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Currency Pair Overview:
Majors Form Important Swing Points
The dollar index was sold during the overnight session, but as U.S. trade approached, the major pairs started losing ground gained earlier in the day. This move was widely expected because the uptrend of the last few days came on very light trading volumes, and more importantly, against the near and medium term trend reads. Looking ahead, the dollar index is expected to continue its uptrend, breaking free from its correlation with S&P futures and to some extent, with the commodity market. For the major pairs, the next important support area is to test lows set in pre-Christmas trading.
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, and major pairs probing support whenever they can. A weekly close above 78.50 will be a signal that buyers are dominating, and until then we may see further tests of support.
Elliott Wave: The dollar index has broken through the lows of the past week after a small corrective wave b was finished. The final leg of a blue wave IV), shown as wave c, is in progress. and that may complete a Short, corrective move somewhere between the 76.60 and 77.00 zone.
Overall, we are looking for the low of a zig-zag pattern, shown as a black a-b-c move, of a larger blue wave IV), before an up-trend can continue.
The euro (Eur/Usd 1.4350) is currently forming an inverted star pattern, which usually signals the end of an uptrend. More importantly, this formation has formed as the euro failed to break above the 23.6% retracement of the downtrend started in December. This is a bearish sign, which indicates that this downtrend is likely to last.
The pound (Gbp/Usd 1.5890) had an attempt to break above the 200-day moving average earlier in the day, but as expected, the market turned around. Throughout the U.S. session, the pound plunged 140 pips, falling to a fresh 10-week low. On the daily chart, the pair is currently forming a bearish engulfing pattern.
Over the past three months of price action, traders were unable to push the market into new yearly highs, and as such a wave IV correction may still be in progress.
With this being said, market is forming a more complex correction than first thought, and we have seen a (NYSE:W)-(NYSE:X)-(NYSE:Y) pattern form, with wave (Y) in process. The current wave count structure signals for a move below 1.5705 support over the following weeks.
Aussie (Aud/Usd 0.8940) is currently the only major pair that is trading above the breakeven line against the U.S. dollar. However, the aussie is expected to catch the other major pairs during the upcoming sessions if the selling wave continues on the major currencies. For now, the aussie is trading near the 0.8950 swing point area. A bounce from this resistance would confirm the aussie’s negative momentum.
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 cad (Usd/Cad 1.0435) had been the strongest pair in December, but now, the cad is showing some signs of weakness. In intra-day trade, the Usd/Cad broke below the 1.0420 area, which has been the main support area over the last two weeks of trading. However, this breakout was retraced completely, and now the cad is forming a bullish pin-bar on the daily chart.
The swissy (Usd/Chf 1.0365) had some weak attempts to break below the 1.0300 area, where the 20 and the 100-day moving averages meet, but the move was retraced. Similar to the cad, the swissy is forming a bullish pin-bar on the daily chart, which could indicate that the trend is shifting again to long.
The yen (Usd/Jpy 92.00) ignored most of the things that happened in the currency market in Tuesday trade, and moved on its own will. For now, the yen is heading towards the 92.50 area, where the market has formed two important swing areas over the last four months of trading. A break higher would be an important event for this pair.
Disclosure: No positions