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Currency Pair Overview:

Momentum Remains Light

The currency market came to a standstill during European trading hours, after a smoothly trending Asian session that had the dollar sold. The range-bound trading pattern is in-line with the light trading volumes observed overnight, which did not allow the market to move anywhere decisively, or at least to test any important price points. Ahead, the market is expected to pick up some additional momentum during the U.S. open, but nothing out of the ordinary that could test easily the 4 Hour chart ranges that will need to break if a trend reversal can follow through.

Dollar Index Technical View: TheLFB Member Charts
4 Hour Chart Flows: Long Price Points: 78.15 Looking for: A Short wave IV) pull-back

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. The weekly close above 76.00 was a signal that buyers are dominating, and was a bullish signal that saw a momentum reversal that will now be challenged.

Elliott Wave: The dollar index made a turning point around the 78.45 resistance area, where the Long, blue wave III) may finally have found its highs. Therefore, we are looking at a Short, blue wave IV) pull-back that is in process.

Recently the black sub-wave shown hit its lows at 77.40, which is the first leg of a corrective blue wave IV), with waves b and lower c to follow.

If the 78.45 high stays in place, prices may fall into the 76.50-76.70 zone.

The euro (Eur/Usd 1.4400) posted some very small gains during the overnight session, of less than 30 pips. For now, the euro is trading just below the 1.4430 area, near the 23.6% retracement of the downtrend that lasted during the first two weeks of December. A break above this area might allow the euro to test the 1.4550 area, but this will require much stronger volume levels than the market is attracting right now.

Euro Technical View: TheLFB Member Charts
4 Hour Chart Flows: Short Price Points: 1.4217 Looking for: A Long wave IV pull-back in process

Momentum: The euro trend went Short on 3rd December, and has meandered lower since then. It does look as though a long test of resistance is overdue.

Elliott Wave: Eur/Usd has finally broken through the upper resistance line connected from the 1.5140 top, which suggests that temporary lows were recently hit. Market reaction was impulsive to the long side, in a move that we have labeled as a black wave A). This move looks to be the first leg of a corrective red wave IV that should be structured by at least three waves of a pull-back.

From an Elliott Wave perspective, we are expecting a near-term short wave B) lower, that quickly leads to a higher wave C) move.

The pound (Gbp/Usd 1.5970) is trading within the 100-pip range developed during the last four days of trading. It is interesting to note that over the same period, the other major pairs actually strengthened against the dollar, while the pound traded flat. This denotes weakness in the U.K. economic outlook, something that will pressure the pound if the majors’ sell-off picks up momentum after the near-term reversal.

The aussie (Aud/Usd 0.8880) is currently trying to break above the 100-day moving average, which has been an important swing point over a long period of time. Even if it breaks higher, the move can only hold on broad dollar weakness, and the aussie will run quickly into the 0.8950 and into the 0.9020 resistance areas, which could bring some bears back into the market.

The cad (Usd/Cad 1.0480) has been the strongest pair over the last few weeks of trading, strengthening against the dollar at a time when the other major currencies were falling at a strong pace. The strength of the Canadian dollar comes as traders are pricing in a strong bounce from the Canadian economy. For Usd/Cad, the real test comes at the 1.0420 support area, where the market had based over the last two months of trading.

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.

The swissy (Usd/Chf 1.0350) followed the market’s overall momentum, and declined a small number of pips. Looking ahead, the swissy is expected to continue mirroring the euro’s moves, since the pair had been unable to move and hold with its own momentum recently.

The yen (Usd/Jpy 91.50) is consolidating in the 91.50 area, near the highest value reached in two months. The pair is trading near the support trend-line that has been driving the market over the last three weeks of trading, a time in which it gained 650 pips. A break below this trend-line will probably send the Usd/Yen into a retracement mode on the shorter term.

Disclosure: No positions

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Global Market Wrap:

European Shares At 15-Month High

Equity Futures: Dow +36.00. S&P +4.50. NASDAQ +8.25. Japanese Nikkei +10.00. German Dax +13.00.

European Trade: European markets moved into the green following the recent Bank Holidays. The major regional European indexes advanced approximately 0.50%, to reach the highest value in more than a year.

Since the European session opened, the DJ STOXX 50 index gained 0.50%, Luxembourg’s LUXX index rose 1.10%, while the German Dax index advanced 0.65%. For the first time in a long period, the emerging European markets posted comparable gains with the mature Western European indices. The most notable of moves came from Greece’s ASE index, which gained 1.00%.

Earlier in the day, the Asian stock markets closed broadly higher, helped by strong Chinese GDP estimates. The gains seen during the Asian session where led by the basic materials companies, the same sector that helped European stocks advanced around the opening bell.

Throughout the overnight session S&P futures gained approximately 0.5%, to reach the highest value in 15 months. From the beginning of the current year S&P futures have advanced 26%, and from the low set in March, the futures index has advanced 55%, making the current uptrend one of the strongest on record.

S&P Technical View: TheLFB Member Charts
4 Hour Chart Flows: Mixed Price Points: 1125, and 1135 Looking for: An ending diagonal (reversal pattern)

Momentum: The S&P futures market confirmed a Long momentum read on Nov 11th and built a solid near-term support base around 1095. The 1125 area will be a major resistance point to battle this week. The moves to test and hold support are impressive, and are backed with global equity markets that are also looking bullish.

Elliott Wave: S&P futures are looking bullish with prices that are trading above the early December highs, and our alternative wave count has now become our primary wave count.

We are looking for a complex wave 5) leg, as it seems that the market is forming a (W)-(X)-(Y) pattern in larger wave 5), with wave c of wave (Y) in progress at the moment. The target of this final bullish wave is shown at the 1125 region, followed by a second target at the 1135 zone, where a potential top may be hit.

Sector Moves: The vast majority of gains came from the basic materials sector, which added 1.20% in European trade. Gains were also seen in banks and carmakers, which moved 0.50% on average.

Even though the European and the Asian cash markets are holding in the green, there were some declines within some sectors. Food & beverages, health care and travel & leisure companies posted some small declines, of less than 0.15%. 

The healthcare sector was driven lower by Roche, which is suing a rival company in order to stop its sales in the U.S., and by Merck, after its CEO said that the company is looking for new acquisitions. Roche lost 0.9%, while Merck declined 0.3%.

Upcoming Economic Moves: Clear

Crude oil was recently trading at $78.25 per barrel, higher by $0.25

Gold was recently trading higher by $6.40 to $1111.20.

Disclosure: No position

2 Hour Chart Flows: Long. Price Points: 90.25. Looking for: Top of an ending diagonal

Elliott Wave: The yen has reached near-term highs over the past few trading sessions, shown in our red wave V. The wave count now signals for a near-term turning point, since we came out with an ending diagonal pattern (reversal) in the wave V position.

An ending diagonal is a reversal pattern and as such, traders will look for a move lower, near to the 89.00 support region over the coming days, if the 90.25 sub-wave IV) low of an ending diagonal is taken out in the near-term.

If the wave count is correct, then the Japanese yen should strengthen over the coming days as we can count five completed, red waves up from the 84.80 lows. After every five wave move, a correction is expected.

We are also seeing a divergence between price action and RSI movements, which also indicates that a top may be near.

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Disclosure: no positions