Monday, August 8, 2011

Forex Market Updates & Commentary

Forex Market Updates & Commentary

Link to Forex News and Commentary by FXDD

USD/JPY Drops Further, Continued Intervention Consideration

Posted: 08 Aug 2011 07:45 AM PDT

USD/JPY 4-Hour Chart

USD/JPY (4-hour chart) as of Monday (8/08/2011) has continued its steady, yen-strengthening fall after spiking late last week to a high of 80.22 on the heels of intervention by the Bank of Japan. This yen re-strengthening after the central bank’s attempt to weaken the yen essentially indicates that the intervention has had very little lasting impact on the upward trajectory of the Japanese currency. The fact that USD/JPY has dropped below key 78.50 support once again is an important bearish indication. As USD/JPY continues to move to the downside, the risk of further yen intervention continues to loom. The key downside target currently continues to reside around the significant 76.50 support region. Further intervention notwithstanding, USD/JPY could continue its overall downtrend slide. In the event of a subsequent strong breakdown below 76.50, a longer-term target to the downside resides around the 74.00 price region, which is around the 161.8% Fibonacci extension of last week’s bullish correction.

(Click on chart to enlarge. Forex chart key: price on 1st pane, Stochastics 14,3,3 on 2nd pane; horizontal support/resistance levels in black; uptrend lines in green; downtrend lines in red; 50-period simple moving average (SMA) in orange; 100-period SMA in brown; 200-period SMA in dark blue; Fibonacci levels in magenta.)

James Chen, CTA, CMT
Director of Technical Research and Education
FXDD

Dow down 350 points now. USDCHF moves off high but remains above lows

Posted: 08 Aug 2011 07:41 AM PDT

EURUSD moves to new lows. 

The USDCHF has come off the NY highs but remains well above the lows.  The pair is still negative (price is down on the day, price is below trendline and 100 hour MA) but the flight into safety of the CHF has not been as robust as the past.  This may suggest the market has some consolidation to do first.

S&P cuts FNMA and and Freddie Mac to AA+ from AAA

Posted: 08 Aug 2011 07:34 AM PDT

EURUSD cannot get back above 1.4186

Posted: 08 Aug 2011 07:28 AM PDT

The 1.4186 level represented the 50% of the move up from the July low to the high reached in late July (see chart above).  That level was broken in the NY session and over the last few hours the price has steadlied but has found difficulty in pushing back above this level. The 5 minute chart clearly shows the markets reluctance to move above this level.

The inability to move above this level could lead to any intraday dip buyers liquidating their longs (a new move lower).  The next support comes in at the  1.4142-49 level. This area has been a point of support/resistance for the pair over the last week of trading (see hourly chart below).  Apart from a period of about 18 hours last week, most activity has been above this level.

On a move below the 1.4142 area, the next target will be 1.4103  and then the low from last week at 1.4058.

EURUSD tests support at the 1.4185 level

Posted: 08 Aug 2011 05:51 AM PDT

The EURUSD continued its slide lower in the early NY session and is currently testing the midpoint of the move up from the July low at the 1.41856 level. The decline seems to find buyers against the level, but will need to surpass some upside targets to lessen what is some consistent selling in the London session. The first level to get through would be the initial low in the NY session at the 1.4205. The next would be a move above the 1.4240 level which corresponds with a low in London and is also near trendline resistance.

On a move lower, the next targets come in at 1.4060 (bottom trendline in the channel on the 5 minute chart above) and below that the 1.4142 level.

Bobbys Corner-Open Market-Aug.8.2011

Posted: 08 Aug 2011 05:22 AM PDT

Good Morning:

Nervous and choppy markets greet us this morning (and last night)-with Dow futures off over 200 points, S&P off 24, NASDAQ off 45.
Gold has hit another all time record (over $1700/oz), and oil is lower again.
This was widely expected after Friday afternoon announcement by S&P that the USA’s credit rating was going to be downgraded to AA+ from AAA.

FX markets reacted with an initial negative USD stance.  The Euro moved higher as the ECB announced that they would actively be buying Italian and Spanish debt-after the cost of borrowing by these countries rose above 6% last week.
The Italian bond market is the 3rd largest in the world-and if the ECB cannot control panic selling and keep the rates within acceptable levels-the debt issues of the EZ will create problems in the credit markets not only for Europe but worldwide.

It seems that the EZ credit issues-may actually overshadow the US downgrade.  We will wait and see.  Keep a watchful eye out for credit issues to develope in France too.

With no data on today’s North American calender-the markets will look to the equity and credit markets for direction.

HAVE A GREAT DAY & GOOD LUCK

NY Opening Forex Commentary for August 8th 2011

Posted: 08 Aug 2011 04:59 AM PDT

Swiss Unemployment Benchmark Stays at 3.00%

Posted: 07 Aug 2011 10:57 PM PDT

Aug 8 Economic Calendar

Posted: 07 Aug 2011 09:00 PM PDT

EURUSD comes off with 1.4241 the next target

Posted: 07 Aug 2011 02:38 PM PDT

The EURUSD opened higher and has seen quick selling. The pair is moving to the underside of the top trendline at the 1.4341 level.  This level is also near the 50% of the last sharp move higher in the EURUSD. A break below this level should be a disappointment for the dollar bears and would muddy the waters a bit.

Overall, the markets move lower has defined a range. The gap remains for the pair but it might be a little too soon to think about filling the gap.

EURUSD gaps higher

Posted: 07 Aug 2011 02:24 PM PDT

Well the market is opened and the EURUSD gapped to a high of 1.4425.  The support below will now come in at the 1.4358 to  1.4370 level which is high from last Thursday’s trading and the 38.2 % retracement of the move  up from the most recent low set on Friday.  I would expect that there would be some buyers on a dip toward this level.  If support is held, it should lead to further buying.  If support gives way, watch the 1.4338 level for support (the 50% level in the chart above).

When the market gaps higher like it has, there is always the temptation for retail traders to sell because the gap has to be filled.  My thought is if there is a reason to sell that can define risk, then it is ok to sell. By doing this traders can know when they are wrong.  IF they are wrong, get out. The market gapped for a reason and although the gap is likely to be filled at some point, that “some point” may be after a rally of 200 pips or more.  No one knows. .

ECB to intervene significantly on markets

Posted: 07 Aug 2011 01:40 PM PDT

This is according to a Reuters report.  The ECB response will be “significant and cohesive”

Expect a volatile ride in the currency markets

Posted: 07 Aug 2011 01:06 PM PDT

The historic US downgrade and the debt issues in the EU will needless to say make trading today volatile. Expect violent moves on the opening as traders and market makers battle back and forth.  Spreads will also likely to be effected due to the uncertainty nnd expected turmoil from the weekend events. In addition, central bankers will be talking providing headlines on the news wires which will be disruptive.  Stock markets will start to have their wild swings.  Precious metals will likely take their place as a safe haven refuge.   What we can also expect is all problem solvers from central bankers to politicians, will make all efforts to calm the market fears (i..e. keep the stock markets from around the world from collapsing) and tell us everything will be alright.  Does the market believe it?  Not likely, but no one knows for sure.

With uncertainty and volatility high, it is important for traders to define risk clearly if and when they trade.   By doing so, traders can better control fear.  If risk and fear is too high for you, stand aside. Wait for the markets to settle down.  There is one thing I can guarantee all traders and that is there will always be another trade.  Trading when you are most comfortable will often save you from the possibility of blowing up.  The goal is to survive in uncertain and volatile markets.

If you are to trade, the best way to define risk is by using technical tools.  I use 100 and 200 bar MA, trendlines and Fibonacci retracements as each defines bullish and bearish bias.  Traders – concerned about risk – will look to trade near the levels defined by the tools as a way to define risk and limit risk.  Below is how I would define the key levels for the major pairs.

EURUSD

The EURUSD has been moving higher and lower over the last few months.  The mini-trend moves have been signficant (400 to 1000 pips since the peak in May) even though a longer trend has not been all that definable (market is more up and down in a mini trend environment).  This is congruent with the “battle of the worst currency” competition that is gripping the USD and the EUR.  The market simply does not know what to do. As a result, I like to warn traders to ”Fall in Like” and don’t “Fall in Love” with your position or view.

I would expect the EURUSD to move higher early on as the EU officials look to buy Italy and Spain bonds and the US debt downgrade seems a more permanent problem.   If so, the daily chart has hurdles above that need to be breached in order to give the bulls confidence in the directional move.

The first is the 100 day MA which comes in at 1.4341. A move above this level - and staying above this level = will put the bulls in charge and leave the burden on the bears to push the price lower and below this level (i.e., turn the bias back to the downside).

The next hurdle is not far from there and comes in  at the trendline that connects the high in May to the first high in the beginning of July. That level comes in at 1.4370. Above that on the daily is the higher trendline that connects the high in May to the high toward the end of July. That target comes in at the 1.4486 today.  These levels should likely be where traders define risk on the topside.  If the price cannot get above the targets, there could be some profit taking. If the price moves through them, there should be further momentum in the direction of the break.

Should the price action reverse lower for whatever reason, the levels that are of signficance include the Fibonacci Retracements of the move up from the July low. Those levels come in at the 1.4267, 1.4186 and the 1.4103 levels respectively (see the chart above).

Looking at the hourly chart below, what is clear is the importance of the 1.4341 level. This – once again – is the 100 day MA but it also is where trendline resistance is found off the highs on July 27th and August 1st (see chart below).  A move above this level opens up the upside for further gains in the pair.

On the downside on the hourly chart, look for traders to use the 100 hour MA (blue line in the chart below) as a level to trade against and define risk. That level comes in at the 1.4220 level.  A move below that key level will target the 1.4142 level which is the low from Thursday and the low from Friday at 1.4054.

USDJPY

The USDJPY traders will be eyeing the 100 and 200 hour MA for clues to directional bias for the pair. The 100 hour MA currently comes in at the 77.01 level (blue line in the chart above) and the 200 hour MA comes in at the 77.79 level.  A move below these levels puts the bears in charge with next support targets coming in at the 77.45-55 levels and then around 77.00.  The low from last week came in at 76.28.  Last week, the BOJ intervened in the market to stop the rise of the Yen (fall of the USDJPY).  It is unlikely they will come in again to stem the fall but they are likely to verbally try to talk the pair back higher should the selling intensify.

USDCHF

The USDCHF is likely to continue its march lower on safe haven flows. The pair is already at all time lows so a move below the low from last week at the 0.7577 level.  A target below will be the 0.7420 level.  This is channel trendline support on the hourly chart below.

EU/G7 leaders to talk later today

Posted: 07 Aug 2011 11:36 AM PDT

The EU will talk later today on action they may take to avert a sharper selloff in Italian and Spanish bonds.  The EU is fighting to keep the contagion (that gripped Greece, Ireland and Portugal and sent their bond yields soaring) from spreading to the two larger and most vulnerable nations in the EU.  The speculation is that they will look to announce a massive fund of up to 400 billion euros.  This would dwarf the 80 billion for Greek, Irish and Portuguese bonds to date.

In addition, the G7 leaders are also  scheduled to talk via a conference call after the EU meeting. They are likely to pledge their support (and liquidity) in light of the EU fears of contagion and the US downgrade from S&P.

Clearly, the markets will be in a state of turmoil as effects of the EU and US problems are sorted out.  The CHF and the JPY will likely benefit although last week, both the SNB and the BOJ were looking to stem the strength into their currencies via the lowering of rates by the SNB and intervention by the BOJ. It is unlikely that they will have much luck in making an impact this week.

From a trading perspective, risk is at an extreme with market, event and liquidity risks all elevated. Traders need to define risk and be sure to protect against quick and violent corrections as a result of news, comments and profit taking.   With risk elevated, traders positions should be less. The goal is to survive. Not blow up.  If good trade location can be found, manage the stop by moving it with the market, and targeting hurdles to overtake, should be the mission.  Remember fear is a traders worst enemy.  If you have too much fear, you will likely not trade with a clear mind. So manage yourself.   Manage fear by defining risk, being patient.
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