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Currency Pair Overview:
Dollar Gains As Equities Decline
The declines observed in the equity and commodity markets pulled the dollar index close to the 77.80 area during the overnight sessions. The U.S. dollar started strengthening in the Asian session, and continued to do so throughout the European trading hours. This was best seen against the pound, which lost 140 pips ahead of the Bank of England Interest rate decision. However, the aussie is still holding in the green, after a row of better than expected macroeconomic data releases helped it advance 70 pips during the Asian session. The fundamental outlook is still for near-term Usd buying, and that is in-line with the 4 hour trends on most forex pairs, but will require the pace of equity and commodity selling to increase if the dollar index is to easily make the next leg of long trade through 78.00 resistance.
Dollar Index Technical View: TheLFB Member Charts
4 Hour Chart Flows: Mixed Price Points: 77.09 Looking for: A Long wave V)
Momentum: The dollar index went into Long mode in early December and has held that trend since. The near-term path of least resistance is consolidation around new highs, with long-bounces on flat equity trading days, and major pairs probing support whenever they can. A weekly close above 78.50 will be a signal that buyers are dominating, and until then we may see further tests of support.
Elliott Wave: The dollar index traded higher at the start of the week, towards the upper resistance line of a trading channel, where a turning point into a Short, black wave ii appeared. This black wave ii is a sub-wave of a Long, impulse blue wave V) that should trade towards new highs.
In this case, technical traders will be targeting the 79.00 zone, if the 77.09 support (wave IV) low) remains untouched. A near-term bullish signal will be confirmed after a break through the 78.00 resistance zone (the top area of a black wave i).
The euro (EUR/USD 1.4340) bounced from the 20-day moving average during early Thursday trade and since then, the pair lost approximately 90 pips. It has hit the 20-day moving average in the 1.4450 area, where it previously formed an swing point high over the last few days of trading. On the daily chart, the euro is forming a pennant pattern, which is usually seen as a continuation pattern. This means that investors are favoring the short side of the market.
The pound (GBP/USD 1.5910) was among the weakest currencies during the overnight session, plunging 150-pips. Around Thursday’s opening bell, the pound moved up to test bids at the 200-day moving average, but as the pair got closer to 1.06080, a wave of short orders hit the market. At 07:00 EST, investors prepare for the BoE interest rate meeting, which could influence the value of the pound quite dramatically.
The aussie (AUD/USD 0.9175) gained 70 pips during the Asian session following better than expected Australian Retail Sales and Trade Balance numbers. However, this uptrend was short-lived, as things reversed and followed the rest of the currency market as the Usd got bought. In the near-term, the aussie could re-test the 0.9100- 0.9150 support areas, which were important swing points recently. In near-term trade the aussie’s direction depends on two variables; the commodity market holding gold above 1125 and oil above $82, and the trend of the dollar index in the upcoming sessions.
The cad (USD/CAD 1.0325) is currently trading at the lowest value touched over the last 10 weeks of trading. The USD/CAD seems to have the strength to continue its downtrend, but the pair is moving against the overall direction of the market. This could force the pair to enter in a near-term retracement phase, which should allow it to re-test the 1.0420 resistance area.
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Cad Technical View: TheLFB Member Charts
4 Hour Chart Flows: Mixed. Price Points: 1.0205. Looking for: Low of a complex wave II
Momentum: The cad's trend moved Short on November 16th, and is on a roller coaster pattern, with no real strength either way. The pair can be just as easily be bought as sold.
Elliott Wave: The Canadian dollar made another push lower recently, in our Short, black wave C), that was revealed previously as likely to happen. The market is trading around the 1.0300 region in a very complex correction of a red wave II that may be completed very soon. If the dollar index strengthens, and crude oil prices drop, the Canadian dollar offers a technical reversal opportunity in a move towards the red wave I top at 1.0870.
The market needs to break through a major resistance zone, shown at the 1.0576 wave B) top, for a confirmation.
Technical traders will be aware that prices must not fall below the 1.0205 support region, otherwise the wave count will be invalidated.
The swissy (USD/CHF 1.0330) remains stuck in the 1.0250-1.0350 area for the third consecutive day. Within these two levels, the swissy is trapped, trading between the 20, 50 and the 100-day moving averages.
The yen (USD/JPY 92.95) is heading towards the 93.20 area, where the yen formed a swing point high on Jan 04. A break higher will led straight into the 200-day moving average, located in the 93.80 area. If this happens, the 200-day moving average will play an important role in the yen’s price action, and will very likely reverse the pair’s direction.
TheLFB Trade Plan of the Day is one of the six that are available to members on the major pairs each day, plus four Jpy based cross pairs, as well as S&P futures, oil, gold, and the dollar index.