Currency Pair Overview: Equities Down, Dollar Up
The declining equity market was fully reflected in the value of the dollar index in midweek trade. The dollar index, which tracks the performance of the greenback against a basket of six currencies, gained 85 basis points throughout the day breaking above the 78.00 benchmark level. The major currencies started weakening from the early hours of Wednesday’s session, and to some extent continued to decline throughout the U.S. session. Since December, the market had a strong desire for dollar long positions, however, today’s major currency sell-off had a first; the major currencies moved lower as one, something not often seen over the last few weeks of trading.
Dollar Index Technical View: TheLFB Member Charts
Daily chart trend: Mixed. Main price points: 74.19, and 76.82. Looking for: A Long wave I/ A
Prices on the dollar index reached new lows around the 74.00 zone where the trend quickly reversed at the end of 2009. Traders can look for a move higher in the mid-term away from an ending diagonal pattern shown in wave V) position as the prices have broken through the upper resistance line of an ending diagonal pattern.
If the wave count is correct then the market should trade higher over the coming weeks and months, with a three wave move (red I/A-II/B-III/C ) towards the 81 region.
The euro (EUR/USD 1.4105) is trading near the lowest value since August 09, on weakness triggered by structural problems in the euro-area, which will likely slow the pace of economic recovery compared to the U.S. or Asian countries. Price action recently broken below the 200-day moving average at 1.4300.
The pound (GBP/USD 1.6280) is currently trading at a crossroad between its technical and fundamental outlook. Technically, the pound formed a bearish pin-bar in Tuesday trade, and on Wednesday broke below the 1.6300 area and the 50 and the 100-day moving averages. Fundamentally, the high level of inflation seen in the U.K. over the last few months is GBP/USD bullish, which should support the pair for the time being.
Aussie (AUD/USD 0.9080) saw a day of hard selling, inline with the moves observed in the commodity market. Prices fell by as much as 150 pips, to eventually find support near the 20-day moving average, in the 0.9100 area. The macroeconomic calendar is loaded with important data coming from China, which historically had been volatile for the commodity market, and thus for the two commodity pairs, the cad and the aussie.
The cad (USD/CAD 1.0475) moved almost exclusively higher in Wednesday trade, following BoC comments regarding the value of the Canadian dollar. If the U.S. dollar-buying wave continues, one possible target for the cad would be the 1.0700 area, the same place where it topped over the last three months of trading.
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Cad Technical View: TheLFB Member Charts
Daily chart trend: Short. Main price points: 1.0205 Looking for: A Short, wave 5)
The daily wave count was re-worked into un-finished bear market towards the 1.0000 zone that market may reach over the coming days and weeks. We came out with a Short, blue wave 5) in progress after a market has finished a complex, triangle pattern in blue wave 4).
Wave 5) is the final wave of an impulse structure and as such, we will look for a Long reversal once wave 5) finds the lows somewhere below the 1.0205 2009 low.
The swissy (USD/CHF 1.0440) gained 120 pips during the day, the most in 6 weeks. The weakness was triggered by its correlation with the euro, something that is likely to continue over the medium to longer term. Investors should favor the long side of market.
The yen (USD/JPY 91.25) struggled to find a direction to trade and failed to move decisively. The pair managed to find a base over the last few sessions of trading, after a strong bounce off the 200-day moving average. Over the medium term, the yen is expected to re-test the 200-day moving average at 93.20.
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.