Best Thread FXCM/DailyFX Signals and Strategies

[Jason Rogers]

Euro Closing in on Potentially Strong Resistance

Written by DailyFX Analyst Jamie Saettele

Watch the EURUSD corrective channel. I am on the lookout for a top from 12675 to 12800.

I wrote Friday that “the structure of the EURUSD rally suggests at least a setback to 12480 as the rally from 12150 is in 5 waves. Still, strength upwards of 12675-12775 cannot be ruled out. 12675 intersects the corrective channel on Tuesday and 12775 (100% extension) on 7/13.” After slipping to 12480, the EURUSD has continued higher and is approaching the mentioned corrective channel. I am on the lookout for a top from 12675 to 12800ish.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary and trades at DailyFX Forex Stream. Send requests to receive his reports via email to [email protected].

 

[Jason Rogers]

Eur/cad

Written by Thomas Long of DailyFX.com

The EUR/CAD remains in a downtrend based on the series of lower highs and lower lows printed since the beginning of 2010.

The pair's move up to the 1.34717 resistance level fell short of a breakout serving as confirmation that the downtrend is still intact. I would continue to look for selling opportunities as long as that resistance level does hold.

 

[Jason Rogers]

Currency Correlations Show Risk Appetite Trends Yielding to Fundamental Concerns

Written by John Kicklighter of DailyFX.com

For the past two years, one of the most common fundamental themes behind the FX market (all capital markets for that matter) is the ebb and flow of investor sentiment. Initially, it was the wholesale withdrawal of speculative capital from the market that would coordinate the movement of all securities and currency pairs that had a clear dependence on yield. Then, from the first half of 2009, with yields and expected returns at extremely depressed levels, the broad reinvestment into the market after the dust cleared would send the same speculative assets into a recovery rally that put traders onto capital returns. These two clear trends were the product of broad market flows that tightened correlations to remarkable levels. However, since the start of the year, it has become more and more clear that the global economy has turned towards recovery and financial stability has tightened significantly. This general assessment helps to curb risk trends and breaks up the correlations based upon that drive. What is left is a market that is far more critical of fundamental health and yield potential amongst specific currencies.

One of the more interesting deviations from the common risk theme this past month is from the dollar itself. Against high-yield currencies, the greenback is still a consistent safe haven currency; but we have seen this role diminished in recent weeks for EURUSD and it has certainly dissipated for more questionable risk-based pairs like USDCHF. A remarkable slip in correlation comes through one-month correlation between EURUSD and USDCHF through June (-0.60). Just a few months ago, this period reading was far greater (above -90) and we can even see over a longer period that the relationship has been far greater (-0.86 over the past year). Part of this can be attributed to the Euro’s own troubles – what may be the next financial crisis – that has lead EURUSD to keep its distance from traditional risk-based pairs like AUDUSD (0.71). At the same time, the risks associated with the US dollar’s financial forecast has increased its perceived dependence on investor sentiment when compared to the traditional funding currency – the yen. In this relationship, we can use the correlation between the USDJPY and AUDUSD over the past month (0.55) and three months (0.64).

 

[Jason Rogers]

Australian Dollar Faces Key Test at Multi-Month Highs

Written by David Rodriguez of DailyFX.com

The Australian Dollar finished the week significantly higher against the US Dollar and took top-performing honors among all G10 currencies, bolstered by similarly impressive rallies in the US S&P 500 and global commodity markets. Large gains were especially impressive given that the risk-sensitive currency finished as one of the worst-performing currencies just one week ago. The sharp shift emphasizes relative indecision across financial markets and warns of further choppiness rolling forward. A relatively empty week of Australian economic data warns that the Aussie Dollar will continue to trade off of shifts in financial market risk sentiment—that which has proven especially unpredictable in the past several weeks of trading.

Australian Dollar traders should keep a close eye on the relative health of key equity indices; whether or not the past week’s rally is the start of a larger recovery or a simple short-term correction will be critical for the AUDUSD. The S&P 500 saw sharp declines as it peaked through mid-April and slid to fresh 9-month lows just two weeks ago. A subsequent correction leaves it considerably off of its trough, but sharp rallies have left it well-short of its secondary top through mid-June. All else remaining equal, bearish medium-term momentum favors Australian Dollar losses. Yet the past week makes it clear that relatively illiquid summer trading conditions can lead to sharp and unexpected price moves in a near-instant.

Given sharply bullish momentum in the very short-term, however, we would not bet against further Australian Dollar recovery just yet. The pair currently trades near its highest levels in two months, and a test of a secondary top near the $0.8860 mark seems likely. Short-to-medium-term direction may very well depend on whether the Aussie Dollar is able to test and break said level. Absent a sharp rally, broader price trends may very well favor another week of declines for the recently-choppy AUDUSD.

 

[Jason Rogers]

Watch the Euro Channel for Direction

Written by Jamie Saettele of DailyFX.com

The EURUSD has failed to reach the 100% extension at 12780 but price remains within its corrective channel. Trading above the channel would turn me bullish against 12520.

 

[Jason Rogers]

Trade of the Day

Written by Joel Kruger of DailyFX.com

GBP/USD: The moves in the currency markets today are being led by some relative strength in the Euro which we feel is nearing overdone as the market fast approaches the 100-Day SMA. Many currencies have been rallying on the Euro’s coattails and with the move seen coming to an end in the very near future, we will look to take advantage by selling the Pound which would be at risk of coming off harder in the event of a Euro pullback. There is some very solid resistance just over 1.5500, and we like the idea of using the daily average true range of 160 points as a means to isolate our short entry levels in anticipation of a resumption of broad based USD buying.

 

[Jason Rogers]

EUR/USD: Weekly Technicals

Written by Jamie Saettele and Joel Kruger of DailyFX.com

Joel: The market continues to surge and has officially closed above the 100-Day SMA for the first time since December of 2009, to potentially warn of a material shift in the construct. Next key levels to watch above come in by 1.3000 and the 1.3090 further up, and given the intensity of the move and close above the 100-Day, we can not rule out the possibility for additional upside towards these levels over the coming sessions. There is no decent support until 1.2700, and a break and close back below this level will be required at a minimum to take the pressure off of the topside.

Jamie: Near term, I expect the EURUSD to work lower to 12870/90 before continuing higher towards 13115/85. Dropping beneath the short term channel support would shift focus to the trendline that connects 12150 and 12520. It is worth noting that daily RSI entered overbought (above 70) territory yesterday.

 

[Jason Rogers]

Markets Await ECB Stress Tests Results

Written by Michael Wright of DailyFX.com

The spotlight this week will certainly be placed on the ECB stress tests results which are expected to be released on July 23rd. As of late, the euro has continued its northern journey on the back of renewed optimism surrounding the potential outcome of these results. However, if the conclusion that surface later on this week is not credible, we may see EUR/USD price action dip back below the 100 day SMA.

Talking Points
• Trichet to Meet with Banks Two Days Prior to Published Results
• Uncertainty About the Consequences Surrounding Failed Tests Remain
• EURIBOR Surpasses 0.80 Percent For the First Time Since August 2009

he result of Europe’s bank stress tests are expected to restore confidence in the financial system this Friday. However, it is not clear whether the outcome will achieve this goal as many details regarding the stress measures lingers. The tests will include 91 banks, with two thirds in the public sector, while the outstanding one third will include banks across the private sector. Furthermore, the number of banks will be comprised of a minimum of 50 percent of the lenders in each country and 65 percent of the sector in the region. Leading up to the highly anticipated announcement, Bloomberg News stated that Hypo Real Estate Holding has failed the Europe wide stress tests. On the other hand, all is supposedly well in Greece according to Finance Minister, George Papaconstantinou as he recently said that all banks in region are expected to pass.

Prior to the release of the results, European Central bank President, Jean-Claude Trichet is rumored to meet with banks on July 21st, according to an article by Reuters. The meeting is expected to discuss the consensus of publicizing the outcomes, and will evaluate whether any of the commercial lenders will need to recapitalize their balance sheets. Indeed, the tests that will be conducted will include a sovereign risk scenario, a baseline macroeconomic forecast for the rest of this year and 2011, and an adverse macroeconomic situation. In particular, the adverse scenario which assumes a 3 percentage point deviation of GDP is of some concern as economic activity may underperform the baseline by more than 3 percent if another slowdown occurs in the region as predicted by many economists as governments scale back stimulus measures to battle the ballooning budget deficits.

Additionally, the “haircut” measures have added additional weight onto the credibility of the stress tests thus far. Haircuts are percentages in which an assets market value will be reduced, regarding capital requirement for those who are exposed to debt in countries like Spain and Greece. There have been rumors circulating by Reuters that Greek debt is expected to be a haircut of 23 percent, but will only pertain to trading books. It is also worth noting that the stress parameters have not been specified of what will occur if banks fail these stress tests. Some analysts speculate that the consequences of a failed outcome will result in a minimum tier one capital ratio.

All in all, as the euro continues its northern journey, despite the pullback in the equity markets and ongoing concerns in the 16 member euro area, we may see the single currency re couple with risk if the scrutiny of European lenders fails to show that banks have enough capital to withstand another shock to the financial system. In turn, if the results are as ghastly as some market participants believe, a flight to safety across all asset classes will likely be the outcome.

The three month EURIBOR rate, one of the euro-zone’s principal money market indicators continues to push higher on the back of credit risk conditions, rather than lack of ECB liquidity. The EURIBOR3MD is fixed at 0.860 percent. The three month euro libor has risen above 0.80 percent for the first time since August 2009.

The euro continues to rally against the U.S. dollar as price action recently broke above the 100-day SMA. As of today, the EUR/USD exchange rate stands at 1.2971 following the massive rally from the yearly low of 1.1876. At the same time, daily studies are showing that the pair is in oversold territory, thus, traders should not rule out the EUR/USD breaking back below 1.29 as we continue to see a lackluster performance in the pair. Additionally, the Purchasing Power Parity now stands at 13.46%, down from its extreme level of 24.35% in the November, a signal that the euro may bottom out in the near term versus the U.S. dollar.

 

[Jason Rogers]

Written by Jamie Saettele of DailyFX.com

“To review, everything from the 2009 low appears to be corrective. The 3 wave rally from 8480 is surely corrective, so there is the possibility that the USDJPY continues lower from here and takes out 8480 (which would mean that what was thought to be a b wave triangle would actually be a series of 1st and 2nd waves).” Near term, the rally from 8626 appears to be a 4th wave (possibly completed at 8760). Favor the downside to a new low (below 8626).

 

[Jason Rogers]

US Dollar Forecast Turns Bearish on Forex Crowd Sentiment

Written by David Rodriguez of DailyFX.com

USDCHF – The ratio of long to short positions in the USDCHF stands at 3.55 as nearly 78% of traders are long. Yesterday, the ratio was at 3.53 as 78% of open positions were long. In detail, long positions are 3.1% lower than yesterday and 1.3% stronger since last week. Short positions are 3.6% lower than yesterday and 8.4% weaker since last week. Open interest is 3.2% weaker than yesterday and 18.0% above its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses.

 

[Jason Rogers]

Elliott Wave: EURUSD

By Jamie Saettele of DailyFX.com

After rallying over 1000 pips from its June low, it may be time for at least a sizeable setback if not a continuation of the larger downtrend. I am watching several intraday channel lines as well as 12725 for support. Staying below 12920 keeps the EURUSD on a path lower, and perhaps in an impulsive manner.

 

[Blaiserboy]

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[Jason Rogers]

DailyFX / FXCM posts some excellent work each day............!!

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Cheers!

 

[Jason Rogers]

Gold Poised to Push Lower as Amid Fading Inflation Expectations

Written by Ilya Spivak of DailyFX.com

- Gold Prices Bounce Bank Despite Investor Liquidation
- Technical Positioning Puts Gold at Key Trend Line Support

Gold may resume downward momentum having consolidated through last week as increasingly lackluster US economic growth outlook weighs on inflation expectations, sapping demand for a hedge against price growth.

Prices appear to have lost their link to underlying risk sentiment, with prices now showing a negligible correlation to the MSCI World Stock Index. However, the relationship with price growth expectations has resurfaced, with the correlation between gold and the US Treasury 10-year breakeven – the spread between nominal and inflation-adjusted 10-year bond yields – rising to the highest in three months on 20-day percent change studies.

Last week, increasingly lackluster US economic data was reinforced by ominous comments from Fed Chairman Ben Bernanke as he delivered his semi-annual testimony to Congress, pushing 1-year rate hike outlook to the lowest in nearly 18 months based on a Credit Suisse gauge of traders’ priced-in expectations. All this translates into a tepid outlook for inflation, with the data set for release in the week ahead promising to further reinforce this view. Indeed, US consumer confidence is expected to drop for the second month to the lowest level in a year, durable goods growth is likely to prove muted, and preliminary GDP figures are set to show the pace of economic growth slowed for the second consecutive quarter in the three months through June. On balance, this promises to weigh on the yellow metal in the days ahead.

 

[Jason Rogers]

Euro Rallies to the Highest Level Since May, Basel Committee Introduces Restrictions

Written by Michael Wright of DailyFX.com

Fundamental Headlines

• Debate Heats Up Over Stimulus Spending – Wall Street Journal
• Stress Tests Appear to Calm Nerves – Wall Street Journal
• Chinese Banks Face State Loans Turmoil - Financial Times
• Stocks, U.S. Futures Climb as UBS Soars; Franc Weakens, Bond Risk Declines - Bloomberg
• Basel Committee Softens Some Banking Capital Rules - Bloomberg

EUR/USD: The Basel Committee announced that it will allow certain assets such as minority stakes in other capital firms to be regarded as capital, and went onto propose a leverage ratio for the first time. At the same time, the panel introduced new restrictions on how much lenders can borrow to rein in on risk-taking. Moreover, heads of supervision agreed to proposals to recalibrate the recent stress tests on the basis of a severe system wide shock, and added that some deferred tax assets are now allowed. It is also worth noting that Germany refused to sign parts of the new Basel accord. Nonetheless, the new rules will not come into force for seven and a half years. Yesterday’s announcement by the Basel Committee comes on the back of 7 out of 91 banks passing the EU’s stress tests, while 6 out of 14 German banks failed to disclose their test details, specifically the breakdown of their sovereign debt holdings. However, the test assumptions did not entail a sovereign default scenario.

Looking at the economic docket from the 16 member euro area, German consumer confidence rose to its highest level since November 2009. The GfK AG in Nuremberg showed that the consumer climate in Europe’s largest economy rose to 3.9 in August from 3.6 the month prior. Today’s data comes on the back of the number of people out of work falling 21K in June, while the unemployment rate remains at the yearly low of 7.7 percent as previously discouraged workers re-enter the workforce. At the same time, Germany’s economy continues to recover as GDP rose 0.2 percent in the first quarter.

Meanwhile, the Euro-zone’s M3 money supply (the broadest measure of money supply by the bloc) unexpectedly advanced an annualized 0.2 percent in June, while the three month average remained flat amid economists’ expectations of -0.2 percent. This reading is of particular importance in that an increase in M3 sometimes leads to price inflation, and is indicative of a likelihood of future interest rates. However, as governments aim to scale back stimulus measures amid ballooning budget deficits, this may in turn lead the bloc into a mild downturn at the end of the year.

 

[Jason Rogers]

U.S. Dollar Forecast To Fall Further Against Euro, British Pound, and Japanese Yen

Written by David Rodriguez of DailyFX.com

Choppy U.S. dollar price action has led to mixed Forex trading crowd sentiment, moderating our conviction in calling for further USD weakness. Our sentiment-based algorithmic trading strategy remains short the U.S. dollar against the British Pound and the euro, while positioning in the USDJPY calls for additional declines as the ratio is up from 3.47 yesterday, and unchanged from last week. Indecisiveness across the FX markets makes it difficult to a make short-term forecast with assurance. However, market participants are sure to keep an eye on further developments as they may prove important in deciding market direction for the greenback.

EURO FORECAST TO GAIN VERSUS U.S. DOLLAR

EURUSD - The ratio of long to short positions in the EURUSD stands at -1.69 as nearly 63% of traders are short. Yesterday, the ratio was at -1.50 as 60% of open positions were short. In detail, long positions are 9.1% lower than yesterday and 2.6% weaker since last week. Short positions are 3.0% higher than yesterday and 28.3% stronger since last week. Open interest is 1.8% weaker than yesterday and 103.9% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

 

[Jason Rogers]

US Dollar Could Be Dragged Lower On Rising Unemployment

Written by John Rivera, DailyFX.com Currency Analyst

The U.S. dollar ended lower for an eighth straight week as concerns over domestic growth and firm risk appetite weighed. Strong corporate earnings and relief that the European bank stress tests were behind us helped push equities higher. Strong housing data also helped spur optimism with new home sales jumping 23.6% but a 1.0% decline in durable goods orders reignited growth concerns for the world’s largest economy. The second quarter GDP reading falling to 2.4% from a revised 3.7% the period prior also added to the dimming outlook for growth. However, the upward revision for the first three months of the year combined with upside surprises in the Chicago PMI and the final reading of the University of Michigan consumer confidence reading helped reverse sentiment but the ensuing risk appetite would weigh on the greenback.

First quarter GDP saw a one percent improvement from its final reading led by a surge in gross private investment from 14.7% to 29.1% as companies increased their purchases of equipment and software. The trend continued in the second quarter with another 28.8% increase helping to offset the slower pace of personal consumption. The improvement in business spending could be a prelude to future hiring, easing concerns over the dearth of consumer spending. However, The Fed's latest beige book report of economic conditions showed improvement in most of its 12 regional districts, but with only modest advances in retail sales and weak numbers in housing and construction. The uneven recovery is expected to keep the Fed on old throughout the remainder of the year, but are they sending the right message. Committee member Bullard expressed concerns that the pledge could end up stalling the economy and leading to deflation.

Monday’s release of the ISM manufacturing index will give a more complete picture of the sector and if early forecasts are any indication then we could see dollar support return on risk aversion. Economists are expecting a decline to 54.0 from 56.2 which should dim the growth outlook and perpetuate the current low yield environment. The main event risk for the week will be Friday’s Non-farm payroll report which is expected to show the economy lost another 60,000 jobs with unemployment rising to 9.6%. Disappointing fundamental data could weigh in the reserve currency unless we see a broader flight to safety lend support. -JR

 

[Jason Rogers]

BoE Leaves Benchmark Interest Rate Unchanged in August

Written by Michael Wright of DailyFX.com

As widely expected, the Bank of England left its key overnight lending rate and asset purchase program unchanged in August. The British pound was relatively unchanged following the rate decision as traders priced in a zero percent chance for a rate hike prior to the decision, according to the Credit Suisse overnight index swaps. Market participants will now shift their focus to the Bank of England minutes which are expected to be released on Wednesday August 18th. Meanwhile, the ECB also kept their benchmark interest rate unchanged, while Jean-Claude Trichet said that the central bank remains cautious.

The BoE kept its bond stimulus plan unchanged at 200 billion pounds ($318 billion), and left its borrowing costs at the record low of 0.50 percent. The decision by the MPC to keep its key policy rate unchanged marks the 17th straight month that rates were untouched. Looking ahead, inflation may ease in the coming months of 2010; however, members of the central bank recently noted that the increase in the value added tax measures which will take place at the beginning of 2011 will likely put upward pressure on consumer prices. Nonetheless, in addition to the BoE minutes on August 18th, traders should not overlook the inflation and output projects on August 11th.

 

[Jason Rogers]

Could Non-Farm Payrolls Fall By 65K?

Written by Michael Wright of DailyFX

Talking Points

• -Census Workers Fell Approximately 149K Between June and July
• -Unemployment Rate Likely to Increase From its Yearly Low
• -ADP Employment, ISM Manufacturing Tops Expectations
• -U. of Michigan Confidence Disappoints
• -Monster.com Employment index Falls to 138

The number of temporary workers census workers dropped approximately 149,000 between the weeks of June and July payroll survey periods. This is of particular importance in that the drop in census workers paired with the fiscal year for many local and state governments will have likely weighed on employment in July. With approximately 20,000 positions lost due to budget cuts, we may see a decline in government jobs of approximately 169,000. On the other hand, the labor force in the private sector is expected to climb some 90,000 (with a 15,000 increase from General Motors not closing down all of their plants in July).

Interestingly, increases in corporate profits have not translated into rising labor demand as companies continue to face tight credit conditions. The situation also highlights the fact that firms are not yet ready to add onto their payrolls as the workweek has further momentum to build with the reading for the month of July is forecasted to rise to a mere 34 and a half hours per week. Going forward, as unemployed workers re-enter the labor force, the unemployment will likely enter the 10.0 percent territory in 2011.
Indeed, unemployed workers recently received an extension in their federal aid. However, policy officials now face the long term issue of the mounting number of jobless workers losing their benefits in the upcoming months. During that time, unwaged persons will seek employment at an antagonistic pace. However, the unwinding of benefits will have the negative spillover effect onto consumer spending, which will likely tumble as a net result of policy actions.

Meanwhile, the less-reliable, ADP employment report topped expectations as figures jumped 42,000 in July amid economists’ forecasts for a 30,000 rise. The breakdown of the report showed that the increase was largely attributed to the rise in hiring by small firms, which may in turn help to alleviate some of the weight of the mass losses amongst manufactures, which slowed to 10.7 percent from 10.8 percent in June. A separate report showed that the University of Michigan rose in July slowed with the gauge of current conditions tumbling to 76.5 from 85.6 in June. Not to overshadow, the ISM employment component showed a considerable increase in July, advancing to 50.9 from 49.7 the previous month. However, weighing on the ISM report is the Monster.com employment index, which slid to 138 in July. This reading is of great importance in that the index measures the overall employee demand from online recruitment activity, reviewing more than 1500 web sites.

All in all, slack in the economy weighed by a weakening labor force will keep a cap on consumer prices as companies will find it substantially difficult to raise prices. Furthermore, leading up to the highly anticipated report, initial jobless claims rose 19,000, and suggests that the labor market has indeed lost steam. In turn, a disappointing employment reading from the world’s largest economy will validate the long EUR/USD technical outlook as optimism in the 16 member euro area continues to gather momentum following the passing of the ECB stress tests results.

 

[Jason Rogers]

Forex Fundamental Trends Monitor

Written by Ilya Spivak of DailyFX.com

Currency markets continue looking to risk appetite to lead exchange rates but the road ahead is clouded after a mixed response to last week’s US jobs report, with traders now focused on the Federal Reserve’s policy announcement amid a search for greater clarity.

Major Currencies vs. US Dollar (% change)​

General Comment:
Risk sentiment remains the dominant driver of currency market price action but the path of least resistance is unclear after last week’s US employment figures produced mixed results, offering little clarity about investors’ assessment of the health of the world’s largest consumer market and, by extension, the continuity of the global recovery. Curiously, the greenback sold off along with stock markets, with traders seemingly more in tune with the disappointing headline figure’s implications for monetary policy rather than the US currency’s safe-haven profile. Stranger still, shares went on to erase most of their initial decline after the Private Payrolls figure printed much closer to expectations than the census-distorted Nonfarm Payrolls outcome, but the greenback remained under pressure and retraced less than half of the initial spike lower.

Looking ahead, a busy week of US economic releases promises to offer greater insight on the trajectory of risky assets. Needless to say, the most important of these will be the Federal Reserve’s interest rate announcement. While markets are unequivocally pricing in no chance of a change in benchmark borrowing costs, traders will doubtless pay close attention to the language of the statement and any clues this offers on where things go from here. On balance, a dovish lean seems likely considering strong evidence that the US economy will slow in the second half of the year. However, with America being seen as the last viable engine of global growth, the outcome may prove supportive for the Dollar amid a return to widespread risk aversion. Indeed, Europe has been sidelined as it deals with its hefty debt burden, Japan remains mired in deflation, and China is willfully pulling on the brakes, spooked by fears of asset bubbles and runaway inflation. Alternatively, an extension of Friday’s dynamics may see USD come under renewed selling pressure as withering rate hike expectations supersede the US currency’s safe-haven allure.