Random Thoughts – Choppy Trading Conditions

Which Way WednesdayWell, today was one of those days that we would rather forget.  All of our trades backfired as choppiness in the market triggered our stops before conditions turned in our favor. 

The day started with optimism towards a positive resolution at Friday’s EU Summit.  This was followed by mid-day skeptism.  In any event what we were reminded of today is that trading in news driven markets can be hazardous to your trading account.

Beyond our grumpiness, here are a few things we took out of today’s action, or lack of action, or too much action.  AGH!!!!

1)      Gold Prices rallied

2)      GBPUSD rallied

Prices of Gold are back above 1740 after trading around 1700 24 hours ago.  The move isn’t surprising as precious metal has almost always been an outperformer during periods of general uncertainty in the market.  Basically, you are 75% hedged with Gold.  If the overall market rallies, commodity prices will rally and carry Gold higher.  On the other hand, if we see a flight to quality, Gold has a 50/50 chance of rising.  It could gain on the safe haven buying or drop along with commodities. So, 75% chance of price appreciation is pretty darn good. Too bad we didn’t think about it with prices at 1700.

Beyond the easy rationale of Gold, the rally in the GBPUSD totally took us by surprise.  The pair looked dead as it was in a week long downtrend and support looked vulnerable.  Also, Manufacturing Production figures from the UK were worse than expected. In any event, prices unexpectedly rallied in mid-day to a high of 1.5722 from the 1.5600 figure.  There wasn’t much news other than the usual “EU worries sends the GBP higher.” Not really sure what one has to do with the other, as we have seen “EU worries sends the GBP lower” headline used quite often as well.  Our thoughts are that a big EU firm is in the process of unwinding a large Euro trade and rotating funds to Pounds ahead of tomorrow’s interest rate meetings from both the ECB and BoE. It will be important to watch if today’s trade reverses following the meeting.

Just to end on a positive, our long term EURGBP was our big winner today as it went back into the black, on the GBP’s strength.

Technical Analysis : EURUSD, GBPUSD, AUDUSD & USDCAD

EURUSD Intraday Support/Resistance  1.3370/1.3500

Has found support at its 61.8% fibo retracement level from last week’s pre-central bank rally lows to highs.  Therefore, until the pair closes a day below this 1.3370 support level, its chart reveals the presence of buying demand.  As such, it looks like a buy on the dip candidate on moves below 1.3400.  On a non-technical front, Forex traders should remember that volumes may be lighter until this Friday’s EU Summit.

 

GBPUSD Intraday Support/Resistance  1.5555/1.5670

In a downtrend lower highs since last Wednesday’s central bank news.  Also, posted a pseudo bearish Head and Shoulders pattern this week.  Therefore, the pair looks vulnerable to the downside if 1.5555 support fails hold to hold.  This could occur quickly if UK Manufacturing Production numbers are worse than expected.

AUDUSD Intraday Support/Resistance  1.0155/1.0325

Continues to trade in a week long trading range between 1.0155 and 1.0325.  Showed bullish technical patterns yesterday as it rallied off of its support levels following an interest rate cut from the Reserve Bank of Australia.  As such, looks poised for a sustained breakout move higher if it surpasses its current resistance levels.  Also, its bullish trading patterns would make the pair an outperformer in an overall risk rally.

USDCAD Intraday Support/Resistance  1.0000,1.0055/1.0200

Broke below last week’s post central bank caused lows.  The move was caused by positive Canadian comments following yesterday’s Bank of Canada Interest Rate Meeting. A break below the November low of 1.0055 could trigger a move to parity (1.0000).  The USDCAD has been well supported at 1.0000 over the past few months, therefore, any move below 1.0000 could be limited.

Forex Trading Analysis - BoC Sends CAD Higher

What We Are Watching

•         GBP Manufacturing Production
•         NZD Interest Rate Meeting
•         CAD Strength

 The USD was lower in overnight trading as Forex traders continue to look ahead to Friday’s EU Summit.  Following the events of the past month; new Greek and Italian governments, EU fiscal integration talk, and the S&P credit warning, expectations for a productive summit have risen.  This will put the Euro in focus as any indication of a lack of consensus from EU leaders could send the currency falling again.

Elsewhere, the CAD has been strengthening following yesterday’s Canadian interest rate meeting. The Bank of Canada left rates unchanged at 1.0% as and cited encouraging growth signals from Canada and the US.  This diminished worries that the BoC would initiate any easing measures in the short term.  At a current 1.0075, the CAD is trading at three week highs against the USD. The BoC’s comments contrasted from that of the Reserve Bank of Australia which cut its country’s interest rates yesterday.  As such, traders should keep their eyes on the AUDCAD, which could be set to trade lower over the next month as Canadian fundamentals are improving versus Australia.

EURUSD  

After falling to a week low of 1.3330 yesterday morning, the EURUSD bounced back to the 1.3400 figure.  The move was triggered by the abovementioned optimism towards this Friday’s EU Summit.  Looking forward, further gains may be limited as traders may wait until Friday for further clarity in the currency.  As such, we could see the EURUSD remain range bound between 1.3490 resistance and 1.3330 support. On such a scenario, we would be sellers of any rally above 1.3470 with stops at the 1.3500 figure.

 Intraday Support/Resistance  1.3330,1.3490

GBPUSD

The GBPUSD remains well bid just below 1.5600 as any move below that level was met by buying support.  However, the pair failed to take advantage of the overall USD weakness to gain much yesterday.  With UK Manufacturing Production out later this morning, the GBPUSD could be vulnerable to a downside breakdown if the figures underwhelm. 

Intraday Support/Resistance  1.5555,1.5580/1.5650,1.5750

Forex Trading Analysis - S&P Sharpens its Arrows

What We Are Watching

• ·         S&P Puts ENTIRE EU on Credit Watch
• ·         EU Debt Yields
• ·         CAD Interest Rate Meeting

Forex and Equity markets are reeling today after last night’s credit warning from S&P.  The credit agency put the entire EU on negative watch and has 90 days to decide whether downgrades will occur.  The news occurred towards the end of Monday’s US trading session, causing US indexes to close marginally higher after rallying earlier in the day.  As expected, the EURUSD also took a dive as it fell back below 1.3400 to a current 1.3340. Looking ahead, Forex traders will be watching EU debt yields which have risen since S&P’s comments were released.  If yields trade back towards their pre-warning levels, it would signal that the market is looking beyond the S&P news and could provide strength back in the Euro.

Elsewhere, the Reserve Bank of Australia cut interest rates for the second month in a row to 4.25%.  The move reveals the presence of a slowdown in Australian economic growth even  as commodity prices remain high.  On the news, the AUDUSD hit a low of 1.0155 after hitting a high of 1.0305 yesterday.  The pair has currently bounced back around 1.0200.  Looking ahead, the Bank of Canada will be holding their interest rate meeting later today.

EURUSD  

We mentioned yesterday that the EURUSD would need to close above 1.3420 to follow on its momentum that it had gathered last week. However, after holding well most of Monday, the abovementioned S&P credit watch news sent the pair below the 1.3420 mark.  As such, the new line in the sand becomes last Friday’s low of 1.3375. A close above this level would prove that buyers are stepping up to support the EURUSD.  On the other hand, failure to hold above 1.3375 could trigger a retest of 1.3250 support.  Looking ahead, much of the Euro’s movement will depend on the reactions from EU leaders towards the S&P news and whether their actions will be enough to calm Forex traders’ worries.

 Intraday Support/Resistance  1.3310/1.3400,1.3430

GBPUSD

Trading in the GBPUSD was enigmatic yesterday as it temporarily fell following better than expected Service PMI figures before rallying on the dollar’s overall weakness.  The gains though were erased following the comments from S&P which led to the dollar to rally. However, unlike the EURUSD, the GBPUSD remained comfortably above Friday’s lows (see chart).  As such, the pair looks well bid around 1.5600 and could be a “buy on the dip” candidate on any moves to that level.

Intraday Support/Resistance  1.5555,1.5580/1.5650,1.5750

Monday’s Forex Technical Setups

EURUSD Intraday Support/Resistance  1.3375/1.3500

Showed technical strength as Friday’s high surpassed its post Wednesday move higher.  However, it sold off into the weekend and needs to close the day above 1.3420 to regain its technical strength.  A close above 1.3420 could lead to a move towards 1.3500.  On the downside, failure to hold above Friday’s low of 1.3375 could trigger selling to the 1.3300 figure.

GBPUSD Intraday Support/Resistance  1.5555/1.5670

In a current downtrend as the pair has set lower highs since Wednesday’s move higher.  As such, the pair looks vulnerable to selling pressure if it fails to hold above its current short term uptrend. 

USDJPY Intraday Support/Resistance  77.70/78.40

Following Wednesday’s drop the USDJPY held within its post October intervention uptrend.  Demand continues to be picking up for the pair and it could be a buy o the dip candidate on moves back towards it trend (currently 77.70).  Upside moves will see resistance at 78.40 with any trading above 78.55 setting up a potential run up to 79.00.

AUDUSD Intraday Support/Resistance  1.0160/1.0325

The AUDUSD has been range bound since Wednesday’s move higher.  Prior to Wednesday, the pair was allready showing technical strength as it broke above its 0.9900 resistance levels.  As such, the current technical momentum could lead to an upside breakout were the pair to trade above its 1.0325 resistance.  Also, downside risk may be limited on any break below support.  Forex traders though, should keep in mind that the Reserve Bank of Australia is holding their monthly interest rate meeting tomorrow.  Therefore, the current trading range may continue until the results of the meeting emerge.