The euro continues to fall and there is really no end in sight. The market has zeroed in on Greece and it’s going to push until the story breaks. It’s looking increasingly like Greece will be bailed out as bond vigilantes bump Greek sovereigns.

Even if a solution is found to the problems in Greece, then the market will turn to Spain, Portugal, Ireland and Italy as the next victims. Today Spain released unemployment at 18.8% and a day earlier Portugal’s government released data on an extremely high budget deficit. Portugal’s central bank Governor Victor Constancio said “nobody expected” such a high deficit and that “the next few years will be more difficult.”

All of this has been priced into the market, and that’s why EUR/USD looks like this:

It has been a swift and incredible fall from 1.51. We’re not prepared to make a short-term call because we see the risk of a fall to support at 1.3748 and a short-squeeze to 1.42 as an equally balanced trade.

What we are wonering about is how the market is going to interpret what’s next for Greece. At the moment, there is no reason for the events in Greece to come to a head. Just last week, Greece raised $9 billion euros in a debt auction that was five times oversubscribed. A real funding crunch is nowhere on the horizon yet with Greece destined to remain on the front page for at least the next week, we feel like the market is going to force some action.

European officials have made it clear that Greece won’t be forced out of the eurozone and there are murmurings that the EU is preparing a bailout. We wonder how a bailout will be interpreted. In the short-term it would devestate the bond vigilantes and we lean towards thinking the stability generated from such a move would be a euro-positive. It would undoubtably cause some of the euro shorts to cover and that should cause the snap-back rally we fear.

On the other hand, a bailout would absolutely send the wrong signals to the other eurozone members in trouble and it would anger the fiscally responsible Germans. It’s the sort of thing that could lead to the eventual demise, or reformation of the euro.

As you can see, the euroarea is in a jam with no easy solutions. For the foreseeable future, we will be looking for rebounds and using them as opportunities to sell.

The Australian dollar has fallen to its lowest levels of the year but it’s very tempting to look for a way to get long.

AUD/USD broke below 0.8911 but touched off trendline support on the hourly chart and has since made a slight recovery. The hourly RSI has broken below support at 25 and is into severely oversold territory at 20.87.

In the short-term we expect to see an oversold correction but the trend is clearly down in AUD/USD.  The problem for Australia, despite bustling domestic economic growth, is that it is tied very closely to China. The market has recently turned against China after the PBOC took some steps to cool off the economy. A cooler China means a cooler Australia. Compounding the losses is the general risk aversion (stocks look ugly) and worries about sovereign credit.

Still, it’s hard to resist the temptation to catch the falling knife. AUD/USD has fallen in 8 of the past 9 sessions and the daily RSI is nearly as oversold as the hourly.

In the medium term, we would like to be short AUD/USD. Risk has been underpriced for months and it’s sure to come back. Not only that, there is a very clear triple-top on the daily AUD/USD chart and we don’t want to be agressively long until the top at 0.9402 breaks.

But if we had to make a trade in AUD/USD at the moment, it would be as a buyer. This pair is badly oversold by any measure. We see very little risk of a plunge in the pair and even if it did, we would be happy to get long at support at 0.8750. On the other hand, a snapback rally is very much on the table. Look to get long on a rebound to 0.9000.

Risk assets have improved since Obama took the podium to deliver his first State of the Union address. There was nothing particularily bullish about the speech but stock futures took off, the euro rebounded from below 1.40 and USD/CAD has formed a short-term triple-top.

The parameters of the short-term top are 1.0691 to 1.0591 — a perfect 100 pip range that has been tested three times on the topside and three times on the bottom. The pair is often prone to range trades and we will be keeping an eye on this one because a breakout will likely prove forceful.

On the downside, we have the 100-hour moving average as support as well as the support at 1.0591. We would expect a fall below this support to target at least 1.0500 with 1.0460 as the preferred scenario.

On the topside, the market is facing strong resistance at 1.0750, so we would be prone to taking profits quickly on a breakout. But we would also be eager to buy a break of 1.0750 with 1.0850 as a target.

Overall, we have seen a substantial rally in USD/CAD since falling to 1.02 in the middle of January.  The daily chart shows a nice double-bottom, however, and we would prefer to be buyers as long as it remains above 1.04. We would see a correction to 1.0450 as an ideal buying opportunity.

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We were taking a look at the hourly charts across the majors and this one stuck out.

We saw some very impressive moves last week and thankfully, we were here to offer some great trade suggestions. Every trade we highlighted last week was a profitable one and we’re looking for more of the same this week.

After the big breakdowns last week, we’re looking for some signs of retracement. We like AUD/USD because in the panic last week, a lot of Aussie positions would have likely been tossed out with anything else that looked like ‘risk’.

Now that the market has settled somewhat, the focus will shift back to fundamentals and Australian has the best fundamentals of any advanced economy.  We are aware of the upcoming Australian CPI data and we warn that the risk averse would be wise to trade around it as it has the potential to whipsaw the market.

Back to the chart…. To us, this looks like it could be the beginning of a nice short-term trade with very limited downside.

We have drawn in support from the recent lows and we note that we have seen three (or even four) consecutive higher lows. We also like the look of the reversal candelstick bottoming just below 0.9000. We have yet to see a higher high but we are encouraged that the market didn’t break down after a clear double-top at 0.9092. The market looks poised to test 0.9092 once again and if it breaks, we can see a quick run to 0.9145 (at least).  On a short-term trade, we wouldn’t risk more than the trendline shown but AUD bulls might put a stop at 0.9000.

In the medium-term, we’re still bearish on AUD but with think there’s the potential for a quick, low-risk trade here.

High volume and a nearly 2% drop in the S&P 500 to 1116.48 have us in a bearish mood. The USD/JPY chart broke down when Obama announced plans to limit risk trading by separating investment banks and commercial banks while banning prop trading. It’s a story that isn’t going to go away and we expect the losses in USD/JPY aren’t going to go away as well.

For those who are truely bearish on stocks, we think going short EUR/JPY, NZD/USD or CAD/JPY is a better trade but for those who want to mitigate inter-market risk, we see USD/JPY as a better trade.

USD/JPY is forming a minor consolidation between 90.57 and 90.12. Spot is at 90.40 with the 38.2% fibonacci retracement of the Nov-Jan range at 90.36. Expect further consolidation before a break below these levels for an eventual move to 89.30.

The daily chart shows the fibonacci lines. We expect to see a move inside the 50%-61.8% ‘box’ but the short-term will depend on how decisively we can break below the 38.2% retracement level. Our bearish scenario would be negated by a rise above 91.21.

We hate to pump our own tires too much but it has been a good week for fxbeer.com and it’s only Wednesday. Our short EUR/GBP call on Monday is up 145 pips and our short EUR/USD call a day ago has been sensational, up 184 pips. In total, that’s 329 pips in 48 hours and while we would certainly take some short-term profits, the trades still look like winners.

Today we’re going to step away from the euro and look to North America. The commodity currencies got hit hard on Wednesday in an exciting day of trading and the most volatile session on the year. The kiwi was the worst-performing currency but the Canadian dollar was close behind and blew through resistance, with USD/CAD rising more than 150 pips.

This move has caught is by surprise as we are big, long-term CAD bulls. We will never fight a chart though and this one has turned against the CAD in a big way.

We can see that the stochasics on the bottom chart are showing a buy signal and the RSI still has some way to go before it’s into oversold territory.

The huge reversal today above key resistance at 1.0406 to as high as 1.0487 is a buy signal. We would have liked to see a close near the highs but still think this move targets 1.0582, and if that breaks, likely to 1.0743 as we re-enter the Nov-Dec trading range.

On the bottom of the daily chart we see that there is now the potential for a double-bottom that could target as high as 1.14. We’re not quiet ready to go there yet because of the price action on Oct. 20 and 21.

You can see a very similar move to the once we saw today on Oct. 20, extending into Oct. 21, when USD/CAD rose to 1.0582 before we saw a minor retracement. The pair eventually rose all the way to 1.0850. We will be keeping a close eye on price action in the day ahead. If we can see a close above 1.0441 we will certainly be encouraged.

In the short-term, look at 1.0406 as support with resistance at 1.0489-1.05. We expect to see some consolidation in the Asia-Pac and European sessions before a convincing move on Thursday (likely higher).

Yesterday we told you about how the euro looked vulnerable against the pound sterling and it proptly fell 100 pips.

Today we are looking at the euro on another front, against the U.S. dollar. The key in this pair for the past six weeks has been the 200-day moving average and today we saw it break below that market — a bearish sign for sure.

The euro has recovered to close above the 200dma, so there is some chance that this was a false breakout, but overall, it’s not looking good for the 16-nation currency. The problems in Greece are haunting the euro, with both the removal of Greece and a bailout as abhorent solutions. It’s also something that is no going to go away. The second thing that is dragging on the euro is weak economic data. The ZEW survey on Tuesday was far below expectations and it seems like every piece of data from Europe is disappointing.

In short, the fundamental and technical outlook is poor.

This chart shows the only line that matters right now — the 200dma. We can see that it’s sitting right on the line after falling about 40 pips below it earlier. We expect that it will fall definitely below the line in the next day or two. The next test will be the Dec. 22 low of 1.4217. If that breaks, a fall to 1.40 is likely and a target as low as 1.3750 possible.

You can’t always be first to the party but when it’s the best party in town, there  will be plenty of good times to go around.

UBS is out with a note advising clients to short EUR/GBP today at 0.8815 on concerns about Greece’s deficit and dovish rhetoric from the ECB. They also expect an economic recovery in the UK. They have a target of 86.00 and a stop at 89.30.

We have been watching this chart and if it makes sense fundamentally to UBS, it certainly makes sense technically to us. The target and stops seem relatively arbitrary but strike a nice balance between risk and reward, so we won’t quibble with them too much.

Here’s a look at the daily chart with the target and the stop drawn in:

We can see that a top occured around 0.94 and that morphed into a flag formation that is actually bullish but with the break of support at 0.8833, it turns ugly and points to further losses.

As a short-term trade, it takes some nerve to jump in right now. We have seen five consecutive days of declines and the technical  momentum indicators are looking severly oversold. We are reminded of AUD/JPY recenly, however, and that moved in a straight line for 11 consecutive sessions.

Conservative traders might look to sell a rebound at 0.8850, risking only 80 pips while agressive traders are likely to see a set-up that’s too good to miss, even if there is a potential for a sideways, choppy trade before we see the big move down. With UK CPI upcoming, the big move could be sooner rather than later. In any case, this is probably a party you don’t want to miss.

The USD made a valiant effort at staving off parity on Monday, as it rose to 1.04 but it failed precisely where it was supposed to at 1.0406 and has been run over but the CAD in the past day, creating a bearish engulfing candle formation that points to further losses.

Though close, parity isn’t a foregone conclusion. There is support at 1.0253 followed by 1.0207 but a test on those two levels in highly likely in the coming day and a break of 1.02 would make parity almost a slam dunk.

On the upside, the only level that matters is 1.0406. It’s the key resistance line and if USD/CAD can break above it, go with it because it’s probably going to 1.08.

The U.S. dollar fell hard against the Japanese yen on Tuesday. The move was the resolution of a complex head-and-shoulders pattern that played out in a nearly textbook fashion.

The pattern is clear on this hourly chart. The neckline comes in at about 92.22, depending on where you see the right shoulder. We see it as the first spike down, but if you measure it from the lower spike, the move targets even lower.

With our neckline, the measured target is 90.74, nearly exactly where the bottom has so far come. For those of you who aren’t familiar with technical analysis, the measured target is derived from mirroring the distance from the neckline to the top of the head and then projecting it lower.

Some traders like to try to trade the right shoulder of the pattern as a short, other like to wait for the neckline to break. Either way, you were looking at a 150 to 200 pip profit in a single day.

If you missed it, don’t expect to see a big rebound. A head-and-shoulders top often generates a major top and it could be some time before we see USD/JPY back above 93. Look to sell a rebound to the neckline as the weakness extends.

Fundamentally, it’s hard to see a reason for the yen to strengthen. Government officials there have done everything short of selling the currency in order to weaken it so we would be cautious with holding short positions in USD/JPY for too long.

Taking a look at the U.S. dollar/Swiss franc chart, there is a huge breakdown followed by a clear double-bottom pattern.

The pair fell 250 pips on Friday but the hourly chart shows strong signs of a coming retracement. The measured target of the double-bottom is 1.0274, which is nearly 100 pips above the current level. A move to their would also fit nicely into the Fibonacci retracement ‘box’ between 1.0260 and 1.0290, which represent the 50% and 61.8% levels.

As we can see, the double-bottom is a textbook fundamental pattern and if this chart holds to form, we could see a solid rally.

Any move below 1.0132, however, would be a sell signal and even anything below 1.0150 would be a good stop for a cautious trader.

On the upside, we would favour a full retracement of the big drop if USD/CHF can clear 1.0290.

The euro has broken out to the upside against the U.S. dollar, ending a basing phase that saw it fall to as low as 1.42 from 1.51.

The week started with a quick, 85 pip EUR rally to 1.4495, just below psychological resistance at 1.45. It’s the highest the euro has traded since Dec. 17 and opens the way for a more sustained retracement.

The 200-day moving average was the key to the recovery. It now rests at 1.4258 and as long as it remains above that, we will remain bullish.

The first resistance level upcoming in EUR/USD is 1.4570, followed by 1.4679. There is a great deal of congestion in the upper 1.46s so we will be keeping a close eye on price action there. If the euro rises above 1.47, then 1.4788 will be key resistance. If that is broken, then a re-test of the record high at 1.5141 is highly likely.

It’s important to note that the bullish call has some risks. The initial move comes early in the week and liquidity is thin. The justification for the move, however, is there. Chinese trade data today was extremely strong and with light data upcoming in Europe and North America, the Chinese story should continue to fuel stocks and ‘risk’ trades like the euro.

The upside would be confirmed by a daily close above 1.4483. A move below 1.4290 would nullify the bullish scenario and a move below 1.4216 would be an extremely strong sell signal.

AUD/USD looks tired and Friday’s non-farm payrolls report could be just the thing to stomp out the fading rally.

We saw a 100 pip intraday reversal on Thursday and that has set up an inverted hammer pattern.

We also draw your attention to the slow Stochastic, which is deep into overbought territory with the signal line threatening to cross over.

By any measure, AUD/USD is overbought. We have seen a rise in 8 of the past 12 sessions and all the down days were negligible until Thursday.

The short-term chart also looks like it’s setting up for a big move.

We’re seeing a classic consolidation pattern after a sharp reversal. The range is very tight at the moment, with 0.9180 and 0.9160 as the parameters. Any break is a short-term ‘go with’ but on the top side we would take profits quickly and look for a level to be a better seller. On the bottom, we would hold on through Friday’s non-farm payrolls and look to hit a home run as AUD/USD falls back to 0.8750 or lower.

We have seen large rallies in gold in two of the past three sessions and we are prepared to say that the correction in gold has run its course and that the commodity is ready to resume its rally.

Gold Daily Since Oct.

Gold has rebounded after correcting from the all-time high of $1226 to $1070, which was just over the 38.2% retracement of the move from April to December. The correction was a healthy one, even if many would have liked to see something in the upper 900s before going long once again.

The rally in gold is one of the strongest trends in any market and the signal over two of the past three days has been solid. There is upcoming technical resistance at $1141.52 but if that is breached a re-test of the all time high is the favoured scenario.

Our chart shows the RSI, Bollinger Bands and Slow Stochastics. The RSI is bullish, it has risen to 60 after basing and it won’t be historically overbought until were in the mid-80s. The Bollinger Bands had contracted and now were are pushing against the upper Bol after a correction to the bottom. Look for it to ride the upper Bol like it did in Nov. The Stochastics do give some reason for pause, as we are already looking stretched but overall, the trend looks good.

The yen is making a comeback on Tuesday, extending gains made at the beginning of the week as the USD gives up some ground.

After having hit a 14-year low against the USD earlier in November at 84.83, the cross has since made a 17-week high at 93.22.

A Fibonacci retracement suggests that the next level to watch is the 91.24 mark, followed by 90.01 and 89.02. Resistance remains at 93.22, followed by 93.30.

Many traders however, are wary of the fundamental picture in Japan. With the government ramping up spending to stimulate growth, and the Bank of Japan pledging to combat the country’s rampant deflation problem, it seems unlikely that any rally in the yen can be sustained.

As a consequence, several traders are attributing this morning’s move to profit taking, arguing that the currency is gearing up for another wave of selling against major currencies.

We’re coming more and more around to the conclusion that the U.S. dollar rally in December was primarily fuelled by short covering. Certainly, there was some element of interest rate expectations as the market started to price in Fed rate hikes but that was a much smaller factor.

In December, there was some speculation that good U.S. data was on the cusp of creating a paradigm of U.S. dollar strength. This would have meant the end of the ‘risk’ trade. Instead, today we have seen strong data and a weak U.S. dollar. The ISM manufacturing report was strong and the dollar sold off — hard.

Everything has rallied against the dollar on the first trading day of the year and decade.

The euro is in the middle of the pack, but it is creating the foundation for a solid rebound.

EUR/USD Daily Jan 4

Not shown is the 200-day moving average, which we often talked about in this pair. It came in at 1.4250 and was the key support line of the selloff (which bottomed at 1.4217).

EURUSD hourly Jan 4

On the hourly chart we can see that resistance lies at 1.4457 and that the pair is struggling to get above that level. We believe a break of that level is a more likely scenario than a retest of the 200-day moving average but if either level is broken, go with it.

On the upside, a break of 1.4457 will initially target the 38.2% retracement of the selloff at 1.4565 with the 50%-61.8% ‘box’ in the 1.4683 to 1.48 range. A return to here is our favoured scenario as strong risk appetite opens the first trading week of the year.