Currency Pairs: No Strong Dollar Seen in Monday Trades

Overall, most of the major pairs swung around the highs touched during the Asian session. However, during the second part of the U.S. session, Mr. Bernanke’s speech had a strong influence on the currency market, temporarily strengthening the dollar. The move had no follow-through and the market retraced every pip that the dollar gained during spike created by the head of the Federal Reserve.

Interestingly, the dollar continued to decline even though the Chairman of the Fed made his first comments in a long period about the strength of the dollar:

“Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.”

The market went on to ignore the central banker, sending the dollar index below the critical 75.00 support area.

The dollar index replaced the gold standard, and since inception 36 years ago reflects a value of 75.00, which equates to $1 in 1973 being worth 75% of that value in real terms now.

Dollar Index Technical View: TheLFB Member Charts
Daily chart trend: Short. Main price points: 74.00, and 75.00. Looking for: Wave C)

Prices on the dollar index have reversed over the past week around the black resistance line, influenced by a higher stock market. Currently the market is threatening the yearly lows, where a break-out will push prices lower. This is shown in the blue wave V) of an extended red wave V leg, of larger C), which may find the lows somewhere around the 74.00 area.

The euro tumbled 100 pips during the second part of the U.S. session, after Mr. Bernanke referred to the strong dollar policy. However, the market looked increasingly resilient to dollar buying, and just a few minutes later the downtrend was completely retraced. For now, the euro is trading under the 1.5000 benchmark level, which has been an important swing point over the last week of trading.

Euro Technical View: TheLFB Member Charts
Daily chart trend: Long. Main price points: 1.5062, and 1.5200. Looking for: Wave C top

Eur/Usd is trading higher, threatening the 1.5062 highs as the market has not been able to break through the daily support line in the past weeks. As such, traders may already be targeting the 1.5200 zone, around the Fibonacci resistance levels shown on the chart below.

The wave count is showing an un-finished wave C leg with an extended structure in black wave 5. Currently, the blue sub-wave 5) looks to be developing, which may break through the 1.5062 highs in the near-term for a move towards the 1.5200 zone.

Once the impulse structure up from the 1.2329 zone will be done, a larger at least corrective pull-back should follow.

The UK pound (Gbp/Usd 1.6850) was Monday’s best performing pair, gaining nearly 160 pips. Interestingly, the pound was the only major pair that was not affected by Mr. Bernanke’s speech, something that denotes a bullish outlook. To the upside, the next major resistance area is in the 1.7000 zone.

The aussie (Aud/Usd 0.9385) traded on very light momentum and volume on Monday, a pattern observed more often than not recently. The aussie’s daily range is only 80 pips, but almost the entire day the pair moved up and down in a 40-pip channel, just below TheLFB Resistance 1 (0.9365) area. A declining ATR and volumes usually point to a short-term retracement, but the commodity and equity markets will have to stay in the red for this to happen. The Reserve Bank of Australia release the minutes from the recent interest rate meeting at 19:30 EST on Monday.

The cad (Usd/Cad 1.0455) tried to break below the 1.0420 area throughout the entire U.S. session, the same place where the market bottomed in Thursday trade. The cad has failed to move lower, and is consolidating just above the major support area. This might allow the pair to re-test the break-out point over the next few days.

The swissy (Usd/Chf 1.0055) is trading in the 1.0055 area, the same place where the market bottomed over the last few weeks of trading. A break below this level will send the swissy down to parity, in the 1.0000 area, an important benchmark level, especially for the options market.

The yen (Usd/Jpy 88.90) fell down to the lowest level in a little more than a month, as the dollar index posted broad weakness in Monday trade. Almost the entire downtrend came during the U.S. trading hours, after Mr. Bernanke’s speech.

Disclosure: No positions