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Dollar Strength And Potential Depth Thereof
Submitted by Nic Lenoir At ICAP
In FX the story everybody is watching since Friday is the USD, and where will its strength stop, as it is bringing with it equity weakness in the face of a strong employment report and a sharp correction in the commodity space.
Against the EURUSD if we close below 1.4872 the break of the 50-dma is confirmed and we will drop first to 1.4454, before testing the big support zone which was the break-out last May at 1.3740. The dollar index shows a break on Friday's close but by a slim margin. We expect confirmation in order to validate the price action. The only caveat is that the bearish impulse since recent highs at 1.5143 seems to be a complete 5-wave sell-off in Elliott terms which would call for a corrective rally now, and we have hourly divergence. If we do retrace before accelerating lower I would look at 1.4996 as a good entry for fresh shorts.
The AUDUSD and GBPUSD charts both are in the process of forming a H&S. Support for AUDUSD is 0.8950 and 1.6271 for GBPUSD. A break of both would open the way for more downside. We keep our medium term target of 0.8270 for now in AUDUSD, with a stop on a close above 0.9330 (where we recommended initiating shorts, and now confirmed as the key upside resistance). GBPUSD is more puzzling as the H&S triggered in late september in the end never reached its potential at 1.52, and further more the neckline for the current pattern is basically the extension of the neckline used for September. On a break of 1.6271 on a daily close we will target 1.5710 as the key support. Whether this move leads to a complete reversal of the dynamic in place since last spring will be contigent on breaking or respecting the 0.8270 and 1.5710 supports. In the short term however we ould expect bouncing off the necklines for both pairs, or at least consolidate before the next move lower.
On a side note EURGBP almost tested our support at 0.8980 where we had recommended buying. We are bullish as long as 0.8950 is not violated.
Good luck trading,
Nic
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Dead cat bounce, absoloutely no fundamentals supporting the bernanke-made toilet paper
In opposition to the extremly strong fundamentals for the Euro , GBP and Yen you mean ?
Here's the reality behind the 'favorable jobs report' from the Providence, Rhode Island paper.
"With more than 73,000 unemployed workers in Rhode Island, job competition is tougher than ever. Even if you want to be a seasonal bell ringer for the Salvation Army.
Most of the bell ringers standing at the familiar red kettles in the state are paid workers earning minimum wage, not volunteers.
Because of the dire economy, Salvation Army officials said, the number of applicants has more than doubled. “What has happened this year, like no other year, is that we have had a ton of applications to be workers,” said Major David Dunham, Rhode Island coordinator for the Salvation Army."
A move above the DX 76 would seem to indicate a break above the channel. Looks like the other currencies have passed the buck on the backstretch as they race to valuelessness.
Let's see how good a buying opportunity this gives gold.
Dollar bounce seems to be already over. Market heading up. Wheee....
If you look back at turning points of the dollar over the past year or so, once the dollar changes direction (either way) the US stock market take a few days to a week before also changing direction. While this correlation may be breaking down, I doubt it for now. Everything hangs on the US dollar.
On the longer term, with very notable exceptions, there has been an inverse correlation between the dollar and the US stock market for nearly the past 8 years. Pull up a 10 year chart of the DXY and the US markets. As the dollar has been pounded, the stocks have trended up. Even during the 2008 meltdown, the correlation remained, only in reverse.
While I don't believe in the long term strength of the dollar, don't forget the Europeans are not happy about the weak dollar. Look what it's done to their currency compared to the US. I bet Obama and Baby Ben are getting a bunch of phone calls over the past few months.
I suspect we shall see a stronger dollar for a few months and most likely longer.
I think that correlation (between equities and the dollar) and the lag time you explained has been shortening. That is, the delay hasn't been as extensive. Perhaps the shortening is, in of itself, indicative of a change in trend?
Regardless, I firmly believe that the "stupidness" of the rally is not over. Not until Banana Ben himself signals he's done with ZIRP.
Wrestling match of the day: $ Plunge Enforcement Team vs. Spoos Plunge Protection Team.
Ready .. FIGHT!
Can someone explain why in the first graph DXY is below its 50day mov avg (green line?) for more than 50 days?
Big banx think that BB is going to raise the rates, a joke right?. Why, they don't send memos to their traders as to what is going to happen?you don't think the fed communicates their plans to bank management before taking actions?then you are dreaming. The whole issue I frankly believe has to do with gold more than anything else. But it won't work simply because international traders will switch to gold again after a reasonable drop. I think it was a matter of too soon,too high. But I personally hope it drops sufficiently so at least I could get me some(lol)
I'll glue dollars on my home's walls and sell tickets to watch how a house with dollar walls look like!
?? minus 51 equals -24 ??? I'm still in 1st course!
As expected the USD index daily chart gets more bullish.
My indicators can identify trend changes before they occur.
They warned me of an impending market crash back in early *2007*
http://www.zerohedge.com/forum/market-outlook-0