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.

The U.S. dollar has become the dog of the foreign exchange market and we expect the EUR/USD to continue rallying after a short pullback. The USD eked out only small gains against only the CAD and AUD on Thursday and experienced substantial declines against EUR, GBP and JPY. The market is beginning to grab hold of a theme that the U.S. economy will underperform expectations. Although we have seen a slight rebound from the dollar early on Friday, the overarching theme remains.

The trigger for the sudden surge in USD selling was Wednesday’s minutes of the June 22-23 meeting. In them, the Fed lowered growth forecasts and said the U.S. economy may not fully recover for 5-6 years from the Great Recession of 2007-09. Richmond Fed President Jeffrey Lacker, who is usually optimistic, even allowed that the U.S. will recover “perhaps at a pace that is less robust than has been typical of past recoveries.” Financial regulation reform, which passed on Thursday, is also making the U.S. a less competitive hub of global finance.

At the same time, the focus is shifting away from Europe. A recent sovereign downgrade of Portugal by Moody’s elicited hardly a blip in the forex market. On Thursday a successful Spanish bond sale further reinforced that a euro breakup and sovereign defaults are no longer a pressing concern.

The huge rally in EUR/USD yesterday pushed the euro above the 100-day and 100-month moving averages and points to a continued recovery in the euro. Expect the consolidation that has begun in Asia to continue as the week comes to a close. The RSI isn’t overbought and there is plenty of technical fuel for a rally but the odds favour intraday shorts on Friday.

We have been advocating short positions in USD/JPY all the way down but looking at today’s chart it’s clear that some caution is warranted. The pair is stabilizing and oversold conditions point to a rebound.

Today’s daily candle forms a bullish hammer reversal pattern. It also forms a double-bottom at 86.96, which was also the low last Wednesday. Further strengthening the case are a multitude of oversold signals, including the RSI, which is just a shade above 30.

A bullish retacement phase would be confirmed by a rally above resistance at 88.05 – 88.15. A reasonable retracement would be back up to 89.25. On the other hand, if we are unable to rally above resistance at 88.05 in the next day or two, we would expect a swift fall toward 0.8450.

We may be seeing a paradigm shift in the forex market. Bad news in the U.S. is no longer translating into a broad risk trade.

In the past, bad news in the U.S. would lead to a ‘risk off’ trade where the JPY was the main beneficiary but the USD also rallied against EUR and the commodity bloc. Over the past three days we have seen risk aversion coming from China and bad news in the U.S. Instead of seeing EUR/USD strength, we are seeing weakness.

Remeber that currencies are relative. Over the past 8 months, the euro has slumped based on euro-centric worries. The thinking was that European economic growth would lag U.S. growth by a large margin.

The outlook hasn’t improved for Europe but it is now darkening for the U.S. and elsewhere. Relatively, that’s a good thing for the euro.

If this is a paradigm shift, it’s major. It’s would be reminiscent of the USD during the financial crisis. Initially, the USD was falling to record lows as it appeared the crisis was limited to just the U.S. housing market. Later, when it became clear that the U.S. housing crisis was going to send the worldwide economy into recession, the USD rallied. This wasn’t good news for the USD, rather, it was relatively good news.

We are not yet saying there has been a paradigm shift but we are on the lookout. The caveat is that we are at the start of a new month and new quarter. Trading patterns often get skewed by flows. We won’t get a real idea of what is happening until July 6, when the U.S. returns from holiday.

Today’s price action was the signal we were looking for to mark the top in EUR/USD. We had a blowout to the upside that has aggressively reversed.

The main news of the day is that China will allow the yuan to appreciate against the USD. Analysts are scrambling to interpret the news and the market has been equally undecided. The U.S. dollar has been a main beneficiary on sentiment that U.S. manufacturing will be more competitive. Initially, the stock market liked the news but a stronger yuan probably means slower worldwide economic growth so that sentiment appears to have taken over.

The idea that China is curbing growth and inflation is weighing on the EUR. There is also a feeling that the entire up-move in EUR/USD was fuelled by short covering. CFTC data released late Friday shows a massive contraction in EUR net shorts so there is evidence that the slump has been little more than position squaring.

The daily chart now shows a downside reversal. We also see an inverted hammer pattern. Confirming the downside is the resistance at the top Bollinger Band, the RSI and the 50-day moving average.

Yesterday we talked about cutting gold long and waiting for better levels to buy. What happened? Gold fell 1%. We still look for more attractive levels and will be buying at $1200 and continuing to evaluate any moves to the upside.

Today, we are struggling to find a clear trend to latch on to. The charts are not sending a great deal of clear buy or sell signals. Nowhere is this more clear than in USD/CAD.

We don’t see anything here that is sending a clear, short-term signal. We know that the long-term trend is down but we are seeing some sideways indications lately and we’re worried about another push to 1.08.

USD/CAD probed the downside today but we had a sound rejection well above support at 1.0333. That move has got us thinking about entering into a long position but we don’t see the right risk/reward ratio. We could see a track up to 1.0580 or 1.0600 but on the downside we want to see 1.0333 broken before we get bearish.

Looking at other charts, it’s similar. There is not a great deal of momentum anywhere. We take that as a signal that the market is unsure. Traders are looking for clear reasons to buy and sell.

In the day ahead we have the ECB and BOE interest rate decisions. That could be a catalyst. Our bias is that risk aversion is on the way up. Stock markets were set up for a nice move higher today but wilted. We will wait for clearer signals.

Dollar-yen has been a frustrating pair to trade recently. It can’t seem to find any strong direction. Just when it looks like it’s going to rally or plunge through support, it heads in the other direction. In essence, we have been trading between 89 and 95 since the start of the New Year.

In the longer-term, we expect the pair to eventually trend lower but at the moment, the trend is clearly sideways. In a sideways market, sometimes there are opportunities to put on a low risk trade that takes advantage of a short-term trend. That’s exactly what we see right now in USD/JPY.

This pair sold off on Friday from 93 to 91 but it has rebounded and consolidated in quiet trading today. This is a classic fibonacci retracement. The high earlier of 92.07 is precisely in “The Box” which is the zone between the 50% and 61.8% retracement. We think the spot rate, at 91.64 presents an excellent value on the short side.

Stochasics are showing an overbought signal on the daily and hourly charts with both in the process of rolling over. From a risk management perspective, the trade also presents good value. A stop at 92.15 is a 50 pip risk while on the downside, there is no significant support until 90.54.

First, we would like to update yesterday’s post. We noted that USD/JPY was gearing up for a big move and that is exactly what happened. We were cautious on the early move (especially since we had a slight bias to the downside) but once the news that Japan’s Prime Minister quitting hit, we knew which way this pair was heading. His replacement will likely be Fiannce Minister Naoto Kan, who has been quoted as saying he prefers a weaker yen. It seems as though the technicals and fundamentals are aligning for this trade. A strong U.S. non-farm payrolls report on Friday will likely lead to another leg higher.

The U.S. dollar has been strong today but it has been badly outpaced by it’s northern neighbour as Canada’s loonie has led the forex market. If we get a daily close below 1.0414 we see it as a bearish signal.

The Bank of Canada hiked interest rates on Tuesday but didn’t commit to further rate hikes and we saw a disappointment trade combined with a risk averse environment that left a negative technical picture. We were thinking about entering longs but today’s impressive rally in CAD has taken us aback.

We are now back below the key 200-day moving average. The pair is about to hit some significant technical support at the 100dma (1.0330) followed by trendline support and the old range bottom of 1.0205.

Still, we find it very hard to be long USD/CAD after today’s price action. We caution against agressive shorts because today’s move seems so out of the ordinary. A close above 1.0414 and we might wade into a long position with a very tight stop. If we close below that level we start looking for ways to short the pair.

No one is talking about USD/JPY because nothing much as happened in the pair over the past two weeks. What we see is a pair that is ready to make a big move.

For the past week USD/JPY has been locked in a 200 pip range between 90 and 92. The past three sessions have traced out doji stars and the week earlier also displayed a series of indecisive patterns.

It’s time for the market to make a decision on USD/JPY. We believe the trade is to buy on a break above 91.87 and sell on a fall below 89.91 but we also want to develop a bias.

To us, the downside looks more attractive for a short-term trade. The plunge on May 19 was the last major technical move. As such, we are noting that 91.87 (the high from that day) is a significant point of resistance. From a risk/reward perspective, we are only 50 pips from that high but a 135 pips from our most significant support level. That alone makes us baised to trade this from the short side. What’s more is that the slow stochastics appear ready to start turning over.

On the whole, we want to stay nimble with this pair. We think the next move is going to a big one and we are prepared to give up an early portion of the gains in order to ride the momentum. Keep a close eye on USD/JPY over the next 24 hours.

The U.S. dollar made strong gains against the yen on Monday but was unable to close above a key resistance line. The pair briefly traded at its highest since August but gave back a portion of its gains to close below of the April high of 94.69.

We remain long CAD/JPY but note that even though CAD was the leader in the forex market today and JPY was the laggard, the pair was also unable to break out.

In any case, the price action was short-term bullish. Friday’s slump in stocks and late-day plunge left us questioning our negative JPY bias. It also set up a bearish spinning top formation on the daily charts. Monday’s trading neutralized that though and painted a conditionally bullish picture.

The key in the day ahead remains the resistance at 94.69 stretching up to 94.78. If we see some stops blown out we will be encouraged. What makes us hesitate, however, is that Japan is on holiday until Thursday because of the Golden Week festivities. Holiday trading is treacherous and prime for false breakouts.

If the market fails to make a clear break above 95 before Thursday’s Asia-Pacific session we will be very cautious. The Golden Week is traditionally a down time for JPY so we are on guard.

The U.S. dollar took flight in today’s session and the euro fell below key support. This is a trade we are not going to fight. The U.S. dollar now looks bullish by just about any metric we can muster.

In the long run, we can think of a lot of reasons not to be long USD but right now, there is no other trade. When the forex market sends a signal like it did today, and the technical align, you have to go with it.

The breakdown in the euro today looks very similar to the other recent consolidations and drops. It would be no surprise to see a fall to 1.32 and likely 1.28.

King dollar is back.

Euro bulls got pounded today after some headlines suggesting Greece and Germany are at odds on some sort of financial backstop/bailout plan. A report suggested Greece could be headed to the IMF and the euro promptly fell 125 pips.

Technically, yesterday’s prices action put a bearish inverted pattern on the daily chart after a failed upside breakout. It’s a signal we wish we would have heeded.

The technical picture is now bearish although it’s clear that the euro is trading on politics more than technicals. We remain bullish on the euro, having went long at 1.36. We are now right our entry point.

We still very much believe in a euro rebound to at least 1.40. We are, however, going to put a stop at 1.3532. If we get stopped out, we may look to re-enter on a quick spike below 1.35.

t’s the time to stay nimble and maintain nerves of steel. We still have a great deal of conviction on the long side of this trade but if 1.3438 gives way, we may be forced to re-evaluate.

On March 9 we entered a long GBP/USD trade (see below) at 1.4967 with a stop at 1.4850 and a target at 1.55.

The trade is looking very good right now as the market dipped as low as 1.4875 shortly after the trade was entered but has rallied to 1.5382 in trading today.

We were looking for a rebound from deeply oversold levels to the mid-Bollinger Band, which was around 1.55. Naturally, the Bollinger Bands have come down and we have acheieved the target in that sense.

We have been keeping a close eye on the chart and also see that we are within the 05% to 61.8% ‘box’ retracement level of the drop from mid-February to March 1. The top of the ‘box’ is at 1.5422 — slightly below our target.

Still, we aren’t eager to take our profits. The GBP has been pounded down and it’s clear that the bleeding has subsided. The question now is: is this a rebound, or a sideways move?

Experience tells us that a sharp sell-off rarely ends in a complete reversal. Generally, the market moves sideways before changing direction. Technically, however, we have yet to see a sell signal.

It’s a tough call but we think that after two strong days to the upside, the balance of risks points to some consolidation. Since we are close to the day’s highs; we’re going to book the profit. We will be looking for ways to get back into GBP/USD, potentially buying at 1.5230.

Trade closed: +512 pips in GBP/USD.

The very immediate-term outlook for USD/JPY is clouded by the interet rate decision from the Federal Reserve and Bank of Japan. We see the potential for a pop but will be using it to sell strength.

The Fed decides at 2:15 p.m. ET on Tuesday while the Bank of Japan will announce interest rate decision about 10 hours later. 

Neither is expected change interest rates but they could send signals that ignite the market. On Tuesday, the Federal Reserve could remove the “extended period” wording from the statement or alter it to something that shows a rate hike may no longer be in the distant future. This would be a positive for the U.S. dollar. On the other side of the Pacific, there is speculation that the Bank of Japan may announce further special measures to fight deflation, like bond purchases, when officials meet Wednesday. This would be an explicit move that devalues the JPY.  The combination of the two meetings could make for a big USD/JPY move.

From a fundamental point of view, we can see macros getting long USD/JPY. They are seeing the opportunity for a quick profit if the FOMC signals tighter policy and/or the BoJ increases bond purchases. We doubt the Fed is going to signal anything meaningful and we don’t believe that a more upbeat economic assessment and/or altering of the “extended period” language is enough to generate a lasting U.S. rally. There is some risk from the BoJ because a move to further bond purchases would be a JPY negative but we see this as unlikely.

When neither of these expectations come to pass, we will see a round of position squaring from speculators that hurts USD/JPY and furthers the technical structure of lower highs. The slow stochastic is also flashing a sell signal.

We will target 87.50 with a stop at 92.15.

Yesterday we said we were growing bullish on the euro. It rallied nearly 100 pips today, so we’re feeling pretty good about that. We like the long EUR/USD position more than ever.

The headwinds for the euro should subside for some time on the fundamental side. The budget cuts look good and the ECB and IMF are supporting Greece. The cuts may never be fully implemented but Greece’s government has gained some credibility for now.

Remember that the market is heavily positioned against the euro. Shorts need to cover and this move higher is going to start to shake them out.

We outlined 1.40 and 1.42 as our targets. Here you can see where some of the initial resistance comes in. 1.3788 is the first target followed by 1.3839. There will be lots of sell orders clustered at those levels. After that, we expect smooth sailing.

We are going to take a look at the euro against the U.S. dollar today. The euro rebounded from early risk-driven losses to close higher on Thursday. The move sets up a bullish hammer pattern as the USD is beginning to look weak on multiple fronts.

It seems everyone is jumping into the fray and picking a bottom in EUR/USD but we think it’s time to take a look at the long side. We have been consistently bearish on the euro for a long time and have been right. We have been neutral for sometime now and despite the structural headwinds that face the eurozone, we think tactical longs are in order.

We can see that the pair has been stuck in a clear downward channel but the last few days have shown signs of a bottoming formation. Today we had the opportunity for deeper gains but EUR/USD found support above the earlier lows and traced out a hammer formation. On the upside, we will be looking for a rebound to 1.40 or even 1.42. We think this move could happen quickly as shorts are covered.

We have a firm stop at Thursday’s low.

The U.S. dollar was whipsawed by poor data on new home sales and testimony from Federal Reserve Chairman Ben Bernanke. The USD tumbled against the yen and then later climbed back. On the intraday chart, the pair made a toppy formation around 90.25, with further resistance at 90.35. On the downside, 90.00 is a significant psychological level.

The levels are so close together that it’s highly likely that in the day ahead, the support or resistance is will give way. When it does, the move is likely to be strong. This is futher reinformed by the doji star pattern on the daily chart.

The doji star pattern is a signal of a big move. It’s not necessary to make a directional call just yet. We would be a buyer at 90.40 and a seller at 89.80.

It’s

It has been a quiet day in the fx market today. There has been no economic data and little to jar the market out of its quiet state.

The lazy market has given us a chance to take a look at some charts and USD/JPY is flashing some interesting signals. The week-long run-up ended with a failure at the 200-day moving average on Friday. Today the market attempted another push higher but it has faded and the dollar is now in negative territory against the yen. We also have downtrend resistance and uptrend support to contend with as we search for the initiation of a medium-term trend.

We aren’t willing to commit too strongly in one direction or the other. The rejection of the 200-day moving average even as stocks have been rising is the clearest signal we have seen. However, the rejection came at the end of a strong uptend and an overbought correction was to be expected.

We think there could be another test of the 200-day moving average and we would prefer to be long is it breaks. If USD/JPY can close above the 200dma it will also likely break downtrend resistance and should test the recent high of 93.65.

 
We would turn bearish if the pair falls below 90.

We were impressed by the strength in the euro yesterday and thought it might be start of a bigger short squeeze but that has proved to not be the case today as the huge gains have been wiped out in a matter of hours.

We have been bearish on the euro right from the start of the nosedive we have seen and the technical picture after this recent downleg leaves us as bearish as ever.

The European Union finance ministers had a chance to do something to support Greece and boost confidence in the euro but it seems as though the political players have dug in and are holding back on bailout out the euro.

The next main event won’t be until next week, when Greece will reportedly tap the debt markets. We don’t want to be short ahead of that event but we will prefer to sell until then.

We see that the bounce yesterday didn’t reach as high as the highs from the 8th, 9th and 10th of February. To confirm a further downleg we will need to see a lower low. 1.3532 is the target for that confirmation.

We are wary of trading EUR/USD without a tight stop. No doubt there are specs involved in this market that know how short the market is positioned and would like to blow it out like we saw yesterday.

Update: As expected, the pair broke to the upside of the range. It was a nice 100-pip trade if you made it. Now, we have reached our target of 91.20. We would be selling here, with a tight stop.

It was an exciting day in the forex market with the EUR, GBP, AUD and NZD rallying significantly against the dollar and yen.

Today we’re looking at a pair that avoided most of the noise and has carved out a nice, technical channel trade. We can see it here:

There are two ways to trade a channel.

1) to buy near the bottom of the range and sell near the top

2) wait for a breakout and go with it.

Our bias is to see a breakout to the upside at this point, so buying at the bottom of the range and holding until it’s clear that the top of the range is holding. If we saw a break through the bottom, however, we would be sellers.

 From a longer-term perspective, we can build a technical case for strength or weakness. We will be watching 91.20 as key medium-term resistance.