Whipsaws and strong rejections in numerous currency indexes defined today’s price action and it’s no surprise when considering the information available to traders at the moment. Great US data today combined with yesterday’s no-taper decision, combined with an overbought dollar and a market hungry to continue selling dollars makes for some ugly charts which have run into a brick wall in terms of order-book positioning in some pairs. This points to strong cross pair volatility in the coming week as some pairs push against the dollar and succeed while others simply run out of traders to take the other side of their positions, forcing reversals.
Following yesterday’s large spike lower, follow through today was important to signal a continuation of bearish trend. As noted yesterday though, the dollar was already very oversold so likely to retrace. Great unemployment claims of dubious worth (they still haven’t solved the computer data entry problem), good Existing Home Sales and an exceptional Philly Fed have created a significant retracement in the USD% index. RSI is still very oversold which suggests that the retracement still has further to go and the Gap from the week’s open has still not been completely closed. It therefore seems likely that an attempt higher is the preferable trade bias for the dollar, however choosing the correct currency to pair this against will be critical for success. I am short term bullish USD
USD% Index Resistance (EURUSD support): EURUSD 1.3511, 1.3468, 1.3439 USD% Index Support (EURUSD support): EURUSD 1.3559, 1.3675
A slight continuation higher today despite dollar strength saw the EUR% index gain ground within it’s bullish channel. The EUR% index still has a way to go yet before at reaches the top of its defined range and as such may see further buying. This may be a good example of a cross opportunity, with the GBP% index seemingly topping for the medium term indicating the EURGBP long positions may be favourable after their heavy selling recently and it may be unwinding of short positions in this pair that adds to the dollar profit taking which defines the bullish EUR% outlook. I am bullish EUR%
EUR% Index Resistance: EURUSD 1.3576, 1.3655, 1.3810 EUR% Index Support: EURUSD 1.3500, 1.3440
A total failure to rally against the dollar resulted in not only a large retracement, but the index is now lower than pre FOMC. This could be due to market-wide lacklustre dollar selling running out of steam combined with strong bullishness of the Nikkei pushing the yen lower. Trend is currently range bound following an easy push through bullish channel support today so a push below recent lows will be needed to signal a return to bearishness. Likewise the upside has been contained by a very long-standing bearish trend line which is creating a squeeze for the Yen and may see a breakout to the upside if challenged further given the narrowing range of the Yen recently. I am neutral JPY%
JPY% Index Resistance (USDJPY Support): USDJPY 98.75, 98.50, 97.67 JPY% Index Support (USDJPY Resistance): USDJPY 100.27
Retail sales disappointed today with a print of -0.9% vs 0.4% forecast which spurred a strong push lower today and saw the GBP% index drop down to support from the top of it’s bullish channel. This creates more room above for a continuation, although given the extreme state of the retail order books and drop in fundamentals today, I prefer a profit taking sell-off scenario to push the pound lower I am bearish GBP
GBP% Index Resistance: GBPUSD 1.6194, 1.6276 GBP% Index Support: GBPUSD 1.6025, 1.5950, 1.5870
The AUD% index’s push lower today indicates profit taking following the recent strength of the Aussie. I prefer not to buy from these levels though, due to the limitations of upside caused by the likelihood of a doveish RBA following the taper disappointment for them. They were hoping for the Fed to push down the Aussie via a strong dollar so will now be reassessing their position. That said, there may be some short term upside still left for the AUD% index. I am short term bullish, medium term bearish AUD
AUD% Index Resistance: AUDUSD 0.9504, 0.9552 AUD% Index Support: AUDUSD 0.9386, 0.9345
The Swiss Franc is painfully overbought currently and the push higher today up to the upper bound of it’s current range may see it’s upside limited for now. If the dollar retracement higher continues, this may begin to weight heavily on the Swiss Franc I am bearish CHF
CHF% Index Resistance (USDCHF support): USDCHF0.9089 CHF% Index Support (USDCHF resistance): USDCHF 0.9123, 0.9165
A strong rejection from CAD% index trend line resistance today may signal the end of it’s current run higher although one last push up to major channel resistance can not be ruled out before a reversal. Risks are biased to the downside for Canadian dollar, so a break bellow the yellow trend line at USDCAD 1.0291 may see an acceleration lower. Likewise a rally up to and rejection from 1.0123 would likely meet strong offers. I am bearish CAD.
By Mark Lewis