Currencies: 18July Our point yesterday, the possibility of more central bank intervention moving to the back burner, was reiterated in Bernanke’s testimony today. Bernanke has made the point that the U.S. fiscal situation is unsustainable, that the Fed is ready to do more, but that here are economic issues that the Fed can’t really impact.
We continue to offer three points. The last two center on risk management:
The “relief rallies” like this have gotten shorter and shallower in recent weeks and months.
We are taking smaller positions if we have a longer-term view.
We have become more tactical in our shorter-term trading, taking profits quicker and more actively managing our stops.
Aussie: 18July The Aussie continued its positive bias and move to higher levels. New highs and a higher low on the current rally.
Support: 1.0300: Psychological level
1.0280: Intermediate resistance at high trade area from 4/3, 4/12, and 5/1
1.0210: 200-day moving average
1.0170: Rising trend line in place since 01June
1.0100: Rising 21-day moving average
1.0000: Psychological level and 50% retracement of the late April to early June decline.
0.9906: -2STD below 21-day moving average
0.9565: 01June low, traces back to support from last November.
Resistance: 1.0325: Late April highs for September contract.
1.0353: +2STD above 21-day moving average (1.0130)
1.0422: 27Apr high.
Comment: The Aussie bounced off its 200-day moving average, pulling the 21-day along with it, resuming the collision course.
Support has been consistently found at the rising 21-day, ever since the Aussie broke out above on 06June. This pattern has resulted in a series of higher highs and lows that has been in place since 01June. Our Momentum indicator is back to positive and holding on, as last week's dip below the lower boundary of the rising channel (from the 01June recent low) was short -lived.
Seasonal Snapshot (cash): The 5-year pattern’s upward bias extends until the end of July.
The 15&30yr patterns fall out of bed throughout the rest of the month.
The BOE minutes indicated the vote was 7-2 inn favor of QE move of additional asset purchases. Lack of actual movement has the Pound currently not able to make a new high and it hasn’t violated the declining trend line from settlements dating back to the 6/15 peak.
Support: 1.5591: 21-day moving average.
1.5500: Psychological level and support level since 6/13
1.5426: -2STD below 21-day moving average
1.5267: 01June low
1.5222 09Jan low
1.5179: Oct 2011 low
Resistance: 1.5748: 200-day moving average
1.5755: +2STD above the 21-day moving average and 6/20 high (1.5760)
1.5800: Psychological level and support from late March through mid-April. This is also near the 50% retracement of the late April thorough late May sell-off.
Comment: The wide consolidation that has been in place since May's losses has rendered our technical indicators unstable.
Watch the previous series of highs, as well as the 200-day moving average, which has offered stiff resistance sine the Sterling fell below in late May: once in mid-June and again in early July.
Seasonal Snapshot (cash): All three patterns are in an upward bias until 25July.
Canadian 18July With the BOC rates remaining relatively higher, the rally in the Loonie continues.
Support: 0.9880: 50% retracement of the May to June decline.
0.9805: 38.2% retracement of the May to June decline.
0.9780: 21-day moving average.
0.9690: Lower boundary of rising channel in place since 01June
0.9665: -2STD below 21-day moving average.
0.9554: 04June low
Resistance: 0.9885: 05July high and 200-day moving average.
0.9895: +2STD above 21-day moving average.
0.9910: Upper boundary of rising channel in place since 01June.
0.9935-0.9945: Low of Feb-Apr consolidation.
Comment: Much like the Aussie$, the Loonie has registered a pattern of higher highs and lows since bottoming 01June. Watch the 200-day moving average, as well as the recent highs after our Momentum indicator turned back last week's attempt to go negative. Today’s action lows held above the recent settlement support level (above 0.9835). The bulls continue to win the day.
Seasonal Snapshot (cash): The 5yr decouples from the longer-term patterns and continues higher until 25July.
Dollar Index: 18July
Support: 83.07: 28June high.
83.00: Lower boundary of a bull flag formation
82.75: 21-day moving average
81.32: -2STD below the 21-day moving average and 15June low
81.025: 21May low
79.95: 200-day moving average
Resistance: 83.56: settlement resistance from 7/6-7/10
83.67: 01June 2012 & 23Aug 2010 high.
83.85: Upper boundary of a bear flag formation.
84.18:+2 STD above the 21-day moving average and rising trend line from the 09Jan high through 01June high.
85.10: Rising trend line from the Oct 2011 high (80.45) through the 13Jan high.
88.80: 07June 2010 high.
90.35: 38.2% retracement of the July 2001 to April 2008 decline. The market came close to this level twice: Mar 2009 (89.71) & June 2010 (88.80)
Comment: While the technical shift toward a positive bias remains at risk, the recent weakness has come on trending lower Volume. This essentially sets the table for a bull flag formation. Projected from either the 15June low (81.25) or the 29June low (81.56), a break out above the upper boundary targets the 86.00 level.
We remind readers that downside risks include plenty of gaps to fill all the way down to 79.615 (04May). Is it a coincidence that the –2STD below the 21-day moving average that we tout so much lies right in this zone…?
Our currently “middling” RSI could support the case for either scenario.
Seasonal Snapshot: The 5yr’s weakness until early Aug is much more pronounced than the 15&30yr’s consolidation with a downward bias.
Euro-FX: 18July With the markets waiting for the end of the Bernanke semi-annual congressional testimony, the Euro’s day ended near where it started.
Support: 1.2288: 01June low
1.2200: Lower boundary of a bull flag formation.
1.2125:-2STD below 21-day moving average
1.2000: Psychological level
1.1874: June 2010 low
1.1415: Falling trend line support back to 18Apr 2011 low.
Resistance: 1.2325: Upper boundary of a bull flag formation.
1.2400: Psychological level
1.2417: 28June low.
1.2450: 21-day moving average.
1.2750: 18June high.
1.2775: +2STD above 21-day moving average and falling trend line resistance back to 29Aug 2011 high.
1.2826: 21May high.
Comment: A somewhat similar chart pattern, but in reverse, of the Dollar Index. The recent consolidation with an upward bias has the makings of a bull flag formation. Today’s range classifies as an inside day with a lower high and higher low. The falling volume points to the indecisiveness.
The EuroFX has eased off the falling –2STD Bollinger Band to the downside and, thus, developing Oversold conditions.
Keep risk controls tight. High Volatility should handicap option purchase strategies. We would advocate building longer-term short positions on rallies with mini's (EU62,500 per contract) or even micro's (EU12,500 per contract):
Seasonal Snapshot: All three patterns are heading higher until 20July when a wide consolidation range starts.
Yen: 18July To follow up on last week's accommodative action, choosing to keep rates unchanged, but expanding their asset purchase program... the BOJ releases their meeting minutes this evening.
Support:1.2665: 29June high and upper boundary of recent consolidation.
1.2585: 21-day moving average
1.2453: -2STD below the 21-day moving average
1.2435: 16May low
1.2415: 25June low
1.2233: 20Apr low
1.1879: 15Mar low
Resistance: 1.2703: 200-day moving average
1.2717: +2STD above 21-day moving average
1.2800: Upside target for the ascending triangle formation. Lows from the 25June low, upper boundary is the multiple, unsuccessful attempts to break out above 1.2650-70.
Comment: A rejection of the probe above our noted horizontal trend line also keeps the Yen A sustained break out above this level, forming the upper boundary of its recent consolidation range and an ascending triangle formation, targets the previous highs at 1.2729 (15June). Ultimately 1.2800.
Seasonal Snapshot: All three patterns consolidate with an upward bias until 20July.
Disclaimer: The information presented in this report is taken from sources we believe to be reliable and accurate. This information is not guaranteed as to accuracy or completeness. The opinions expressed are based on our best judgment at the time of writing and are subject to change without notice. These opinions should not be construed as an inducement or advice to enter into any Futures or Options on Futures transaction except where explicitly stated. There is risk of substantial loss in trading futures and options. One's financial suitability should be considered carefully before placing any trades. Past performance is not indicative of future results.