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Currency Pair Overview:
Regional Weakness Drag On The Majors
The dollar index is gaining ground across the board in Wednesday trade, strengthened by the market’s view that the U.S. economy will outperform its peers. This sent Treasury yields higher, creating an almost automated reaction in the currency market. Further enhancing the dollar’s uptrend was the poor macroeconomic news that came from the euro-area, confirming that the economy is moving up and down on a thin line between two different business cycles: recession and recovery.
The equity futures 4 Hour charts are all over the place; they are holding higher, but look a real mess in the near-term. It is no wonder that the forex markets have such volatility without actually moving anywhere when the global market charts are reviewed. There seems to be a lot of indecision right now.
Momentum: The dollar index went into Long mode in early December and held that trend up until early January. The read turned short this week, and a weekly chart close below 76.50 will be a signal that sellers have the upper hand.
Elliott Wave: The dollar index had a bullish reversal from the 76.60 region, where a corrective wave IV) completed. From that low the chart is showing quite a long pattern, which looks to be an impulse structure. We are looking for an extended black wave iii with a red, sub-wave iii) that is in progress, and searching for a near-term top. Once a top is hit, we will look for a corrective bounce into a Short wave iv) before a up-trend can continue.
Overall bullish expectations remains valid so long as the market trades above the 76.60 support zone.
The euro (Eur/Usd 1.4180) The 4 hour trend just turned short, the first of the major pairs to do so. The majority of the recent selling came after poor macroeconomic releases, which point out that the recovery period has not fully hit the euro-area shores. The pair is trading in the 1.4200 area, and below the 200-day moving average that will be a roadblock to get past at 1.4300. Looking to sell on attempts to push higher.
The pound (Gbp/Usd 1.6275) has just broken below a support trend-line that has been holding the market for almost two weeks, even though the recent news-report were optimistic. This is usually a negative sign, but now the pair is trading in the 1.6250 area, which previously acted as an important swing point. Favor a straddle.
The aussie (Aud/Usd 0.9125) tested the 0.9120 area in intra-day trade, hitting a support region that was set over the last few trading sessions in the 0.9100 area, near the 20 and the 50-day simple moving averages. Favor a straddle, but if the entire market turns around, the aussie is the pair best prepare for an uptrend.
The cad (Usd/Cad 1.0385) continues to trade higher, with break-out moves that are followed by long periods of consolidation. The Bank of Canada are jawboning warnings on Canadian dollar strength, which should favor long plays. To the upside, a possible first target is in the 1.0420 area.
Momentum: The cad trend moved Short on November 16th, and has been a roller coaster pattern ever since, with no real strength either way. The pair can be just as easily be bought as sold.
Elliott Wave: Usd/Cad moved 100 pips higher in the start of a new, temporary Long trend. Prices have broken through the upper resistance line of an ending diagonal, which usually signals that a pattern is complete. In this case, an up-trend should continue at least towards the 1.0412 region. Any break of that resistance area will suggest that even larger levels will be reached over the coming days.
This week’s low at 1.0223 must hold, otherwise the wave count will be invalidated.
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 1.0405) had an important session of trade, in which it managed to break above both the 20 and above the 100-day moving averages. This move could put Usd/Chf on course for a bullish trend reversal. Favor the long side.
The yen (Usd/Jpy 90.85) The pair is holding above the 100-day SMA area, gathering the necessary momentum to push higher. Eur/Jpy is below all of the daily chart SMA areas. E/J Swing Point: 130.10. Gbp/Jpy is above the 100, 50, and 20 SMA's. G/J Swing Point: 148.90. Favor short Jpy trade overall.
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Disclosure: No positions