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Currency Pair Overview:
Neutral Trend Reads With Little Trading Activity
The currency market is looking really mixed right now, with the major pairs lacking a clear direction. The trading momentum on the 4-hour charts is neutral, while the major pairs fail to develop and sustain a trend. This was seen very well in Monday trade, when the major pairs rose during the Asian session, but shed every pip gained earlier through the European trading hours. In U.S. trade, Sterling, the Australian dollar and the Canadian dollar advanced again against the U.S. dollar, but the trading volume were really subdued, which makes this uptrend look rather weak.
Momentum: The dollar index went into Neutral mode on 26th Oct and has held that trend since. The near-term path of least resistance is consolidation around new lows, with long-bounces on weak equity trading days. The weekly close above 76.00 (a signal that buyers are dominating), is bullish and signals a potential momentum reversal.
Elliott Wave: Recently, the dollar index reversed after new highs were made at the 76.73 area where we believe the impulse wave (shown as a Long black i) is complete. Traders should look for a near-term push lower on the dollar index, which will drive the majors higher; initiated by near-term Long equity and commodity plays.
It is not the time to be holding many long dollar positions, as a corrective pull-back in wave ii looks to be on the way to test the 75.00-75.50 support region; in the area where an up-trend could then continue.
The euro (Eur/Usd 1.4650) had a daily range of only 80 pips in Monday trade, below the long-run average. Moreover, Monday’s high and low were hit throughout the Asian trading sessions, something that denotes an inability to move. On the daily chart, the euro is trading near the 100-day moving average, and near the lowest area that it has touched in two months of trading. For now, the euro’s outlook lies to the downside, as it has recently broke below the trend-line that has been holding since early July 09.
Momentum: The euro trend went Short on 3rd December, and has meandered lower since then. (The pair looks lost).
Elliott Wave: Eur/Usd hit new lows on Friday after a break through the 1.4665 support area, which was the key for the sharp decline into the 1.4585 area. The previous wave count was re-worked as the new lows in the short black wave I) were reached.
However, traders should still be looking for a Long corrective a-b-c pull-back in wave II) before the bigger down-trend continues. A Long pull-back is expected to reach the 50% Fibonacci retracement area (around 1.4900) of the wave I) distance over the coming trading days or weeks, from where traders may see a bounce lower.
The RSI is slowly moving higher and signaling for a near-term euro recovery, after a bullish divergence from the over-sold zone.
The pound (Gbp/Usd 1.6305) spent half of the U.S. session struggling to break above the 1.6300 area, but so far, the pair has failed to pull the move. In this area, the pair has met the resistance trend-line of a descending triangle formation, which usually denotes a bearish outlook. To the downside, a possible target lies in the 1.6000 area. However, a break above the trend-line seen in the 1.6300 area would invalidate the descending triangle formation.
Aussie (Aud/Usd 0.9165) is trading just below the 0.9170 area, just ahead of the Monetary Policy Report at 19:30 EST. A bullish RBA could help the aussie push the price action much higher, outperforming the other major currencies. However, the 0.9170 area is the place where the 20 and the 50-day moving averages meet, and has acted as an important price point over the last week of trading. Even if it breaks higher, the aussie will probably re-test this area over the next few trading sessions.
The cad (Usd/Cad 1.0590) spent the day caught between two very important price point areas. To the downside, the cad is trading just above the 1.05500 area, the place where the 20 and the 50-day moving averages meet. To the upside, the cad is flanked by a trend-line that has been holding the market since early September. This trend-line is doubled by the 100-day moving averages. As such, the cad needs strong volatility to move either ways from where it is standing right now.
The swissy (Usd/Chf 1.0320) moved only out of inertia during the second part of the day, without a clear direction of trading. On the daily chart, the swissy is trading just below the 1.0400 area, which will probably put some problems if the market will try to push any higher.
The yen (Usd/Jpy 88.60) fell 80 pips during the Asian session, while it wasted the entire European and U.S. sessions in a 30-pips range. Ahead, the yen is expected to maintain this pattern, as long as investors keep their eyes on Japan’s fight against deflation.
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.
Disclosure: No positions