NB: THE FOLLOWING IS AN ABRIDGED VERSION FOR FULL ANALYSIS AND CHART ILLUSTRATIONS OF RECOMMENDED TRADES GO TO http://fxmarketanalysis.wordpress.com/ AND SELECT "DAILY OUTLOOK" FOR TODAY
SPECIFIC TRADE RECOMMENDATIONS: Big Theme: Treacherous though it may be, if you must trade in the coming days, the current trend is long risk assets and FX, short the USD. Again, we'd prefer to wait for the pro-USD trend to resume, but if you insist, consider the below.
S&P 500 & Risk Assets In General: Still in Long Term Uptrend, but in a flat trading range since mid November. Despite struggles and concerns ahead, uptrend line clearly intact, suggesting we retain our ambivalent long bias until the trend tells us otherwise, though the trend is still flattening out despite recent small moves higher, the lack of liquidity makes it hard to take these moves seriously.
The overall bullish picture of risk assets as per the S&P 500 suggests slight rise/flat range trading into year-end: The S&P 500 back at 12 mo highs of 1124+ as initial indicators of retail spending appear good. We need to see if it can make a sustained break above 1100, recent moves up this week are hard to take seriously given the low liquidity pre holiday trade, so we wait until after New Year's to form an opinion. As noted in prior articles, we remain deeply skeptical of the rally given the numerous threats to international credit markets and uncertainty whether economies will be able to sustain themselves without continued stimulus.
Because the S&P 500 is so representative of overall risk sentiment, and thus the "One Chart to Rule Them All", this indecisive picture suggest traders should make long or short moves when the S&P hits support levels at around the1090 (23.6% Fib retracement +20 day MA + some price support from mid-October + rising trend line) and at 1080 (38.2% Fib retracement + rising channel line + lower Bollinger Band + 50 day MA) or a decisive break over 1100. Given the fear reflected in the S&P, traders should be very cautious opening long positions in ANY risk assets at this time, and employ tight trailing stops or monitor positions closely on existing open long risk asset positions. They should also have some short positions planned, complete with initial and confirming indicators, and planned entry/ exit points.
S&P 500 Daily Chart as of Dec 1 08:47 GMT (03 Dec 22) AVAFX CHART
** GOLD: After rising to 1112 with other anti-dollar assets Sunday to resistance at the 61.8% resistance level at just above 1104, gave back prior day's gains Monday and is currently back around $1104.
Trade Suggestion: Currently around $1104,
Going Long Gold: with a break above the $1104 and 61.8% Fib retracement level, traders can consider long gold entries at this level, with no major resistance until about $1126, where there is resistance from the price level itself, the rising trend line, and the 50% Fib level. Thus: Target: $1126, Stop Loss: $1104. Not a great risk reward ratio, but if you must trade, go with the current trend up. We prefer to wait for the USD to reassert itself next week if there is pro USD news and re-enter the down trend for safer profits.
Going Short Gold: As noted recently, any decisive break below around 1103 suggests a good short entry – with no real support until 1074.88, which is also where we get the 76.4% Fib retracement level AND a declining trend line.
However, currently gold is slowly rising along with the USD's slow pullback into the year end, with no major news on jobs or spending due until next week that could boost the USD. Caution--Gold is moving opposite the dollar, so watch the EURUSD and S&P 500 for indications of gold's near term moves. Also watch the S&P 500 and other major stock indexes and news to see if risk appetite gets a lift from improving spending, jobs, or other data that ALSO boosts USD stimulus exit and interest rate expectations, thus supporting the dollar and driving down gold.
Gold Daily Chart (11 Dec 28) AVAFX CHART
Updated Gold Forecast-
The key factors behind gold's recent rise were:
· Expected big purchases by central banks
· Declining USD
However, the last big central bank move concerning gold was an announced SALE of about $1 bln to finance debt, so that picture is not as clear, especially if the dollar resumes its rise and causes gold to falter. That in turn will depend on whether we see further news concerning one or more of the 3 dollar drivers: a panic event, improvements in US jobs and spending, or news that undermines the EUR. Sovereign debt troubles in the Euro-zone combine two of the three.
The Long Term Bullish Gold Argument: Makes sense as long as the USD Doesn't Make a Sustained Move Higher. Depends how much new data comes in supporting US jobs, spending, and inflation growth. May well test further support, but as long as markets believe that big central banks and funds are buyers, gold will find support, many believe around $1000. Given the doubts most have about central banks’ abilities to reign in money supply as the recovery develops, many believe gold still has plenty of room to run higher over the coming years, despite its already multi-year rally. The debate remains heated, though most still seem to like it over the long term given the huge expansion of money supply and widespread belief in coming inflation.
EURUSD: Given that the 50% Fib Retracement level at 1.4450 has not proven to be any real support or resistance, those wishing to attempt a short term
Long Plays: could consider entering at current levels (1.4420) with a target of around 1.4600, where there is resistance from both price and the 38.2% Fib retracement. Stop loss around 1.4350, sooner if any really anti EUR or pro USD news. A 180 pip gain vs. 70 loss risked if the stop is hit, a 2.5:1 reward-risk. Good enough. Note that given the rapid drop of the EUR/USD this one has room to run much higher before hitting further real resistance. Next resistances at 4.4700 (350 pip gain, a 5:1 reward/risk) then 1.4800 (6:1 reward/risk).
Short Plays: Wait until it turns around, then note if the next price of Fib retracement or other support is at least twice the distance from your entry point of the nearest resistance. If so, enter with a stop loss that allows at least 2:1 reward/risk ideally, while still allowing for a day's normal movement against you.
Watch the S&P for overall risk appetite, and the EURUSD for a quick gauge of the USD to judge if oil is ready to stabilize.
EURUSD DAILY CHART (08 Dec 29) AVAFX CHART
NZDUSD: Trade Suggestion:
Going Long? Moving opposite the USD, decisively broke dual resistance of the 38.2% Fib level and descending channel, and also above prior strong support turned resistance at 0.7100. Don't get a clearer indication of upward trend than that. Target up to around the 23.6% Fib level and price resistance at 0.7241. Currently around 0.7118 Stop loss around 0.7080 – a 3:1 reward : risk ratio. I like.
Watch the S&P 500 and EURUSD to gauge risk appetite and USD strength. Much will depend on further news on US economic fundamentals and Euro zone sovereign debt issues.
NZDUSD Daily Chart (09 Dec 29) AVAFX CHART
USDCAD: Another clear shorting opportunity as the commodity dollars take back ground from the USD and break key levels. Broke strong support at 1.0445, no real support until 1.0200. Currently around 1.0410, target around 1.0200, stop loss just above the 1.0450 level for a prospective 190 pip gain vs. 40 pip loss, a 4.75 reward: risk ratio. Good and going with a strong trend. Watch oil, S&P and EUR/USD charts for changes in oil, risk appetite, and USD strength.
USDCAD DAILY CHART (image: 10 Dec. 29) AVAFX CHART
NB: The USD/CHF shows a similar look, but the risk/reward isn't as good because current prices are halfway between likely resistance and support.
Long: The strong support level at 1.600 decisively breached early today, suggesting a long play at current levels around 1.6050. Moving opposite the USD in low liquidity for another high reward to risk scenario: Place stop loss a bit below the 1.600 level at about 1.5980Target 1 at the 61.8% Fib level at 1.6150 for a gain of around 100 vs. a 70 pip loss, a 1.3:1 reward risk, target 2 at the 50% Fib retracement at 1.6283 around a 233 pip gain vs. 70 pip loss for a better than 4:4 reward risk ratio
12 dec 29
DISCLOSURE : NO POSITIONS