In another signal that dollar buying will be sporadic and limited to a hedge against falling equity values, commodity markets have held higher as the realization hits that not one, but two, Fed POMO auctions will be absorbed today, as $38b of the proposed $600b gets monetized in November. Unique times, unique environment, unique economics, all coming together in an electronic trading arena that is very reactive to the regional futures market.
EUR/USD is completing an ABC down structure on the daily chart that moved 700 pips lower from 1.4350, reversed and held a 50% retracement the 20-day SMA at 1.3890, leaving a 700 pip run from 1.3890 towards the 200-day SMA around the 1.3150 area. The fundamental picture in the Euro zone will need to improve for the 200 SMA to hold as support, but as November 2009 proved, the technical price point has a tendency to hold steady on initial tests.
GPB/USD is failing to build on the potential offered in the daily chart ABC up pattern that moved prices from 1.4200 towards 1.6000, but now that 1.5600 is failing to hold, it could signal the start of a move to test 1.5350, which is the 38% retracement of the 1.4200 to 1.6000 move, and also houses the 200-day SMA area. The fundamental outlook from the UK is clouded by the impact of contagion spreading into British banks from the Euro zone rescue packages, and a sideways crawl may ensue until that picture clears.
AUD/USD has been the pair most highly correlated to S/P 500 daily chart moves, with AUD/JPY better correlated to the intra-day S/P 500 plays. AUD/JPY is sitting on 200-day SMA support at 80.15, which is a price point and technical area that has been in play through most of September and all of October and November. It would be no surprise to see a long reversal off the next test of 80.00, with further solid looking support at the 50-day SMA just below at 79.10. The fundamental outlook for Australia supported by long commodity moves higher, and so long as gold is trading above 1300 an ounce there would seem little reason to be short AUD outside of a hedge against falling equity values.
USD/CAD has found fair value on the daily chart around 1.0300. which seems to be the inflection point on the pair, and a price area that has been in play since February 2010. The support area at 1.0120 is the 20-day SMA price point, with 1.0290 housing 200 and 100-day SMA resistance. Ten days of trade at the 50-day SMA at 1.0175 confirms how range bound the pairs are. The economic and trading links between the US and Canada will likely allow the sideways channel to easily hold going into year's end.
USD/JPY has formed the A-leg of an ABC up on the daily chart with a move from 80.00 that now tests 100-day SMA resistance at 84.00. The reversal from this test of resistance will then reveal the potential in any break above 84.00. If the pair pulls back and finds support at the 38% retracement area of the 80.00 to 84.00 move, which will coincide with holding support at the 20-day SMA at 82.50, it is likely that another 400 pip move will take place from 82.50 that tests 86.50 by the year's end. The fundamental outlook for the Japanese economy remains fairly weak, with a reversal of JPY strength as the global market priced in the Fed's QE2 program now looks to be well underway.
Global equity trade is holding higher as the year-end run up gets underway, with S/P 500 futures reflecting the sentiment and outlook in global stock trade each day very well. The daily chart shows an ABC up pattern that started around 1035 and moved higher in an 85 point move to hit yearly highs at 1223. The initial pullbacks to support have managed to hold the 23% retracement area at 1180, with another 38% support area at 1152 that looks to be a solid price point to hold. If the S/P 500 breaks higher and holds 1210, there is no technical reason why another 85 point move (from the 1180 area), which targets 1260, cannot happen. A move below 1170 draws in 1150 and it seems as though the market will have a tough technical time in easily going much lower before the year's end. Long-equity trade will limit the potential in any long USD plays as the 95% inverse correlation between the dollar and S/P trade holds steady.
The dollar index is moving higher after holding a period of sideways movement that has created a range of 77.50 support and 81.00 resistance, and trading right on the 100-day SMA area at 80.50, in line with recent consolidation on the major pairs and weak trade on EUR/USD. A break either way, long or short, will need to attract far more participation than has been in the market recently if it is to hold and a new swing point is to form going into the year's end. These really are unique times that rival any of the black swan events witnessed over the last 30 years of trade.
Oil trade has spent the last 12-month period trading in a choppy and very overlapping fashion that has replicated S/P 500 trade to the greater degree, but has suffered the indignity of some sessions that were ravaged by speculative interest working in quick fashion to find fair value. These do not look to be charts that are running on supply and demand; they look more like the charts of an asset class that is being used to hedge the rising and falling value of the USD. 87.00 a barrel of crude looks to be the high-point to target once global growth gets underway, with 79.00 housing solid support at the 200- and 100-day SMA areas. A linear trend-line that runs from 70.00 to 74.00 also ties in with the SMA price points.
Gold trade has replicated the long moves seen in the S/P 500 futures markets with a long move from 1150 that tops out at 1425 that is now holding support at the 38% retracement area. The initial pullbacks to support have managed to hold at 1315, with another 50% support area at 1290 that looks to be a solid price point to hold. If gold breaks higher and holds 1400 there is no technical reason why a move that targets 1600 cannot happen. Silver has found buyers at 24.50 and is now testing 27.50 yearly highs, as both metals vie for fair value as the U.S. dollar gets revalued as the global reserve currency. It seems as though there are enough buy-the-dip positions on both metals to hold support and test resistance which over time will weigh on Usd valuations.
Disclosure: The LFB runs an automated trading program that is constantly one side of the dollar or the other, in line with the detail posted in the article.