Brief Overview
Fear ... Greed ... Uncertainty.
We are all well aware that in trading the market we are in fact trading emotions; the three aforementioned to be precise. This past Tuesday evening the House of Representatives voted to approve a Senate bill to avert the feared fiscal cliff. With this dark cloud no longer hovering, what's next? In this issue of the Catch Play Report, we will take a look at some opportunities that lie ahead in the market and also discuss what should be on your watch-list over the coming weeks.
USD Strength
Is this the year for the USD?
Towards the latter half of 2012 we saw the US dollar nosedive quite a bit; meanwhile, the euro soared. Overall, the market bias of the US dollar is rather bullish (taking note of its monthly chart). The recent bearishness in the US dollar looks to be more "countertrend" and short term in nature. With the US dollar possibly setting up for the next leg higher, let's take a look at a few pairs that could shortly present some major opportunities for us in the market.
GBP/USD
Taking a look here at the GBP/USD, we notice that price has struggled to get over 1.63000. Take note of the triple top that has formed at this whole number. With a nice topping tail bar having formed here on the weekly chart, this upcoming week we can look for opportunities to short this pair. With price still above the moving averages we should await a breach of the MAs to confirm the bearish bias.
USD/CHF
Recently, the USD/CHF has been one of the weaker pairs in the market, bleeding lower each of the past five months. After hitting short targets at .91000 (monthly 20-period moving average) price held nice support at the whole number and since bounced. Transitioning into the northern hemisphere (above the moving averages) we should take notice of the USD/CHF. Typically, when price transitions into the opposing hemisphere, after such a heavy trend in one direction, it signals a reversal of price action. Stalk price near the daily moving averages as it continues to retrace. Near the MAs is where we can look for signs of the bulls re-entering.
EUR/USD
Inverse of the USD/CHF, the EUR/USD has benefited nicely from the bearishness of the US dollar over the past couple of months. Similar to the USD/CHF, EUR/USD recently hit target around 1.32500 (monthly 20-period moving average) and since pushed lower holding resistance. Here on the daily, price has transitioned into the southern hemisphere, after coming out of a nice uptrend. As EUR/USD pulls back to its moving averages, we can pay close attention to the way price interacts with this area.
AUD/USD
AUD/USD has been one of my most heavily watched pairs over the past two months. Despite the recent rally over the past 10-12 weeks, I have remained bearish this pair. I have never been a big fundamental analysis trader. I am of the belief that the chart is the sole source that will never lie. It is the one piece of information that tells us all we need to know. However, I have recently discovered one piece of fundamental data that I feel is of significance. That being the COT report, which displays where the big money players are placing their money in the market. Lately, the COT report has continued to show that market players are bearish the AUD.
Coupling the information received from the COT report with our technical analysis creates for a dynamic advantage in the market. Taking a look at the AUD/USD price has respected its weekly trendline (July 30, 2011 ... Feb 26, 2012). Testing this trendline for the first time during the week of December 9, 2012, price rejected nicely holding the weekly trendline in tact. We also have a sell zone that has been created based upon the stacked elephant bar from a while back. In addition, we have a triple top that has formed in the area of the weekly trendline we discussed.
From a technical standpoint we have a number of different setups alluding to some bearishness that may take place in the AUD/USD. However, this pair still has yet to give us an actual trigger or entry opportunity. With more to prove in it's technical analysis, let's keep AUD/USD on our watch-list and take note of how things develop over the coming weeks. I feel pretty strongly about prospects for the bearishness in this pair but we must remember to always await for price to prove itself.
Keep a Close Eye
Japanese Yen (JPY)
Over the past couple of months the US dollar and euro have not been the only two currencies to present some big opportunities in the market. In that same time, the Japanese yen has been one of the most actively traded currencies out there. Showing major weakness recently, I think it is time to begin paying attention to the JPY pairs and their potential about-face. One of the pairs I will keep a close eye on over the coming weeks is that of the AUD/JPY.
AUD/JPY
Pushing higher riding its 8-period moving average, AUD/JPY has soared over the past couple of months. However, we are now beginning to see this pair extend a bit of a ways away from its 20-period moving average. For those who are less familiar, the 20MA is reminiscent of a magnet to price. Price can not sustain itself too long being too far away from this moving average. Showing extension, price is likely to come back into the moving averages.
In our discussion of the AUD/USD, we discussed the COT report and its display of big market players' bearishness on the AUD. Well, it also alludes to their being a bullish outlook on the JPY.
Keep a close eye not only on the AUD/JPY but the other JPY pairs as well. They may still have another small run up left in them but be conscious of their extension from moving averages if they continue to stretch too far.
In closing, the US dollar seems to be setting up to make a strong move in the market. The Japanese yen, although still having some work to do, could potentially join the party as well. Over the coming weeks let's keep a close eye on how these two currencies and their development against all major pairs. I will be here throughout to assist and guide you along the way.