The U.S. dollar has made four big moves higher in the past four days. In the process, USD/CAD has risen above downtrend resistance and the mid-July highs. At the moment, the USD is overbought so we would advise waiting for a down day to establish long positions.

The RSI, at 68.42 is nearing the same levels as the spike high in May and if recent history proves correct, we will likely see a move lower (possibly back to as low as 1.04) before we see a renewed push higher.

Fundamentally, there is a similar story about to play out. The Bank of Canada meets September 6 and the market is pricing in a 45% chance of an interest rate hike. We expect that economic worries and market jitters will force the Bank of Canada to reconsider raising rates. At the moment, 100% of economists survey expect the BoC to raise rates. With recent Canadian economic data trending lower and no inflation worries, the BoC is likely to change course. Alternatively, they make hike rates by 25 basis points but make it clear that there will be no further rate hikes. In either case, the Canadian dollar will weaken (and USD/CAD will rally).

We expect to see 1.13 at some point before the end of the year.

The euro is not oversold from a daily perspective but it is approaching some solid support levels that could provide quality buying opportunities.

On Wednesday, the euro’s nearly 300 pip fall against the U.S. dollar was the largest one-day fall since September of 2008. That’s worse than any single day during the European debt crisis. Without doubt, we see the euro moving lower from here in the medium term. In the short-term, however, we are nearing uptrend support and support from the June low of 1.2737.

We could see a further slide close to support on Friday, especially if U.S. retail sales disappoint. But looking to next week, there is very little on the data docket to spook the broad market. To us, that skews the risks toward a mild recovery trade. With that in mind, we would look for opportunities to buy the euro at below 1.28 with the expectations that we will see a re-test of 1.30 in the week ahead. If the euro does return to 1.30 we will be quick to take profits and initiate short positions for an eventual fall to new lows.

Risk aversion and the Fed’s announcement of further quantitative easing have pushed USD/JPY down through support to the lowest level in 15 years. Japanese officials expressed concerns in the Asia-Pacific session about the rising yen but that has done nothing to slow the rally. Japanese Finance Minister Noda told reporters in Tokyo that recent moves in the yen have been “a little bit one-sided.” Meanwhile, Japanese Trade Minister Masayuki Naoshima said that deciding on FX interventions is difficult in an interview with Jiji Press. USD/JPY fell as low as 84.73 but was most recently down 47 pips to 84.97. The pair fell as low as 84.83 in November 2009 during the height of the credit crisis but USD/JPY hasn’t traded below since 1995. If the pair can close below 84.83, it will be an extremely bearish signal.

A reason for the weakness in USD/JPY is that U.S. growth in the second quarter may have been far worse than the 2.4% pace that was initially estimated by the Bureau of Economic Analysis. Two surveys private economists show they are expecting more than a full point of revisions. Bloomberg has just released a survey suggesting growth will be revised to 1.2% but it’s based on just four responses. Similarly, Dow Jones has a listed consensus at +1.3% (it’s unclear how many were surveyed). After four quarters of contraction, the U.S. economy grew at a pace of 1.6% in Q4 2009 followed by quarterly readings of 5.0%, 3.7% and the most-recent 2.4% rate. It appears that growth is stalling as government stimulus fades. With momentum clearly slowing, more questions will arise about the possibility of negative growth and recession. Slower-than-expected inventory builds are a large part of the downgrade. Today’s unexpectedly large U.S. trade deficit for June will also hurt. One notable market watcher is saying today that growth could be revised to as low as +0.5%.

We expect a bounce in USD/JPY in the immediate term but will be looking to sell. We will also sell on a close below 84.83 with an eventual taget of the all-time low at 79.90.

The market is expecting the FOMC to downgrade the assessment of the U.S. economy. It’s probable they will indicated that employment growth is lackluster, consumer spending has disappointed and housing indicators continue to point to another leg lower. The wording will be less explicit but the market will be spooked by any worrisome signals, however slight. The initial reaction will be a slump in the stock market and that will translate into JPY strength.

 
One possibility is that we will see Bernanke’s “unusually uncertain” phrase included in the FOMC statement. The reaction to “unusually uncertain” would be mostly muted with perhaps some JPY and USD strength.

 
Market chatter also centers around what the Fed will do with money invested in mortgage-backed securities that are expiring. Until recently, it was believed the Fed would destroy the money it used to buy the securities but now there is talk they will recycle the dollars and buy Treasuries or further mortgage-backed securities. With inflation unlikely and deflationary fears rising, we fell this step will eventually be taken. We don’t think a program will be announced today but we expect them to emphasize that there is more they are prepared to do if the economy worsens further. We think such an outcome is USD-neutral. If the Fed, however, talks more explicitly about new programs or introduces them, we will see a broad USD selloff. Currencies like AUD, CAD and EUR would be expected to outperform in such a scenario barring a major downgrade in the economic outlook.

One final thing to watch is Kansas City Fed President Thomas Hoenig. He has dissented at the previous four FOMC meetings and is in favour of raising interest rates. We believe he will continue to dissent. The risk is that he will fall in line with other FOMC members on the “extended period” language. This would be a slight USD-negative. Overall, however, we feel the market (and the FOMC) has marginalized Hoenig.

USD/CAD attempted to break down below support yesterday but was harshly rejected. The fresh uptrend has continued in today’s session and the technical outlook is looking increasingly bullish.

We can see a rough outline of a hammer reversal pattern yesterday and a more clearly defined hammer today. Support comes in at the 100-day moving average (purple) along with the Jule low of 1.0277 and uptrend support from the low in April.

Initial resistance resides at the 200-day moving average (red) but we don’t think that will pose a serious hazard to bulls. Instead, look for an inital rise to downtrend resistance at around 1.0570. Place stops below the 100-day moving average as another test below will likely see follow through.

We’re not huge fans out old-fashioned trendlines but when a line has been tested and it has held several times, it’s important. That’s the case with the long-term uptrend in gold. The support level proved to be worth watching but it broke today and the outlook for gold is looking increasingly negative for the short-term.

The trendline is from the credit crisis low of $682.41 on Oct. 24 2010 through the November low of that year and a low in January 2010 and March of this year. Gold bounced off this trendline last week but the bounce was shallow and now the market appears to breaking definitively lower.

Today, gold is down $19.50 to $1164.05 per ounce. The next significant level of support is the 200-day moving average at 1148.07. The 200dma hasn’t been breached since January 2009. Further support rests at $1043.

We hate to be short in an uptrend but will look to a $10-20 rally as an opportunity to establish a short position.

The sell-off in USD/CAD following the Bank of Canada decision didn’t make any sense to us and now the technicals are setting up for a move higher.

We have seen an intraday reversal on daily chart that could finish the session as a bullish hammer reversal pattern. The caveat is the 50-day moving average (purple) that comes in at 1.0444 today.

If that breaks, expect a move to 1.0680, at least. The bottom today puts in a higher low and is well above the most recent 1.0277 low.

One week ago, we talked about the potential for USD/CAD to rally and that is exactly what has happened. The initial catalyst was a soft report on Canadian retail sales but the broader move has been driven by international worries about a double-dip recession.

We noted that Canadian fundamentals remained strong but when we looked at the chart, it was clear the U.S. dollar wanted to go higher against CAD. What happened? We have rallied from 1.0393 to 1.0639.

The 200-day moving average has given way, downtrend resistance was only a hiccup and we are nearing our initial target of 1.0678. We would take profits on longs initiated below 1.0450 because we think there will be some consolidation here. We see a push to 1.0650 in the coming day but expect that to be the top for the next 2-5 sessions. Initiate shorts at 1.0650 or look for a pullback toward 1.0550 as an opportunity to establish fresh longs for a push toward our eventual target of 1.0850.

Looking over our charts over the past week we noticed the impressive performance of NZD/JPY.

The New Zealand dollar was the best performer in the forex market last week as it gained 3.4% against the yen. The NZD found a bid after stronger-than-expected first quarter inflation and building hawkish expectations for the upcoming RBNZ meeting on April 29.

Economists expect no change in the benchmark lending rate but they may signal growing worries about inflation and higher rates to come.

Meanwhile, the JPY broke down against the CAD last week and is now in danger of breaking through strong resistance in USD/JPY. The longer-term technical picture against the NZD isn’t as bullish, however, so a pullback is possible. We will be keeping a close eye on 68.60, which we see as a pivot.

We have to give ourselves a big pat on the back for yesterday’s call on CAD/JPY. It was the best trade in the forex market over the past day as it rallied 237 pips.

Here is the updated chart:

There is nothing not to like about this chart. The sell off on Friday is followed by a perfect morning star formation with a close above Friday’s open. Moreover, the move higher stalled just at the former support line. We said yesterday that our initial target was 93.50 and the market topped out at 93.60 before pulling back.

The catalyst for the move higher in CAD was a hawkish Bank of Canada statement. We foreshadowed this in yesterday’s note. Here is what the BOC said about its conditional committment to keep rates low until the end of Q2: “The need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus.” 

For the yen, the catalyst for the slump was the positive tone in equity markets. Stocks worldwide have rallied about 1%.

Now that we’ve taken up plenty of space lauding our efforts (we wish they all went this perfectly) the question is, where do we go from here?

We continue to like long CAD positions. The absolute best time to buy a currency is when a central bank embarks on a tightening cycle. Here we are at the very precipice of what could be a long-term move higher in interest rates.

In the short-term, however, the situation might be stretched. We will definitely be holding long positions but looking to add on any weakness for a move to our target of 100. The market is struggling at the aforementioned trend resistance and we may see some consolidation down to 92.80. That would be our initial buy point. We would cover on a move down to 92.50 because that would target 92.05. If we do see a move to the low 92s, we will be adding agressively.

USD/CAD has formed a short-term head and shoulders reversal pattern that targets a re-test of last week’s low of 1.0060.

The set-up for the Canadian dollar is looking good on Friday’s session. European leaders appear to have cleared up some of the uncertainty regarding Greece and that could lead to a ‘risk-on’ session.

With a stop at 1.0250 and a take profit at 1.0080, this trade has a potential loss of 38 pips and a potential gain of 130 pips so it stacks up right for us. Selling USD/CAD has been a good trade for us all the way down and this is a new, and attractive tactical entry.

We have been keeping a close eye on the Australian dollar over the past few weeks and AUD/JPY continues to grab our attention.

Two weeks ago, we warned about the potential for AUD/JPY fall below the 200-day moving average. When it did, it immediately fell 300 more pips before finding support at the quadruple bottom at 76.35-50. It has since rebounded back above the 200 dma to 80 cents.

The move higher has relieved short-term oversold conditions and the overall technical set-up remains bullish for the Australian dollar. We would have a very difficult time going long here, however. A clear quadruple bottom is not something that you see often and it’s usually a sign that a further sustained rally is failing. What has is saying that the chart still looks bullish is the fresh high at 86.50 after the late-November test of 76.50 (a 1000 pip rally).

We don’t want to fight the long-term trend of higher highs in AUD/JPY and we have been impressed by the Australian dollar’s ability to rebound back above the 200 dma. There is no reason to think the AUD can’t go higher in the short-term. At this point, however, we see a rally above 86.50 as unlikely and that will trigger a mixed, or negative technical picture.

We do expect this pair to eventually fall back below the 200 dma and below 76.35. At that point we will be agressive sellers as we could see this pair quickly falling to 67.00.

The Australian dollar has rallied nearly non-stop for the past seven sessions but the move is about to hit some roadblocks, namely the 38.2% Fibonnaci retracement of the five-week move lower and psychological resistance at 90.00.

AUD/USD has cleared several hurdles on its rebound, including the lows of the old range at 0.8919 and 0.8946. This is a positive indication for the pair and shows that 0.94 may still be in play.

The key resistance levels are the Fibonacci ones — 0.38.2%, 50% and 61.8%. They fall at 0.8992, 0.9071 and 0.9150. If 91.50 is cleared we believe a re-test of 0.94 is likely. Another level that could offer some resistance is the 50-day moving average at 0.9104 currently but in the past the 50dma has been neglected.

We would like to see a close above 0.90 to confirm a contiued bullish trend but after such a run-up we believe a pullback is the most likely scenario. Expect 0.8916 to act as support, if not a slide back to 0.8750 and below is likely.

Have a Happy New Year.

What a market we are experiencing today!!!  It spells money!!!

As we can see from the trading day yesterday the oil continued its movement in the direction of an uptrend reaching the price of $75.38 a barrel. This was a 10 month high for oil after the amazing summer of 2008 when oil reached $140 a barrel.  This direction continues to support the weakening of the USD, while supporting the CAD and AUD, the commodity driven currencies.

When will this trend stop??

Maybe a few traders have an idea when this will end, however when we look at technical analysis we continue to clearly see the trend.  The announcements we mentioned above coming from the US have already been published and both were positive for the USD. Will we see a market correction or will the trend continue? Question left unanswered will be answered by the traders during the end of the London session and into the US session. Make sure to always examine your support and resistance lines before entering your trades.

Let’s take a closer look at a few pairs:

USD/CAD

I’m not going to talk about the oil, but we can talk about this pair and how it is affected by the oil.  We can find that yesterday this pair made more moves supporting the price of oil, leading to a stronger CAD. Here are the Support and resistance lines for this pair today.

GBP/USD

Employment data in the UK today showed that the country lost 20.8K jobs, less than the 24.5K expected, helping the cable gain a bit against the buck. The gain put it above the 1.6000 level temporarily, though it has come off a little since then going back to the range it was trading in during the last few trading days.

Fundamentals:  We have a few announcements today that will affect the market.

Coming from US we have the “Core CPI M/M”.  The previous announcement was 0.1% and the forecast for today is 0.1%. Released at (12:30 GMT).

One more announcement coming from the US  “Unemployment Claims” which will be released at  12:30 GMT, the previous announcement was 521K and the forecast for today is 524K.

OK traders!! It is time to get some important and good education in order to become a better and more knowledgeable trader.  However to become a better trader one must know the 3 major trading sessions that control the forex market. Those 3 sessions being Tokyo, London and New York.

We all know, this market is a 24 hour a day market revolving around those 3 sessions.  As a trader it is vital to decide which session I want to trade in and follow the trend that is presented in the specific session one enters.  If you look at the chart I have enclosed you will clearly see the London session to carry more pip movement than any other session. As a trader I can find this information prudent for my success.

One more thing I want to share with you guys is this, its money time!!

Over the last few weeks many of the traders I talk to are opening positions selling the USD.  In this case many of these traders are simply following the trend and making money while doing simply that. Follow the trend and know the session you are entering to join those successful traders.

USD/CAD

Over the last few weeks and days we have continued to watch the CAD strengthen against the USD. This is happening due to 2 real reasons. The first is the overall weakness of the USD. The second is the fact that the CAD is a commodity driven currency and with the price of oil continuing to increase the CAD continues to follow that same trend. Make sure to continue searching for support and resistance lines and make sure you know those before entering the position here.

Have a great day of trading…

Today, I would like to continue to address the unprecedented weakening of the USD and the effect it has on major currencies. One of the most exciting things happening in the market over the last few weeks, days and hours are simply the record breaking increase of the Gold and silver. More so we are seeing the commodity related currencies also increase in value to a point of which few have gone and recovered from.The CAD and AUD are both approaching all time highs and continue on a strong uptrend against the USD. Is the USD done??

No, allow me to explain, many analysts across the world agree the recession is over however many believe the road to complete recovery is going to slow and painful, especially in the area of job growth. Fundamental analysis continues to show us higher unemployment rates from the US, the weakness of consumer spending continues to decline or remain flat. However with so much of the world wealth tied into the USD, it is hard to imagine a complete crash, for us traders right now the trend is clear!! We are seeing a weak USD and stronger everything else. In this market we say, “The trend is your friend”

Let’s talk on one of the most popular pair in the world

EUR/USD

The EUR has been moving in a clear uptrend. Today it reached and broke the resistance level of 1.4812. The expectation by many analysts in this market and the next resistance line for the EUR is at the 1.5000 line. Today we have seen the gold piggy back ride on the increase of the EUR with the gold reaching the level of $1065 an oz today!! The trend for this pair is clear, the fundamental and technical analysis is there to support our findings. Continue to look for the entry opportunity for this exciting and volatile pair now!!!

Here are the S&R line for Today:

Support: 1.4850-1.4780-1.4740

Resistance: 1.4890-1.4960-1.5010

XAU/USD

Gold prices reached an all time record high yesterday. Gold trading is currently on the rise and continues in that direction with an increase of about 5% to the price of $1037 an ounce. The previous record price of gold was recorded in March 2008, when gold reached the price of $1032 an ounce.

Gold is becoming more attractive to buyers as the USD continues to drop. The price increase of the gold can be seen when looking at the CAD/USD, AUD/USD and NZD/USD. Those pairs are what some call commodity effecting pairs and they continue to indicate the weakening of the USD.

This is an exciting time for us as traders as we are witnessing record high for the gold and the unprecedented weakening of the USD.  We talked about the G7 meeting that happened over the weekend yesterday and I will continue to wait and see the outcome of that joint statement since the market is continuing with the technical trend and ignoring some of the fundamental news coming out as of late.

By the way yesterday we talked about the USD/CAD below you will see the results of the pair over the trading day. Needless to say the fundamental news had some affect on this pair.

Fundamentals:  We have a few announcements today that will affect the market.

Coming from Europe we have the “Final GDP”.  The previous announcement was -0.1% and the forecast for today is -0.1%. Released at 9:00 GMT.

Two  more announcement coming are also expected. One from the EU being the “German Factory Orders m/m” which will be released at 10:00 GMT, the previous announcement was 3.5% and the forecast for today is 1.3%. Also coming from US we have the “Crude Oil Inventories”. The previous announcement was 2.0M; the expectation is at 2.8M this will be released at 14:30 GMT.

Today I would like to talk about something a little different. I have been browsing many Forex forums and talking with many traders and I am seeing a new trend or  one could argue a trading strategy. It is called the 10 minute trader. One amazing thing about this strategy is many claim to have made a lot of money and minimized the amount of risk associated with opening a large position. These are traders opening large lots in the minimum amount of $500,000 to $5 million. How they determine which way to trade is simple, they simply view a 10 minute chart and following the trend on the specific pair they are trading. Most 10 minute traders, trade with the majors, mostly a pair that has been trading in 20-30 pip range with low spread such as EUR/USD or USD/JPY. Those pairs can prove to be interesting in this trading strategy. Looking at a 10 minute chart on EUR/USD and we can clearly see the pip opportunity of a 10 pip move on a $1 Million position, that’s a $1000 profit just for following nothing but technical analysis on a 10 minute chart , please make sure to look on the overall trend of the pair you are trading with as well by taking a zoom out in the chart or changing your time scale to hourly or daily to ensure maximum knowledge on this pair and keeping on eye out on some of the fundamental news coming out.

USD/JPY

Yes,yes,yes I know it is one of the most interesting pairs to trade with, we talked yesterday how the JPY was in a nice clear trend and waiting with the position could lead to a nice profit. Now let’s take a look over the last few days, we will find a lovely trend showing the USD getting weaker while showing us traders believe in the JPY right now. From a technical point of view, we can take a look at the next support line for this pair, if this pairs gets there it is likely to break it and the trend will continue. For us this always an exciting pair to look at and trade with, also don’t forget to look for the announcements coming from the US and Japan today. Enjoy and happy trading.

Resistances-89.80– 90.12-90.40

Supports-89.34 – 89.12-88.68

Fundamentals:  We have a few announcements today which will affect the market.

Coming from Switzerland we have the “KOF Leading Indicators”. The previous announcement was -0.04 and the forecast for today is 0.5. (09:30 GMT).

Three more announcements coming in from United States, one of importance is the “ADP Employment Change” which will be released at 12:15 GMT. The previous announcement was -298k and the forecast for today is -200k. Also coming in from Canada “GDP m/m” which will be released at 12:30 GMT. The previous announcement was 0.1% and the forecast for today is 0.4%. Also coming in from Japan is the “Tankan” announcement which will be released at 23:50 GMT. The previous announcement was -48 and the forecast for today is -33.