, and we can see the current daily candle has demonstrated that an asian session retracement has been rejected.

Statistically, when we see this type of asia session rejection after a “power day”, it’s typical to see further extensions of the overall movement. Price has already breached the low of the previous bear day and looking to move onto the bearish side of the mean value. Once price breaches the 20 ema, there is so much open space for the market to fall into. Traders who aren’t in the move can wait for further bearish price action setups to develop, if the downward movement develops into a full blown bearish trend.

US Dollar To Be Driven By Labor Market

April 1, 2014 in Forex Fundamentals and News

For the most part, forex markets have had a relatively slow week but when we look at the data calendar in the closing session on Friday, there is little reason to expect that this lack of volatility will continue.  The March Non farm Payrolls number will be the final highlight of the week, and the implications for its results will likely be seen in most of the major asset classes.  In precious metals, and for those trading assets like the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV).  So far this year, we have witnessed a rather meager rally in the metals space and in order for this to continue we will likely need to see a round of risk aversion and a flock to historical safe haven protection.  This essentially means that we would need to see a weaker than expected result in the Non Farm Payrolls release.

Market expectations are calling for a monthly increase of 196K new jobs for March, which would be a relatively encouraging number as it would mark an improvements from the 175K new jobs that were posted during the previous month.  But a weaker than expected number here would likely bring a drag on the US Dollar and assets like the PowerShares DB US Dollar Index Bullish ETF (UUP).  By extension we could also be likely to see declines in stock markets and the SPDR S&P 500 Trust ETF (SPY), as investors would be encouraged to take some gains in stock market longs while market valuations would still be trading at elevated levels.  Oil markets would also meet some selling pressure in a negative scenario, with the United States Oil Fund LP ETF (USO) avoided on the prospects of weakening demand in both consumer and industrial sectors.

Market News to Dictate Direction

For all of these reasons, it will be highly important to monitor upcoming developments in the latest forex news, as this will be the key driver of sentiment not only on Friday but likely for the following week as well.  Investors and traders alike are still looking to obtain an accurate gauge on how exactly the US Federal Reserve is likely to proceed in its tapering programs.  This continues to be one of the central factors in determining what the likely growth prospects will be for the US economy.

Any indication that the economy remains under pressure will weigh on the Dollar, despite its already cheap levels when compared to near term averages.  If these prospects to play out to the downside on Friday, traders will need to have some sense of which assets to buy and which to avoid.  Expect market volatility to slow into the US session but this will all end once the NFP release is made public.  Keep a close watch to the national unemployment rate, as well, as this has been one of the major focal points for the Fed in determining its next likely direction.

 

Waiting for price action buy signal on the AUDUSD

March 27, 2014 in Forex Analysis

audusd waiting to buy

The Australian dollar has been the performer this week with strong bullish closes on every trading session, pushing the AUDUSD into fresh highs. We’ve been focusing a lot on the AUDUSD because it’s been dropping some nice clean price action signals.

On the AUDUSD daily chart you can see the market has just fired up higher off the back of a bullish rejection candle with a strong close to the body. Now the market has breached a key containment level and floating at new highs, we are waiting for pullbacks into the mean value for buying opportunities.

We’re watching the important level marked on the chart to hold as support. A bullish price action reversal signal will be the icing on the cake here. The area we’ve got the spot light on also should line up nicely with the mean value, which creates a “hot spot” or high confluence area to look to get long.

USDJPY: Looks For Directional Trigger

March 26, 2014 in Forex Analysis

The pair remains trapped in a range as it looks to create directional moves. This development leaves it vulnerable to the downside possibly towards the 101.27 level. Below here will expose the 100.75 level with a violation aiming at the 100.00 level and subsequently the 99.50 level. Its daily RSI is bearish and pointing lower suggesting further decline. On the upside, resistance resides at the 102.62 level. A cut through here will aim at the 103.00 level and then the 103.50 level, its psycho level. On the whole, USDJPY faces downside pressure on correction.

Waiting for price aciton sell signal on the GBPUSD

March 26, 2014 in Forex Analysis

gbpusd waiting to short

The GBPUSD market recently broke a key level after a large bearish rejection candle formed right on support. The rejection candle was covered more in detail in our previous post: GBPUSD bears putting heavy pressure on support.

Now the market has broken downwards and produced modest bearish movement from the support breakout event, we’ve started to see the market recover from some of those losses in a counter-trend retracement in this weeks trading.

This counter-trend movement is to be expected, and in fact we need these movements to occur to bring price back to it’s mean value where we can look for trade opportunities. We’ve got our sights lines up on a bearish ‘hot spot’ where an important support or resistance level lines up with the mean value. If a bearish price action signal printed here on the daily chart would over a nice low risk/high probability trading opportunity. Keep your eyes pealed.

AUDUSD bullish pin bar reversal | anticipating higher prices

March 25, 2014 in Forex Analysis

audusd bullish pin bar

The AUDUSD daily chart price action shows the market is slowly making its way upwards, in a slow grinding upwards trend. Last session the market tried to sell off but the bulls got involved at the mean value and drove prices back higher to close the day higher than it’s open.

This is a strong rejection candle and its very likely we will see higher prices develop from this setup. Keep and out for any further retracements back to the mean to grab a tweaked entry price to this bullish momentum. The overhead resistance may be a trouble area here but the bullish pressure here is mostly likely to eventually over come the containment line, which could lead to the next extension upwards of the uptrend.

Capital Adequacy At The Largest US Banks Is Broadly Improved, Say Latest Stress Tests; Fitch Affirms US AAA Credit Rating

March 22, 2014 in Forex Fundamentals and News

The results of the latest stress tests on the biggest US financial institutions and banks reveal that their capital positions have improved over the past five years, and that they are “collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in an extremely severe economic downturn than they were five years ago,” says the press release from the Fed.

The “extremely severe downturn” is the most severe stress scenario – a massive recession, crash in equities of over 50%, high unemployment and a slide in housing prices to 2001 levels. If such a situation lasted nine quarters, the 30 bank holding companies that were subjected to the test would collectively suffer about $366 billion in loan losses, estimates the Fed.

In such a situation, the tier 1 common capital ratio would fall from the actual 11.5% as at the end of Q3 2013 to 7.6%. This is a marked improvement over the post-stress number of 5.5% estimated in 2009.

“The annual stress test is one of the Federal Reserve’s most important tools to gauge the resiliency of the financial sector and to help ensure that the largest firms have strong capital positions,” Federal Reserve Governor Daniel K. Tarullo said.

Of the 30 banks, only one, Zions Bancorporation, failed the minimum threshold of 5% capital ratio.

Fitch says US credit ratings at AAA, stable

In a separate but positive development, ratings agency Fitch affirmed the U.S.’s long-term foreign and local currency issuer default ratings, as well as its senior unsecured foreign and local currency bonds at a AAA (triple A) with stable outlook.

The reasons for the outlook included the management of the country’s debt limit in a timely and judicious manner, a decline in the federal budget deficit and low financial-sector risks.

 

USDCAD breaks out of a pennant after bullish CPI and retail data

March 22, 2014 in Forex Fundamentals and News

Figures released yesterday by Statistics Canada show that the Core Consumer Price Index for February 2014 rose 1.2% on a year-on-year basis, surpassing market forecasts of 1.1%. Though ahead of expectations, the reading was still well below the bank’s inflation target of 2%.

CPI data

The core CPI is defined by the bank as the CPI (the headline inflation index) less eight of the most volatile components (fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, inter-city transportation and tobacco products) as well as the effect of changes in indirect taxes on the remaining components.

The Consumer Price Index for February 2014 climbed 1.1% on an annualised basis versus market expectations of 1.0%.

“The smaller year-over-year rise in the CPI in February compared with January was mainly attributable to gasoline prices, which fell 1.3% in the 12 months to February, following a 4.6% increase in January. On a monthly basis, gasoline prices rose 2.3% this February, a smaller increase than in the same month a year earlier (+8.4%),” clarified the report from Statistics Canada.

StatsCanada-CPI-graph

Retail sales

The country also posted encouraging data on retail sales, which grew 1.3% on a month-on-month basis during January 2014, surpassing estimates of 0.7% growth by a comfortable margin.

“Retail sales rose 1.3% to $40.7 billion in January, partially offsetting the decline in December. Gains were reported in 7 of 11 subsectors, representing 83% of total retail sales,” said the report from Statistics Canada.

Effect on the USDCAD

The twin data, which came out better than expected, led to a jump in the USDCAD pair.

We note in the chart below that the pair has broken out of a pennant formation and may be headed higher.

usdcaddaily-close of-210314

It is significant how the 50-day moving average has provided strong support to the pair on three recent occasions, shown by the Up arrows.

Fed maintains taper momentum; cuts the cord to an unemployment threshold

March 20, 2014 in Forex Fundamentals and News

The FOMC meeting, chaired for the first time by Janet Yellen, announced the third instalment of a $10 billion cut in its monthly bond purchase program, a part of its quantitative easing agenda for bolstering the US economy.

The monthly bond purchase target now stands at $55 billion, comprising bond purchases of $ 25 billion and Treasury purchases of $ 30 billion.

The FOMC clearly placed recent slowdown in economic numbers at the door of adverse winter weather, at least partly, and was therefore encouraged to continue with the measured reduction in quantitative easing that was indicated in December 2013. At the press conference, Yellen also said that the FOMC expects “sufficient underlying strength in the economy to support ongoing recovery in the labor market.”

On interest rates, the FOMC pledged a continuation of a low rate regime, and delinked them from the hitherto 6.5% unemployment benchmark. The committee said it will now consider “a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments,” while maintaining a trajectory towards maximum employment and inflation of 2%. Analysts have dubbed the new system as “qualitative guidance.”

However, the markets were comforted by the words, “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

Later, at her press conference, Yellen hinted that the Fed could start raising shorter term interest rates within six months of the end of the asset purchase program, causing a sharp jump in bond yields, such as the 10 year UST whose yield jumped to 2.77% from 2.74% before the Fed’s press release. The DJIA hit the day’s low losing 210 points.

Gold was a major casualty of the Fed event – it continued its sell-off as highlighted yesterday and in the chart for today.

xauusddaily

The dollar strengthened across the board, as shown in the ellipse on the chart of the dollar index below.

dollar-index